The last fraud case I worked on at the Department of Justice was an investigation to find out whether Merck, the giant pharmaceutical company, was gouging Medicaid.
A courageous whistleblower had alleged that Merck was overcharging Medicaid for the popular antacid drug Pepcid. It was part of my job to determine if the fraud allegations had merit.
Working with another Department of Justice attorney, I required Merck to provide all of its internal documents that mentioned its so-called “nominal price program” for Pepcid. They buried us in paperwork. After months of pouring through records, we finally pieced together Merck’s price-gouging scheme. Their own records proved that Merck was knowingly violating the False Claims Act.
Before I left the Department of Justice, Merck understood the case we built against it and requested a settlement. With their own records accusing them, there was little else they could do.
Last week, Merck agreed to repay Medicaid $250 million because it overcharged the government for its heartburn pills.
Drug companies are suppose to charge Medicaid the lowest price they charge for their drugs. Initially, a set price is chosen. Then, at the end of each quarter, drug companies find the lowest price they’ve given any customer and, if it is lower than the price they charged Medicaid, the drug company gives Medicaid a rebate for the difference.
There is a small wrinkle in the Medicaid Rebate Statute. Drug companies claim that, sometimes, they may want to act compassionately by giving away or selling drugs at cost to charities or low-income clinics. To encourage such generosity, the government agreed to waive rebates for drugs that are given away free or sold for a “nominal price” (less than 10 percent of the average price).
In this case, the whistleblower had evidence that, when Merck claimed it was selling its drugs at low prices for humanitarian reasons, it was actually operating out of greed.
Several large hospital chains threatened to buy competing brands of antacids if Merck did not provide it with better discounts. Merck could not bear to lose these lucrative customers, so it devised a scheme that made it “appear” that Merck was selling Pepcid at a nominal price, when it was really giving big discounts to its favorite large customers. By claiming the discounts fell under the nominal price exception, it saved millions in rebates to Medicaid.
Fortunately, a former employee blew the whistle on this scheme by reporting it to the government. As a reward for his efforts, he should receive close to $40 million.
My last case before I became a law school professor and advocate helping whistleblowers file for rewards was a resounding success. It’s very satisfying to play an active role in bringing corporate cheats, such as Merck, to justice.
I am glad that the Department of Justice is authorized to pay such large rewards to whistleblowers. Without their help, we would all pay hundreds of dollars more in taxes every year because of the fraud being committed against the government.
If you know of fraudulent claims being made on government contracts, it is well worth your time to report them. You, too, may be able to play an active role in stopping corporate fraud – and receive a generous reward for your efforts.
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