CORPORATE CRIME REPORTER
Merck
to Pay More than $650 Million to Resolve Zocor, Pepcid False Claims Charges
22 Corporate Crime Reporter 6, February 7, 2008
Merck & Company will pay more than $650 million to resolve allegations that
the pharmaceutical manufacturer failed to pay proper rebates to Medicaid and
other government health care programs and paid illegal remuneration to health
care providers to induce them to prescribe the company’s products.
The allegations were brought in two separate lawsuits filed by whistleblowers under the False Claims Act.
Attorney General Michael B. Mukasey called it “one of the largest healthcare fraud settlements ever achieved by the Justice Department.”
H. Dean Steinke, a former Merck employee, alleged in his suit filed in Philadelphia that Merck violated the Medicaid Rebate Statute in connection with its marketing of its drugs Zocor and Vioxx.
Zocor is a cholesterol lowering drug and Vioxx, pulled from the market by Merck in September of 2004, was used for the treatment of acute pain and in the treatment of arthritis.
Merck allegedly offered deep discounts for the two drugs if hospitals used large quantities of those drugs in place of competitors’ brands.
The Medicaid Rebate Statute requires that drug manufacturers report their “best prices” and other cost information to the government in order to ensure that Medicaid obtains the benefit of the same discounts and price concessions that other purchasers enjoy.
An exception to this rule allows manufacturers to exclude from the prices they report any discounted prices that are “nominal” in amount.
Merck improperly termed as “nominal” the prices it offered to hospitals to boost their sales and excluded those discounts from the prices it reported to the government.
Steinke’s lawsuit alleged that Merck had approximately fifteen different programs used by its sales representatives to induce physicians to use its many products.
These programs primarily consisted of excess payments to physicians that were disguised as fees paid to them for “training,” “consultation” or “market research.” In fact, the government alleged that these fees were illegal kickbacks intended to induce the purchase of Merck products.
Merck
agreed to pay $399 million plus interest to settle the Medicaid Rebate as well
as the kickback allegations.
A separate lawsuit, filed by physician William St. John LaCorte in New Orleans,
alleged that Merck had established a marketing scheme in which it provided substantially
reduced prices for its Pepcid products once the hospitals agreed to primarily
use the drug instead of a competitor’s.
Pepcid is used to reduce stomach acid and to treat heartburn and acid reflux.
Merck allegedly offered these incentives to hospitals in order to obtain the benefit of spillover business when patients would continue to purchase Pepcid once he or she was discharged.
Merck improperly termed as “nominal” the prices it offered to hospitals to boost the sales of Pepcid, excluded those discounts from the prices it reported to the government, and thus effectively denied the government the benefit of these lower prices.
Merck
will pay $250 million plus interest to settle these allegations.
Under the two settlement agreements, the federal government will receive more than $360 million, and forty-nine states and the District of Columbia over $290 million.
Steinke will receive $44,690,000 from the federal share of the settlement amount and an additional $23.5 million from the states.
Dr. LaCorte will receive a share of the proceeds from the federal and state settlement amounts under their respective qui tam statutes.
“Our health insurance programs rely upon the integrity of health providers, including pharmaceutical manufacturers, when they report to the government programs which reimburse their products and services with scarce funds,” said Patrick L. Meehan, U.S. Attorney for the Eastern District of Pennsylvania, whose office led the investigation of the Steinke matter.
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