Philadelphia is a hotbed for drug-industry whistleblower lawsuits

When three employees of a Schering-Plough Corp. subsidiary became convinced a decade ago that the company was committing fraud, they hired a lawyer and eventually ended up working with federal prosecutors in Philadelphia.

The result, in 2004, was a civil and criminal settlement totaling $345 million, resolving allegations that company officials overcharged the government for the allergy medicine Claritin.

It was among the first mega-cases brought against the pharmaceutical industry under what is known as the whistle-blower law. And for the U.S. Attorney's Office for the Eastern District of Pennsylvania, the case marked its emergence as a prime adversary of the industry.

Including the Schering case, the office has recovered nearly $4 billion from drugmakers since then, according to a summary released by the office last week. That's nearly a quarter of the total recouped from the industry by all state and federal prosecutors during that period, as tallied in a recent report by the nonprofit group Public Citizen.

"The Philadelphia office is considered one of the premier offices in the country for handling these kinds of whistleblower claims," said lawyer Steven J. Engelmyer, who helped represent the three employees of the Schering subsidiary.

The U.S. Attorney's Office for the District of Massachusetts is the other chief center for such cases, recovering even more - $6.5 billion - during the same period.

It's no surprise that the two offices play a lead role, as Boston and Philadelphia are hubs of the life-sciences industry. But cases involving national misconduct can be brought anywhere, so there are other factors in that kind of success, said Engelmyer - himself a former prosecutor in the Philadelphia office in the 1980s.

Speaking of that office, he said: "Bottom line, they've got a combination of people who know the area. They've devoted the resources to understand it and do it right. And success begat success."

Both nationally and in Philadelphia, the big-pharma settlements were nonexistent more than a decade ago, according to Justice Department statistics.

Asked about the reason for the increase, a lawyer with an industry group issued a statement describing companies' efforts to comply with the law. Fifty-five drug companies have signed a code that denounces improper marketing practices, according to Diane Bieri, general counsel of Pharmaceutical Research and Manufacturers of America.

"Our member companies devote significant resources to internal compliance programs and thorough investigations of any reported misconduct - activities that complement the government's enforcement efforts," Bieri said. "However, we can't speculate on trends in legal actions."

Sidney M. Wolfe, a physician and director of Public Citizen's health research group, said that the fines and penalties were not enough and that companies treat them as a cost of doing business.

He said the amounts should be equal to any profits that arise from illegal practices, whether overcharging the government or promoting drugs for "off-label" uses - those not sanctioned by the Food and Drug Administration.

"If they're going to get fined or assessed less than they made, they'll do it again," Wolfe said, adding that another deterrent would be to put executives in prison.

A clear driver of the upsurge in cases came in 1986, when Congress amended the False Claims Act to strengthen incentives and legal protections for whistleblowers - employees who allege that their company is involved in wrongdoing. The original law was passed during the Civil War to guard against dishonest defense contractors, but it had fallen into disuse after being gutted in the 1940s.

Companies that settle such cases have not necessarily done anything wrong. But if they choose to fight, they run a huge risk: If they lose, they can be banned from selling their products to the government.

Whistleblower cases have led to the bulk of the settlements won by the federal prosecutors in Philadelphia since 2004.

The total settlements against pharmaceutical makers and benefits managers represent more than the total haul for any other seven-year period in office history, officials said.

Margaret Hutchinson, chief of the office's civil division, said the office's accumulated expertise in dealing with the industry had played a big role.

"We certainly have, I would like to think, a very strong reputation for taking these allegations very, very seriously," Hutchinson said.

Whistleblowers receive a portion of civil settlements. In the Schering case, the three employees split $31.7 million. But Engelmyer, their attorney, cautioned that coming forward takes a lot of courage, because it is not always successful and because those who take the risk can find themselves unable to find a job in their industry.

All three of his clients had moved on from the Schering subsidiary by the time the complaint was unsealed. Engelmyer said he had had little contact with his former clients in the last few years.

But at least one of them, Charles Alcorn of Reading, apparently came away from the experience with a greater appreciation for the legal system.

He went to law school.