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Read Making a Killing

home / healthcare / in the media

Pharma Marketletter (UK)
May 03, 2004

by Staff Writers

Medco settles, agrees more transparency

Medco Health Solutions, the USA's largest pharmacy benefits manager, has agreed to pay $29.3 million to 20 US states and the US Attorney in Philadelphia to settle charges that it violated state trade practice laws by pressing doctors to switch prescriptions to medicines which would bring it higher revenues and failing to pass along enough of the rebates received from drugmakers, without telling clients that it had done so.

In some cases, the switches increased costs to patients and their heath plans, and the settlement prohibits Medco from seeking to make such switches if this would be the result.

The firm, which denies any wrongdoing, has also agreed to change its business practices, to inform patients in advance of any changes (which they could, in the main, refuse) and telling prescribers and patients of the cost savings and any financial incentives received for switching drugs.

The US Attorney's Office, which began the probe into Medco four years ago (Marketletters passim) is seeking additional penalties and fines. The states joined the action two years later; they are also pursuing a number of other PBMs.

The states will receive around $1 million each from Medco, which has also agreed to pay $6.6 million in litigation costs, plus $2.4 million to reimburse patients for tests needed after they were switched drugs. Massachusetts will also receive $ 5.5 million from Medco to settle claims that it violated its false claims act, and the state's Attorney General, Thomas Reilly, was quoted by
AP as saying that the settlement sets "the gold standard for how we expect PBMs to operate."

Growing concern among health plans

64% of US health plans polled recently by health care reinsurance broker Evergreen Re said they had audited their PBM in the past year and, while they were generally satisfied, a rising number of particularly larger plans were concerned that PBMs were overcharging insurers and self-insured plans. PBMs, which control 80% of US consumer prescription drug purchases, have many
effective techniques for controlling costs but, due to their industry's competitive nature and the possibility that these techniques may enrich their bottom line, they rarely share these methods or their dollar value with clients, said Evergreen Re.

PBMs are virtually unregulated, said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights, who added: "leaving this industry to self-regulate is like leaving the keys to the safe with Enron and asking them not to steal."

The day after the settlement, Medco announced first-quarter 2004 net income of $103.6 million, from $102 million in first-quarter 2003, on revenues up 6.9% to $8.9 billion. Earnings per share, flat at $0.38, would have been $0.48 but for a $21.1 million charge taken to cover much of the settlement costs.


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