Merck Pays $650 Million to Settle Fraud/kickback Allegations

"Snitch" Program Pays Off for Taxpayers

Merck will pay the federal government $650 million in order to quell allegations that the New Jersey-based drug-maker failed to pay rebates to Medicaid while simultaneously giving illegal kickbacks to doctors for prescribing their products.

The settlement marks a victory for the U.S. Department of Health and Senior Services and the Justice Department.

"Not only is the combined recovery in these two cases one of the largest healthcare fraud settlements ever achieved by the Justice Department," said Attorney General Michael B. Mukasey in a press release, "it reflects our continuing effort to hold drug companies accountable for devising pricing schemes that deliberately seek to deny federal health care programs the same lower prices for drugs that are available to other commercial customers."

As part of the settlement, Merck does not admit wrong-doing.

Most of this money is to settle allegations from a former employee and revolve around the cholesterol-lowering drug Zocor and Vioxx, a painkiller that was pulled from the shelves in Sept. 2004 and was the source of over 10,000 lawsuits.

Pharmaceutical companies are required to notify Medicaid of the best available pricing for their medications. The goal is to ensure the federal program pays the best prices for medications. However, the federal government alleges that Merck avoided reporting certain price breaks.

In addition, Merck allegedly had around 15 separate programs used by sales representatives as means of rewarding physicians for prescribing their products. Most of these schemes were set up as "fees" paid to the doctors for "training" provided to Merck.

To settle these allegations, Merck will pay $399 million plus interest.

A third allegation was filed by a New Orleans physician related to the anti-heartburn drug Pepcid. When a hospital would agree to prescribe this Merck product over its competitors, the company slashed the prices to the hospital. Then, when a patient returned home, they would continue to use the product at full price and Merck profited off this business.