Healthy Skepticism Library item: 12772

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Publication type: news

Cohen R.
Merck to pay $650 million to settle Medicaid overcharges case
The Star Ledger 2008 Feb 8
http://www.nj.com/business/index.ssf/2008/02/merck_to_pay_650_million_to_se_1.html

Full text:

Pharmaceutical giant Merck & Co. will pay more than $650 million to settle allegations that it overcharged Medicaid for prescription drugs and paid kickbacks to health-care providers to prescribe its medications, the Justice Department said yesterday.

U.S. Attorney General Michael Mukasey said the recovery represents “one of the largest health-care fraud settlements ever achieved by the Justice Department.” He said the government will “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.”

Ron Rogers, a spokesman for the Hunterdon County-based drugmaker, said the settlement does not constitute an admission of any liability or wrongdoing.

The case stemmed from two lawsuits filed by whistleblowers under the False Claims Act and then pursued by federal prosecutors. One of the cases was initiated by a former Merck employee who stands to pocket $68million for alerting the government to the company’s conduct.

The settlement is the latest in a string of cases since 2003 in which the government has reclaimed more than $5 billion after accusing major drugmakers of systematically bilking government health-care programs. Last September, Bristol-Myers Squibb agreed to pay $515million to avoid charges of improper conduct involving pricing and promotional activities for a long list of medications.

The Justice Department has said it is looking at about 150 other cases, now under court seal, of alleged drug company misconduct involving billions of dollars in overcharges.

Pat Burns, a spokesman for Taxpayers Against Fraud, a nonprofit group dedicated to combating government fraud, said the pricing and kickback schemes by drugmakers have inflated government health expenditures and resulted in the use of higher-cost drugs rather than lower-priced generic medicines.

“This is a good day for consumers and for the taxpayers,” he said.

Rogers said Merck believes its pricing, sales and marketing practices were consistent with all regulations and contracts at the various times cited in the two lawsuits, from 1996 to 2006.

Rogers said the company had a fundamental disagreement with the government over the interpretation of the rules but ultimately decided to “resolve the lengthy investigation and bring the matter to a close.”

He noted that Merck announced in December it would take a $670 million charge in the fourth quarter in anticipation of the settlements. That disclosure helped explain Wall Street’s tepid reaction to yesterday’s announcement. Shares of Merck fell just 1 cent, to $45.70.

Under the two settlement agreements, the federal government will receive more than $360 million, and 49 states and the District of Columbia more than $290 million. New Jersey Attorney General Anne Milgram said the state will receive $7.4 million in restitution.

“This civil settlement returns millions of dollars to the New Jersey Medicaid program to fund health-care services and prescription drugs for persons who otherwise might not be able to afford them,” she said.

‘VERY GRATEFUL’%%esource%% %%bodybegin%%Drugmakers are required by law to offer to Medicaid, the federal and state health-care program for the poor, the same discounts they offer to big managed-care plans and hospital chains.

In one of lawsuits, former Merck district sales manager H. Dean Steinke alleged the company violated the Medicaid rebate law in connection with its marketing of its cholesterol drug Zocor and the now-withdrawn painklller Vioxx.

The suit, filed in 2000 in Philadelphia, further alleged that Merck had about 15 programs to induce physicians to use its products, many of them involving kickbacks that were disguised as fees paid to physicians for training, consultation or market research.

Merck agreed to pay $399 million plus interest to settle the allegations contained in Steinke’s lawsuit.

Steinke will receive $68 million for his efforts, the Justice Department said. Under the False Claims Act, whistleblowers are given a percentage of any award, as an incentive to disclose wrongdoing and help the government prosecute the case.

Steinke’s award ranks in the top 20 out of some 1,000 resolved false claims cases, according to Taxpayers Against Fraud. Steinke, who lives in Baroda, Mich., could not be reached for comment.

“He’s a private person and has no desire to talk publicly,” said Michael Behn, one of Steinke’s lawyers in Chicago. “He’s very grateful. Seven years is a long time out of his life, but a short time for all the money put back into the system for health care.”

A separate suit filed by a physician, William St. John LaCorte of New Orleans, alleged that Merck had established a marketing scheme in which it reduced prices to hospitals for its Pepcid heartburn and acid reflux medicine once the hospitals agreed to primarily use the drug instead of a competitor’s.

The suit said Merck excluded those discounts from the prices it reported to the government, and thus denied the government the benefit of those lower costs. Merck agreed to pay $250 million plus interest to settle those allegations.

LaCorte will receive a still-undetermined share of the proceeds from the federal and state settlement amounts under their respective false claims laws.