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Medco Settles Fraud, Kickback Charges for $155 Million

October 24, 2006

Medco • 30 Days Same Price As 90 • Unilateral Cancellations • Prescription Delays • Wrong Prescription • General complaints --- News • Medco Settles Fraud, Kickback Charges for $155 Million • Judge Upbraids Medco • Pharmacy Benefit Managers Scrutinized • Medco Settles State Lawsuits

Medco Health Solutions has agreed to pay the United States $155 million plus interest to settle allegations that it defrauded the government.

The Parsippany, N.J.-based company submitted false claims to the government, solicited and accepted kickbacks from pharmaceutical manufacturers to favor their drugs, and paid kickbacks to health plans to obtain business, the Justice Department said.

Medco, the nation's second largest pharmacy benefit management company, manages the prescription drug benefits of over 60 million Americans, including millions of Medicare beneficiaries.

The United States intervened in two whistleblower cases filed by George Bradford Hunt and Walter W. Gauger in 1999, and by Joseph Piacentile, M.D. in 2000. Both cases were later consolidated.

The government's complaint alleged that Medco submitted false claims for mail order prescription drug services it was required by contract to provide to millions of federal employees, retirees and their families under the Federal Employee Health Benefits Program.

Additionally, it alleged that the company:

• cancelled valid prescriptions it could not fill promptly in order to avoid paying penalties under its contract;

• shorted pills from prescriptions it filled;

• failed to conduct concurrent drug utilization review for all prescriptions in order to identify potential adverse drug interactions; and,

• when filling prescriptions, used drugs other than those prescribed by the physician to earn undisclosed rebates from drug manufacturers.

The government complaint also alleged that the company violated the Anti-Kickback Act by soliciting and accepting payments from pharmaceutical companies to favor their products on Medco's published list of drugs, and by paying kickbacks to induce health plans to award contracts to provide the mail order pharmacy benefits for plan beneficiaries.

The settlement also resolves the government's claims against former Medco Vice-President Diane Collins, who managed the Medco mail order pharmacy in Tampa, Fla.

The complaint alleged that Collins had cancelled, and had instructed others to cancel, valid patient prescriptions to cover up Medco's failure to fill patient prescriptions in the time required by the contract.

As part of the settlement, the relators in the consolidated case will receive $23 million as their share of the government's recovery, plus payment by Medco for their attorneys' fees and costs.

Medco also agreed to settle a second whistleblower action filed in 2003 by Karl S. Schumann, another former Medco employee, alleging kickbacks by pharmaceutical manufacturers to Medco.

Mr. Schumann will receive $860,000 as his share of the government's recovery, plus payment by Medco for his attorneys' fees and costs. The United States and Medco also have settled a separate investigation by the United States Attorney's Office in Philadelphia, initiated in 2004, into false claims to the Medicare program.

"Millions of federal employees and Medicare beneficiaries rely on pharmacy benefit managers for their prescription drugs," said Peter D. Keisler, Assistant Attorney General for the Justice Department's Civil Division.

"Hidden financial agreements with drug manufacturers and health plans can influence which drugs patients receive, the price we all pay for drugs, and whether pharmacists serve patients with their undivided professional judgment."

As a condition of continued participation in government health programs, the United States required that Medco enter into a corporate compliance agreement with the Office of Inspector General, Department of Health and Human Services; and with the Office of Inspector General of the Office of Personnel Management.

"Pharmacy benefit managers are ultimately accountable to their patients and these agreements increase that level of accountability," said U.S. Attorney for the Eastern District of Pennsylvania, Patrick Meehan.

"Pressure by an employer to reduce costs and increase profits must never be allowed to coerce pharmacists into ignoring their duties to patients."

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