N.Y., Other States Settle Deceptive Trade Practices Claims Against Medco Health Solutions

April 27, 2004

New York Attorney General Eliot Spitzer on Monday joined attorney generals from 19 other states in announcing the settlement of claims under state deceptive trade practices laws against Medco Health Solutions Inc. (Medco), for reported drug switching practices.

Medco is a pharmaceutical benefits management (PBM) company with more than 62 million people covered. PBMs contract with health plans to process prescription drug payments to pharmacies for drugs provided to patients enrolled in the health plan.

According to a complaint filed in New York State Supreme Court and other state courts, Medco encouraged physicians and other prescribers to switch patients to different prescription drugs without disclosing that the switches benefitted Medco by increasing rebate payments from drug manufacturers. Medco represented to prescribers that a switch would result in savings to patients and health plans when in fact at times the drug switches increased costs, primarily in follow-up doctor visits and tests. For example, Medco reportedly switched patients from certain cholesterol lowering medications, like Lipitor, to Zocor, which required patients to pay for follow-up costs.

Spitzer stated, “This case shows how pharmaceutical benefit managers previously hid from consumers, doctors and health plans that they were switching prescriptions to promote their own profits. With this settlement, patients and doctors will have full information and can make a decision based on the consumer’s best interest.”

The settlement announced prohibits Medco from soliciting drug switches when:

*The net drug cost of the proposed drug exceeds the cost of the prescribed drug;
*The prescribed drug has a generic equivalent and the proposed drug does not;
*The switch is made to avoid competition from generic drugs; or
*It is made more often than once in two years within a therapeutic class of drugs for any patient.
In addition, the settlement requires Medco to:

*Disclose to prescribers and patients the minimum or actual cost savings for health plans and the difference in co-payments made by patients;
*Disclose to prescribers and patients Medco’s financial incentives for certain drug switches;
*Disclose to prescribers material differences in side effects between prescribed drugs and proposed drugs;
*Reimburse patients for out-of-pocket costs for drug switch-related health care costs and notify patients and prescribers that such reimbursement is available;
*Obtain express, verifiable authorization from the prescriber for all drug switches;
*Inform patients that they may decline the drug switch and receive the initially prescribed drug;
*Monitor the effects of drug switches on the health of patients; and
*Adopt a specified code of ethics and professional standards.

Medco will pay more than $29 million to settle the deceptive trade allegations. $20.2 million will go to states in restitution; $2.5 million to the identifiable patients who incurred expenses related to a switch between cholesterol controlling drugs; and $6.6 million to states in fees and costs. States may use the funds to benefit low-income, disabled, or elderly consumers of prescription medications, to promote lower drug costs for residents of the state, or to fund other programs reasonably targeted to benefit a substantial number of persons affected by the conduct covered in the complaint.

New York State’s share of the $20.2 million is $2.23 million. New York will use its portion to fund prescription drugs at community health clinics and to explore the viability of a website and other communications to publicize differences in drug pricing at New York State pharmacies and the rights of insured consumers. New York State’s share of the $6.6 million in costs of investigation is approximately $410,000.

The multi-state investigation began two years ago in Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington.

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