On April 26, 2004, one of the nation’s largest pharmacy benefits managers ("PBMs"), Medco Health Solutions, Inc. ("Medco"), reached separate settlements with the Department of Justice ("DOJ") and the Attorneys General of 20 states. The settlements are significant in that they include broad "conduct remedies" concerning PBMs’ intervention activities and financial relationships with their customers.
Under the settlement with the Attorneys General, Medco agreed to pay $29.3 million to resolve state unfair trade practice allegations against the company. This amount includes $20 million in damages to the states, $6.6 million for state legal fees and costs, and approximately $2.5 million for restitution to patients who incurred expenses related to a switch between different cholesterol drugs. The states will be allowed to choose between receiving payments in cash (to be used to benefit prescription drug consumers), drug cards for low-income elderly residents, or free medication for clinics.
The settlement with DOJ resolves claims against Medco for injunctive relief pursuant to 18 U.S.C. § 1345. However, the settlement does not address remaining claims that the United States may have for monetary damages, penalties, and restitution, and Medco admits no liability or wrongdoing as part of the settlement.
This memorandum summarizes the key conduct remedies contained in the DOJ settlement. These remedies fall into two broad categories: regulation of therapeutic interchange activities and disclosures to health plan clients regarding payments received by Medco from manufacturers. It is unclear at this stage to what extent these remedies will affect Medco’s historic business practices, or how or whether other PBMs may implement the practices that Medco has agreed to in the consent settlement. In any event, the settlement is not likely to end scrutiny on the part of legislators, regulators, and prosecutors of PBM practices and relationships, particularly in light of the critical role that PBMs will play under the Medicare-endorsed prescription drug card program and the future Part D benefit.
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