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 action and his approval of a $42.5 million settlement in a suit brought against pharmacy benefit manager Merck-Medco Managed Care under the Employee Retirement Income Security Act (ERISA).

According to the New York Law Journal, Circuit 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. Miner ordered U.S. District Judge Charles L. Brieant of the U.S. District Court for the Southern District of New York to certify a subclass encompassing those self-funded plaintiffs.

The self-funded plans that paid the entire cost of prescription drugs 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 among the plaintiffs.

The appellate court also directed Brieant to reconsider the allocation of proceeds under the settlement, which would give insured plaintiffs 55% of the total award. The appellate judges said Brieant must now appoint attorneys for the self-insured plans and that the counsel for the subclass and counsel for the insured plans will likely negotiate how the settlement should be allocated.

The suit claimed 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, 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 .