Attorney General's News Release

February 25, 2008

Missouri Medicaid program receives second multi-million dollar check from Nixon from fraud settlements with drugmaker Merck

Jefferson City, Mo. — For the second time in two business days, Attorney General Jay Nixon has given a multi-million dollar check to the Missouri Medicaid program from a Medicaid fraud settlement his office obtained with pharmaceutical giant Merck. Nixon presented a check for $2,635,342 to the Medicaid program today, following a check for more than $3.1 million he turned over on Friday (Feb. 22).

Today’s check was a result of settlement with Merck that Nixon reached earlier this month that resolved allegations that Merck shortchanged rebates paid to the Medicaid program for its popular prescription drug Pepcid, which is often prescribed to treat stomach ulcers or acid reflux.

Nixon recovered a total of $7,199,438 for Medicaid from the Pepcid settlement with Merck. The recovery was split into federal and state shares that reflect the corresponding costs of Medicaid paid by the federal and state governments. Friday’s check – a result of a second settlement with Merck over its marketing of Zocor and Vioxx – was the state’s portion of more than $8.7 million obtained by Nixon. Zocor is a cholesterol-lowering medication and Vioxx is an anti-inflammatory medication.

The allegations of Nixon and other Attorneys General across the country pertained to the marketing of the three Merck drugs. Nixon alleged that Merck failed to adequately report the “best prices” of those drugs, resulting in lower rebates to the Medicaid program.

Because Merck failed to report these discounts, the Medicaid program was shortchanged by millions of dollars, Nixon said.

Nixon said federal laws require pharmaceutical manufacturers to enter into agreements with the U.S. Department of Health and Human Services to pay rebates to state Medicaid programs as a condition of having their products reimbursed by Medicaid. The manufacturers must report the Best Price (BP) and the Average Manufacturer Price (AMP) for each dosage form and strength of any drug product to the Centers for Medicare and Medicaid Services quarterly to determine the appropriate rebate. Prices that are defined as nominal – a price that is 10 percent or less of AMP – are exempted from best price reporting.

Merck instituted marketing plans to sell the drugs to hospitals in such a way as to circumvent the rebate statute and exploited the nominal price exception to their BP reporting obligations. In marketing Zocor and Vioxx, Merck reached agreements with hospitals to purchase the drugs at a 92 percent discount from the catalog price if the hospitals purchased certain amounts of the drugs.

Imposing those conditions on the hospitals in order to obtain the discount meant that Merck was obligated to report those discounts in its BP reports. Because Merck did not report the discounts, Nixon contended the rebates paid to Medicaid were improperly lower than they should have been.

With Pepcid, Merck instituted a marketing program to sell various forms of the drug to hospitals in bundled pricing agreements. Merck allegedly offered the hospitals discounts of up to 92 percent off AMP on Pepcid tablets and lesser discounts on other drugs in exchange for the hospitals meeting a certain market share or other purchase requirements. Nixon says this required Merck to adjust BP to reflect these discounts, and as a result, the company failed to pay the proper amount of Medicaid rebates for the various forms of Pepcid.

As part of the settlements, Merck also entered into Corporate Integrity Agreements with the federal Department of Health and Human Service, Office of Inspector General, to ensure its compliance in the future.

Nixon’s legal actions were part of two separate global settlements totaling $649 million with Merck. The settlements involve 49 states, the District of Columbia and the federal government. The settlements also resolve claims filed by whistleblowers in the United States District Court for the Eastern District of Pennsylvania, in the United States District Court of Nevada, and in the Eastern District of Louisiana.

The Missouri case was brought by the Medicaid Fraud Control Unit of the Attorney General’s Office. Nixon established the unit in 1994. The unit has authority under state law to investigate and prosecute, both civilly and criminally, allegations of fraud against Missouri's Medicaid program.

Inquiries from consumers should be directed to consumer@ago.mo.gov or 1-800-392-8222 (from within Missouri) or 573-751-3321 (outside Missouri).

All media inquiries should be directed to Press Secretary John Fougere.

E-mail      Phone: 573-751-8844         Fax: 573-751-5818