Ken Paxton

Tuesday, February 12, 2008

Attorney General Abbott Settles National Case with Merck to Resolve Medicaid Fraud Allegations

AUSTIN Texas Attorney General Greg Abbott has resolved a lengthy multi-state Medicaid fraud investigation involving drug giant Merck & Co. Under the $671 million global settlement agreement, the state of Texas will receive nearly $16 million.

The states’ investigation into Merck stemmed from Federal Medicaid Drug Rebate statute violations. Under federal law, drug manufacturers are required to report their best prices to state Medicaid programs. Those reduced prices are used to calculate rebates that manufacturers owe when Medicaid overpays for pharmaceutical products. The law ensures that the government-funded health care program obtains the best possible price for the manufacturers’ drugs.

According to investigators, Merck sold its Vioxx and Zocor products to certain hospitals for 92 percent less than the catalog price. The deeply discounted price, which was offered to high-volume hospitals, was used in an attempt to increase the products’ market share. Merck did not report the dramatically lower price to the government, and therefore did not rebate the price difference to the states’ Medicaid programs. Vioxx was prescribed as a painkiller, while Zocor is used to fight high cholesterol.

The agreement also settles a similar drug pricing program investigation involving another Merck product, Pepcid, an antacid used to treat ulcers. Just as it did with Vioxx and Zocor, Merck gave hospitals an array of discounts of up to 92 percent on Pepcid tablets. The pharmaceutical manufacturer offered lesser discounts on other Pepcid formulations. Its Pepcid pricing program featured bundled prices, thereby requiring Merck to adjust the best price among the different formulations in order to reflect the discounts. Because the company failed to show these discounts in its best price reports to Medicaid, it avoided paying millions of dollars in rebates to state Medicaid programs.

A separate Texas-based Vioxx case, filed in June 2005, is still pending in state district court. In that case, the Attorney General alleged Merck suppressed critical information to physicians, patients and the Texas Medicaid program about the health risks associated with Vioxx. As a result, Texas paid in excess of $72 million for Vioxx prescriptions for Medicaid recipients.

Today’s settlement reflects Attorney General Abbott’s continuing crackdown on waste, fraud and abuse in the Medicaid system. In 2006 alone, the Texas Medicaid program cost more than $17 billion. To save taxpayer dollars, Attorney General Abbott has dramatically expanded both the Civil Medicaid Fraud Section and the Medicaid Fraud Control Unit. Since Attorney General Abbott took office, the civil and criminal Medicaid fraud sections have recovered more than $190 million.

To obtain more information about the Attorney General’s efforts to fight Medicaid fraud, access the agency’s Web site at