Ohio Teachers Sue Pharmaceutical Contractor

November 15, 2005 (PLANSPONSOR.com) - The State Teachers' Retirement System of Ohio (TRS) is suing Medco Health Solutions for fraud, breach of contract and other violations of state law by overcharging members $152 million through withheld rebates, excessive fees and overpriced drugs from 1993 through 2001.

Cincinnati ‘s Enquirer reports that Lynn Hokanson, who formerly handled the health care benefits for the Ohio TRS, testified that she worked for the retirement system when it gave three-year pharmacy benefits contracts to Medco in 1993, 1996 and 1999. She retired in 2004 but returned to train a replacement. She said it was her belief that all three contracts called for Medco to pass along 100% of rebates paid by pharmaceutical companies whose products were placed on a drug formulary for system members.

Hokanson said she didn’t know that Medco was pocketing at least half of the rebate money, according to the Enquirer. She said the system suspected Medco was earning rebates, but in 2001 the company admitted to it. While the system was earning rebates on member drug purchases, she learned, Medco was earning other rebates based on overall volume. She said Medco told system representatives in 2001 that it kept the rebates instead of charging dispensing fees for mail-ordered prescriptions. Hokanson had thought that for all three contracts there was no dispensing fee.

Documents obtained after the lawsuit was filed in 2003 show that Medco received rebates totaling $21.1 million from 1998 through 2001.