April 26, 2004

APRIL 26, 2004

CHARLES DOW, MAINE, 207-626-8577




            Attorneys General from 20 states today announced the settlement of claims under state unfair trade practices laws against Medco Health Solutions, Inc. (Medco), the world’s largest pharmaceutical benefits management (PBM) company.  An investigation by the states into Medco’s drug switching practices began more than two years ago and was spearheaded by Attorneys General in Maine, Massachusetts, and Pennsylvania.  During stages of the investigation, the states consulted with the Office of the United States Attorney for the Eastern District of Pennsylvania.  


            The attorneys general filed complaints in state courts today alleging that Medco encouraged prescribers to switch patients to different prescription drugs but failed at times to pass on the resulting savings to patients or their health care plans. The drug switches generally benefited Medco despite Medco’s claims that they saved patients and health plans money.  Medco did not tell prescribers or patients that the switches would increase rebate payments from drug manufacturers to Medco.  The states allege that the drug switches resulted in increased costs to health plans and patients, primarily in follow-up doctor visits and tests. For example, Medco switched patients from certain cholesterol lowering medications to Zocor, but that switch required patients to usually receive follow-up blood tests. 


            The participating states are: Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington.


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; or

        It is made more often than once in two years within a therapeutic class of drugs for any patient.


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;

        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; and

        Adopt a certain code of ethics and professional standards.


            In addition, Medco will pay $20.2 million to the states, $6.6 million to the states in fees and costs, and about $2.5 million to patients who incurred expenses related to a certain switch between cholesterol controlling drugs.  Some states may elect to receive prescription drug cards in lieu of their monetary payment.  States receiving a monetary payment must use the funds to benefit low income, disabled, or elderly consumers of prescription medications, to promote lower drug costs for residents of the state, or to fund other programs reasonably targeted to benefit a substantial number of persons affected by the conduct covered in the complaint.


            Maine Attorney General Steven Rowe said, “Drug switching by some pharmaceutical benefit managers has become like an intricate card trick.  Health plans, physicians, and patients trying to follow the best pharmaceutical values are bewildered by the PBM sleight of hand.  The trick ends now, and all cards must be laid on the table.  We will no longer have to guess about who will benefit from this PBM’s drug switching and what the value of that benefit is. 


            Rowe added, “This case is a result of our commitment to scrutinize all aspects of the pharmaceutical business to make prescription drugs more affordable.”  He also praised the partnership that developed between the state attorneys general and the United States Attorney for the Eastern District of Pennsylvania, “This is a great example of state and federal enforcement officials working together to benefit health care consumers across the nation.”


            “Consumers and their doctors should make the decision of switching from one medication to another based on the best interests of the patient, not because a PBM has found a way to make money,” Pennsylvania Attorney General Jerry Pappert said.  “This settlement ensures that Medco will give patients and doctors the information needed to make these important decisions.”


            "The battle for affordable prescription drugs must be fought on many fronts," Massachusetts Attorney General Tom Reilly said.  "Today's settlement is a victory in the ongoing battle to hold businesses accountable and to help make prescription drugs more affordable and accessible to consumers in Massachusetts and beyond.  This company promised to keep prescription drug costs down for its clients, but did not always tell the full story to its client health plans, doctors or patients when it proposed drug switches that it claimed would save money.  This settlement is important because it establishes standards that will protect patient safety and also ensures that health plans and patients really save money from PBM-managed drug switches."


Medco is the world’s largest PBM, with over 62 million covered lives.  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.  PBMs now process about two-thirds of all prescription drug spending in the United States.


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