Schering-Plough Corp. (SGP) agreed to pay $346 million to settle charges that it overcharged for drugs sold through Medicaid, the company announced Friday.

The pharmaceutical company said it would also plead guilty to a separate federal criminal charge over a payment to a managed-care customer.

Federal law requires drug makers to give their lowest prices to Medicaid (search), the government's health program for the poor, but a group of whistle-blowers accused the company of giving some private health-care providers better deals through under-the-table "patient education" grants.

Federal prosecutors in Philadelphia began investigating the allegations in 1999 as part of a broad inquiry into pharmaceutical marketing practices. the annual gross sales of Schering drugs to the HMO.

Pat Meehan, U.S. attorney for eastern Pennsylvania, said his office's pursuit Schering-Plough should serve as an example that illegal marketing practices can be costly.

"Schering used terms like 'data fee' and 'value added' as camouflage for what was nothing more than an old-fashioned kickback," Meehan said in a statement. "This wasn't a mistake. It was a marketing strategy. The result was that programs created to provide health care to the poorest among us were actually paying more for drugs than those who have private health insurance."

Federal investigations in Philadelphia, Boston and Washington have resulted in subpoenas to nearly every big drug maker. Bayer has paid $257 million and GlaxoSmithKline (GSK) has paid $86.7 million to settle similar allegations.

Schering-Plough, based in Kenilworth, N.J., said it would pay a criminal fine of $52.5 million and civil damages of $293 million. Some of those damages will be offset by credits for $53.6 million in Medicaid rebates that the company previously paid.

"We are pleased that we are now putting this matter from the past behind us," company Senior Vice President Brent Saunders said.

Schering-Plough shares were up 8 cents at $19.61 on the New York Stock Exchange (search).