Medco to Pay $5.5 Million in Drug Benefits Settlement in Massachusetts 


By Alice Dembner, The Boston Globe 

Knight Ridder/Tribune Business News      

26 April 2004

The Boston Globe (KRTBN)


Apr. 26--Medco Health Solutions will pay Massachusetts $5.5 million to settle allegations that the company cheated the state while it managed prescription drug benefits for nearly 200,000 state employees and retirees, according to documents expected to be filed in US District Court today. 


The civil settlement is the largest under the state's False Claims Law, passed in 2000 to strengthen the Commonwealth's ability to collect damages from those who commit fraud. 


The agreement concludes a yearlong investigation by the state attorney general's office that found that the company pocketed millions of dollars in rebates it obtained from drug companies on prescriptions for Massachusetts residents, according to a complaint expected to be filed simultaneously with the settlement today in the court in Philadelphia. In that complaint, Attorney General Thomas Reilly accuses Medco of secretly keeping rebates owed to Massachusetts under the state's contract with the company. He also accuses Medco of lying about the rebates to obtain the 1997 contract. 


The company, based in New Jersey and formerly known as Merck-Medco Managed Care, does not admit to any wrongdoing, according to the documents. 


The issues in the case are similar to those raised in class action lawsuits and other government investigations across the country against Medco and other pharmacy benefit managers. Medco and its three major competitors manage drug benefits for 200 million Americans. 


In 1997, the state's Group Insurance Commission hired Medco to save the state money on prescription drugs for state employees and retirees by negotiating discounts from drug manufacturers, maintaining a list of preferred drugs, and handling billing, among other tasks. Under its contract, Medco agreed to pass along to Massachusetts nearly all of the payments it got from manufacturers to place their drugs on the preferred list or to favor their drugs over others on the list, according to the complaint. 


Over the course of the contract, Medco passed along about $9 million in rebates, but kept another $10 million, the state alleges. 


"Medco ... retained for itself more money from drug manufacturers than it provided" to the state, according to the complaint. "At no point ... did Medco disclose to GIC or its agents the nature and magnitude of Medco-retained payments from drug manufacturers." 


The state began its investigation after two whistleblowers filed suit against the company in Philadelphia, alleging that employees at company pharmacies, including a Wilmington, Mass., mail-order facility, discarded prescriptions without filling them, gave patients fewer pills than their doctors ordered, and switched patients to more expensive medicines. The US attorney in Philadelphia joined that case last September, alleging the company defrauded the government while managing benefits for federal employees. Nevada also joined the case and has been negotiating a separate settlement. 


The Massachusetts complaint makes no mention of similar problems with the filling of state employees' prescriptions in Wilmington. But the settlement will not prevent other allegations about problems in Wilmington from moving forward in the US government case. 


State prosecutors from Massachusetts and 25 other states are also continuing to investigate whether Medco and other pharmacy benefit management companies overcharged taxpayers for their services or violated antitrust and consumer protection laws. Officials from Massachusetts, Maine, and Pennsylvania are leading that investigation. 


Medco officials have acknowledged that the company had isolated problems with "rogue employees" at a mail-order pharmacy in Tampa, but said those problems were quickly corrected and did not affect drug costs. They said that no patients were shifted to other brand-name drugs without their doctors' consent and that, overall, any switches to more expensive medicines were offset by other discounts. They also denied they kept rebates secret, saying that information was shared with clients. 


At Medco's annual meeting last week, president David B. Snow Jr. told shareholders that he believed the company would soon put many of the investigations and suits to rest. However, he said the company was prepared to fight the federal charges. 


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