Merck to pay $671 million for bilking Medicaid

WASHINGTON — Merck agreed Thursday to pay more than $671 million to settle charges that it routinely overbilled the government for its most popular medicines, the arthritis drug Vioxx and the cholesterol drug Zocor, cheating Medicaid out of millions of dollars in discounts over eight years.

Prosecutors say the drugmaker gave pills to hospitals at virtually no cost to hook poor patients on expensive medicine. When the patients left the hospital, they often continued taking the drugs but with the government footing the higher bill.

The Merck settlement culminates an investigation that began in 2000 and is one of the first in a series of cases centering on whether drugmakers used unfair pricing practices to bilk the government. The Justice Department is looking into 630 health-care whistle-blower claims.

H. Dean Steinke, a district sales manager for Merck, triggered the investigation after he noticed his company was using questionable sales tactics. He complained to his supervisors, who brushed him off, so he turned to federal authorities.

Steinke, 51, will receive about $68 million from the settlement as a whistle-blower reward. He said he was prompted to go to authorities after his direct supervisor told him: "I don't care how you do it, but get the damn business," when he questioned the sales practices. "There comes a time when you just dig in your heels and say, 'You know what? They're not going to get away with it,' " Steinke said.

The agreement Thursday, one of the largest health-care fraud recoveries, also closes a related case about Merck overcharging for the antacid Pepcid. William St. John LaCorte, a doctor in New Orleans who questioned the Pepcid charges, will receive a share of the settlement proceeds that has yet to be determined.

The alleged overcharges, dating back to the mid-1990s, involved Medicaid programs in the District of Columbia and every state but Arizona, and federal health-insurance programs at agencies including the Defense and Veterans Affairs departments.

Merck did not admit wrongdoing. The country's third-largest drugmaker stood by its pricing and marketing strategies but wanted to resolve the disputes, executives said. Merck agreed to heightened oversight by regulators for five years as part of the deal.

The case centered on Merck's giving hospitals across the country 92 percent discounts on Vioxx, an arthritis drug later pulled from the market for safety concerns; Zocor, a popular cholesterol-lowering medicine that drew intense competition from rivals; and Pepcid, an antacid tablet now sold over the counter. Merck offered the pills at the discount under a legal loophole that Congress created a generation ago to give poor patients access to medicine.

Merck and industry experts had argued the pricing strategy fell within the law. But prosecutors said the Whitehouse Station, N.J., drugmaker used the discounts to outflank its competition, offering massive markdowns to hospitals that agreed to put its medicines on a list of preferred drugs or to prescribe them for up to three-quarters of eligible patients.

In some cases, hospitals favored Merck's drugs over cheaper generics. This practice conflicted with the law because Merck did not offer Medicaid the same discounts, authorities said. The law requires the government be charged no more than other customers.

Material from The Associated Press is included in this report.