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Drug provider accused of fraud

Medco says the federal complaint focuses on incidents that have been corrected.

By SARA FRITZ and KRIS HUNDLEY
Published September 30, 2003

The Justice Department on Monday accused Medco Health Solutions Inc. of defrauding the federal government and its employees who received prescription drug shipments from the company's mail-order pharmacies, including two facilities in Tampa.

The criminal complaint against Medco, filed in Philadelphia by U.S. Attorney Patrick L. Meehan, alleges fraudulent practices that include destroying prescriptions that were not filled promptly, switching drugs for patients without consulting a physician and sending patients fewer pills than were paid for by their health insurance.

At Medco's facility in Sabal Park, according to the complaint, a top supervisor in 1999 and 2000 encouraged employees to ignore prescriptions that had not been filled within 14 days. When the practice came to light, it said, the supervisor, who was not identified, was dismissed with a generous severance package and has since refused to be questioned by federal investigators.

Medco executives responded angrily to the government's charges. David Machlowitz, general counsel, said: "The allegations are false, overblown or reflect an isolated incident here or there where employees did not do what they should have done. And when we found out about it, we punished them."

Although the government's case involves only federal employees and dependents who were insured by Blue Cross/Blue Shield, it could have an impact on millions more Americans who receive their prescription drugs through Medco or one of the other major pharmacy benefit management companies.

Like other pharmacy benefit managers, Medco, which until Sept. 20 was a subsidiary of Merck, operates as a middleman between the health insurer and patients covered by the plan. It obtains drugs at a discount from manufacturers, fills prescriptions and collects compensation from the insurer and the patient.

Critics allege that these companies steer patients away from generics and toward drugs on which they make the highest profit. In the case of Medco, the government said, patients and physicians are often coerced into using Merck's popular, high-priced brand name drugs such as Zocor, Mevacor, Vasotec, Cozaar, Pepcid and Vioxx.

Maury Herman, an Atlanta lawyer, said allegations in the Justice Department complaint are consistent with numerous lawsuits his firm has brought on behalf of insured workers and health care plans in cities from New York to California. The suits accuse several major pharmacy benefit managers, including Medco, of maximizing profits at the expense of patient care.

Herman said the allegations also should serve as a warning to Congress, which is considering legislation that would put prescription drug distribution for Medicare patients in the hands of these companies. He said the companies are "double-dealing."

The case against Medco arose from claims filed under the False Claims Act. That means the allegations were brought to the Justice Department by Medco employees who stand to benefit financially if their case succeeds in court.

Much of the complaint focused on activities at Medco's Tampa II facility in Sabal Park, where employees apparently could not fill all the prescriptions within the contractual 14-day period. The unfilled prescriptions were generally garbled ones that would have required Medco workers to call physicians for clarification.

In those cases, the government said, the still-valid prescription was canceled and then frequently destroyed. Whenever representatives of Blue Cross/Blue Shield came to visit the facility, it added, the canceled prescriptions were scooped up and hidden in a semitrailer parked behind the Tampa II plant.

In January 1999, the company put the Tampa II facility under the supervision of a new vice president/general manager, a woman who was not a pharmacist. She previously had been accused of improperly canceling prescriptions at the Tampa I facility, which has since closed. At Tampa II, she allegedly imposed productivity goals that forced employees there to cancel unfilled prescriptions.

The woman was dismissed two years later with a year's severance pay, full benefits and a $40,000 bonus, according to the government. In exchange, the complaint alleges, she agreed to take full responsibility for all improper conduct at Tampa II.

The company said she was fired when it was discovered she had altered drug records after hours to make it appear the prescriptions had been fulfilled within the time promised.

"This was not behavior in any way authorized or known to the company," Machlowitz said. "Though she was fired, she always said she did this on her own."

He said the company investigated the issue and disclosed the incident to Blue Cross/Blue Shield.

"We paid $16,000 or so in contract penalties and they still renewed the contract," Machlowitz said. "We wanted to do the right thing."

Under Medco contracts with insurers, patients cannot be switched from one drug to another without the approval of the physician who wrote the prescription. But at all Medco's facilities, the government alleges, employees regularly switched drugs for patients to meet a quota. They then allegedly fabricated records indicating the physicians had been contacted.

In addition, Medco customer service representatives were accused of giving false information to patients who complained they had not received their drugs or had received a different drug from the one prescribed by their doctor.

The government said Medco also did little or nothing to correct problems with machinery that often put too few pills into the bottles - a practice known as "shorting."

Medco has three facilities in Tampa with a total of 1,559 employees.


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