Introduction

The Federal and State Governments (taxpayers) who pay for Medicaid have been defrauded of billions of dollars since the program was founded in 1965 to provide medical care for low-income individuals and families, including Medicaid fraud due to provider-based and pharmaceutical fraud schemes. For a discussion of the various types of Medicaid fraud, see About Medicaid. The Medicaid schemes uncovered here involve "Best Price" fraud under the Medicaid Rebate Act, free drugs to hospitals, and kickbacks to doctors, including "Consultant Meetings".

Our whistleblower, H. Dean Steinke, had worked for 11 years in the pharmaceutical industry before becoming a district sales manager for Merck in Michigan. There, he observed illegal marketing tactics for Vioxx® and Zocor® and other drugs. After his repeated complaints to his superiors and managers about such practices fell on deaf ears, he contacted experienced qui tam whistleblower lawyers Steven H. Cohen and Mark Allen Kleiman. After investigating the allegations and meeting with officials at the U.S. Attorney's Office in the Eastern District of Pennsylvania, in Philadelphia, they filed a qui tam suit under seal pursuant to the Federal False Claims Act ("FCA").

When our whistleblower's case was filed under seal in December 2000 in the Eastern District of Pennsylvania it was one of the nation's first FCA actions to allege Best Price fraud, detailed below. Also, at that time, there were only a dozen or so FCA actions filed involving pharmaceutical companies. Pharmaceutical fraud had not yet emerged as a major aspect of the Government's anti-fraud enforcement activity.

The key to the success of this case was the close collaborative relationship between the federal and state Governments during the investigation phase. This unique approach was fostered by the whistleblower and his counsel, who facilitated the U.S. Attorneys and the State Medicaid Fraud Control Units' joint investigation of the claims. Another unique feature of this case was the active role the States took early on.

To facilitate the collaborative effort, we provided the whistleblower's extensive industry expertise, our specific experience in FCA litigation, as well as an expert in drug pricing and damages. We also provided the inexhaustible willingness to do what was needed, when it was needed; to be where we were needed, whenever we were needed; and, throughout, to keep open the lines of communication among the various parties.

Today, this case stands as a model investigative approach that future False Claims Act are likely to follow, as Government budgets and staffing are over-extended. For more information see "The New Model."

As part of the overall State-Federal-whistleblower coordinated effort, in April 2005 we filed a related qui tam suit in Nevada under Nevada's FCA, which Nevada immediately joined in prosecuting. Merck responded with two motions to dismiss, and several states filed briefs supporting our position. In May 2006, U.S. District Judge Howard D. McKibben denied Merck's motion to dismiss, fully adopting our legal arguments and holding that Merck should have reported the nominal-price discounts to the Government as part of the manufacturer's Medicaid Best Price calculation. That decision paved the way for this nationwide settlement.

The settlement requires Merck to pay more than $400 million to the federal and state Governments, $399 million plus interest calculated from April 2007, for the Best Price and marketing violations involving Vioxx and Zocor, and to comply with a Government approved Corporate Integrity Agreement.

Under the FCA, qui tam actions allow private citizens with knowledge of fraud to help the Government recover ill-gotten gains and additional civil penalties. The FCA allows the Government to collect up to three times the amount it was defrauded, in addition to civil penalties from $5,500 to $11,000 per false claim. In successful qui tam whistleblower cases in which the Government intervenes in private actions relators usually have received awards representing 15-to-25 percent of qui tam recoveries. In this case our Relator will receive approximately 20 percent of the recovery by the federal Government and a number of states.