Attorney General Lockyer and 19 Others Settle Drug-Switching Claims Against Medco Health Solutions

Drug Benefit Managing Company Will Disclose Actual Drug Pricing, Pay States $29 Million

Monday, April 26, 2004
Contact: (916) 210-6000,

(SACRAMENTO) – Attorney General Bill Lockyer today joined Attorneys General from 19 other states in announcing a settlement with Medco Health Solutions, Inc. (Medco), over charges the company encouraged prescribers to switch their patients to cheaper drugs, a practice that financially benefitted Medco but often did not save patients and their health care plans money.

"Soaring drug costs are a major problem for consumers throughout the nation," said Lockyer, president of the National Association of Attorneys General. "This settlement represents the continuing commitment of attorneys general to work together to protect consumers and ensure prescription drugs are affordable for consumers whose lives depend on them."

As the world's largest pharmaceutical benefits management company, Medco contracts with health plans to process prescription drug payments to pharmacies for drugs provided to patients enrolled such health plans. The company, whose actions affect 62 million people, also runs several mail-order pharmacies to fill long-term prescriptions.

In the complaint and judgment filed today in San Diego Superior Court, Lockyer alleged that Medco violated state consumer protection and fair business practices laws by encouraging doctors and other prescribers to switch patients to less expensive prescription drugs, then failing to pass on the resulting savings to patients or their health care plans.

The drug switches generally benefitted Medco, which received increased rebate payments from manufacturers of the drugs to which the patients were newly prescribed. Medco failed to disclose that it would benefit from the drug-switching and instead claimed the switch would save money for patients and health plans.

The 20 state attorneys general allege that the drug switches actually resulted in increased costs to health plans and patients, primarily in follow-up doctor visits and tests. For example, Medco switched patients from certain cholesterol-lowering medications (statins) to Zocor, a drug that required patients to receive follow-up blood tests at additional costs.

Under the settlement, Medco is ordered to pay $2.5 million to patients who incurred expenses related to switches between cholesterol-controlling drugs from 1999 to the present. Affected consumers will receive a notice and claim form from the company in the mail within the next few months. Medco also will pay slightly more than $20 million in cy pres restitution (for victims who cannot be located); and $6.6 million for attorneys general fees and costs.

California will receive more than $3.6 million of the $20 million cy pres restitution, which will be used to benefit low income, disabled, or elderly consumers for prescription medications, promote lower drug costs for state residents or fund other programs reasonably targeted to benefit a substantial number of patients affected by the company's conduct.

The settlement also places new requirements on the way Medco can solicit drug switches. Among other restrictions, Medco is prohibited 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.

The switch within a therapeutic class of drugs is made more often than once in two years for any patient.

The settlement also requires Medco to affimatively:

Disclose to prescribers and patients the minimum or actual cost savings for the health plan 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 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.
The investigation by the states into Medco's drug-switching practices began more than two years ago, and was led by the Attorneys General in Maine, Massachusetts and Pennsylvania. The U.S. Attorney for the Eastern District of Pennsylvania also assisted in the investigation.

Other states participating in the settlement are Arizona, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maryland, Nevada, New York, North Carolina, Oregon, Texas, Vermont, Virginia and Washington. The settlement also names Merck-Medco Manages Care, LLC, as a defendant.

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PDF icon 04-049.pdf102.85 KB
PDF icon 04-049.pdf102.85 KB