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Merck Vioxx Scam Costs Drug Maker $650 Million

Feb 8, 2008 | Parker Waichman LLP More legal troubles for Merck, the maker of such controversial drugs as Vytorin and Vioxx.  Yesterday, Merck—the country’s third-largest drug maker—agreed to pay over $650 million to settle charges it routinely overbilled the government for two of its most popular medicines:  the arthritis drug Vioxx and the cholesterol drug Zocor.  The Merck scam cheated Medicaid out of millions of dollars in discounts over an eight-year period by giving drugs to hospitals at huge discounts—92 percent—so that poor patients would be hooked on the expensive medications.  When leaving hospitals, patients would continue taking the expensive drugs, but with Medicaid paying the higher cost.  The Merck settlement is one of the first in a series of cases against drug makers allegedly using unfair pricing practices to swindle the government.  The Justice Department is looking into 630 such claims, being called “whistleblower claims.”

Merck used a legal loophole known as nominal pricing that Congress created a generation ago to provide poor patients access to medicine.  Merck and industry experts argued that the strategy fell within the law and helped reduce costs for many government-funded hospitals; however, prosecutors said Merck used the discounts to beat out competition, offering massive markdowns to hospitals that agreed to put its medicines on a preferred drugs list or to prescribe them for as many as three-quarters of eligible patients; in some cases, hospitals favored Merck's drugs over cheaper generics.  Merck did not offer Medicaid the same discounts and the law requires the government be charged no more than other customers.  "The company perceived a loophole and tried to drive through that loophole," said L. Timothy Terry, who leads Nevada’s Medicaid Fraud Control Unit and who played a central role in the case.

Patrick Burns, a spokesman for Taxpayers Against Fraud, a nonprofit group supporting the pursuit of these types of cases, said the settlement calls attention to an improper business strategy used by as many as a dozen other drug companies.  "Your first shot is for free, and after that it becomes more expensive . . . not to the hospital but to Medicaid, which is paying the bill."

H. Dean Steinke, a district sales manager for Merck sparked the investigation when he noticed Merck was using questionable sales tactics.  Steinke will receive about $68 million from the settlement as a whistleblower reward and said he was prompted to alert authorities when his supervisor told him:  "I don't care how you do it, but get the damn business," when he questioned Merck’s sales practices.

The Merck settlement is one of the largest health-care fraud recoveries and simultaneously closes another, related case in which Merck overcharged for the antacid, Pepcid.  William St. John LaCorte, a New Orleans doctor who questioned Pepcid charges, will receive a yet-to-be-determined share of the settlement.

Merck did not admit wrongdoing saying while it stands by its pricing strategies it wanted to resolve the disputes.  Merck agreed to increased oversight by regulators for five years as part of the deal.

Merck also remains the focus of another grand jury investigation related to Vioxx marketing and is striving to execute another multibillion-dollar settlement of thousands of lawsuits filed by people who had heart attacks after taking Vioxx.

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