Merck to pay $650M to settle fraud case

February 7, 2008 10:20:36 AM PST
Pharmaceutical giant Merck & Company will pay more than $650 million, settling allegations that it overpriced drugs sold to Medicaid and other government healthcare programs, as well as paid kickbacks to health care providers in exchange for prescribing the company's medications.

Merck provided discounts to doctors and hospitals, provided they bought large quantities of well-known drugs Zocor and Vioxx instead of competing medications, according to allegations in one of two separate lawsuits brought by whistleblowers.

Zocor is a cholesterol-lowering medication, and Vioxx, which Merck pulled from the market in September 2004, was prescribed to treat arthritis and acute pain.

The same discounts were not passed on to millions of patients on the rolls of Medicaid and other government healthcare programs, the suit, filed in Philadelphia by former Merck employee H. Dean Steinke alleged.

The Medicaid Rebate Statute, which requires drug makers to report "best prices" to the government so government health programs are able to receive discounts that are available to consumers not receiving government aid. According to the Justice Department, Merck used an exception to that rule, for "nominal" discounts, to cover up substantial discounts offered to hospitals.

The doctors who participated in the overpricing scheme allegedly received millions in illegal kickbacks, according to Steinke's suit.

His suit also alleged that from 1997-2001, the company maintained numerous sales programs that disguised excess payments to physicians as compensation for "training," consultation" or "market research."

Merck agreed to pay $399 million plus interest to resolve both the Medicaid Rebate and kickback allegations.

"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.

Meehan's office handled the investigation into Steinke's allegations.

Another whistleblower suit, filed in New Orleans by William St. John LaCort, a physician, alleged Merck carried out a similar reduced-price scheme for its Pepcid medications, which treat stomach acid, heartburn and acid reflux issues.

The drug maker agreed to pay $250 plus interest to resolve those claims.

"Particularly in the wake of Hurricane Katrina, it is critical that precious government resources not be lost to fraud and abuse," said Jim Letten, the U.S. Attorney for the Eastern District of Louisiana, which handled the LaCort case.

The settlement agreements will provide $360 million to the federal government, and 49 states and the District of Columbia will share more than $290 million.

Under the whistleblower statutes, Steinke will receive more than $68 million, and LaCorte will also receive a portion of the state and federal settlement money.