Important note: Information in this article was accurate in 2005. The state of the art may have changed since the publication date.
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Wall Street Journal - September 22, 2005
David Armstrong, david.armstrong@wsj.com and Rachel Zimmerman, rachel.zimmerman@wsj.com
The settlement is close to being finalized and could be announced within a week, according to these people. They say the likely outcome is one in which the Swiss company will agree to pay a criminal fine of about $145 million, and a civil fine of over $300 million to the federal government to settle charges that Serono defrauded Medicaid, the joint federal-state health-insurance program for the poor.
State governments are expected to split a second civil fine of about $250 million, according to these people, who say the final numbers are still being negotiated and could change somewhat.
They also say the agreement is likely to be structured so that Serono can continue to be paid for its products under Medicaid, similar to terms reached last year when the government settled with Pfizer Inc. and one of its units over off-label marketing of the epilepsy drug Neurontin. Admissions of criminal wrongdoing could otherwise disqualify health-care providers from receiving reimbursements from government health insurers.
The settlement sizes up as the third-largest in the government's efforts to curb fraud against its health-insurance programs, according to Taxpayers Against Fraud, a Washington group that supports whistleblowers who bring cases under the federal False Claims Act. The law provides rewards for informants who help the government recover funds.
Serono set aside $725 million in April for an anticipated settlement. A company spokeswoman declined to comment on any settlement negotiations or terms.
At least five former employees of Serono are expected to receive a payment for their roles as whistleblowers in the case. The whistleblowers, based on formulas in state and federal false claims laws, are expected to receive as much as $70 million of the settlement amount. A Los Angeles AIDS group has also filed a whistleblower claim in the case, which has been disputed by the former employees.
The investigation of Serono was led by the U.S. Attorney in Boston, whose office declined to comment. Serono's U.S. headquarters is in Rockland, Mass.
The drug was approved by the Food and Drug Administration in 1996 to treat AIDS wasting -- or rapid weight loss by those afflicted with the immunological disease. But after the drug was approved, Serono encountered a marketplace where the number of wasting cases was declining, and the lives of AIDS patients were reprieved, thanks to new medicines.
According to government charges in related criminal cases against former Serono employees, the company launched an aggressive marketing campaign to get doctors to prescribe the expensive treatment, which could run as much as $80,000 a year.
One campaign was labeled the "$6 million, 6 day plan" and was targeted at top-prescribing doctors. The goal was to get those doctors to agree to write prescriptions totaling $6 million during an intensive sales blitz by the company over six days. To induce the doctors, the company offered free trips to an AIDS conference in Cannes, France -- valued at $5,000 to $10,000, according to allegations made in federal court in Boston.
Five former sales representatives have been indicted for allegedly offering kickbacks to doctors. At least one is cooperating with investigators, according the court records.
Another cooperating witness is the owner of a Michigan company indicted for conspiracy earlier this year. According to court records, the company helped Serono market a device under the premise that it could diagnose AIDS wasting. But the device wasn't approved by the FDA for diagnosing the condition, and the government alleges it was used as tool to promote prescriptions of the drug.
The two settlements that exceed the Serostim agreement under discussion include the $875 million that TAP Pharmaceutical Products Inc. agreed to pay in 2001 over alleged abuses in marketing its prostate-cancer drug Lupron. In 2003, hospital chain HCA Inc. concluded a settlement totaling $1.7 billion over charges that it paid kickbacks to doctors, among other alleged violations. HCA did not admit wrongdoing with respect to some of the charges.
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