Georgia Department of Law, from the office of Thurbert E. Baker, Attorney General


Attorney General Baker Announces 49 State Settlement With Merck Pharmaceuticals Over Medicaid Reimbursement Dispute

February 7, 2008

Attorney General Thurbert Baker today announced that Georgia will receive $17.4 million as part of two separate global settlements totaling $649 million with Merck & Co., Inc.. The settlements involve 49 states, the District of Columbia and the federal government, and concern the Merck 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 in federal court in Pennsylvania, Nevada and Louisiana.

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” available for those products. The manufacturers are required to file “best price” information with the Centers for Medicare and Medicaid Services (CMS).  This information is then used to calculate rebates to be paid by these manufacturers to the state Medicaid Programs. In general, the lower the “best price”, the higher the rebate obligation tends to be. The federal law requires the “best price” reported by the manufacturers to include discounts.  However, prices that are considered “merely nominal” are exempted from the reporting requirement. The states have maintained that “merely nominal” means the discounted price is not tied to any conditions, such as volume purchase requirements or market shares.

The cases that were pending in   Pennsylvania and Nevada involve the SAVE and VIP programs, which were two Merck discount programs wherein Merck tried to use the nominal price exceptions.  The SAVE program (Simvastatin Acute-care Value Enhancement program), was for the marketing of the drug Zocor, and the VIP program (Vioxx Incentive Program) was for the drug Vioxx.  At the heart of each program was an agreement that Merck would sell the drugs to hospitals at a 92% discount from the catalog price, but only 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”.  Therefore, the states contend that Merck was required to report these discounted prices to CMS, and that their failure to do so resulted in less rebates paid 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 government, 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 failed to reflect these discounts in their “best price” reports, resulting in less rebates paid to the state Medicaid Programs.

In addition to the monetary recovery, Merck has entered into a Corporate Integrity Agreement with the United States Department of Health and Human Services which will govern its future dealings with the Medicare and state Medicaid programs. Merck has begun voluntary compliance initiatives associated with their sales and marketing activities prior to the entry of these settlement agreements.

“This settlement constitutes not only a significant recovery for our Medicaid program, but also a clear message that pricing schemes designed to evade Medicaid laws will not survive scrutiny by the Office of Attorney General,” Attorney General Baker said. “This case should send a message to other pharmaceutical companies that the government will not tolerate rebate and “best price” avoidance through creative and erroneous rules interpretation.”

Attorney General Baker was joined in the settlement efforts by the National Association of Medicaid Fraud Control Units, a group comprised of Medicaid and Health Care Fraud Units from around the country.