joint venture of Abbott Laboratories (news/quote) and Takeda Chemical Industries agreed yesterday to pay $875 million to settle criminal and civil charges that it had illegally manipulated the Medicare and Medicaid programs.

The settlement against the joint venture, TAP Pharmaceutical Products, is the largest for health care fraud.

Prosecutors contended that sales representatives for TAP gave doctors free samples of Lupron, a drug used to treat prostate cancer and infertility, and then helped them get government reimbursements at hundreds of dollars for each dose.

Prosecutors also indicted six current and former employees of TAP — including Alan MacKenzie, now the president of Takeda Pharmaceuticals North America — charging them with conspiracy to pay kickbacks to doctors if they prescribed Lupron. The kickbacks included trips to resorts, medical equipment and money offered to the doctors as "educational grants," prosecutors said.

Takeda Pharmaceuticals is the American subsidiary of Takeda Chemical Industries of Japan. Abbott Laboratories is based in Abbott Park, Ill.

The investigation began more than four years ago after Douglas Durand, a former vice president for sales at TAP, and Dr. Joseph Gerstein, a urologist employed by the Tufts Associated Health Maintenance Organization in Waltham, Mass., separately told federal officials about what they believed were illegal sales practices on the part of TAP.

After starting to work with federal investigators, Dr. Gerstein met with TAP sales representatives who offered him $65,000 in grants that they said he could use for any purpose if he would reverse his decision to have his health maintenance organization use only Zoladex, a less expensive drug that competes with Lupron.

Dr. Gerstein, Mr. Durand and Tufts are to share roughly $95 million of the settlement for serving as whistleblowers under federal law.

The settlement agreement, which had been expected for months, comes as other drug companies are under scrutiny for similar practices.

Bristol-Myers Squibb (news/quote) and Schering-Plough (news/quote) have said they are being investigated by the same prosecutors in Boston who announced the settlement with TAP yesterday. Those investigations also involve questions about how the companies marketed and priced drugs covered by Medicare. Both companies said yesterday that they had done nothing wrong.

Michael J. Sullivan, the United States attorney for Massachusetts, said at a news conference in Boston yesterday that the settlement and indictments sent "a very strong signal to the pharmaceutical industry."

"These types of behavior are not tolerated," Mr. Sullivan said, "and are going to be investigated, even if it takes four and a half years to bring to conclusion."

The $875 million settlement is more than the $840 million paid last year by HCA-the Healthcare Company, the large hospital chain, to settle health care fraud charges. It is also more than TAP's sales of Lupron last year, which were about $800 million.

Thomas Watkins, the president of TAP, which is based in Lake Forest, Ill., said yesterday that the joint venture "fundamentally disagreed" with most of the prosecution allegations, but had decided to settle the case because the government had threatened to stop all federal reimbursements for Lupron. Those reimbursements accounted for about $450 million of the drug's sales last year, he said.

"We could not afford to have this drug denied to our patients," he said.

Mr. Watkins added that the availability, safety and effectiveness of Lupron was never a question in the case.

He said that TAP admitted it provided free samples of Lupron to a number of physicians, primarily in the early to mid-1990's, knowing that the doctors would seek reimbursement from the federal government.

"The billing for free samples is wrong, and it should never have happened," Mr. Watkins said. "We have taken strong action so that this inappropriate marketing practice will never happen again."

Takeda Pharmaceuticals said that Mr. MacKenzie had decided to take a leave of absence from the company to focus on his defense against the government's charges.

"We fully support him in his belief that he will be exonerated," said Matt Kuhn, a Takeda spokesman, "and we look forward to his return."

Medicare now covers a very limited number of drugs. Most of them are products like Lupron, which must be administered by a physician.

Pharmaceutical companies supply doctors with drugs to give Medicare patients, and Medicare then repays the doctors based on a price provided by the companies called the "average wholesale price."

The government charged TAP with inflating that price so that doctors could be reimbursed more than TAP actually charged them for the drug. The excessive government reimbursements were cited by sales representatives, the government said, as a way to get doctors to prescribe Lupron rather than its lower-priced competitor.

In addition, since the government pays just 80 percent of the price of the drug, and patients pay the rest, prosecutors said that TAP had defrauded hundreds of elderly Medicare patients, mostly men suffering from prostate cancer, by inflating Lupron's average wholesale price.

At least one lawsuit has been filed against TAP to recover the excessive payments by patients.

The government has also charged five doctors with health care fraud in the case. Prosecutors said that those doctors had conspired with the company to receive excessive Medicare reimbursements. Four of those doctors were charged months ago and all have pleaded guilty to the charges. The fifth doctor was indicted yesterday.

As part of yesterday's settlement, TAP also agreed to comply with a 33- page "corporate integrity agreement." The document requires TAP to train its employees in the proper methods of promoting and marketing drugs covered by federal health programs. The agreement also requires TAP to accurately report its true average sales price for Lupron and other drugs to the Medicare and Medicaid programs.

The company would be forced to pay a fine of $2,500 for each day it fails to comply with the agreement, which is effective for the next seven years.

Charles S. Prouty, special agent in charge of the F.B.I. in New England, which was part of the investigation, said that other cases were still going forward and would result in "very significant settlements."

Medicare frauds, he said, "are an insidious kind of white-collar crime, and we have made some serious inroads in attacking them."