Medco to Pay $155 Million to Settle Fraud Charges

Donna Young

BETHESDA, MD, 24 October 2006—Medco Health Solutions has agreed to pay $155 million to settle kickback and fraud charges, the United States Attorney for the Eastern District of Pennsylvania announced yesterday.

Medco, the second largest pharmacy benefit management (PBM) company in the United States, was charged in 2003 with destroying and canceling valid patient prescriptions, soliciting kickbacks from pharmaceutical manufacturers to favor their drugs, and paying kickbacks to health plans to obtain business, federal prosecutors said in a statement.

The government's complaint followed actions filed under the federal False Claims Act in 1999 and 2000 by three whistleblowers, U.S. attorneys said.

Two of the three whistleblowers are pharmacists who were employed by Medco in its Nevada facility in the 1990s, according to the settlement agreement.

Under a provision in the law called Qui Tam, whistleblowers are entitled to 15–30% of monies recovered by the federal government in the outcome of a lawsuit.

The government accused New Jersey-based Medco of implementing a drug program in which the PBM targeted certain patients for switching their prescribed therapies to alternate, often more expensive, medications.

However, prosecutors alleged, when Medco contacted prescribers about switching a patient's medication, the company failed to disclose to those prescribers and their patients the financial incentives and other economic benefits the PBM and drug manufacturers received from the interchange.

Under the scheme, Medco solicited and received improper payments from pharmaceutical manufacturers "to induce or reward" the PBM for improperly providing favorable consideration to the drug makers' products, promoting the sale of the manufacturers' products, and advocating the drug firms' products in formulary placement, the government contended.

Those payments, which "constitute improper kickbacks," were allegedly made in the form of rebates, discounts, patient-conversion payments, market share movement and incentives, data fees, commissions, mail-service purchase discounts, educational grants, outcomes research studies, clinical consulting services, and disease-management program payments, among other forms, prosecutors said.

Medco was also accused of improperly using pharmacy technicians and other nonpharmacist personnel to perform functions that, by law, must be performed by pharmacists or under a pharmacist's direct supervision, including adjudicating and dispensing or canceling patient prescriptions, engaging in direct discussions with prescribers regarding dispensing and prescribing issues, counseling patients, and performing drug-utilization review activities.

In addition, the company authorized nonpharmacist managerial personnel to use professional pharmacist credentials and access codes, thereby enabling nonpharmacists to alter prescription drug records and access patient pharmacy records, U.S. attorneys said in court documents.

Medco also exceeded state-established ratios of ancillary personnel or technicians to pharmacists and failed to adequately supervise and monitor ancillary pharmacy personnel or technicians, prosecutors asserted.

The company also failed to monitor clinical outcomes of patients whose drugs had been switched.

The PBM was also charged with falsifying paper or electronic pharmacy dispensing records, according to court documents.

In return for the $155 million payment, prosecutors said, Medco obtained a release of further claims against the company's former vice president, Diane Collins, who managed the Medco mail-order pharmacy in Tampa, Florida.

Collins had been charged with destroying and instructing others to destroy valid patient prescriptions in order to cover up Medco's failure to provide patient prescriptions on a timely basis, according to prosecutors.

In court documents, Medco denied the government's allegations and stated that the settlement was not an admission of liability or any wrongdoing. 

In addition to paying the $155 million settlement, Medco was required to enter into an extensive corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General and the Inspector General of the Office of Personnel Management.

Under the CIA, Medco is required to appoint one of its senior management personnel to act as a compliance officer responsible for overseeing a staff to develop and implement policies, procedures, and practices designed to ensure compliance with federal health insurance programs, such as Medicare.

Among other obligations set forth in the CIA, the company is required to develop and distribute to employees and contractors a written code of conduct that specifies Medco's commitment to full compliance with all federal health care program requirements and must state that employees and contractors should report any suspected violations of those requirements.

Hidden financial agreements between PBMs and drug manufacturers and health plans, along with the bottom-line pressures of management, U.S. Assistant Attorney General Peter D. Keisler said in a statement, "can influence which drugs patients receive, the price we all pay for drugs, and whether pharmacists serve patients with their undivided professional judgment."