Medco Health Solutions Settles State, Federal Lawsuits
Medco Health Solutions, the nation's largest pharmacy benefit manager, agreed on Monday to pay $29.3 million to settle charges in a lawsuit filed by attorneys general in 20 states that the company switched patients' medicines and did not pass on the savings, the Philadelphia Inquirer reports (Loyd, Philadelphia Inquirer, 4/27). According to the Wall Street Journal, Medco employs pharmacists to call doctors in cases in which a medication has been prescribed that is not on a preferred drug list. The pharmacist will ask the doctor to switch the medicine to one on the list (Martinez, Wall Street Journal, 4/27). The states have been looking into whether Medco and other PBMs inflated prices and improperly adjusted patients' prescriptions to boost profits. In settling with the states, Medco denied all the allegations and acknowledged no wrongdoing. However, it agreed not to switch a patient's prescription if the cost of the new drug is more than the cost of the original drug; notify patients and their doctors of a switch in advance by letter and automated telephone message that will include cost savings information for consumers and insurers; disclose any incentives the company has in making the switch; and monitor the effects of drug switches on the health of patients (Appleby, USA Today, 4/27). Medco spokesperson Jennifer Leone said the company had already put some of the revised disclosure practices in place before the settlement (Perotin, Fort Worth Star-Telegram, 4/27). Medco officials said the changes will begin within 120 days and will affect all clients in every state (Johnson, AP/Washington Post, 4/27). Under the settlement, Medco agreed to pay about $20 million in damages to the states, $6.6 million in states' legal fees and costs and about $2.5 million in restitution to patients who incurred expenses, such as doctor visits, when their drugs were switched (Freudenheim, New York Times, 4/27). States will be allowed to decide whether they want to receive the payments in cash, drug cards for low-income and elderly residents or free medications for clinics (Philadelphia Inquirer, 4/27). Medco said it will take a charge of $21.1 million in the first quarter for the settlement, which it said would not affect projected earnings for the year (New York Times, 4/27).
Medco separately reached a "virtually identical" agreement with the Department of Justice on business practices in a federal lawsuit filed in September by Associate U.S. Attorney James Sheehan in Philadelphia. The federal lawsuit claims that Medco's business practices violated the federal mail-fraud statute. The lawsuit is expected to go to trial in June 2005 on claims for monetary damages, penalties and restitution, according to Sheehan. Medco's general counsel David Machlowitz said the company has not had discussions with Sheehan on a monetary settlement and "would continue to defend itself on the remaining issues," according to the Inquirer (Philadelphia Inquirer, 4/27). The Wall Street Journal reports that DOJ still has five pending cases against Medco, including allegations of kickbacks, submitting false claims and "unjust enrichment" (Wall Street Journal, 4/27).
"This litigation has been a cloud over Medco's head, and ... this [settlement] goes a long way to getting that behind us," David Snow, Medco chair and CEO, said (Silverman, Newark Star-Ledger, 4/27). He added that the settlement is "consistent with our goal to position Medco as the most transparent company in our industry" (New York Times, 4/27). He said, "With similar cases pending against virtually all other major PBMs, we hope this allows Medco to become the first to put this particular issue in the past" (Philadelphia Inquirer, 4/27). Connecticut Attorney General Richard Blumenthal (D) said he hoped the settlement would "have a domino effect" on the rest of the industry, adding that he and the other attorneys general are in settlement discussions with the other large PBMs, according to the Hartford Courant (Waldman, Hartford Courant, 4/27). Massachusetts Attorney General Thomas Reilly (D) said, "We have set the gold standard for how we expect PBMs to operate. We are hoping the industry will adopt the standards as we get ready for Medicare prescription drug coverage in 2006" (AP/St. Petersburg Times, 4/27). Pennsylvania Attorney General Jerry Pappert (R) said the agreement ensures that drug substitutions are "cost-effective, made on a fully informed basis and will truly save money" (Dembner, Boston Globe, 4/27).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.