Merck & Co. has agreed to pay more than $671 million to settle a pair of whistleblower lawsuits that claimed the company used improper marketing tactics, including kickbacks to doctors, to encourage them to write more prescriptions for its most profitable drugs, like Vioxx, Zocor and Singulair.
The two settlements were announced by federal prosecutors in Philadelphia and New Orleans.
A settlement of almost $400 million in the Philadelphia case stems from a seven-year investigation that began when H. Dean Steinke, a former Merck district sales manager, blew the whistle by filing claims under the False Claims Act that alleged Merck was using several illegal marketing practices.
Steinke – who was represented by attorneys Steven H. Cohen of Chicago, BethAnne Yeager of Madison, Wis., and Mark Kleiman of Santa Monica, Calif. – will be paid a reward of nearly $44.7 million, prosecutors said.
The $250 million settlement of the Louisiana case stemmed from a whistleblower suit brought by William St. John Lacorte, a physician who alleged that Merck gave steep discounts for Pepcid to hospitals that agreed to primarily use Pepcid instead of competitor drugs.
Prosecutors said both settlements include interest that will boost Merck’s total payout to $671 million.
Under the terms of the Philadelphia settlement, federal agencies will receive $218 million and the 49 states with Medicaid programs and the District of Columbia will share $181 million.
The Louisiana settlement is similarly divided, with $137.5 million for the federal government and $112.5 million for the states. LaCorte’s reward from the Louisiana settlement has not yet been decided, prosecutors said.
Merck, in a statement released yesterday, said it had admitted to no wrongdoing and that the company “believes its pricing and sales and marketing policies and practices were consistent with all applicable regulations and contracts during the relevant time.”
The statement also said that the marketing practices at issue in the suits had ended in 2001.
“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 and bring these matters to closure.”
Eastern District of Pennsylvania U.S. Attorney Patrick Meehan said in a statement: “We are heartened when providers recognize problems and act affirmatively and comprehensively, as Merck did, to improve the systems they have to reduce fiscal demands upon federal and state health reimbursement.”
Meehan said Merck had cooperated with the federal investigation of its pricing, sales and marketing practices, and had significantly altered its physician remuneration sales practices and its compliance program even before learning of the investigation.
The Louisiana suit alleged that the Pepcid discounts defrauded Medicaid because drug manufacturers are required to file quarterly reports of the “best price” paid for drugs – a figure that is used to calculate the Medicaid reimbursement rate.
By failing to disclose the discounts it was giving to hospitals, the suit alleged, Merck maintained an artificially high best price and was therefore paid a higher price through Medicaid.
The suit said Merck avoided its duty to report the discounts by relying on the “nominal price exception” in the Medicaid statute that allows manufacturers to give discounts to nonprofit organizations, like Planned Parenthood, without including those transactions in its calculation of its best price.
In the Philadelphia suit, Steinke also alleged that Merck was abusing the nominal price exception by giving steep discounts to hospitals so long as they purchased set amounts.
The suit alleged that Merck excluded the large discounts by claiming that any discount of more than 90 percent qualified for the nominal price exception.
But Steinke’s lawyers said the legislative history of the Medicaid statute shows that the nominal price exception was intended to protect only special purchasers, like penny-a-pack birth control pills sold to Planned Parenthood.
Steinke’s suit also accused Merck of paying kickbacks to doctors under the guise of marketing training programs such as “preceptorships,” in which physicians were paid to allow a Merck sales rep to “shadow” them for half a day, and “tutorials,” in which doctors were paid to listen to a Merck employee’s presentation and then evaluate it.
The suit said one physician was paid 22 times by Merck, at $250 a session, and seven times at $300 a session, for preceptorships.
Steinke’s suit also alleged that Merck treated high-prescribing physicians to lavish vacations that the company termed “consultant meetings.”
One such consultant meeting was held in September 1998 at the luxurious Crystal Mountain Resort in Thompsonville, Mich., the suit said.
During the event, the suit said, doctors were asked to serve as a Merck representative training consultant and to evaluate the sales message of Merck sales reps. In return, Merck paid each physician a $500 honorarium for the training and consultative services, Friday and Saturday nights’ lodging expenses and an additional $100 for incidental expenses.
The Associated Press contributed to this report.