First, here is an explanation of how wholesale drug prices are formulated, from a law firm who is involved in this lawsuit:
....The standard practice in the pharmaceutical industry is that the federal Medicare program, state Medicaid agencies, third party payors and Patients reimburse physicians and pharmacies for prescription drugs based upon the AWP, as published and reported by third-party publications such as Red Book, Blue Book or Medispan. Physicians and pharmacies purchase the prescription drugs for which they are so reimbursed directly from the pharmaceutical manufacturer or indirectly through wholesalers.
The AWP is not independently determined by the Red Book and other third-party reporting agencies. Rather, pharmaceutical companies purportedly “self-police” and “self-report” the AWP to third-party publications (such as Red Book), which then publish the purported AWP, as provided to them by the pharmaceutical manufacturers. By federal regulation and industry practice, the AWP is intended and required to be based upon and directly related to actual prices paid by physicians and pharmacies to pharmaceutical manufacturers (or wholesalers) for such prescription drugs.
In fact, as has been revealed by an extensive and ongoing Congressional investigation, numerous pharmaceutical manufacturers (including each of the defendants) have engaged in a cartel and a conspiracy or, at a minimum, illegal parallel action since the early 1990s involving the fraudulent reporting of fictitious AWP for certain prescription pharmaceuticals including, primarily, prescription pharmaceuticals covered by Medicare and Medicaid.
Specifically, the fraudulent AWP scheme has involved the reporting by each defendant of inflated AWPs. The fraudulent reporting of AWPs has the effect of materially misrepresenting the actual prices paid to defendants by physicians and pharmacies.
The complaint alleges that, in many instances, the purported AWP reported by the defendant pharmaceutical manufacturers bears a minimal relationship to the prices actually paid by physicians or pharmacies and is “made up” by corporate pricing committees literally out of “thin air” for the purpose of manipulating pharmaceutical markets and increasing market share.
As a result of the fraudulent and illegal manipulation of AWP for certain drugs by defendant pharmaceutical manufacturers, they and the other manufacturers have reaped billions of dollars in illegal profits at the expense of American consumers, including third party payors and patients.
Those who have been injured by this scheme and practice, in addition to federal and state governments, are plaintiffs and the general public, who incur a co-payment for drugs they need and buy based upon these inflated AWP prices.
The firm is investigating this action on behalf of Medicare patients and third party payors in other states.
The following is a description of the huge class-action lawsuit referred to above currently ongoing in the U.S. regarding the pharmaceutical industry and drug pricing:
Pharmaceutical Industry Average Wholesale Price Litigation
This case, brought on behalf of consumers, self-insured employers, health, and welfare plans, health insurers and other end-payors for prescription drugs against most of the nations pharmaceutical companies, alleges violations of the Federal Racketeering and Corrupt Organizations Act (RICO) and the consumer protection statutes of many states. The goal of this suit is to recover hundreds of millions of dollars overpaid as a result of the pharmaceutical companies’ fraudulent scheme to inflate the price of certain prescription drugs. Since the beginning of the Class Period, January 1, 1991, the Defendants have created fictitious prices for certain drugs, known as the Average Wholesale Price (AWP), which far exceed the actual price of these drugs. The Defendants allegedly inflate the AWP to enable providers, such as physicians and pharmacists, to secretly profit through overcharges to patients and their insurers, which in turn persuades the providers to prescribe drugs with the most inflated AWP, thereby increasing the market share and profit for the pharmaceutical companies. This scheme also has had the effect of inflating payments for drugs by individual patients and their insurers through co-pays or direct payments. The case is pending in Boston federal court.
Here is a "list" of some currently ongoing lawsuits regarding prescription drug prices:
Proactive Litigation Against PBMs
January 28, 2005
National Legislative Association on Prescription Drug Prices
David A. Balto, Esq.
There are numerous recent cases brought by both state and federal enforcement agencies and by private parties challenging a variety of conduct by Pharmacy Benefit Managers (PBMs). Most of these cases focus on whether PBMs have taken advantage of their business structure and engaged in fraudulent or deceptive conduct in failing to pass on savings to their clients, switching patients’ medication to earn financial rewards, or manipulating their mail order operations. Other cases, as Councilman Cantania and Representative Brautigam have discussed this morning, directly challenge state legislation enacted to regulate the activities of PBMs. Although some of these cases have been settled, none of the cases has been fully litigated nor has there been any finding of liability.
Other than the District of Columbia and Maine lawsuits challenging enacted legislation, I believe the other most prominent case involving the activity of PBMs is a case brought by the U.S. Attorney’s Office for the Eastern District of Pennsylvania in United States of America v. Merck-Medco Managed Care L.L.C., et al. This case has grown exponentially since the first complaint was filed in 2000, and now involves 20 state Attorneys General and the U.S. Attorney who allege that Medco engaged in a variety of fraudulent activity including making false statements to doctors and patients about drug substitutions favoring higher priced drugs in which they earned a greater financial reward (via rebates) and failing to disclose their financial arrangement with manufacturers. The state Attorneys General and the U.S. Attorney reached a partial settlement in April 2004 in which Medco admitted no wrongdoing but paid over $29 million and agreed to adhere to new standards for switching patients’ prescriptions. The new standards included not changing any prescription if it resulted in higher costs and a promise to inform doctors and patients of any financial incentives Medco might have to switch a drug. Among the remaining allegations in the federal suit against Medco are charges the company destroyed, canceled, shorted and falsified patients’ drug orders at its mail-order centers so it could meet production goals and other contractual performance guarantees
The state Attorneys General also have established a multi-state task force which continues to lead several investigations of PBMs. Most of these investigations focus on whether the PBMs have defrauded the individual state’s healthcare plans by improperly switching drugs or pocketing drug rebates. In addition, there are numerous private cases that have been filed. Some of these cases are whistleblower cases alleging violations of federal claims acts statutes. Other cases allege violations of state unfair trade practice statutes or breach of contract claims. Finally, there are numerous cases filed by pharmacies against PBMs for their activities in preventing pharmacies from engaging in mail order or conspiring to reduce the amount of compensation that pharmacies receive for filling PBM claims.
Numerous class actions lawsuits have also been filed against PBMs over the past several years. One of the better known cases, American Federation of State County and Municipal Employees v. AdvancePCS, et al. was filed on March 18, 2003, in the Superior Court of California against Advance PCS, Caremark Rx, Inc., Express Scripts, and Medco Health Solutions. This lawsuit, as do most of the other pending class action suits, alleges that PBMs inflate prescription drug prices by steering health insurers and consumers into reliance on more costly drugs. The complainants argue that the defendant PBMs negotiated rebates from drug manufacturers and discounts from retail pharmacies but did not pass on those savings to health plans and consumers. The complaint also alleges that the PBMs developed a pricing system based on fraudulently using the Average Wholesale Price to inflate prices set by the drug manufacturers, and that defendants’ pocketed secret rebates, spreads and other payments from drug manufacturers. Given these alleged activities, the complaint argues that the defendants violated California’s Unfair Competition Law with their unfair trade practices.
Finally, in August 2004, New York state Attorney General Elliot Spitzer sued Express Scripts, Inc. for breach of contract. In People of the State of New York v. Express Scripts, Inc., et al., filed in New York State Supreme Court, the state of New York alleged among other things that this PBM: (1) enriched itself at the expense of the New York State’s largest employee health plan by inflating the cost of generic drugs; (2) diverted to itself millions of dollars in manufacturer rebates that belonged to the state health plan; and, (3) induced the State to enter into the contract by misrepresenting the discounts the state health plan was receiving for drugs purchased at retail pharmacies. The lawsuit also alleges, that in furtherance of its scheme to divert and retain manufacturer rebates that belonged to the state health plan, Express Scripts disguised millions of dollars in rebates as “administrative fees,” “management fees,” “performance fees,” “professional services fees,” and other names.
In reviewing the summary of ongoing federal and state litigation (see attached), a pattern is clearly discernable in the issues being litigated. Most of these cases involve one or more of the following claims against a PBM: (1) conflict of interest in engaging in unfair, deceptive or fraudulent activity with a drug manufacturer; (2) improper prescription drug switching to a higher priced drug without medical justification and without the authorization of the prescribing physician; (3) failing to disclose material facts in the conduct of trade by not disclosing the full extent of rebates and other incentives received from drug manufactures, and failing to pass through such discounts to pharmacies and consumers; and, (4) price fixing.
In 2004, about a dozen states each sought to regulate PBMs or require them to disclose marketing costs. Even with the current court challenges to legislation enacted in the District of Columbia and Maine, which focus on the fiduciary aspects of PBMs and the “taking” of property and trade secrets, state level efforts to regulate the activities and conduct of PBMs will continue in an effort to make them more transparent and more responsive to the needs of consumers.
Ongoing Federal and State Litigation Regarding Pharmacy Benefit Managers
I. Qui Tam – “Whistleblower” Lawsuits
United States, ex rel. George Bradford Hunt and Walter W. Gauger, et al. v. Merck & Co., Inc., Merck-Medco Managed Care, L.L.C. and Medco Health Solutions, Inc., and United States, ex rel. Joseph Piacentile v. Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C.; Consolidated Case No. 00-cv-737; U.S. District Court for the Eastern District of Pennsylvania; Judge Anita B. Brody. (Also cited as United States of America v. Merck-Medco Managed Care L.L.C., et al.)
In these whistleblower lawsuits, complaints were filed under the federal False Claims Act and state False Claims Acts against Medco Health Solutions, Inc. (“Medco”). The cases allege that Merck and Medco systematically defrauded government-funded health insurance programs by accepting kickbacks in exchange for referring patients to certain products, secretly accepting rebates from drug manufacturers in exchange for increasing product market share, secretly increasing long-term drug costs, and failing to comply with state-mandated quality of care standards. This manner in which this was done included: (1) inducing physicians to switch patient medications (drug interchange) by providing misleading, false or incomplete information that subverted patient care to profit motives; (2) secretly increasing the cost of drugs provided to beneficiaries by knowingly interchanging patients’ medications to prevent them from taking advantage of soon to be released available generic drugs; and, (3) violating basic state requirements governing pharmacist supervision of prescription drug fulfillment processes. Through such conduct the United States alleges that Merck and Medco violated their contracts with government-funded health insurance programs.
These cases were brought by the whistleblowers on behalf of the United States. The Hunt and Gauger amended complaint was filed on March 18, 2003. The Piacentile complaint was filed on February 10, 2000. On June 20, 2003, the United States intervened following an extensive investigation of the factual allegations and evidentiary support provided by the relators. This investigation was conducted by numerous federal agencies, including the U.S. Attorney’s Office, the Eastern District of Pennsylvania, the Office of Inspector General of the Office of Personnel Management, the Office of Inspector General of the Department of Health and Human Services, and the Defense Criminal Investigative Service. On December 9, 2003, the United States amended its complaint adding two executives of Medco as defendants. In the amended complaint these executives were accused caused of (1) covering up the intentional destruction of patient prescriptions, (2) destroying and directing the destruction of patient prescriptions, and (3) making misleading statements about the cover-up when questioned by the Department of Justice. The amended complaint also added a count against Medco under the Public Contract Anti-Kickback Act for making improper payments to health plans to induce them to select Medco as a pharmacy benefit manager for government contracts.
On April 26, 2004, the United States, 20 state attorneys generals, and the defendants agreed to a settlement of claims for injunctive relief and unfair trade practice laws. A separate consent order was filed by the states to cover the injunctive and monetary claims. This order instructs Medco to pay $20 million to the states in damages, $6.6 million to the states in fees and costs, and about $2.5 million in restitution to patients who incurred expenses related to drug switching between a set of cholesterol controlling drugs. The consent order filed in the federal district court of the Eastern District of Pennsylvania excluded claims for damages, penalties, or restitution under federal statutes and common law. These components of the federal case are pending.
The settlement 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
• The switch is made more often than once in two years within a therapeutic class of drugs for any patient.
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 the American Pharmacists Association code of ethics and principles of practice for pharmaceutical care for employees at its mail order and call center pharmacies.
II. Other Federal District Court Lawsuits
•North Jackson Pharmacy, Inc., et al. v. Medco Health Solutions, Inc., et al.- On October 1, 2003, three related lawsuits were filed in the U.S. District Court for the Northern District of Alabama against Advance PCS and Caremark (Case No. CV-03-2695), Express Scripts (Case No. CV-03-2696-NE, and designated as the lead case), and Medco Health Solutions, Inc. (Case No. CV-03-2697). In these actions, North Jackson Pharmacy plaintiffs allege that the PBM defendants engaged in price fixing and other unlawful concerted actions to restrain trade in the dispensing and sale of prescription drugs. The complaint alleges that the defendants actions have harmed participants in programs or plans who have purchased their medications from retail pharmacies. North Jackson Pharmacy plaintiffs allege that the defendants engaged in various forms of anticompetitive conduct citing violations of the Sherman Act, including: (1) setting pharmacy reimbursement rates at unreasonably low levels; (2) imposing vertical maximum prices restrictions for how much pharmacies can charge PBMs and how much the PBMs may reimburse the retail pharmacies; and (3) operating illegal tying arrangements through horizontal price-fixing.
On October 13, 2004, the court in the Express Scripts (Case No. CV-03-2696-NE, and designated as the lead case), and Medco Health Solutions, Inc (Case No. CV-03-2697) cases denied defendants’ motion to dismiss the second amended complaint. (see Opinion Regarding Motion to Dismiss Second Amended Complaint, October 13, 2004). The defendants alleged that the North Jackson Pharmacy plaintiffs’ allegations failed to convincingly explain how consumers or the marketplace were injured as a result of the defendants’ alleged anticompetitive behavior. The court, however, ruled that the complaint provided the PBMs and drug manufacturers with fair notice as to the nature and basis of the claims set forth against them. On November 1, 2004, defendants filed their answers to the second amended complaint.
On August 3, 2004, the North Jackson Pharmacy, Inc, v. Caremark Rx, Inc. case (Case No. CV-03-2695) was transferred to the U.S. District Court for the Northern District of Illinois. (Case No. 04-c-5674). In November 2004, citing to the Alabama court’s October 13 denial of defendants’ motion to dismiss in the related actions, the Illinois court also denied Caremark’s motion to dismiss (see Memorandum Order, November 2, 2004). Accordingly, that court proceeded and on November 19, 2004 heard arguments on class certification.
District of Columbia
•Pharmaceutical Care Management Association v. the District of Columbia, et al. - On June 29, 2004, the Pharmaceutical Care Management Association (PCMA) filed suit in the U.S. District Court for the District of Columbia (Civil No. 04-cv-01082) seeking an injunction to block enforcement of Title II of the Access Rx Act of 2004. Title II of this Act requires transparent business practices among PBMs and states that PBMs owe a fiduciary duty to a covered entity. The Act requires that PBMs notify a covered entity of any conflict of interests, and that PBMs pass payments or benefits on in full to a covered entity where the PBM has received from any drug manufacturer or labeler any payment or benefit of any kind in connection with the utilization of prescription drugs by covered individuals, including payments or benefits based on volume of sales or market share. The Act also requires that PBMs, upon request by a covered entity, must provide information showing the quantity of drugs purchased by the covered entity and the net cost to the covered entity for the drugs (including all rebates, discounts, and other similar payments). It requires that PBMs disclose to covered entities all financial terms and arrangements for remuneration of any kind that apply between the PBM and any prescription drug manufacturer or labeler. Finally, the Act sets forth certain provision which must be applied to the dispensation of a substitute prescription drug for a prescribed drug to a covered individual.
In its lawsuit, PCMA argues that Title II is pre-empted by ERISA and the Federal Employees Health Benefits Act in determining who is (and who is not) a fiduciary of an ERISA-covered plan and FEHBA’s comprehensive regulation of federal employee plans. Second, PCMA asserts that the law’s disclosure requirements effect an unconstitutional taking of PBMs’ property by destroying the value of trade secrets. And, finally, in seeking an injunction, PCMA argues that Title II violates the Commerce Clause of the Constitution. AARP has filed a motion for leave to file an amici curiae brief in support of defendants (see Motion for Leave to File a Brief Amici Curiae, July 22, 2004).
On December 21, 2004, the Court granted PCMA’s motion for interim injunctive relief enjoining the District of Columbia from enforcing Title II of the Act. The court concluded that the plaintiff had demonstrated substantial likelihood that at least part of Title II may be unconstitutional; that aspects of Title II would represent an illegal takings of private property; and, that Title II could have the unintended effect of actually driving the PBM business and its attendant benefits out of the District of Columbia.
•Pharmaceutical Care Management Association v. Rowe – This lawsuit filed on September 3, 2003, in the U.S. District Court for the District of Maine (Civ. No. 03-153-B-W), seeking declaratory and injunctive relief from LD 554 with regard to the fiduciary obligations and disclosure requirements set forth in this Maine law enacted in 2003. LD 554 imposes extensive duties of disclosure from the PBM to the client, including the duty to disclose: (1) any “conflict of interest”; (2) “all financial and utilization information requested by the covered entity relating to the provision of benefits”; and, (3) “all financial terms and arrangements for remuneration of any kind that apply between the [PBM] and any prescription drug manufacturer or labeler, including, without limitation, formulary management and drug-switch programs, educational support, claims processing and pharmacy network fees. . . .” While the Act allows a PBM to substitute a lower-priced generic drug for a therapeutically equivalent higher-priced prescriptive drug, it prohibits the PBM from substituting a higher-priced drug for a lower-priced drug unless the substitution is made “for medical reasons that benefit the covered individual” and the “covered entity”. The Act also imposes disclosure and approval obligations on the PBM before any drug interchange. It also requires that benefits of special drug pricing deals negotiated by a PBM be transferred to consumers rather than being collected as profit by a PBM. The Act contains a limited confidentiality provision, as well: if a covered entity requests financial and utilization information, the PBM may designate the information as confidential and the covered entity is required not to disclose the information except as required by law.
In its lawsuit, PCMA alleged violation of the Commerce Clause by having extraterritorial effect and discriminating against out-of-state companies in favor of in-state companies; and, “taking” of property for which just compensation is due under the Fifth and Fourteenth Amendments of the United States Constitution. PCMA also argued that ERISA preempts this state law. On March 9, 2004, a decision by the judge temporarily blocked the implementation by issuing a preliminary injunction of LD 554. The court held that:
•The Court found that LD 554 conflicted with the federal Employee Retirement Income Security Act (ERISA) by designating PBMs as fiduciaries. By imposing additional rules and requirements on ERISA plans, LD 554 conflicted with Congressional intent to preserve the uniformity ERISA provides to make health care benefits including prescription drugs more affordable.
•The Court found that by imposing requirements for the disclosure of PBMs’ proprietary pricing arrangements, LD 554 represents a “taking” of PBMs’ trade secrets.
(see Order Granting Motion for Preliminary Injunction, March 9, 2004). The Court’s injunction was affirmed by a new judge in July 2004, despite amendments to the law which would have protected trade secrets. (See Order on Defendant’s Motion to Amend the Order of Preliminary Injunction, July 7, 2004; and see also Maine legislation discussion, above). Also in July 2004, the Maine Attorney General filed an interlocutory appeal to the U.S. Court of Appeals for the First Circuit (Case No. 04-2004), but this appeal was voluntary dismissed in September 2004 (see Mandate of U.S. Court of Appeal, September 1, 2004). Subsequently, PCMA filed for summary judgment (see Motion for Summary Judgment, October 15, 2004). Pending the decision on the motion for summary judgment, trial is scheduled for early 2005.
•In re Pharmaceutical Industry Wholesale Price Litigation – Originally filed in multiple jurisdictions in 2001, this consolidated class action case was initiated on September 6, 2002 in the U.S. District Court for the District of Massachusetts. (MDL No. 1456; Civil Action No. 01-cv-12257-PBS). The consolidated complaint alleges that the forty-two (42) defendant drug manufactures violated RICO and eleven (11) unfair and deceptive trade practices acts, including the Clayton Act, the Sherman Act, antitrust status of 22 states, state consumer protection statutes in 11 states, and civil conspiracy law. Specifically, defendants allegedly engaged in fraudulent conduct by artificially inflating the average wholesale prices (“AWP”) for at least 321 identified drugs causing plaintiffs to substantially overpay for those drugs. Plaintiffs allege that defendants used this AWP fraud to increase market share for their drugs covered by MediCare Part B, and to maintain the high price of their brand name drugs outside of MediCare Part B. Plaintiffs claim that they are damaged by this fraudulent conduct since they are frequently required to make either full payment or copayments for a covered drug or a brand name drug and such payments are based on inflated AWPs.
In February 2004, the court issued a ruling that the plaintiffs had set forth sufficient facts to state claims concerning: (1) the alleged RICO enterprises between the drug manufacturer and four PBMs with the common objective of promoting fraudulent AWPs; (2) the alleged price-fixing conspiracy of one prescription card program in violation of antitrust laws; and, (3) RICO claims involving multi-source drugs. The court accepted class plaintiffs arguments which proposed that the drug companies had manipulated the prices of multi-source and generic drugs, claims which had previous been dismissed by the court without prejudice. Importantly, the order let stand the allegation of an ongoing conspiracy between the drug manufacturers and PBMs, who allegedly profit from the spread between the discounted price they pay and the AWP for which they are reimbursed by patients and other payers. (See Memorandum and Order, February 24, 2004).
•Peabody Energy Corp. v. Medco Health Solutions, Inc., et al. - Peabody filed this lawsuit suit against Medco Health Solutions on April 2, 2003 (Case No. 03-cv-417-ERW) alleging violations of ERISA; this case was filed under seal. In December 2003, the case was transferred to the multidistrict litigation case in the Southern District of New York, in order to consolidate pretrial proceedings (see Order of MDL Transfer, December 10, 2003) (see below, In re Medco Health Solutions, Inc., Pharmacy Benefits Management Litigation, which was initiated on March 12, 2003).
•Peabody Energy Corp. v. Merck & Co., Inc., - Peabody Energy Corporation filed this second lawsuit in the U.S. District Court for the Eastern District of Missouri against Merck & Co. on December 23, 2003 (Case No. 03-cv-1839-ERW). This case alleges violations of RICO in that: (1) Merck directed its former Medco Health Solutions subsidiary to steer Peabody employees towards Merck manufactured medications rather than offering them therapeutically equivalent and less expensive alternative drugs; (2) required Medco to provide drugs made by Merck to patients at rates that exceeded Merck’s general market share nationwide; and (3) directed Medco to encourage patients to use Merck’s cholesterol drug Zocor instead of Pfizer’s rival treatment Lipitor. The complaint also alleges tortuous interference by Merck with Peabody’s PBM contract with Medco and unjust enrichment. It also alleges violation of state antitrust statutes. In May 2004, the defendant filed a motion to stay the proceedings pending resolution of a conditional transfer order issued by the Judicial Panel on Multidistrict Litigation (see Memorandum in Support of Motion to Stay Proceedings, May 11, 2004). On July 9, 2004, this motion was denied; however, in August 2004 the case was transferred to the multidistrict litigation case in the Southern District of New York (see Order of MDL Transfer, September 7, 2004) (see below, In re Medco Health Solutions, Inc., Pharmacy Benefits Management Litigation, which was initiated on March 12, 2003).
• Gruer v. Merck-Medco Managed Care, L.L.C.; Green v. Merck-Medco Managed Care, L.L.C.;
Bellow v. Merck-Medco Managed Care, L.L.C.; Janazzo v. Merck-Medco Managed Care, L.L.C.; and, O’Hare v. Merck-Medco Managed Care, L.L.C. (also referred to as In re Medco Health Solutions, Inc., Pharmacy Benefits Management Litigation, MDL Case No. 1508) - This action was initially commenced on December 17, 1997, with the filing of the Gruer complaint. The Gruer case was soon consolidated by the court with five other cases each of which asserted substantially similar claims to those presented in the Gruer complaint. The complaints that comprise the action, sought class action status on behalf of all individuals who were fiduciaries, beneficiaries, or participants or in employee welfare benefit plans that provided prescription benefit coverage. Class status applied to individuals who: (1) had contracts with Medco or any subsidiaries of Merck; (2) received prescription benefit services from Medco during the Class Period; and (3) used on an “open” formulary basis Medco’s Preferred Prescriptions Formulary or Medco’s Rx Selections Formulary. The action asserts claims against Medco and Merck for breaches of fiduciary duty and other violations under ERISA.
The Court preliminarily approved settlement of the cases on July 31, 2003. On May 25, 2004 the court approved a $42.5 million settlement proposal offered by Medco Health Solutions to the employee welfare benefit plans. The settlement applied to those who directly or indirectly (through third party administrators, HMOs, insurance companies, Blue Cross Blue Shield entities or other intermediaries) held contracts with Medco between December 17, 1994 and May 25, 2004. This settlement was reached to conclude lawsuits which alleged that Medco violated its fiduciary duty by promoting more expensive drugs made by Merck and other manufacturers over less costly alternatives. The court did not rule on the merits of either the plaintiffs’ claims or the defendants’ defenses.
• Healthfirst, et al v. Merck-Medco, et al. - In this lawsuit filed on July 11, 2003, Healthfirst, a managed care prescription drug benefit program consisting of retail and mail pharmacy services, claimed that Medco breached its contract obligations by: (1) concealing the full amounts of manufacturer rebates and discounts it received with regard to Healthfirst’s plans, and failing to pass through to Healthfirst any payments to which it was due; (2) demanding additional dispensing fee payments, which were outside the scope of the contract; (3) demanding monies for alleged savings derived from the Managed Rx Coverage Program and the Managed Prior Authorization Programs, while concealing both the amounts and sources of these alleged savings. Discovery in this case continues.
•Brady Enterprises, Inc., et al. v. Medco Health Care Solutions, Inc., et al. and Bellvue Drug Co., et al. v. Advance PCS - These companion lawsuits were filed on August 15, 2003 in the U.S. District Court for the Eastern District of Pennsylvania by individual pharmacies, as well as the Pharmacy Freedom Fund and the National Community Pharmacists Association. (Civ Nos. 03-4730 and 03-4731, respectively). The lawsuits allege that each of the defendant PBMs have violated Section I of the Sherman Act by engaging in anticompetitive conduct which substantially affects interstate commerce. These alleged violations include: negotiating and fixing reimbursement levels and rates, restricting the level of service offered to customers, and arbitrarily limiting the ability of retail pharmacies to compete on a level playing field with the PBMs’ mail order pharmacy. The lawsuits seek class action status and allege that, acting as the common agent for plan sponsors, the two PBMs limited competition by: (1) setting reimbursement rates for pharmacies far below the rates that would apply in a competitive market; (2) fixing and artificially depressing the prices to be paid to pharmacies for generic drugs; (3) prohibiting retail pharmacies from providing more than a 30-day supply of drugs while the PBMs’ own mail order pharmacies routinely provide a 90-day supply; (4) requiring retail pharmacies to charge an effectively higher co-pay than the co-pay that the PBMs’ own mail order pharmacies charge; and, (5) imposing one-sided contracts and added costs and inefficiencies on retail pharmacies.
The lawsuit against Advance PCS asserts two antitrust violations: (1) horizontal price-fixing conspiracy/agreement among buyers of prescription drugs; and, (2) abusive business conduct by the defendant to harm retail pharmacies. In March 2004, the court denied Advance PCS’ motion to dismiss (see Memorandum and Order, March 3, 2004). In June 2004, the defendant filed a motion seeking to compel arbitration of the claims and dismissing the court action. (see Motion to Compel Arbitration, June 21, 2004). In August 2004, this motion was granted and the lawsuit was stayed pending the outcome of arbitration (see Memorandum and Order, August 23, 2004). Plaintiffs have filed a motion for reconsideration, or in the alternative, for certification for interlocutory appeal (see Motion for Reconsideration, September 7, 2004).
The lawsuit against Medco asserts the same antitrust violations as in the Advance PCS case and names Merck as a co-defendant on the grounds that Medco is merely the “alter ego” for Merck in promoting its brand name drugs. On November 17, 2003, defendants filed a motion to dismiss for failure to state a claim. In August 2004, the judge issued an order denying this motion to dismiss (citing to and supporting the judge’s March 2004 ruling in the Advance PCS case); concluding that the Pharmacy Freedom Fund and the National Community Pharmacists Association do have standing to seek declaratory and injunctive relief; and, that plaintiffs’ assertions of Merck’s control over Medco were sufficient to withstand dismissal. (See Memorandum and Order, August 2, 2004). As such, a scheduling order was issued in September 2004 setting forth the discovery schedule which will extend well into 2005 (see Scheduling Order, September 30, 2004).
•American Medical Security Holdings Inc. v. Medco Health Solutions, Inc. – This lawsuit was filed on May 14, 2003 in the U.S. District Court for the Eastern District of Wisconsin (Case No. 03-cv-431-WCG) by American Medical Security Holdings Inc., a former customer of Medco based in Green Bay. The suit alleged breach of contract involving discounted pricing and prescription dispensing fees. This case settled on March 24, 2004.
III. State Court Lawsuits
•Alameda Drug Co., Inc, et al.. v. Medco Health Solutions, Inc., et al.- On January 20, 2004 this lawsuit was filed in the Superior Court of California (San Francisco) (Case No. CGC-04-428109) seeking class action status for California retail pharmacies and pharmacists. The complaint alleges violation of California’s Cartwright Act (Section 16720, et seq., of the California Business & Professions Code) by fixing, raising, stabilizing and maintaining prices of prescription drugs manufactured by Merck and others at supra-competitive levels. The complaint also alleges violations of the California Unfair Competition Law by the defendants’ unfair, unlawful and/or fraudulent business acts, omissions misrepresentations, practices and non-disclosures. The complaint relies upon information from the U.S. government’s qui tam case in the Eastern District of Pennsylvania and alleges that Medco has unfairly increased its market share, increased its market power and restricted price competition at the expense of the plaintiffs and to the detriment of consumers. The complaint alleges that since the expiration of a 1995 consent injunction entered by the U.S. District Court for the Northern District of California, the defendants have failed to maintain an Open Formulary (as defined in the consent injunction). Furthermore, the complaint alleges that Merck has fixed and raised the prices of its drugs and those of other manufacturers’ who do business with Medco above competitive levels, while at the same time reducing the amount of reimbursement to the plaintiffs for dispensing these drugs under Medco Health Plans.
•American Federation of State County and Municipal Employees v. AdvancePCS, et al.- Originally filed on March 18, 2003, in the Superior Court of California (Los Angeles)(Case No. BC 292227), this class action against Advance PCS, Caremark Rx, Inc., Express Scripts, and Medco Health Solutions alleges that they inflate prescription drug prices by steering health insurers and consumers into reliance on more costly drugs. The complaint states that the defendants negotiated rebates from drug manufacturers and discounts from retail pharmacies but did not pass on those savings to health plans and consumers. It also alleges that the PBMs developed a pricing system based on fraudulently using the Average Wholesale Price to inflate prices set by the drug manufacturers, and that defendants’ pocketed secret rebates, spreads and other payments from drug manufacturers. Given these alleged activities, the complaint argues that the defendants violated California’s Unfair Competition Law with their unfair trade practices, and that plaintiffs have been damaged by defendants’ practices by making inflated prescription drug payments. Among other things, plaintiffs allege violation of the Unfair Competition Law by the defendants: (1) failing to disclose material facts in the conduct of trade by not disclosing the full extent of rebates and other incentives received from drug manufacturers; (2) that the average wholesale price does not reflect the true average of the drugs they sell; (3) making false or misleading statements of fact concerning drug prices; (4) making misrepresentations as to the accuracy of the average wholesale price; (5) making misrepresentations that the PBMs exercise their formulary and contracting discretion in their health plans’ interests; and, (6) making misrepresentations by claiming that they would put forth their best efforts to obtain prescription drugs for their health plans at the lowest prices available.
•Fowler, Florida ex rel. v. Caremark Rx Inc. – This whistleblower case was filed in January 2003, in Leon County Circuit Court by two pharmacists, Michael and Peppi Fowler who worked at Caremark’s mail-order center in Fort Lauderdale. The case was filed under Florida’s False Claims Act. The state of Florida declined to become involved in the case initially but then sought to intervene. However, on July 27, 2004, the judge ruled that the Florida’s Attorney General Office had not provided sufficient legal reasoning to justify its intervention more than a year after it had declined to become involved.
Group Hospitalization and Medical Services, d/b/a CareFirst Blue Cross Blue Shield v. Merck Medco Managed Care, L.L.P., et al. - No. 03-cv-4144 (N.J. Super. Ct. 2003) -- In this suit, the plaintiff Group Hospitalization and Medical Services, d/b/a CareFirst Blue Cross Blue Shield (“CareFirst”) alleges state law claims for breach of fiduciary duty, breach of contract, negligent misrepresentation and unjust enrichment, and claims arising under District of Columbia and New Jersey state statutes against Merck-Medco Managed Care, L.L.P. (“Medco”). As a common law fiduciary, Medco had a duty to manage CareFirst’s prescription drug benefits solely its best interest, and to act with undivided loyalty toward CareFirst. Medco was precluded via its fiduciary status from self-dealing or profiting at CareFirst’s expense. Subsequent to the expiration of its Agreements with Medco, CareFirst has alleged that Medco breached those Agreements and its fiduciary duties in at least the following ways:
1. failing to require generic substitution at mail and retail;
2. manipulating pricing at retail and mail so as to regularly and systematically bill claims at rates other than those set forth in its Agreements with CareFirst, in order to profit at CareFirst’ s expense;
3. concealing the full amounts of manufacturer rebates and discounts it received with regard to CareFirst’s plans, and failing to pass through to CareFirst the full amount of rebates to which it was due;
4. choosing drugs for its Preferred Prescriptions Formulary based on which drugs would garner the most rebate monies for Medco, rather than based on which drugs would be most cost-effective and efficacious for CareFirst;
5. engaging in drug switching to higher priced drugs without medical justification; and
6. failing to meet performance standards defined in its Agreements with CareFirst.
•New York Unions v. Express Scripts, Inc., et al. – This lawsuit was filed before the New York State Supreme Court in New York County on December 31, 2003, by the United University Professions (“UUP”) and the Organization of New York State Managerial Confidential Employees (“OMCE”). The complaint alleges that Express Scripts engaged in fraudulent practices at the expense of union members. According to the suit, Express Scripts negotiated discounts and rebates with drug manufacturers and then unlawfully withheld them from union members. The suit also holds that Express Scripts distorted the Average Wholesale Price (AWP) of its drugs which artificially inflated drug prices to union members. This case is pending.
•People of the State of New York v. Express Scripts, Inc., et al. – This breach of contract lawsuit was filed on August 4, 2004 in New York State Supreme Court in Albany County. The suit was the result of a one-year investigation by Attorney General Spitzer’s office in cooperation with the Department of Civil Service and the Office of State Comptroller. The investigation was sparked by audits of Express Scripts conducted by Comptroller in 2002. Plaintiffs are seeking injunctive relief, restitution, damages, indemnification and civil penalties resulting from defendants’ breaches of contract. The lawsuit alleges that Express Scripts: (1) enriched itself at the expense of the Empire Plan (New York State’s largest employee health plan) and its members by inflating the cost of generic drugs; (2) diverted to itself millions of dollars in manufacturer rebates that belonged to the Empire Plan; (3) engaged in fraud and deception to induce physicians to switch a patient's prescription from one prescribed drug to another for which Express Scripts received money from the second drug's manufacturer; (4) sold and licensed data belonging to the Empire Plan to drug manufacturers, data collection services and others without the permission of the Empire Plan and in violation of the State's contract; and, (5) induced the State to enter into the contract by misrepresenting the discounts the Empire Plan was receiving for drugs purchased at retail pharmacies. The lawsuit also alleges, that in furtherance of its scheme to divert and retain manufacturer rebates that belonged to the Empire Plan, Express Scripts disguised millions of dollars in rebates as “administrative fees,” “management fees,” “performance fees,” “professional services fees,” and other names. It further alleges that the drug switches caused by Express Scripts often resulted in higher costs for plans and members.
•Ohio v. Medco Health Solutions, Inc. - On December 22, 2003 the state of Ohio filed a lawsuit in Hamilton County Common Pleas Court against Medco Health Solutions. The suit held that the State Teachers Retirement System of Ohio was overcharged millions of dollars for prescription drugs. The State Teachers Retirement System is seeking up to $50 million from Medco, including $36 million in alleged overcharges for the dispensing fees on mail-ordered medications. Other allegations claim that Medco undercounted pills when filling prescriptions and permitted non-pharmacists to dispense and cancel patient prescriptions without the necessary oversight by a licensed pharmacist. The case also contends that Medco steered doctors, pharmacists, and patients to choose brand-name and higher-cost medications manufactured by Merck rather than selecting generic equivalents.
•West Virginia v. Medco Health Solutions - Filed in November of 2002 in Kanawha Circuit Court, the West Virginia Attorney General alleged that Medco withheld prescription drug rebates and other savings from the State’s Public Employee Insurance Agency (“PEIA”). A central complaint of the case held that Medco deliberately steered PEIA members to purchase Merck manufactured medications even though they were more expensive than therapeutically equivalent alternatives. Another allegation against Medco charged that Medco failed to pass manufacturer rebates on to the consumer. Concurrent to the suit filed by the State against Medco, Medco filed a suit against the State alleging that the State failed to pay for $2.2 million owed Medco by the State of West Virginia. In December 2003, the circuit court granted Medco’s motion to dismiss several of the claims. The judge dismissed allegations of Medco’s fraud, conspiracy and tortuous interference, and violations of the Consumer Protection Act. The court has permitted the West Virginia Attorney General to re-allege its claims of fraud if it can offer necessary evidence.
National Legislative Association on Prescription Drugs Office
P.O. Box 492, Hallowell, ME 04347—Phone: 207-622-5597—Fax: 207-621-0960
Office Location: 214 Water Street, Hallowell, ME—Email: email@example.com
More information regarding the Unions' lawsuit(s) and views about prescription drug pricing can be found at: http://www.aflcio.org/aboutaflcio/magaz ... bigfix.cfm
They quote the following from Katherine Greider, author of The Big Fix: How the Pharmaceutical Industry Rips Off American Consumers:
....Conflicts of interest in drug tests:
Tightly monitored clinical trials are essential to determine safety and effectiveness before medicine hits the market. Yet today most of those tests are underwritten by the drug makers—70 percent of the funds to support U.S. clinical trials came from drug companies, according to Greider. As recently as 1991, 80 percent of the industry trial research funds were spent at academic institutions where drug makers had little or no control of the research—but today the majority of those funds are spent with for-profit contract research organizations.
“The process is rife with opportunities for drug companies to mold the message that emerges from the research,” writes Greider. “Companies increasingly insist on designing studies and controlling raw data. If the results are unfavorable, drug makers are sometimes able to prevent them from coming to light.”
Well, it'll be interesting to see what happens from the Courts.