Analysis: Medco deal lifts secrecy veil

By ELLEN BECK, United Press International

WASHINGTON, April 26 (UPI) -- A $29 million settlement outlined Monday between the nation's largest pharmaceutical benefit management company and state and federal officials could begin to lift a veil of secrecy surrounding rebates and discounts paid to companies that will play a major role in the new Medicare prescription drug benefit.

Medco Health Solutions of Franklin Lakes, N.J., agreed to settle allegations by a 20-state task force and partly resolve a federal whistleblower lawsuit stemming from the common PBM practice of switching patients from one drug to a therapeutically equivalent, but different, medication. One example: A patient taking Celebrex for arthritis might be given Vioxx instead.


PBMs have argued such switches are necessary to help control drug costs, but state and federal officials claim a two-year investigation has shown such deals -- which resulted in higher rebates or discounts for the PBMS -- do not necessarily reduce prices for patients, health plans or employers.


David B. Snow Jr., Medco chairman and president, told reporters during a conference call the litigation had created an "unfair perception" of the company and the "business interests of our clients or investors of our company are best served through a settlement."

Medco, which provides drugs for some 62 million people, did not admit to any wrongdoing. It agreed to pay $20.2 million to the states, either in cash or through free prescription medications targeted for the low-income, elderly and disabled. It will pay another $6.6 million will go to the states to pay their investigation costs. And it will establish a $2.5 million fund to reimburse patients $25 for any additional testing costs or follow-up visits to their physician because of a medication switch.

The states included in the settlement are Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington. Ohio and West Virginia are in litigation with Medco, while Tennessee has expressed an interest in pursuing negotiations with the PBM.

The whistle-blower case, brought by the U.S. Attorney for the Eastern District of Pennsylvania, was settled from a business operation perspective, with the same terms as the states' deal, but Medco and the feds still are negotiating monetary damages.


"Much of this industry's business practices are cloaked in secrecy," Maine Attorney General Steven Rowe told reporters in a separate teleconference.

He called PBM drug switching an "intricate card trick" that the settlement "ends now and all cards must be laid on the table."

PBM business practices are closely held secrets, as noted by General Accounting Office investigations into how much savings PBMs provide to consumers and health plans. The GAO noted although PBMs can save from 18 percent to more than 50 percent for consumers, depending on how a prescription is filled -- e.g., retail or mail-order pharmacy -- it is difficult to discern how much of the total rebates and discounts PBMs negotiate with pharmaceutical companies and others are passed along.

A January 2003 GAO report said therapeutic interchanges encouraged the "substitution of less expensive

formulary brand-name medications considered safe and effective for more expensive nonformulary drugs within the same drug class." Two PBMs studied -- in an overall report that included Medco -- disclosed their savings ranged from 1 percent to 4.5 percent in addition to other rebates and discounts.

Medco is required by the settlement to inform physicians and patients the minimum or actual cost savings for health plans and the difference in co-payments made by patients when switching medications. It must disclose its financial incentives for drug switches, advise physicians on differences in side effects between prescribed drugs and proposed drugs, reimburse patients for costs of drug switch-related healthcare, obtain permission from a doctor for all drug switches, tell patients they may decline drug switches and receive the initially prescribed medications, monitor the health effects of drug switches, and adopt a code of ethics and professional standards.


The settlement prohibits Medco from making drug switches when the net cost of the proposed drug exceeds the cost of the currently prescribed drug, when the prescribed drug has a generic equivalent and the proposed drug does not, when a change is made to avoid competition from generics, or if the change comes more than once in two years within a therapeutic class of drugs.

Snow said most of the operational changes stipulated in the agreement already are in practice and would help Medco become the "most transparent company in our industry." He said the deal would ensure a consistent standard of performance for Medco.

He added that first quarter 2004 earnings, which are to be announced Tuesday, would not be changed by the settlement.

Massachusetts Attorney General Tom Reilly said Medco has paid that state an additional $5.5 million to drop its plans to join the federal whistleblower suit.

"This is a vitally important case," he said, because Medco is expected to be one of the major players as a vendor of the upcoming Medicare prescription drug discount card, which begins in June, as well as in the delivery of the formal prescription drug coverage beginning for seniors in 2006.


"There is no framework for governing PBM practices," Reilly said. "We have begun to set standards to protect patients -- not just now but in two years when PBMs" begin to play a critical role in Medicare.

Iowa Attorney General Tom Miller said requiring the PBM to disclose total revenues and rebates on a macro level "opens up the ability to negotiate over those important issues that haven't been disclosed or have been negotiated" in the past.

"We're very hopeful we've changed the course of an industry here," Miller said. "The potential for beneficial change here is high."

Snow called the settlement a "constructive approach to resolving issues raised by the attorneys general and the Justice Department" and said it "serves the interests of our company and our customers -- extending across our book of business elevated standards of practice that are designed to help our clients, and their employees or

members, better understand and trust the value delivered through their pharmacy benefit program."


Ellen Beck is UPI's Health Policy Editor. E-mail

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