Justice Department Slaps Medco With Civil Suit

September 30, 2003 (PLANSPONSOR.com) - The Justice Department has joined the Medco Health Solutions Inc., lawsuit group, filing a civil complaint seeking unspecified monetary damages and a permanent injunction against the pharmacy benefit manager (PBM).

The lawsuit filed in US District Court in Philadelphia accuses the former Merck & Co. subsidiary of defrauding clients and increasing prescription costs for the federal government by canceling or destroying patients’ prescriptions. This was done through a falsification of the prescription date to meet contract performance standards in state, federal and private health plans and to avoid penalties for delays in filling orders, according to a Philadelphia Inquirer report.

Further, the suit alleges the PBM of switching patients to Merck medicines from companies that gave Medco rebates. This was all in an effort in pad the corporate bottom line. However, left out of the government’s complaint was any alleged wrongdoing by Merck or at Merck’s mail-order pharmacy.

The complaint also charged that Medco made “false and misleading statements” to US officials during the investigation. The US attorney declined to comment on whether criminal charges could be filed in the future.

In its defense, Medco denied any systematic wrongdoing and said the allegations lacked merit and credibility. “These allegations are largely based on the accounts of a convicted felon who never worked for Medco Health, and two pharmacists who left five years ago,” said Medco general counsel David Machlowitz.

“We weren’t surprised by the complaint. We are prepared to deal with it,” said the company’s president, chairman and chief executive officer, David Snow.

Legal Headaches

The government has been looking into the practices of PBMs for several years and the action against Medco was the first by the government against a PBM – companies that act as a middleman between pharmaceutical manufacturers and health-care plans to negotiate lower drug costs.While unspecified damages are being sought in the latest case, the potential payout could be huge. Federal law provides for treble damages, plus a penalty of $5,000 per false claim. Each “bad prescription” constitutes a false claim and the Justice Department did not state the number of alleged false claims.

The Justice Department’s suit also only adds to the legal trouble the PBM has faced recently. Last month, a federal judge in the Southern District Court of New York gave preliminary approval to a settlement in a class-action suit involving Medco. U nder terms of the $42.5-million pact, Medco does not admit guilt in the deal, but it does agree to ensure clients fully understand their pharmacy health care service (See Preliminary Approval Given In Medco Suit ).

Additionally, last November the West Virginia Attorney General sued Medco for allegedly keeping rebates handed out by the drug companies that were intended for the state.The suit alleges that West Virginia’s 200,000 state employees were directed to higher priced drugs because of millions of dollars in rebates from drug makers being received by the PBM (See West Virginia Sues Medco Over Drug Costs ).