STRS vs. Medco: The trial begins; AP, Cincinnati Enquirer, Wall Street Journal

Trial of teacher retirement system suit begins

Associated Press
11/10/05

CINCINNATI - Attorneys for the state have told a jury that a pharmacy benefits management firm cheated retired Ohio teachers out of $152 million through overpriced drugs, excessive fees and withheld rebates.

A suit by the State Teachers Retirement System against former Merck & Co. subsidiary Medco Health Solutions is being heard in Hamilton County Common Pleas Court.

Medco is the nation's biggest manager of pharmaceutical benefits for employee groups, including Ohio state employees and four other state retiree groups.

The jury will have to decide if Medco violated state law in providing drugs to 115,000 retired teachers and 315,000 beneficiaries from 1993 through 2001. Medco says it did nothing wrong.

Mike Barrett, an attorney working for the state attorney general's office, said in opening arguments that Medco:

● Withheld $55.7 million in drug manufacturer rebates that were paid to Medco, but which belonged to the retirement system. Medco lawyer Earle Maiman said so-called "incentive" or "market share" rebates belonged to Medco.

● Charged $48.6 million in dispensing fees for mail-order drug purchases when the contract called for no fees. Medco denies tacking on any such fees.

● Overbilled the system $48 million by marking up mail-ordered generic drugs by an average 400 percent. Maiman said Medco lived up to contract prices.

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And.... we FINALLY get some press from a Cincy newspaper - imagine that!!!

Isn't it about time for transparency into multi-million dollar contracts between state agencies and state affiliated agencies and Pharmacy Benefits Managers in the Buckeye State? Other states have it, why not Ohio???

"Maiman said Medco earned $6.9 million from the retirement system's business - a profit margin of 1 percent." -- If you believe that, I have a bridge I want to sell you!

-- John Curry

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From The Cincinnati Enquirer:

"That sounded like a pretty good deal to us," Barrett said, "but then there was something they didn't tell us: It was justification for stealing money from us on the rebates."

Thursday, November 10, 2005

Trial begins against drug manager Teacher retirement system says it was defrauded

By James McNair
Enquirer staff writer

Opening arguments commenced Wednesday in a civil trial pitting the State Teachers Retirement System of Ohio against a pharmacy benefits management firm it accuses of cheating retirees out of $152 million through overpriced drugs, excessive fees and withheld rebates.

The case examining the business practices of former Merck & Co. subsidiary Medco Health Solutions is expected to last four to six weeks. Posting $35 billion in revenue in 2004, Franklin Lakes, N.J.-based Medco is the nation's biggest manager of pharmaceutical benefits for employee groups, including Ohio state employees and four other state retiree groups.

With possibly thousands of pages of contracts and other documents to sift through, the panel of eight regular jurors and three alternates will have its work cut out for it. It will have to decide if Medco violated state law in providing drugs to 115,000 retired teachers and 315,000 beneficiaries from 1993 through 2001. Medco says it did nothing wrong.

Mike Barrett of Barrett & Weber, arguing the case for Ohio Attorney General Jim Petro, said the fraud and contract breaches occurred in a number of ways. In the retired teachers' view, Medco:

◦ Withheld $55.7 million in drug manufacturer rebates that were paid to - and kept by - Medco, but which belonged to the retirement system. Medco lawyer Earle Maiman of Thompson Hine said so-called "incentive" or "market share" rebates belonged to Medco.

◦ Charged $48.6 million in dispensing fees for mail-order drug purchases when the contract called for no fees. Medco denies tacking on any such fees.

◦ Overbilled the system $48 million by marking up mail-ordered generic drugs by an average 400 percent. Maiman said Medco lived up to contract prices.

Barrett showed jurors a big chart of drug markups.

During one stretch, from 1996 through 2001, Medco billed the system $10 million for 284,000 generic prescriptions that cost $2 million, Barrett said. His chart showed markups of specific drugs, including a 2,200 percent markup for a generic motion sickness tablet called meclizine hydrochloride and a 300 percent markup for Benadryl.

"That's the kind of markups these guys were getting - and we weren't aware of it," Barrett said.

Merck bought Medco in 1993, then spun it off in 2003. Barrett said 17 percent of Medco's drug purchases came from Merck, including three of Medco's top 10 buys. He said the rebates paid to Medco by Merck and other drug makers were never passed along to the retirement system.

The mail-order dispensing fees, Barrett said, did not show up on invoices but were instead siphoned from the rebate pool at the rate of $8.30 per prescription. Dispensing fees were not supposed to be charged.

"That sounded like a pretty good deal to us," Barrett said, "but then there was something they didn't tell us: It was justification for stealing money from us on the rebates."

Maiman said Medco abided by contracts that were reviewed exhaustively by the retirement system's staff, lawyers and hired pharmacy-benefits consultants. He said Medco provides the same prescription service to other public employee retirement groups in Ohio "and none of them have sued Medco." He reminded jurors that the system put its pharmacy-benefits contract up for bids every three years - and, until 2002, kept going back to Medco.

"STRS bargained hard, and we entered into a deal that was fair to both sides. Medco delivered on its promises, and now these folks want more," Maiman said. "That's what this case boils down to."

Maiman said the system received many drug-purchase rebates, but incentive rebates based on volume sales were rightfully Medco's to keep. He flatly denied the allegation that Medco pocketed dispensing fees for mail-order purchases. And he said drug prices were based on a negotiable sticker price, less 17 percent for brand-name drugs, less 40 percent for generics.

"We haven't marked anything up," Maiman said. "They want you to imagine that Medco is sitting around in a room smoking cigars and jacking up prices. Malarkey! It doesn't happen."

Maiman said Medco earned $6.9 million from the retirement system's business - a profit margin of 1 percent.

Testimony begins next Monday in the Hamilton County Common Pleas courtroom of Judge David Davis. A document written by Petro's lead counsel, Stan Chesley, says the trial could result in the largest judgment in Hamilton County history.

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From The Wall Street Journal:

Ohio Teachers' Suit vs. Medco
Offers a Peek at PBM Practices

"For years, pharmacy benefit managers, or PBMs, have battled the perception that they increase their clients' drug costs by charging big markups on drugs and by doing deals with drug makers to favor more expensive drugs. On Tuesday, a federal appeals court panel backed a Maine law that forces PBMs to disclose more information to clients about their deals with drug makers."

By Barbara Martinez
Staff Reporter of The Wall Street Journal
November 10, 2005

A lawsuit in a state court in Cincinnati is opening a window onto the business practices of pharmacy benefit managers, the companies that handle big employers' prescription drug benefits.

The Board of the State Teachers Retirement System of Ohio is suing one of the largest pharmacy benefit managers, Medco Health Solutions Inc., alleging that it overcharged retired Ohio teachers for prescription drugs. Among the allegations is a claim that Medco charged the teachers' retirement plan a 350% markup on generic drugs in 2000.

In a statement, Medco said the allegations are "false or wildly exaggerated" and that Medco actually saved the state millions of dollars. Medco added that it lost money in some areas of the contract and that its only profit was on generic drugs through the mail, where its profit margin was only 23%. Medco said its "entire profit margin" on the state's program was "less than 1% over about 10 years of service."

For years, pharmacy benefit managers, or PBMs, have battled the perception that they increase their clients' drug costs by charging big markups on drugs and by doing deals with drug makers to favor more expensive drugs. On Tuesday, a federal appeals court panel backed a Maine law that forces PBMs to disclose more information to clients about their deals with drug makers.

The companies have been sued by clients in the past over similar issues. The Ohio case, the first to go to trial, has implications for the entire PBM industry since the companies have similar business practices, and virtually any client could make the same claims. In a case expected to go to trial next year, the Justice Department sued Medco in 2003 alleging that the company defrauded the government's employee-benefits system. Medco has denied those charges.

The Ohio attorney general filed the teachers' suit against Medco in 2003 for "fleecing retired public school teachers who needed prescription drugs," according to the state's trial brief, which was filed Monday in the Court of Common Pleas in Hamilton County, Ohio.

The trial brief filed by Ohio offers a preview of documents and evidence the state will present to jurors. The State Teachers Retirement System of Ohio is currently providing health-care coverage to about 112,000 retired educators and their family members. The suit alleges Medco defrauded the system from 1981 to 2002. The state of Ohio is asking for $152 million in damages.

The lawsuit alleges that in 2000, Medco paid $2.3 million for generic drugs dispensed to retired teachers in Ohio, while it charged the state $10.5 million for those drugs. That alleged 350% markup was wider than in 1997, when the company paid $1.9 million for generic drugs and charged the state plan $7.2 million, a 280% markup.

The trial brief also discusses alleged deals that Medco made with drug manufacturers. It isn't known whether the practices disclosed in those documents are current.

According to Medco documents cited in the Ohio brief, Medco proposed to AstraZeneca PLC that the drug maker give it a 15% discount on its ulcer drug Prilosec "in exchange for a neutral position" when a generic version became available in 2002. The brief said the proposal was at odds with Medco's promise to move clients to generics as quickly as possible, and the discount wasn't passed on to Ohio.