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Apr 27, 2004

CONTACT: Jerry Flanagan, (415) 633-1320

Medco $29.3 Million Drug Switching Settlement Shows Need for Greater Transparency

The announcement yesterday by Medco, the nation's largest pharmaceutical benefits manager, that it would pay $29.3 million to settle a federal lawsuit alleging illegal practices which drove up prescription drug costs underscores the need for greater transparency in the industry, according to the Foundation for Taxpayer and Consumer Rights (FTCR). Link to full complaint below.

More than 150 million Americans receive health care benefits that include prescription drug coverage. The prescription drug benefit is usually managed by a pharmacy benefits manager (PBM) which processes prescriptions, negotiates prices with drug companies, and establishes a list of available drugs, or "formulary." PBMs are virtually unregulated at the state and federal level.

The lawsuit alleged that Merck had switched patients to more expensive drugs in exchange for kickbacks from drug companies and failed to disclose rebates to government purchasers. Merck admitted no wrongdoing in connection to yesterday's settlement.

"Left to its own devices this industry has used secrecy and fraud to enrich itself, endanger patients and drive up the costs of prescription drugs," said Jerry Flanagan of FTCR. "Leaving this industry to self regulate is like leaving the keys to the safe with Enron and asking them not to steal."

New legislation, AB 1960 (Pavley, D-Agoura Hills), pending in the California Assembly would require pharmaceutical benefits managers to be licensed by the State Board of Pharmacy and disclose rebates and other payments received from pharmaceutical companies.

The timing of the settlement is significant because beginning in June PBMs will be allowed to sell drug benefit cards to seniors under the new Medicare law and will be required to pass rebates on to consumers.

The full complaint against Medco may be viewed at:

Assembly Member Fran Pavley's bill may be viewed at: