Medco Health to Settle States’ Complaints for $29 Million

In a case that could alter how prescriptions are filled, the nation’s largest pharmacy benefits manager said Monday that it would pay $29 million to settle allegations by 20 states, including California, that it pressured doctors to switch patients’ medications to benefit its bottom line.

Medco Health Solutions Inc., accused of “unfair or deceptive acts and practices” that violated the states’ trade practices laws, also agreed Monday to new disclosures when it seeks to switch a patient’s medication.

The Franklin Lakes, N.J.-based company also filed a settlement Monday with the U.S. attorney’s office in Philadelphia requiring similar changes in its practices. That office is pursuing additional fines and penalties.

It began investigating Medco four years ago after receiving complaints from two Medco pharmacists and a third person. The other states joined the probe two years ago.

Medco contracts with health plans to process prescription drug payments to pharmacies for medications provided to plan members. It handles coverage for more than 62 million Americans through about 55,000 retail pharmacies and a dozen mail-order pharmacies.

Medco had been accused of favoring drugs that brought the company the biggest rebates from manufacturers and not passing all those savings on to its clients, as many of their contracts required. Some drug switches cost patients or their health plans more, because of higher co-pays or required follow-up tests.

Medco, which is to report its quarterly earnings today, denied wrongdoing.

Medco officials said the changes would begin within 120 days and would affect all company clients in every state.

Medco previously notified patients by letter after their doctors agreed to switch their medicines. Now Medco will call patients, and a follow-up letter will explain why the switch is being made, including the difference in the costs of the drugs.

Medco also must disclose the cost savings for health plans and the difference in a patient’s co-payment, the difference in side effects between the prescribed and proposed medications, and Medco’s financial incentives for certain drug switches.

The settlement, spearheaded by authorities in Pennsylvania, Massachusetts and Maine, includes Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maryland, Nevada, New York, North Carolina, Oregon, Texas, Vermont, Virginia and Washington.

Separately Monday, Medco agreed to pay Massachusetts $5.5 million to settle a suit claiming that the firm violated the state’s false-claims act.

Shares of Medco rose 22 cents to $35.25 on the New York Stock Exchange.