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In the largest ever healthcare fraud settlement by the U.S. Department of Justice, pharmaceutical manufacturing giant Merck & Company will pay approximately $671 million to resolve allegations of fraudulent activity in connection with Medicaid and other government related health care programs and illegal payments made to other health care providers to induce them to use its products.

Resolution comprises two lawsuits

The resolution comprises two separate lawsuits – one filed by a former Merck employee and one by a doctor who did business with the company. The Department of Justice provided the details of both lawsuits in a press release on its website (www.usdoj.gov/):

Steinke lawsuit

The first lawsuit, filed by former Merck employee H. Dean Steinke, alleged that the company violated the Medicaid Rebate Statute (MRS) in connection with its marketing of Zocor and Vioxx and offered deep discounts for the two drugs if hospitals used large quantities of them in place of competitors’ brands.

The MRS requires drug manufacturers to report their best prices and other cost information to the government. Manufacturers are allowed to exclude any discounted prices that are nominal in amount. Merck used this to its advantage and improperly termed some of those prices as being nominal, offered them to hospitals in order to boost their sales, but excluded the discounts from what it reported to the government.

The lawsuit also alleged that Merck used its sales representatives to induce physicians to use its products in the form of kickbacks that were disguised on the books as “training”, “consultation” or “market research.” In fact, the government alleged that these fees were illegal kickbacks intended to induce the purchase of Merck products. Merck will pay $399 million plus interest to settle the lawsuit filed by Steinke – who will receive over $44 million under qui-tam, or whistle blower, statutes.

LaCorte lawsuit

The second lawsuit, filed by Dr. William St. John LaCorte, was similar in nature – but involved a different drug. The suit alleged that Merck & Company reduced prices on Pepcid products if hospitals agreed to use the drug over competitors’ products. The company also alleged that Merck violated the MRS in this situation as well. Merck will pay $250 million plus interest to settle this lawsuit filed by LaCorte – who will receive over $23 million under qui-tam statutes.

In addition to the payments, Merck was required to enter into a five year corporate integrity agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG) to ensure that these violations don’t happen again.