Merck
Pays $400 Million In National Medicaid Fraud Settlement;
New Investigation
Model Ends Seven-Year Qui Tam Whistleblower Case

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Seven-Year Ordeal

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The Groundbreaking Nevada Decision

In April 2005, Mr. Steinke, the Relator in this case, filed a suit
under the Nevada False Claims Act, N.R.S. § 357.010 et seq. This
suit focused on the allegations in the federal action that Merck failed to
include so-called nominal price discounts on Vioxx® and Zocor® in
calculating the States' rebates under the Medicaid
Rebate Act. Nevada intervened days after it was filed.

The suit accused Merck of fraudulently concealing three different
discounts that it gave hospitals to promote Zocor® and Vioxx®:

First, Merck concealed a discount known as a nominal price discount
of more than 92 percent given to hospitals that met various Merck sales
quotas or agreed not to use the drugs that competed with Vioxx or Zocor.
Under this discount, hospitals paid less than 8 cents on the dollar for
these drugs, which made the drugs nearly free.

Second, Merck concealed smaller, although still significant,
discounts.

Finally, Merck concealed large
give-aways of Zocor and Vioxx that had the same effect as discounts,
but also were hidden from Medicaid.

Merck moved to dismiss the case and after nearly a year of briefing
(from July 2005 to April 2006), the Court issued its groundbreaking ruling reported at Nevada ex rel.
Steinke v. Merck & Co., Inc., 432 F. Supp. 2d 1082 (D. Nev. 2006).

Merck argued that the Medicaid Rebate Act permitted its 90 percent-plus
discount based upon the Act's definition of Best Price which excluded
nominal prices.

Nevada and Steinke responded that the proper interpretation of Best
Price requires that Merck include in its reports to Medicaid, those
discounts that are tied to sales quotas or other requirements.

The Court agreed, reasoning that that "a 'merely nominal price' is a
price less than 10% of the AMP [Average Manufacturing Price] and is not
tied to other conditions of performance or consideration in addition to
the 'nominal prices.'" Id. at 1087. That is, Merck's so-called nominal
price promotional sales of Zocor and Vioxx that were part and parcel of
widespread marketing schemes to hospitals had to be included in Merck's
calculation of Best Price and the rebates to the States. The Court's
decision was the first published decision to interpret the Best Price
provisions of the Medicaid Rebate Act.

Merck did not dispute that it had concealed the 92 percent-plus
so-called "nominal price" discounts in calculating Best Price or its
rebates to the States. Consequently, in practical terms, the Court's
decision left Merck with considerable exposure to owing the States
enormous rebates. Merck had paid some rebates to the States, but they were
far short of what the States were owed.

The Court also made other notable, related rulings:

One, the Medicaid Rebate Act did not preempt Nevada and Mr.
Steinke's claim under Nevada's False Claims Act; and

Two, Nevada and Mr. Steinke could prosecute its claim that Merck
should have included the free give-aways of stock bottles of Zocor and
Vioxx among its discounts when it calculated and reported its Best
Price.

The Nevada case was held in abeyance while the parties discussed
settlement. The settlement that is the subject of this website also
includes the Nevada case.

Significant Documents Filed in the Nevada Litigation
Relator's Initial Complaint: Unsealed When Nevada
Intervened, then Removed to Federal Court
Nevada's First Amended Complaint
Merck's Second Motion to Dismiss Complaint
Nevada's Opposition to Merck's Second Motion to Dismiss,
Joined by Relator
California, Delaware, Illinois, Texas, and D.C.'s Brief in
Support of Opposition
Court Order Denying Merck's Motion to
Dismiss

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