Merck Takes $670M Hit For Overcharging Medicaid
7 CommentsBy Ed Silverman // December 4th, 2007 // 10:46 am
To be precise, this is a pre-tax charge to cover investigations by federal and state authorities - specifically, the Department of Justice and the Texas attorney general - concerning ”marketing and selling activities, including nominal pricing programs and samples.” This little nugget was tucked inside this morning’s lengthy press release discussing next year’s earnings guidance, which seems to be disappointing investors. Merck says 2008 earnings will be between $3.28 to $3.38 a share, but the median forecast of 20 analysts in a Bloomberg News survey was $3.36. That’s cutting it close.
Anyway, back to the main event. What is nominal pricing? A drugmaker offers a steep discount of 90 percent or more to a hospital in exchange for guaranteed market share of certain meds, but without informing Medicaid, which is supposed to receive the ‘best price’ on meds offered to any customer. An exception to the requirement - selling meds to charitable organizations. Several drugmakers have come under scrutiny, including Glaxo and AstraZeneca. Merck was first investigated for this practice in 2002, according to a filing with the Securities and Exchange Commission (see page 15). Under the category of at-least-there’s-some-good-news, Merck gets a pre-tax gain of $450 million from insurers to pay for Vioxx litigation.
As for the earnings guidance, Wall Street worries Merck may struggle to meet its 2008 goals. But Barbara Ryan, an analyst at Deutsche Bank, was more upbeat, even though she was looking for $3.42 next year. She wrote this in an investor note today: “Despite the negative mix shifts from exclusivity losses (Fosamax loses patent protection next year), Merck expects ‘08 gross margins to return to pre-Zocor levels of 77 percent to 78 percent, ahead of expectations and consistent with our thesis that Merck’s emphasis on reducing the large fixed-cost base in manufacturing is a key factor for driving earnings per share growth and achieving its stated goals, and we believe this remains underappreciated by the street.”
[UPDATE: We have altered the headline to more accurately reflect the accounting. Apologies for any confusion.]
sid
Yes, EVERYONE in the world did this. This was under the unknown of the “safe harbor” provision. When the gov’t did not make this a black/white issue and offer concrete guidance as what made a safe harbor companies were left on their own for their definition. In the last 5 years everyone has become much more conservative with only 1-2 drug classes still offering discounts to hospitals - outside of DSH institutions.
Merck wasn’t the first, last, or only. I guess just the new biggest fish out there.
Now, did medicaid receive lower prices because of this? No, The discount was removed and hospitals just had to pay the full price. Did anyone save money? No. Did this just move profits from hospitals to pharma? Yes. Way to go gov’t! This didn’t cause quite as much profit making as moving dual eligibles from medicaid to medicare part D - but in all cases gov’t involvement actually CAUSED pharma to make more $$$$. Goodness gracious I am glad they are getting more involved, I need a raise.
Lisa Van S
Sid,
Love your remarks..oooh, cant believe I said that.
lilibit
Not only do they have carte blanch with foster children and poor families that are forced to get the meds or they are charged with medical neglect , the giving off label drugs that health and human services contracts with they get to use them a experiments , and we pay for it as well as the poor kids that die or are permanantly damaged. go figure !! feel free to contact me and I will put you in contact with thousands of us that do not have a voice .
angelheart55lpn
hmm too bad its so late for the children–who were human guinea PIGS, to these meds, they were forced to take, ordered by a state paid physcian–who probably didn`t know he was medicating on lies provided to him by the social service protectors, helping in their plans too show the people in their care need services and of course more funding to provide services to these children that were stolen and we all know the many of children, who are not in our homes.
I was wondering how the social services agencies weren`t gonna be blamed for this injustice-
Why do they get away with so much??
I wonder who didn`t get paid??
and worst yet I wonder what this will do to the social services, if they did this to BIG drug companies just imagine what they are capable of doing!!
I wonder if DHS cares that most of the over charging was for kids in foster care–who were medicated to comply, geez does that mean DCFS, CPS and any other social agency gets a REFUND??
Always getting money somehow. They destroy families and then turn around and get a refund after forcing children to take meds not even made to be given them, so the kids comply with their new placements.
What a EVIL business
jason
Angel,
Did you read the headline - Merck takes $670 million hit.
That money goes to the gov’t. The gov’t funds those programs. Do you think medicaid runs as an independent profitable company. Don’t you think maybe a little of the blame rests on the docs for off-label prescribing? Oh yeah, over half of all prescriptions written are “off-label”.
As for the rest of that comment, I think I speak for us all: Huh?
lilibit - so we should deny poor kids medicine? I could give you thousands of names of kids lives saved by off-label prescribing.
angelheart55lpn
yes the government funds the programs and the children in these programs are PROGRAMMED by the agencies who abuse the funding they get in assistance from the government.
The paid agencies receiving the funds tell the Dr.`s of who take care of the children, what that child`s history and believe me I know from experience that they lie and give that physcian the wrong information and that child is medicated for something that isn`t or has never been an issue for that child medically ever. I have the evidence to prove this for me and I am sure if others spoke out you would find it happens a lot all over the good USA
That is not to say that this doesn`t happen with Dr.`s who are aware, but usually in the issue I am talking about it doesn`t happen as much, I don`t think. Though there was a time I consulted some Dr.`s for social services and gave a comlete medical history and they chose to completely ignore it also, even with documentation.
I guess it boils down to who has clout and who is the little guy, I guess I am just the little guy. Who doesn`t appreciate an agency to have the power to cause such anguish and cause such mental stress and continully is paid to chemically restrain children who are ripped from their parents home and then turn around and want rewarded more for the children they adopt.
Do you really want me to believe they are doing a good job.
Anyone who prescribes meds to children and have no care of the combinations of med, nor the side effects, and could care less what that child`s medical history is, should be in charge of my children or anyone elses children–it is all about money.
I am all for helping the less fortunate, and yes I understand about meds needed by people, I guess my beef is with what happens to children who are labeled mentally ill, everyone is so adamant in giving them a drug, a drug that hasn`t been tested on children, so they are no more then a guinea pig. And usually the main points for the behavior is overlooked, because now the good old USA is all about giving our mental health all the help it needs and unfortunately means more DRUGS. I guess I better go read the DSM again it changes frequently. Is there a way to see how many meds are prescribed for children in foster care in all the states, I would like to know totals, I bet the numbers are very very large.
CAB
Disgusting Big Pharma! When will they ever learn to do what is right? Only when they’re forced to!