Merck Offers $42.5M To Settle Class-Action Lawsuits Alleging PBM Medco Health Solutions Overcharged Clients

Merck yesterday offered to pay $42.5 million to settle "long-running" class-action lawsuits alleging that its pharmacy benefit manager subsidiary Medco Health Solutions, the nation's second largest PBM, overcharged clients, the New York Times reports (Freudenheim, New York Times, 12/10). PBMs direct doctors toward less expensive brand-name medications and generic treatments through prescription drug formularies to reduce costs for health plans, public health programs and employers. Brand-name drug companies offer PBMs discounts and rebates to have their treatments placed on the formularies, and PBMs share the discounts with their clients. However, in the past few years, competition between PBMs has reduced the rates that they can charge clients to process claims, and some have begun to help brand-name drug companies market more expensive treatments to increase revenue (California Healthline, 8/14). The class-action suits allege that Medco "improperly promote[d]" more expensive Merck medications rather than finding less costly alternatives for its clients, which include more than 1,500 health plans and large employers. In addition, plaintiffs' attorneys presented previously sealed documents that showed that Medco between 1995 and 1999 kept $2.85 billion in drug company rebates that it should have passed on to clients, the Wall Street Journal reports (Martinez, Wall Street Journal, 12/10).

Under the proposed settlement, Medco would admit no liability but would have to notify clients when it makes changes on its preferred drug lists and when less expensive generic versions of drugs become available. Medco also would have to reveal what prices and costs were used to calculate discounts. The settlement must still be approved by U.S. District Judge Charles Brieant (New York Times, 12/10). However, several of the plaintiffs' lawyers called the settlement "woefully inadequate," the Journal reports (Wall Street Journal, 12/10). Many of the plaintiffs' lawyers said the rebates in question are "just a portion of the money" that PBMs "siphon off," and the lawyers maintain that those rebates should be passed on to PBM clients, the St. Petersburg Times reports (Fritz, St. Petersburg Times, 12/10). In response, a Medco spokesperson said that the company provides almost all of those rebates to its clients, either directly or indirectly, the Journal reports. Brieant said that he would "take a few days" to evaluate some of the plaintiffs' attorneys' objections to the deal, the Wall Street Journal reports (Wall Street Journal, 12/10).