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Medco to pay millions in drug-switching case

The pharmacy benefits manager also agrees to new patient protections but doesn't admit any wrongdoing.

Associated Press
Published April 27, 2004

TRENTON, N.J. - In a case that could alter how prescriptions are filled, the nation's largest pharmacy benefits manager will pay $29-million to settle allegations by 20 states that it pressured doctors to switch patients' medications to benefit its bottom line.

Medco Health Solutions Inc., accused of "unfair or deceptive acts and practices" that violated the states' trade practices laws, also agreed Monday to new disclosures when it seeks to switch a patient's medication.

The Franklin Lakes, N.J., company also filed a settlement Monday with the U.S. Attorney's Office in Philadelphia requiring similar changes in its practices. That office is pursuing additional fines and penalties.

It began investigating Medco four years ago after receiving whistleblower complaints from two Medco pharmacists and a third person. The states joined the inquiry two years ago.

As a pharmacy benefits manager, Medco contracts with health plans to process prescription drug payments to pharmacies for medications provided to the plan members. It handles prescription coverage for more than 62-million Americans through some 55,000 retail pharmacies and a dozen mail-order pharmacies.

Medco had been accused of favoring drugs that bring the company the biggest rebates from manufacturers, and not passing all those savings on to its clients, as many of their contracts required. Some drug switches cost patients or their health plans more, because of higher co-pays or required followup tests.

Medco, which is to report its quarterly earnings today, denied any wrongdoing.

"This constructive approach to resolving issues raised by the attorneys general and the Justice Department serves the interests of our company and our customers," said David B. Snow Jr., Medco's chairman and chief executive.

Maine Attorney General Steven Rowe, explaining why the settlement contains no admission of guilt, said the states wanted to expedite changes. "It would have taken years to have gotten to this point through litigation," Rowe said.

The prosecutors said those changes should save money for health plans and patients.

"We have set the gold standard for how we expect PBMs to operate," Massachusetts Attorney General Thomas Reilly said, noting that the state prosecutors have cases pending against other prescription benefit managers. "We are hoping the industry will adopt the standards as we get ready for Medicare prescription drug coverage in 2006."

Medco officials said the changes will begin within 120 days and will affect all company clients in every state.

Medco previously notified patients by letter after their doctors agreed to switch their medicines. Now Medco will call patients first and a followup letter will explain why the switch is being made, including the difference in the cost of the drugs involved. Patients usually will have the right to refuse the switch.

Medco also must disclose the cost savings for health plans and the difference in a patient's co-payment, the difference in side effects between the prescribed and proposed medications, and Medco's financial incentives for certain drug switches.

Under the settlement with the states, Medco will pay them a total of $20.2-million, with each getting approximately $1-million based on their population, to help low-income, disabled and elderly residents get prescription medicines. Medco also agreed to pay the states $6.6-million in litigation costs.

An additional $2.4-million will be paid to patients to reimburse them for medical tests needed after they were switched to a different cholesterol drug. One of the most common drug switches, the attorneys general said, was from Pfizer's Lipitor to competing Zocor, made by Merck & Co., Medco's parent until it was spun off last August.

The settlement, spearheaded by authorities in Pennsylvania, Massachusetts and Maine, includes Florida, Arizona, California, Connecticut, Delaware, Illinois, Iowa, Louisiana, Maryland, Nevada, New York, North Carolina, Oregon, Texas, Vermont, Virginia and Washington. New Jersey, the home state of both companies, did not participate in the settlement.

Separately Monday, Medco agreed to pay Massachusetts $5.5-million to settle a lawsuit by the state claiming the company violated the state's false claims act.

Medco said it will record a charge of $21.1-million, or 5 cents per share, against first-quarter earnings but will not change its earnings guidance for 2004, which was for $1.75 to $1.86 per share. Medco had revenues of $34.3-billion last year.

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