Maine to share in $29M from drug settlement

In a victory for health care consumers, Maine Attorney General Steven Rowe announced Monday a major settlement between the world’s largest pharmacy benefit manager and the attorneys general of 20 states where the company reportedly profited by switching people’s medications.

Medco will pay a total of $20.2 million to the 20 states in restitution, plus another $6.6 million to cover the expense of the lawsuit. Another $2.5 million will be paid directly to consumers who experienced increased health care costs as a result of Medco’s practices.

The investigation into Medco’s business practices began more than two years ago, spearheaded by Rowe and his counterparts in Massachusetts and Pennsylvania.

The complaint alleged that the company routinely pressured physicians to change patients’ medications by providing misleading or incomplete pricing information and failing to disclose how much of any savings would be passed on to insurance companies, employers or consumers.

Consumers have paid the price in more ways than one, according to the attorneys general, by making unnecessary drug changes accompanied by new side effects and interactions, by having to pay for more frequent physician visits and testing, and by incurring higher drug co-payments than necessary.

Pharmacy benefit managers, or PBMs, contract with insurance companies to negotiate lower prices and manage the complexities of prescription coverage. In addition to their contractual agreement with their clients, PBMs commonly negotiate for manufacturer incentives, including rebates and other awards, for steering prescribers and consumers toward certain product lines.

In many cases, Rowe said in a Monday press conference, the health insurance companies that hired Medco and the insured consumers saw little or no reduction in their expenses because manufacturer rebate dollars stayed in Medco’s company coffers instead of being passed on. For example, consumers and insurance companies might pay more for a brand-name drug than for its generic equivalent, with the manufacturer rebate benefiting only Medco.

“Drug switching by some pharmaceutical benefits managers has become like an intricate card trick. Health plans, physicians and patients trying to follow the best pharmaceutical values are bewildered by the PBM sleight of hand,” Rowe said in a prepared statement. The agreement between Medco and the states means no one will “have to guess about who will benefit from this PBM’s drug switching and what the value of that benefit is,” Rowe said.

Maine will get about $510,000 in attorney’s fees, which will go into the state’s general fund. An additional $150,000 will be dedicated to providing access to reduced-cost prescription drugs, and an undetermined number of Mainers will be compensated about $25 for increased medical expenses.

In addition, Medco must alter its practices in specific ways to provide greater transparency and accountability in all states.

Among other provisions, the settlement requires Medco to refrain from soliciting drug switches from a less expensive drug to a costlier drug or from a medication with a generic version to one with no generic version.

Medco also must reveal to prescribers and patients the savings they negotiate and the incentives paid to the company by drug manufacturers.

Patients must be informed when a substitute drug has been proposed, advised of its comparative side effects and offered an opportunity to reject the change. The company also must reimburse patients for any out-of-pocket increases in the cost of their health care that result from a drug substitution, such as when a new drug requires more frequent testing or monitoring than the original.

Medco, while not admitting to any wrongdoing, said in a press release that the settlement assures “all Medco clients benefit from a range of clinical and financial business practices, many of which had already been implemented.”

“This arrangement is consistent with our goal to position Medco as the most transparent company in our industry,” said company chairman David B. Snow Jr.

Medco, which covers 62 million consumers, is one of just a handful of major PBMs that process about two-thirds of all prescription drug spending in the United States.

With private prescription management companies poised to take on billions of dollars in new business under the recently passed Medicare drug benefit, Rowe said the changes at Medco should serve as an ethical and performance standard for other PBM companies. “We are hopeful that we have changed the course of this industry,” he said.

Rowe and other attorneys general at the media event would not discuss whether other PBMs are under similar investigation.

But the settlement does lend support to Maine’s 2003 law that requires all PBMs doing business in the state to adhere to similar guidelines, according to Chuck Dow, a spokesman for Rowe’s office. That legislation took effect in September but was challenged almost immediately in federal District Court and cannot be enforced until the case is resolved.

A spokesman for the Pharmaceutical Care Management Association, which challenged the Maine law, said Monday that the Medco settlement would not affect the court case in Maine.

“The litigation and the [Maine] legislation have a similar goal,” Dow said Monday, “and that is to provide more disclosure and fairer pricing as far as PBMs are concerned.”