Medco has agreed to pay $29.3 million to settle a case that accused the giant pharmacy benefits manager (PBM) of violating 20 states consumer protection laws with its drug-switching practices.

Medco, a Merck spinoff, was accused of improperly hiking prices, switching prescriptions to favor certain drugs, including Mercks, and engaging in other practices aimed at boosting its profits. It will pay the states $6.6 million to pay for the cost of the investigation and an average of $1 million apiece in cash or prescription drugs for low-income, elderly or disabled consumers.

Medco, which contracts with health plans to process prescription drug payments to pharmacies and manages many states benefits, also agreed to make certain disclosures. It will, for instance, reveal any financial incentives it gets from drugmakers. Medco neither admitted nor denied wrongdoing in making the settlement.

The states charges that Medco encouraged doctors to switch patients to different prescription drugs by implying that the switch would benefit patients and their plans when in fact, the switch only benefited Medco.

In addition, doctors and their patients were never told that drug switching would increase rebate payments from drug manufacturers to Medco and that some switches would result in increased costs in follow-up doctor visits and tests.

Medco is one of the largest providers of pharmacy benefit management services in Oregon and nationwide and any changes that it makes for the good in its operations are expected to significantly reform the entire industry, Oregon Attorney General Hardy Myers said.

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
  • It 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 doctors and patients the minimum or actual cost savings for health plans and the difference in co-payments made by patients;
  • Disclose to doctors and patients Medcos financial incentives for certain drug switches;
  • Disclose to doctors 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 doctors that such reimbursement is available;
  • Obtain express, verifiable authorization from the doctor 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 a certain code of ethics and professional standards.

The settlement provides for a $2.5 million fund to reimburse consumers whose statin (cholesterol lowering) drugs were switched by Medco. Consumers will be eligible to receive up to $25 each to cover statin switch-related medical costs.

Lead states in the case were Massachusetts, Maine and Pennsylvania.