Merck fined $650 million for fraudulent price reporting

Under two whistleblower settlement agreements, the Merck Company will pay more than $650 million to the U.S. Department of Justice and 49 individual states.

The pharmaceutical manufacturer was accused of failing to pay proper rebates to Medicaid and other governmental healthcare programs and making illegal payments to healthcare providers to induce them to prescribe the company's products, the Justice Dept. said.

"Not only is the combined recovery in these two cases one of the largest healthcare fraud settlements ever achieved by the Justice Dept., it reflects our continuing effort to hold drug companies accountable for devising pricing schemes that deliberately seek to deny federal health care programs the same lower prices for drugs that are available to other commercial customers," said Attorney General Michael B. Mukasey.

The allegations were brought in two separate lawsuits filed by whistleblowers under the qui tam, or whistleblower, provisions of the False Claims Act.

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 Zocor and Vioxx. Merck reportedly offered deep discounts for the two drugs if hospitals used large quantities of those drugs in place of competitors' brands, officials claimed.

According to the Justice Department, the Medicaid Rebate Statute requires drug manufacturers to report their "best prices" and other cost information to the government, 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 suit further alleged that from 1997-2001, Merck had approximately 15 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."

The government considers these fees to be illegal kickbacks, intended to induce the purchase of Merck products.

Merck agreed to pay $399 million plus interest to settle the Medicaid Rebate and kickback allegations, officials said.

A second suit, filed by physician William St. John LaCorte in New Orleans, alleged that Merck established a marketing scheme in which it provided substantially reduced prices for its Pepcid products if a hospital agreed to use the drug instead of a competitor's.

Merck was said to have offered these incentives to hospitals in order to obtain the benefit of spillover business when patients continued to purchase Pepcid after being discharged. Law enforcement officials said 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 agreed to pay $250 million plus interest to settle these allegations, officials stated.

In addition to the settlement money 49 states and the federal government will receive, Steinke will receive $44.69 million from the federal share of the settlement amount and an additional $23.5 million from the states, and LaCorte will receive a share of the proceeds from the federal and state settlements under their respective qui tam statutes, officials said.

"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 E District of Pensylvania, whose office led the investigation of the Steinke matter.