District Court Ordered to Consider Self-funded Plans' "Antagonistic Interests"

October 11, 2007 (PLANSPONSOR.com) - The 2nd U.S. Circuit Court of Appeals has ordered a trial judge to reconsider his certification of a class and his approval of a $42.5 million settlement agreement in an action brought against Merck-Medco Managed Care under the Employee Retirement Income Security Act (ERISA).

According to the New York Law Journal, Judge Roger B. Miner wrote that the “antagonistic interests” of the self-funded plans included in the class of plaintiffs should be adequately and independently represented. In a unanimous decision, the appellate court ordered Judge Charles L. Brieant of the U.S. District Court for the Southern District of New York to certify a subclass encompassing those plaintiffs.

The self-funded plans (plans that paid the entire cost of prescription drugs directly to Merck-Medco and not just a premium payment) reiterated their assertion from a prior hearing that only a self-funded plan or sponsor could adequately represent their interests. In a May 2004 decision, Brieant had said no such conflict of interest existed.

The appellate court also directed Brieant to reconsider the allocation of proceeds under the settlement, which would give insured plaintiffs (those who paid a premium to Merck in exchange for pharmacy management) 55% of the total award. On remand, Brieant must appoint attorneys for the self-insured plans, and the counsel for the subclass and counsel for the insured plans will likely negotiate how the settlement should be allocated between them.

The suit claims Merck-Medco Managed Care breached its fiduciary duties under ERISA by managing lists of preferred prescription drugs to favor the products of its parent company, Merck, over competing drugs; implementing programs that were intended to increase the sale of Merck drugs; and entering into drug purchase contracts with pharmaceutical manufacturers that were favorable to it but more costly to the plans.

The suit also accuses Merck-Medco of “including the effective transfer of Plan assets to Merck through drug purchase agreements with Merck negotiated by Medco” and of failing to disclose to the plans that it was not acting in their best interests, but rather acting to benefit Merck, according to the news report.

The opinion in Central States Southeast and Southwest Areas Health and Welfare Fund v. Merck-Medco Managed Care is here .