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Merck settles in pricing lawsuit

12th February 2008

US-based pharmaceutical giant Merck has agreed payouts to the tune of more than US$650 million over claims that it overcharged the government for two key drugs.

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The company, which is the third-largest drug-maker in the United States, was taken to court for the way in which it marketed its arthritis drug Vioxx and its anti-cholesterol drug Zocor to hospitals.

Merck gave initial doses to hospitals at a huge discount, ensuring that poorer patients under the government-financed Medicaid healthcare scheme, became dependent on the medications.

After discharge, the patients would continue to take the medication, but at a much higher price, paid for not by the hospital or the patients, but by Medicaid.

The settlement is the first in a series of such claims to be brought against big pharma based on allegations that companies have used unfair pricing practices to swindle the government.

Merck was able to do this because of legislation which originally aimed to increase access to vital medications among the country's poorest patients.

The "nominal pricing" strategy is legal, and has helped to reduce costs for many government hospitals, but the prosecuting lawyers argued that Merck had used the provision in an anti-competitive way, which resulted in worse value for the taxpayer.

The massive discounts meant that hospitals put Merck's medicines on a preferred drugs list or prescribed them for as many as three-quarters of eligible patients; even favouring them over cheaper generics.

Medicaid, the lawyers argued, was not offered the same discounts, and Merck thereby broke laws requiring that the government be charged no more than other customers.

Campaigners said the settlement called attention to an improper business strategy used by as many as a dozen other drug companies.

H. Dean Steinke, a district sales manager for Merck sparked the investigation when he noticed Merck was using questionable sales tactics. Steinke will receive about US$68 million from the settlement as a whistleblower reward.

Merck did not admit wrongdoing in the case but said it wanted to resolve the disputes.

 

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