Healthcare scandal-of-the-week: Merck settles Medicaid lawsuits

They come fast and furious.

It was with sadness that I saw this article in the Philadelphia Inquirer today:

Posted on Fri, Feb. 8, 2008

Merck settles Medicaid lawsuits

It will pay $671 million in alleged overcharging.

By Karl Stark, Inquirer Staff Writer

Merck & Co. Inc. agreed yesterday to pay $671 million to settle allegations that it overcharged the Medicaid program and gave doctors junkets, dinners and other inducements to promote three of its drugs.

The payments stem from two settlements, announced yesterday by U.S. attorneys in Philadelphia and New Orleans, that together show Merck executives' offering low prices to hospitals to induce them to use its drugs heavily, and then failing to acknowledge those low prices to Medicaid, the health program for the poor, as required by law.

The cases also show the company's rewarding doctors with a panoply of favors, from lavish stays in exotic locales to payments for allowing salespeople to shadow them for a day.

I used to work for this company supporting R&D. I was struggling to increase funding to fill some critical informatics gaps in support of drug discovery, clinical trials and safety monitoring to help assure the company would not one day be "trying to do doing business from an empty wagon."

However, it seems some folks in marketing had different ideas about how to conduct business.

Merck agreed to pay $399 million plus interest to settle the Philadelphia case. Because the matter involved 49 states, New Jersey will get $7.4 million and Pennsylvania will get $8.5 million.

The firm will also pay $250 million to settle similar allegations in a separate lawsuit in Louisiana involving Pepcid, the firm's heartburn drug. That suit was originally brought by a doctor, William St. John LaCorte. With interest, the two settlements come to $671 million.

The case resolved yesterday in Philadelphia started with H. Dean Steinke, a Merck district sales manager in rural Michigan, who became a whistle-blower over the firm's marketing of its withdrawn pain reliever Vioxx and the anticholesterol drug Zocor. Steinke could not be reached yesterday.

... His attorney, Mark Kleiman of Los Angeles, said his client began to doubt the company when he was asked to authorize a $75,000 payment to an HMO in 1999. The HMO complained that Zocor cost too much and threatened to remove the drug from its approved list.

Merck did not want to lower the price, because that would have lessened how much it could charge other payers, including Medicaid, Kleiman said. So, he added, the company disguised the payment as an education grant to the HMO.

After Steinke declined to authorize the payment, "his relationship with the company was never the same," Kleiman said.

In other words, he was marginalized for taking an unpopular, "unbusinesslike" stand.

All I'd asked for was an increase of a few million annually to support R&D. After a long bureaucratic battle with the former CEO of a failed computer company, who'd come into pharma at a high level while lacking experience in biomedicine and in information science, I got a third of that.

One might think some of the windfall from marketing efforts such as in this story could have been directed to R&D, but perhaps there other priorities at the time besides discovering new drugs:

Kleiman, the whistle-blower's attorney, said hospitals were also getting up to 10,000 free Zocor pills in stock bottles in the late 1990s. They were typically sent directly to hospital departments, bypassing the pharmacies, to encourage the drug's use, he maintained.

Who, exactly, was then making the decisions on drug administration? Drug reps, perhaps? If the pharmacy is not monitoring drug dispensation carefully, that is a potential source of error, such as drug-drug interaction, allergy, or ADE's. One wonders what effects this practice of bypassing pharmacy might have had on patient safety.

The federal settlement details nine techniques sales representatives used to influence doctors. One was a "preceptorship" in which a salesperson would shadow the doctor around, supposedly to learn more about medicine. The doctors would get $300 for a half-day or $500 for a full day of this work, Kleiman said.

Another big effort was "tutorials" in which doctors were paid several hundred dollars to evaluate sales presentations by the company.

Doctors could be paid $1,000 or more to speak at dinners attended by other physicians. And the biggest prescribers got rewarded with junkets to resorts, Kleiman said.

The "preceptorship" plan sounds great in practice. I've been a preceptor during my clinical years for medical students, a Mennonite minister in training, and others. However, the potential for conflict of interest in "mentoring" of drug reps are great. Who's teaching whom, and who "vetted" this practice in pharma and more importantly, in the hospitals? Further, could paying docs for evaluation of sales pitches be accurately described as "sleazy?" I'm not sure what area of biomedical science this draws upon, although it's perhaps more clearly part of "marketing science."

Steinke, who pursued this case under the False Claims Act for seven years, will receive $44.7 million from the federal share and $23.5 million from the states' share.

Considering what he probably went though as hinted in a companion article here, it sounds like he earned it the very old fashioned way - through sticking up for his beliefs in the face of potentially career ending opposition. That's perhaps America at its best.

-- SS