Thursday, August 31, 2006
An earlier post (here) discusses the settlement between federal prosecutors and Schering-Plough related to Medicare and Medicaid fraud in the pricing of certain drugs produced by the company and possible kickbacks paid to doctors. Rather than enter a deferred prosecution agreement, which is more the norm these days, a subsidiary, Schering Sales Corporation, entered a guilty plea to conspiracy to make a false statement to the FDA and will be barred from participating in federal health care programs, a virtual death penalty for a drug provider. While that sounds like a rather draconian collateral consequence from the conviction, I think looks are a bit deceiving here. Only the subsidiary entered the guilty plea, not the parent, and so only Schering Sales will "suffer" the debarment from federal programs. A Wall Street Journal story (here) quotes a spokesman for Schering-Plough stating that the subsidiary "is an entity whose sole purpose is to plead guilty in these matters" -- a good thing to have lying around in case you get in trouble, just throw a subsidiary on to the fire. If that's the case, and Schering-Plough can forge ahead by creating a new sub -- a remarkably easy process that can be done in a few minutes over the Internet -- to take over Schering Sales' functions, then the guilty plea and program bar are much less than they appear.
While the government gets to count the guilty plea when it compiles statistics regarding corporate and health care prosecutions, and can tout the bar as proof that it will take drastic action against offenders, Schering-Plough is largely unaffected by settlement, except of course for paying out $435 million, including $180 million as a criminal fine. The fine doesn't help the bottom line, but then that seems to be the least of the company's worries because its press release noted that it had already set up a reserve for the costs of the settlement. At the end of basketball games when one team is way ahead, some players will take advantage of "garbage time" to pad their stats. Is the government doing the same thing here, making the settlement with Schering-Plough look tougher than it really is? (ph)