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USA TODAY 8/15/2004

Schering, Bayer, Pfizer: Drug companies dodge ban from Medicare, Medicaid

The government has yet to use its power to bar major drug companies that commit fraud from doing business with federal programs such as Medicaid and Medicare.
A 1996 law mandates exclusion from federal health care programs for those who plead guilty to, or are convicted of, felony health care fraud after Aug. 21, 1996. But since 2001, at least four major drug companies, including two recently, avoided that penalty under settlements with prosecutors.

• In July, the government reached a $345 million settlement with Schering-Plough over charges that private insurers were charged much lower prices on Claritin than the government was. The guilty plea was entered by an inactive Schering-Plough sales subsidiary with no employees where the fraud occurred. It's excluded from federal programs, but the parent company's products are not.

• In May, Pfizer's Warner-Lambert division agreed to $430 million in fines and pleaded guilty to illegally marketing the drug Neurontin "through at least August 20, 1996" - one day shy of the law's trigger date for mandatory exclusion. Prosecutors alleged the misconduct occurred later, too.

• TAP Pharmaceuticals in 2001 and Bayer in 2003 pleaded guilty to illegal acts before August 1996, although prosecutors also alleged later misconduct. If the pleas had covered that, the companies "likely would" have been subject to exclusion, the Department of Health and Human Services says.

"The settlements are structured very carefully to avoid mandatory exclusion," says John Bentivoglio, a former Justice Department lawyer who represents health care companies. The argument is that 80 million poor and elderly clients in Medicaid and Medicare would suffer by losing needed drugs, especially those made by just one company.

"We cannot exclude them, we're dependent on them," says Timothy Jost, health law professor at Washington and Lee University. He says big fines might be a better way to punish wrongdoing.

But prosecutors can unfairly threaten to use the penalty to win big settlements because exclusion from the huge federal programs "is a death sentence," says attorney C. Boyden Gray, partner at Wilmer Cutler Pickering Hale and Dorr.

The 2003 settlement of medical device maker Abbott Laboratories shows how creative settlements can be. Abbott, as did the other companies, denied the civil charges in its fraud case. But it agreed to a $600 million in fines and one of its units, CG Nutritionals, pleaded guilty to obstructing a federal probe. CG was excluded from federal programs. But the manufacturer of infant formula never did business with them.

The exclusion law has largely been used against direct providers of health care, such as doctors and nurses, since its adoption in 1977. It was amended in 1996. The exclusion penalty might be harder to avoid as prosecutors dig into post-1996 conduct. "At some point, they're going to have to pull the trigger to show they'll do it," says Patrick Burns of Taxpayers Against Fraud.
By Julie Schmit,