Merck Resolves Claims of Fraudulent Price Reporting and Kickbacks Alleged in Coordinated Federal-State InvestigationFebruary 19, 2008
On February 7, 2008, the U.S. Department of Justice announced that Merck & Company, Inc. (“Merck”) agreed to pay more than $650 million to settle allegations that the company failed to pay proper rebates to Medicaid and paid illegal remuneration to health care providers to induce prescriptions for the company’s products. The allegations arose out of lawsuits brought by a former Merck employee and a Louisiana physician under the Federal False Claims Act ("FCA") and state false claims laws. The FCA allows for private individuals to file a qui tam or whistleblower suit on behalf of the government. Many state false claims laws have similar whistleblower provisions. As part of the settlement agreement, one of the whistleblowers will receive approximately $68 million. The other whistleblower will receive $24 million of the Federal government’s settlement and an undisclosed share of the states’ proceeds.
In the first lawsuit, with respect to which Merck agreed to pay $399 million plus interest, H. Dean Steinke, a former Merck district sales manager, alleged in civil actions filed in Pennsylvania and Nevada that Merck instituted programs throughout the country designed to induce physicians to prescribe the company’s products over those of competitors in violation of federal and state anti-kickback laws and “best price” requirements under the Medicaid Rebate Statute. Merck’s alleged fraudulent and illegal practices included paying physicians for unnecessary preceptorships and tutorials for Meck sales representatives; paying physicians to participate in bogus “clinical experience” studies and focus groups; paying speaker fees; offering free gifts to physicians who attended promotional programs; and offering unrestricted grants for computer systems and other benefits to physicians who supported Merck products.
Merck also allegedly offered deep discounts to hospitals for ZOCOR and VIOXX but only if they met certain performance levels by using these drugs over competing products. Merck excluded these discounts from its determination of Medicaid Rebate best price under a statutory exception for “nominal prices” – i.e, prices that are less than 10 percent of the company’s weighted average price to wholesalers and retailers – thereby avoiding substantial Medicaid Rebates. However, the government contended that these pricing schemes did not qualify for the nominal price exclusion, presumably because they were linked to market share performance.
In a separate suit filed by Louisiana physician William St. John LaCorte, and with respect to which Merck agreed to pay $250 million plus interest, Merck was similarly alleged to have provided deep discounts on its PEPCID products to hospitals and other healthcare institutions in return for commitments to switch patients from competing products. As with ZOCOR and VIOXX, Merck allegedly failed to include the PEPCID discounts in Medicaid Rebate best price, and the government considered the nominal price exception inapplicable.
As part of the resolution of the cases, Merck and the Office of Inspector General (“OIG”) of the Department of Health and Human Services entered into a Corporate Integrity Agreement for five years. Among other things, the Corporate Integrity Agreement requires Merck and an Independent Review Organization to conduct annual reviews of the company’s Medicaid Rebate policies and procedures, and requires an IRO to conduct reviews of the company’s promotion and product services activities, such as promotional programs, speaker programs, consultancies, and grants.