The alleged overcharges, dating back to the mid-1990s, involved Medicaid programs in the District of Columbia and every state but Arizona, as well as federal health-insurance programs at agencies including the Department of Defense and Veterans Administration.
A nationwide investigation by federal prosecutors, triggered in 2000 by a former Merck salesman-turned-whistleblower and broadened by a Louisiana doctor who also exposed overcharging, resulted in two settlements announced Thursday.
In Philadelphia, prosecutors said Merck agreed to pay $399 million for improper calculation of Medicaid rebates and bribing doctors. In New Orleans, prosecutors said the drugmaker agreed to pay $250 million for its rebate practices. With interest, that totals $671 million.
"Not only is the combined recovery in these two cases one of the largest health care fraud settlements ever achieved by the Justice Department, it reflects our continuing efforts to hold drug companies accountable for devising pricing schemes" that overcharge the government, said Attorney General Michael D. Mukasey.
The settlement is the third largest ever for health care fraud, behind a $900 million case involving hospital operator Tenet Healthcare Corp. and a $730 million case involving hospital chain HCA, according to the group Taxpayers Against Fraud.
Whitehouse Station, N.J.-based Merck said the settlements do not constitute an admission of any liability or wrongdoing.
"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."
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.
"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.
Federal prosecutors said Merck ended those practices and started a program to comply with government pricing rules in 2001, before learning prosecutors were investigating allegations raised in 2000 by former Merck salesman H. Dean Steinke.
Steinke filed a whistleblower lawsuit in federal court in Philadelphia and notified the U.S. attorney's office there of his allegations of Merck overcharging the government and giving doctors improper payments, said Virginia Gibson, chief of the office's civil division.
About four years later, Steinke filed a similar whistleblower lawsuit in Nevada, where the U.S. attorney's office there instituted its own probe. Massachusetts, Delaware and Illinois also joined in.
Meanwhile, Dr. William St. John LaCorte, a geriatrics specialist, sued Merck in late 1999 after discovering that some of his patients, while hospitalized, had been switched to Pepcid from other heartburn drugs he prescribed.
According to Mukasey's office, the federal government will receive more than $360 million out of the total settlement, and more than $290 million will go to the states and District of Columbia. Steinke will get $67 million from the federal and state shares, and a still-undetermined whistleblower reward will go to LaCorte.
When Merck reported its fourth-quarter financial results Jan. 30, they included a $671 million charge for the anticipated resolution of federal and state civil probes into past sales and marketing practices, as the deal's final details were being worked out.
Merck shares fell 1 cent to $45.70 Thursday. The shares have traded in a 52-week range of $42.32 to $61.62.
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Associated Press writers Patrick Walters and Maryclaire Dale in
Philadelphia and Janet McConnaughey in New Orleans contributed to
this report.
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On the Net:http://www.merck.com
