Merck to pay $671 million to settle federal/state fraud charges
In case anyone had lingering doubts about Merck [NYSE:MRK], the embattled maker of Vioxx is in the news again. This time for agreeing to pay a $671 million to federal and state prosecutors for allegedly overcharging government programs for four drugs — Zocor, Mevacor, Vioxx and Pepcid, and for bribing doctors to prescribe certain drugs. This is one of the largest health care fraud settlements to date.
An Associated Press article reports the details:
Drug companies must report to the government the lowest price for their medicines to ensure that Medicaid programs get the same discounts or rebates on drugs they buy. Prosecutors said Merck was hiding steep discounts – up to 92 percent off the average price – it gave hospitals that used a set amount of Merck products.
From 1997 to 2001, prosecutors said Merck had about 15 different programs used by its sales representatives to give doctors and other health professionals “illegal kickbacks,” disguised as fees for training or consultation, to induce them to prescribe Merck drugs.
The Philadelphia case involved pricing programs for the cholesterol drugs Zocor and Mevacor and the painkiller Vioxx, which Merck pulled from the market in September 2004 because Vioxx doubled the risk of heart attack and stroke. Those programs ran from 1996 through 2006, Rogers said.
The Louisiana case involved pricing for heartburn drug Pepcid, from mid-1996 to April 2001, when it was sold only by prescription.
Merck, of course, denies it did anything wrong:
“What we have here is a disagreement (over) the rules of the Medicaid rebate program,” said Merck spokesman Ronald Rogers. “These civil settlements were the best and most appropriate way to resolve these lengthy investigations.”…
“At the time that these pricing programs were in place, Merck believes that it acted in good faith and complied with the regulations that were in place at the time,” Rogers said.
The settlement announced late yesterday concerns conduct that took place from 1997 to 2001. Thus, we’re talking about things that happened a very long time ago – 7-11 years ago, to be precise. Cases like this are brought under the False Claims Act, which allows “whistleblowers” (known as false claims or qui tam relators) who have information about companies that are defrauding the government to bring a lawsuit on behalf of the government to recover the amounts that were illegally charged. False Claims Act cases are “under seal” for several years while the Justice Department decides whether to “intervene,” that is, whether to enter — and largely take over — the case on behalf of the government. Then the investigation usually takes several more years, and negotiations with the defendants can take yet several more.
So, even when you have a situation like this, in which a drug company has to pay hundreds of millions of dollars, it’s only years after the conduct in question took place. It begs the question of how to make the process move more quickly, so that the fear of federal investigations and penalties can actually have a deterrent effect on drug companies’ behavior.
The Pennsylvania case whistleblower’s attorneys have set up their own website, describing the case and the settlement, drugfraudsettlement.com. Their press release describes what they say is a unique feature of this case:
Aside from the huge settlement, the second largest FCA civil fraud Medicaid recovery, the case marked new ground with a collaborative investigation model that saw the relator and his lawyers work closely with state and federal Government investigators to press the case. This new investigative model, [whistleblower lawyer] Cohen said, “will become the basis for future qui tam whistleblower investigations, especially in an age of shrinking government budgets.”
Merck reportedly will be bound by a Corporate Integrity Agreement as well, although no details of that agreement seem to be yet available. Corporate Integrity Agreements are frequently a feature of False Claims Act settlements, and usually require defendants to agree to set up “compliance programs” to train employees in how to comply with federal law and monitor that they are doing so.