Welcome to the Department of Justice, Iowa Attorney General Tom Miller

For immediate release - Monday, April 26, 2004

Contact Bob Brammer - 515-281-6699

Miller: Medco to Change Deceptive and Unfair Business Practices

States alleged the nation's largest "PBM" -- prescription benefit manager company -- encouraged prescribers to switch patients to different prescription drugs, but failed at times to pass on savings to patients or their health care plans. "This resolution can be a bell-wether for the prescription drug industry," Miller says.

DES MOINES.   Medco Health Solutions, Inc., the nation's largest "PBM" or pharmaceutical benefit manager company, has agreed to resolve consumer fraud and antitrust allegations by 20 states. Medco will pay over $29 million to the states and open its financial dealings with the drug industry to scrutiny by health care plans and others.

"We alleged that Medco failed to disclose and share rebates it received from drug manufacturers," Miller said, "and that Medco encouraged doctors to switch patients to different drugs but failed at times to pass on the resulting savings to patients or their health care plans."

"What they were doing was wrong," he said. "It was harmful to consumers and their health plans, and it raised drug costs. Now Medco has agreed to change those practices. Most important, Medco will reveal its financial dealings to health care plans, doctors and patients. We believe this agreement will become a model for the PBM industry."

"PBMs" contract with health plans to process prescription drug payments to pharmacies for drugs provided to patients enrolled in the health plan. In the thirty years since the first PBMs appeared, their services have evolved to include complex rebate programs, pharmacy networks, and drug utilization reviews.

"Medco is the nation's largest PBM, with over $33 billion in drug purchases each year and 62 million lives covered," Miller said. "That's one in every five Americans. This is an important case and settlement. We hope it will set a new standard for the industry, give a fair shake to consumers and their health plans, and result in lower prescription drug prices."

The states focused on the issue of drug-switching. They alleged that drug switches encouraged by Medco generally benefitted Medco despite Medco's claims that they saved money for patients and health plans. Medco did not tell prescribers or patients that the switches would increase rebate payments to Medco from drug manufacturers. The states alleged that the drug switches often actually resulted in increased costs to health plans and patients, primarily for follow-up doctor visits and tests. For example, Medco switched patients from certain cholesterol-lowering medications to Zocor, but that switch usually required patients to receive follow-up blood tests.

The settlement requires Medco to:

  • Disclose to prescribers and patients the minimum or actual cost savings for health plans, and the difference in co-payments made by patients.

  • Disclose to prescribers and patients Medco's financial incentives for certain drug switches.

  • Disclose to prescribers material differences in side effects between prescribed drugs and proposed drugs.

  • Reimburse patients for out-of-pocket costs for drug switch-related health care costs, and notify patients and prescribers that such reimbursement is available. (See fuller list below.)

The settlement prohibits Medco from soliciting drug switches when:

  • The net drug cost of the proposed drug exceeds the cost of the prescribed drug.
  • The prescribed drug has a generic equivalent and the proposed drug does not.
  • The switch is made to avoid competition from generic drugs. (See fuller list below.)

In addition, Medco will pay $29.3 million in restitution, damages, and costs to the States, including $2.5 million to patients who incurred expenses related to a certain switch between cholesterol controlling drugs. Iowa's share is about $750,000.

Medco administers plans covering 190 companies in the Fortune 500, including 52 of the Fortune 100, 12 of the country's 42 Blue Cross/Blue Shield plans, and many state and private plans.

Miller said: "Historically, reimbursement for the services of Medco have been a 'black box.' Client plans, doctors, and members had little idea of how the company managed its financial relations with the drug companies, its client plans, and members it represents. Frequently, Medco indicated that it was recommending switching patients from one drug to another in order to save the plan or the patient money. The company did not reveal that it was receiving rebates for the switch from the drug company, and it failed to pass on the savings to the plan or to the patients. Moreover, we alleged that these switches resulted in increased costs to health plans and patients that were not reimbursed by the company."

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Background and more detail:

States participating in the legal action are: Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington. Maine, Mass., and Pennsylvania were the lead states. Iowa Attorney General Tom Miller was asked to help lead the effort because of his long experience in antitrust and consumer protection multi-state cases.

Iowa's lawsuit in the matter was filed this morning. Also this morning, Polk County District Court Judge Artis J. Reis approved the 33-page Consent Judgment spelling out the injunction and monetary settlement between the States and Medco. Medco Health Solutions, Inc., is headquartered in Franklin Lakes, NJ. It is the world's largest PBM.

Drug-switching:

The State Attorneys General alleged that Medco's drug switching, or "therapeutic interchange," programs were unfair or deceptive because, although promoted as a cost-savings measure, the drug switches sometimes increased overall costs to the patient or their health plan. The states said PBM drug switching designed to reduce costs is a very important issue but almost entirely unregulated.

Medco agreed to detailed standards that will govern Medco drug switches in the future. Critically, when it proposes a drug switch, Medco will disclose to doctors and patients the dollar amount of savings that will be achieved by the switch. Medco also will immediately notify patients of a drug switch and provide patients the right to reverse the switch.

The role of PBMs in government-related health plans will soon become more prominent. The Medicare Part D prescription drug benefit, passed in late 2003, will be administered by third parties like PBMs.

Details of Medco requirements on Drug-switching:

Under the terms of the multi-state settlement, Medco must completely revamp its "drug switching" practices to protect health plans and consumers from unnecessary cost increases.

The settlement prohibits Medco from engaging in drug switching if:

  • The proposed switch would be to a higher priced drug.
  • The prescribed drug has a generic equivalent but the proposed drug does not;
  • The switch is made to avoid competition from generic drugs.
  • The patient has already experienced a drug switch in the same therapeutic class in the past two years.

In addition to restricting those types of switches, the settlement also requires full disclosure to the prescribing doctor and the affected patient of the reasons for the proposed drug switch. Under the settlement, Medco must:

  • Disclose the minimum or actual cost savings for health plans, and any difference in co-payments made by patients.

  • Disclose Medco's financial incentives for certain drug switches.

  • Disclose to prescribers material differences in side effects between prescribed drugs and proposed drugs.

  • Reimburse patients for out-of-pocket costs for drug switch-related health care costs, and notify patients and prescribers that such reimbursement is available.

  • Obtain express, verifiable authorization from the prescriber for all drug switches.

  • Inform patients that they may decline the drug switch and receive the initially prescribed drug.

  • Monitor the effects of drug switches on the health of patients.

Miller said: "In today's consent judgment we have taken a major step forward in protecting consumers from higher health costs. Medco is now committed to an open and transparent process. This is particularly important as we approach the dramatic increase in the Medicare program, which in the next decade could handle up to $400 billion in drug purchases for Americans covered under these plans. Today's announcement reflects our resolve that this huge financial commitment to the health of our citizens is managed fairly and effectively."

END

Click here for Iowa's petition (or lawsuit) filed April 26, 2004.

Click here for Iowa's Consent Judgment approved April 26, 2004, by Polk County District Court Judge Artis Reis.

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