Oregon to get $1.75 million in Merck settlement

Attorney General Hardy Myers announced today that the State of Oregon Medicaid Program will receive approximately $1.75 million as part of two national settlements with Merck & Co., Inc. The settlements involve 49 states, the District of Columbia and the federal government. Merck is the manufacturer of the drugs Zocor, Vioxx, and Pepcid. The agreements with Merck resolve allegations that the company failed to pay rebates due state Medicaid Programs under the Federal Medicaid Drug Rebate statute.

The settlements also resolve claims filed by whistleblowers.Pharmaceutical manufacturers that supply products to Medicaid recipients are required by the Federal Medicaid Drug Rebate law to give the Medicaid Programs the benefit of the “best price” the manufacturers make available for those products.

At the heart of each program was an agreement that Merck would sell the drugs to hospitals at a 92 percent discount from the catalog price, if the hospitals reached certain market shares for the drugs. Because the 92% discounts were conditioned on the hospitals’ volume purchases to reach certain market shares, the states contend that the resulting discounted prices were not “merely nominal.The states contend that Merck was required to report these discounted prices to CMS, and that their failure to do so resulted in Merck’s failure to pay accurate rebates to the state Medicaid programs.

The case in Louisiana involved Merck’s drug Pepcid, and another discount program, Flex NP. Under this program, Merck sold various formulations of Pepcid to hospitals in bundled pricing arrangements. In exchange for the hospital meeting a certain market share or other purchase requirements, Merck gave hospitals an array of discounts of up to 92% on Pepcid tablets, and lesser discounts on other types and formulations of Pepcid. According to the states, the transactions under the FLEX NP Program constituted “bundled sales” which required Merck to adjust “best price” among the different formulations to reflect these discounts.

The states contend that Merck’s failure to reflect these discounts in their “best price” reports resulted in Merck’s underpayment of Medicaid Drug rebates to the state Medicaid Programs. Under the settlements, Merck will pay a total of $649 million in restitution, penalties and interest to the States and federal government to settle the cases.

The settlement recoveries were apportioned based on actual Medicaid payments and rebates for the drugs at issue; in essence, controls within the Oregon Medicaid Program on pharmaceutical payments impacted Oregon’s monetary recovery from the cases. In addition to the monetary recovery, Merck has entered into a Corporate Integrity Agreement which includes provisions to ensure that Merck markets, sells and promotes its products in accordance with all Federal health care program requirements.

Merck did begin voluntary compliance initiatives associated with sales and marketing activities prior to learning of the government’s investigation of the conduct associated with these settlements.“This is a significant case for our Medicaid Fraud Unit and the Medicaid Program,” said Attorney General Myers. “This case should send a message to all pharmaceutical companies that this office will not tolerate rebate avoidance through creative interpretation of rules for the purpose of advancing pharmaceutical marketing programs.”

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