"Combating health care fraud is one of this administration's top priorities," Associate Attorney General Thomas Perelli said in announcing the settlement. He said it illustrates ways the department "can help the American public at a time when budgets are tight and health care costs are rising."
The overall settlement is the largest ever paid by a drug company for alleged violations of federal drug rules.
The government said the company promoted four prescription drugs, including the pain killer Bextra, as treatments for medical conditions different than those the drugs had been approved for by federal regulators.
Use of drugs for so-called "off-label" medical conditions is not uncommon, but drug manufacturers are prohibited from marketing drugs for uses that have not been approved by the Food and Drug Administration.
A Pfizer subsidiary, Pharmacia and Upjohn Inc., which was acquired in 2003, has entered an agreement to plead guilty to one count of felony misbranding.
"These agreements bring final closure to significant legal matters and help to enhance our focus on what we do best - discovering, developing and delivering innovative medicines to treat patients dealing with some of the world's most debilitating diseases," said Amy W. Schulman, senior vice president and general counsel of Pfizer.
Authorities said Pfizer's salesmen and women created phony doctor requests for medical information in order to send unsolicited information to doctors about unapproved uses and dosages.
Justice officials discussed details of the deal at a news conference with FBI, federal prosecutors, and Health and Human Services Department officials.
In financial filings in January, the company had indicated that it would pay $2.3 billion over allegations it had marketed the pain reliever Bextra an possibly other drugs for medical conditions different than their approved use. The settlement announced Wednesday also covered Pfizer's promotions of three other drugs: Geodon, an anti-psychotic, Zyvox, an antibiotic, and Lyrica, an anti-epileptic.
Under terms of the settlement, Pfizer must pay $1 billion to compensate Medicaid, Medicare, and other federal healthcare programs. Some of that money will be shared among the states: New York, for example, will receive $66 million, according to the state's attorney general, Andrew Cuomo.
"Pfizer ripped off New Yorkers and taxpayers across the country to pad its bottom line," Cuomo said. "Pfizer's corrupt practices went so far as sending physicians on exotic junkets as well as wining and dining health care professionals to persuade them to prescribe the company's drugs for patients in taxpayer-funded programs."
Pfizer spokesman Chris Loder confirmed Wednesday that the $2.3 billion charge to the company's earnings had been taken in the fourth quarter of 2008.
"No additional charge to the company's earnings will be recorded in connection with this settlement," he said.
In her statement, Schulman said: "We regret certain actions taken in the past, but are proud of the action we've taken to strengthen our internal controls and pioneer new procedures so that we not only comply with state and federal laws, but also meet the high standards that patients, physicians and the public expect from a leading worldwide company dedicated to healing and better health."
"Corporate integrity is an absolute priority for Pfizer," she said, "and we will continue to take appropriate actions to further enhance our compliance practices and strengthen public trust in our company."
When Pfizer originally disclosed the settlement figure, it also announced plans to acquire rival Wyeth for $68 billion. That deal, which would bolster Pfizer's position as the world's top drug maker by revenue, is expected to close before year's end.
Shares of Pfizer were up 9 cents at $16.47 in early trading Wednesday.
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AP Business Writer Linda A. Johnson in Trenton, N.J. contributed to this report.
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