Medco Claims Settled by 20 States

According to a complaint filed in New York State Supreme Court and other state courts, Medco encouraged physicians and other prescribers to switch patients to different prescription drugs without disclosing that the switches benefited Medco by increasing rebate payments from drug manufacturers. Medco represented to prescribers that a switch would result in savings to patients and health plans when in fact at times the drug switches increased costs, primarily in follow-up doctor visits and tests. For example, Medco switched patients from certain cholesterol-lowering medications like Lipitor' to Zocor', which required patients to pay for follow-up costs.

New York's Attorney General Eliot Spitzer stated, “This case shows how pharmaceutical benefit managers previously hid from consumers, doctors and health plans that they were switching prescriptions to promote their own profits. With this settlement, patients and doctors will have full information and can make a decision based on the consumer's best interest.”

The Settlement

The settlement prohibits Medco from soliciting drug switches when 1) the net drug cost of the proposed drug exceeds the cost of the prescribed drug; 2) the prescribed drug has a generic equivalent and the proposed drug does not; 3) the switch is made to avoid competition from generic drugs; or 4) it is made more often than once in 2 years within a therapeutic class of drugs for any patient.

The settlement also requires Medco to disclose to prescribers and patients the minimum actual cost savings for health plans and the difference in co-payments made by patients, Medco's financial incentives for certain drug switches, and any material differences in side effects between prescribed drugs and proposed drugs. In addition, Medco will have to 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; and adopt a specified code of ethics and professional standards.

Medco will pay more than $29 million to settle the deceptive trade allegations. $20.2 million will go to states in restitution; $2.5 million to the identifiable patients who incurred expenses related to a switch between cholesterol-controlling drugs; and $6.6 million to states in fees and costs. Under the terms of the settlement agreement, states may 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.

On April 26, State Attorneys General from 20 states announced the settlement of claims under state deceptive trade practices laws against Medco Health Solutions, Inc. (Medco), for drug switching practices. The multi-state investigation began 2 years ago in Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington.

The Suit

Medco is the world's largest pharmaceutical benefits management (PBM) company, with over 62 million people covered. PBMs contract with health plans to process prescription drug payments to pharmacies for drugs provided to patients enrolled in the health plan.

According to a complaint filed in New York State Supreme Court and other state courts, Medco encouraged physicians and other prescribers to switch patients to different prescription drugs without disclosing that the switches benefited Medco by increasing rebate payments from drug manufacturers. Medco represented to prescribers that a switch would result in savings to patients and health plans when in fact at times the drug switches increased costs, primarily in follow-up doctor visits and tests. For example, Medco switched patients from certain cholesterol-lowering medications like Lipitor' to Zocor', which required patients to pay for follow-up costs.

New York's Attorney General Eliot Spitzer stated, “This case shows how pharmaceutical benefit managers previously hid from consumers, doctors and health plans that they were switching prescriptions to promote their own profits. With this settlement, patients and doctors will have full information and can make a decision based on the consumer's best interest.”

The Settlement

The settlement prohibits Medco from soliciting drug switches when 1) the net drug cost of the proposed drug exceeds the cost of the prescribed drug; 2) the prescribed drug has a generic equivalent and the proposed drug does not; 3) the switch is made to avoid competition from generic drugs; or 4) it is made more often than once in 2 years within a therapeutic class of drugs for any patient.

The settlement also requires Medco to disclose to prescribers and patients the minimum actual cost savings for health plans and the difference in co-payments made by patients, Medco's financial incentives for certain drug switches, and any material differences in side effects between prescribed drugs and proposed drugs. In addition, Medco will have to 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; and adopt a specified code of ethics and professional standards.

Medco will pay more than $29 million to settle the deceptive trade allegations. $20.2 million will go to states in restitution; $2.5 million to the identifiable patients who incurred expenses related to a switch between cholesterol-controlling drugs; and $6.6 million to states in fees and costs. Under the terms of the settlement agreement, states may 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.