April 27, 2010 -- Pharmaceutical giant AstraZeneca will pay $520 million in fines to settle charges by the federal government that it illegally marketed the anti-psychotic drug Seroquel to children and elderly patients for uses not approved by the Food and Drug Administration.

AstraZeneca, one of the country's biggest drug firms, allegedly pulled in hundreds of millions of taxpayer dollars through Medicare and Medicaid kickbacks and scams. Seroquel is used to treat schizophrenia in patients older than 13, and bipolar disorder in patients older than 10.

The FDA approved Seroquel to treat only psychotic disorders, specifically short-term treatments of schizophrenia, bipolar mania and bipolar depression. The government claims that AstraZeneca intentionally marketed the drugs -- by paying kickbacks to doctors -- for a variety of illnesses for which it had never been tested, including aggression, Alzheimer's, anger management, anxiety, attention-deficit hyperactivity disorder, dementia, depression, mood disorder, post-traumatic stress disorder and sleeplessness. It was given to the elderly, children, veterans and inmates, who were treated as "guinea pigs," according to the acting U.S. attorney for the Eastern District of Pennsylvania.

Under the Food, Drug and Cosmetic Act, pharmaceutical firms must specify the intended uses of a medicine in its new drug application. Before a drug is approved, the FDA determines that it is safe and effective for the use proposed by the company. Once approved, the drug may not be marketed or promoted for off-label uses.

The whistleblower who reported the alleged fraud will get more than $45 million as a reward, according to sources.

Of the money AstraZeneca pays, the federal government will get $302 million, and states will share up to $218 million. The company also faces multiple other lawsuits over Seroquel, which is one of its best-selling drugs.

"These were not victimless crimes -- illegal acts by pharmaceutical companies and false claims against Medicare and Medicaid can put the public health at risk, corrupt medical decisions by health care providers, and take billions of dollars directly out of taxpayers' pockets," Attorney General Eric Holder said today at a news conference announcing the settlement.

AstraZeneca denied the charges but its general counsel, Glenn Engelmann, said in a statement that moving forward and resolving the case was "in the best interest" of the company.

"While we deny the allegations, AstraZeneca takes its obligations very seriously under its agreements with the government," Engelmann said. "The company is committed to meeting the expectations and obligations of a leading biopharmaceutical company, while continuing to provide valuable medicines to millions of patients."

This is not the first case of such abuse and it's unlikely to be the last because the settlements are usually "chump change" for such firms, said John Abramson, clinical instructor at Harvard Medical School and author of "Overdo$ed America: The Broken Promise of American Medicine."

"As long as the rewards are greater than the penalties for this kind of scientific misrepresentation and fraud, it will continue," he said. "The pharmaceutical industry is playing hardball and they're willing to accept these as long as there are no individual criminal penalties or the financial penalties are so high that shareholders would revolt when these cases of fraud and misrepresentation are settled."

AstraZeneca Faces Seroquel Lawsuits

AstraZeneca paid $355 million in 2003 after pleading guilty to charges that it encouraged physicians to illegally request Medicare reimbursements for its cancer drug Zoladex, and bribed doctors to buy it.

Other drug giants have also been embroiled in similar controversies and have admitted to using illegal marketing tactics. In March, Pfizer was told to pay $142.1 million for violating U.S. racketeering law by illegally promoting its epilepsy drug Neurontin for non-authorized illnesses. Pfizer also agreed in September to pay $2.3 billion for not branding its anti-inflammatory drug Bextra and promoting it for uses other than those specified on the label.

That case became the biggest health care fraud settlement ever. Eli Lilly agreed in January 2009 to pay $1.4 billion for promoting its anti-psychotic drug Zyprexa for uses not approved to by the FDA.

Experts said one of the key challenges is that the current law doesn't require pharmaceutical firms to disclose their research and data. So even if they have knowledge that a particular drug is more harmful than originally thought, they may not disclose it.

Because of that, even when pharmaceutical companies find problems with a particular medicine, "they continue to push the drug aggressively and hope they can make a billion dollars before someone finds out," said Jerome Kassirer, professor at Tufts University School of Medicine in Boston.

"When you think about the extent of the money involved in these settlements, it's relatively modest," Kassirer added. "When you think about the total worth of the companies, they can shake off a settlement like this without much in the way of influence on their bottom line or their stock prices. That's one of the reasons why they keep doing this."

Another problem is that because this data is not available to doctors, many of them can easily be duped without realizing they are being manipulated.

The company targeted its illegal marketing of Seroquel towards doctors who do not typically treat schizophrenia or bipolar disorder, such as physicians who treat the elderly, primary care physicians, pediatric and adolescent physicians, and in long-term care facilities and prisons, according to the charges. Some doctors were paid cash, others were sent to lavish resorts to encourage them to market and prescribe the drugs for unapproved uses.

"It's an enormous problem and it's much more than a financial problem," Harvard's Abramson said. "The real issue is that doctors are being manipulated in prescribing very potent medicines. ... The real issue is the consequences to people's health."