Merck & Co. to pay $650 million in lawsuits

Merck & Co. will pay more than $650 million to resolve two whistle-blower lawsuits alleging the company illegally paid providers to use its products and gave hospitals volume discounts for Zocor, Vioxx and Pepcid while failing to extend the prices to Medicaid, the U.S. Justice Department announced. The allegations were brought in two separate lawsuits filed by whistleblowers under the qui tam, or whistleblower, provisions of the False Claims Act.

A former Merck employee, alleged in a 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 suit further alleged that from 1997-2001, 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.” The government alleged that these fees were illegal kickbacks intended to induce the purchase of Merck products. Merck agreed today to pay $399 million plus interest to settle the Medicaid Rebate as well as the kickback allegations.

In a separate suit filed by a physician in New Orleans, it was 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 agreed today to 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. The former Merck sales manager is set to receive about $68.2 million from the $399 million payout from his lawsuit, which drew the aggressive participation of Nevada’s Medicaid Fraud Control Unit in addition to the U.S. Justice Department. The other whistle-blower, the New Orleans physician, likewise will receive a share of the $250 million related to his allegations. As part of the resolution of these two cases, the Department of Health and Human Services Office of Inspector General (HHS-OIG) and Merck have entered into a five-year Corporate Integrity Agreement to ensure that such improper conduct does not occur in the future.