Lawsuit Says Merck, Merck-Medco Steered West Virginia State Employees to Costlier Medications

West Virginia Attorney General Darrell McGraw (D) has filed suit against Merck and its pharmacy benefit manager subsidiary Medco Health Solutions on allegations that Merck and Medco "steered" state employees to more expensive treatments -- which included Merck products -- and withheld pharmaceutical company rebates that the state should have received, the Wall Street Journal reports. The lawsuit, filed in the Circuit Court of Kanawha County, W.Va., alleges that Medco, which served as pharmacy benefit manager for employees of West Virginia from June 2000 to July 2002, prompted the state's prescription drug costs to increase to levels "substantially higher than can be accounted for by drug inflation rates and/or member utilization." According to the lawsuit, Medco directed the 200,000 West Virginia employees in the Medco program to more expensive treatments "because it was receiving millions of dollars of rebates from drug makers." The lawsuit also alleges that Medco should have passed to the state "all but 5% of the rebates it received from drug makers but failed to do so." The lawsuit seeks damages and restitution. Anita Kawatra, a spokesperson for Medco, said that the company has not reviewed the lawsuit but plans to "defend itself vigorously." She added, "For two years, we provided high-quality services that delivered a proven record of net plans savings for the people of West Virginia. We are confident we performed in accordance with our contract."

Future Lawsuits?
The allegations in the West Virginia lawsuit "strike at the very heart of the way PBMs do their business" and could "portend similar suits by other state attorneys against the PBM industry," the Journal reports (Martinez, Wall Street Journal, 11/4). PBMs direct physicians toward less expensive brand-name medications and generic treatments through prescription drug formularies to reduce costs for health plans, public health programs and employers. Brand-name pharmaceutical companies offer PBMs discounts and rebates to have their treatments placed on the formularies, and PBMs share the discounts with their clients. However, in the past few years, competition between PBMs has reduced the rates that they can charge clients to process claims, and some have begun to help brand-name pharmaceutical companies market more expensive treatments to increase revenue (Kaiser Daily Health Policy Report, 8/14). Individuals familiar with the PBM industry said that a group of attorneys general has met to discuss the "potentially problematic" practices of PBMs, which do not report the percentage of the revenue that they receive from rebates and other sources from pharmaceutical companies and the percentage that they receive from clients to process claims (Wall Street Journal, 11/14).