Oregon's Medicaid Fraud Unit Settles Medicaid Rebate Cases with Merck

Under the settlements, Merck will pay a total of $649 million in restitution, penalties and interest to the States and federal government to settle the cases.

Vioxx is one of the killer medications produced by Merck.

(SALEM- Ore.) - Attorney General Hardy Myers today announced that the State of Oregon Medicaid Program will receive approximately $1.75 million as part of two national settlements with Merck & Co., Inc. The settlements involve 49 states, the District of Columbia and the federal government.

Merck is the manufacturer of the drugs Zocor, Vioxx, and Pepcid. The agreements with Merck resolve allegations that the company failed to pay rebates due state Medicaid Programs under the Federal Medicaid Drug Rebate statute.

The settlements also resolve claims filed by whistleblowers in the United States District Court for the Eastern District of Pennsylvania, United States ex rel. H. Dean Steinke v. Merck & Co., Inc., (U.S. Dist. Ct. No. 00-6158 [E.D. PA]), in the United States District Court for the District, Nevada State of Nevada ex rel. H. Dean Steinke v. Merck & Co., Inc., (U.S. Dist. Ct. No. CV-N-05-322 [D. Nev.]), and in the United States District Court for the Eastern District of Louisiana, United States ex rel. William St. John LaCorte, M.D. v. Merck & Co., Inc., (U.S. Dist. Ct. No. 99-3807 [E.D. LA]).

Pharmaceutical manufacturers that supply products to Medicaid recipients are required by the Federal Medicaid Drug Rebate law to give the Medicaid Programs the benefit of the "best price" the manufacturers make available for those products. The manufacturers are required to file information regarding the "best price" offered for their products with the Centers for Medicare and Medicaid Services (CMS).

This information is then used to calculate rebates to be paid by these manufacturers to the state Medicaid Programs. In general, the lower the "best price", the higher the rebate obligation.

The federal law requires the "best price" reported by the manufacturers to include discounts. However, prices that are considered "merely nominal" are exempted from the reporting requirement. "Nominal" is generally defined as a price discount of 90% or more. The states have maintained that to qualify for the "nominal" price exception for best price reporting, the discounted price must not be tied to any conditions, such as volume purchase requirements or market shares.

The cases that were pending in Pennsylvania and Nevada involve the SAVE and VIP programs, two Merck discount programs wherein Merck allegedly exploited the nominal price exception as a marketing tool. The SAVE program (Simvastatin Acute-care Value Enhancement program), involved the drug Zocor, and the VIP program (Vioxx Incentive Program) involved Vioxx.

At the heart of each program was an agreement that Merck would sell the drugs to hospitals at a 92% discount from the catalog price, if the hospitals reached certain market shares for the drugs.

Because the 92% discounts were conditioned on the hospitals’ volume purchases to reach certain market shares, the states contend that the resulting discounted prices were not "merely nominal".

Therefore, the states contend that Merck was required to report these discounted prices to CMS, and that their failure to do so resulted in Merck’s failure to pay accurate rebates to the state Medicaid Programs.

The case in Louisiana involved Merck’s drug Pepcid, and another discount program, Flex NP. Under this program, Merck sold various formulations of Pepcid to hospitals in bundled pricing arrangements. In exchange for the hospital meeting a certain market share or other purchase requirements, Merck gave hospitals an array of discounts of up to 92% on Pepcid tablets, and lesser discounts on other types and formulations of Pepcid.

According to the states, the transactions under the FLEX NP Program constituted "bundled sales" which required Merck to adjust "best price" among the different formulations to reflect these discounts. The states contend that Merck’s failure to reflect these discounts in their "best price" reports resulted in Merck’s underpayment of Medicaid Drug rebates to the state Medicaid Programs.

Under the settlements, Merck will pay a total of $649 million in restitution, penalties and interest to the States and federal government to settle the cases. The settlement recoveries were apportioned based on actual Medicaid payments and rebates for the drugs at issue; in essence, controls within the Oregon Medicaid Program on pharmaceutical payments impacted Oregon’s monetary recovery from the cases.

In addition to the monetary recovery, Merck has entered into a Corporate Integrity Agreement which includes provisions to ensure that Merck markets, sells and promotes its products in accordance with all Federal health care program requirements. Merck did begin voluntary compliance initiatives associated with sales and marketing activities prior to learning of the government’s investigation of the conduct associated with these settlements.

"This is a significant case for our Medicaid Fraud Unit and the Medicaid Program," said Attorney General Myers. "This case should send a message to all pharmaceutical companies that this office will not tolerate rebate avoidance through creative interpretation of rules for the purpose of advancing pharmaceutical marketing programs."