Article: Jury gets teachers' Rx case (STRS vs. Medco)

Cincinnati Enquirer, Thursday, December 15, 2005

Arguments end in trial over pension fund claim

By James McNair, Enquirer staff writer

"They sold these contracts like aluminum-siding salesmen," Chesley said. "They played fast and loose with the contracts."

After a trial lasting more than a month, the Ohio teachers pension fund's claim that a New Jersey drug-benefits company cheated its members out of more than $100 million was in the hands Wednesday of a Hamilton County jury.

Lawyers summed up their cases Wednesday, and Hamilton County Common Pleas Judge David Davis instructed the eight jurors on how to consider the civil allegations of breach of contract, breach of fiduciary duty, tortious interference and constructive fraud.

The jury, seated Nov. 9, will begin deliberating this morning.

The State Teachers Retirement System of Ohio alleges that Medco Health Solutions of Franklin Lakes, N.J., pocketed $55 million in drug-maker rebates that belonged to the system.

It also accuses Medco of charging $49 million in unwarranted prescription-dispensing fees from 1993 through 2001, when Medco served as the system's pharmacy benefits manager. Medco's former parent, pharmaceutical giant Merck & Co., is also a defendant.

Medco, which is also defending itself against civil fraud charges filed by the Justice Department in Philadelphia, says it fulfilled the obligations of the pension system's contract and did not enrich itself at the expense of the system's 430,000 retirees and beneficiaries.

The lawsuit was filed in 2003 by Ohio Attorney General Jim Petro but is being tried by Cincinnati lawyers Stan Chesley and Mike Barrett on behalf of five law firms handling the case for Petro.

The retirement system is also seeking an unspecified amount of punitive damages.

Chesley told jurors that Medco engaged in "bait and switch" sales tactics when it agreed to three-year contracts in 1993, 1996 and 1999. He called Medco "smooth" operators who used the contracts to increase the number of Ohio's retired teachers who use Merck's high-priced proprietary drugs. He said Merck - the "mother ship" - supplied 18 percent of the name drugs sold by Medco to retirement system members, including Medco's top three sellers in 1997 - Zocor, Mevacor and Vioxx.

"They sold these contracts like aluminum-siding salesmen," Chesley said. "They played fast and loose with the contracts."

While the state's benefits handlers thought the retiree group was contractually entitled to all rebates paid by drug manufacturers, Medco says it was entitled to rebates paid to pharmacy benefits managers for their overall "book of business" with manufacturers and for increasing the market share of certain drugs.

In one such arrangement, Chesley said, Eli Lilly paid Medco a 15 percent rebate in exchange for a "neutral" stance on prescribing Prilosec, a rival acid reflux drug made by AstraZeneca.

"That's the side deals these guys were doing to the detriment of STRS," Chesley said.

Medco lawyers disputed the amount of "book of business" rebates that Chesley said the company earned from drug makers during the nine-year contract period. They put the figure at $28 million, not $55 million. And despite the "smorgasbord of theories and hypotheses," Medco lead trial lawyer Earle Maiman said, manufacturer rebates are generally divided into two classes, one for the pharmacy benefit manager and one for its client.

"The whole truth in this case is they got exactly what they wanted - the best price available in the marketplace for a customer their size," Maiman said. "And now they want to punish us for it."

Medco's ownership by Merck, he said, saved the system $5.58 million over the life of the contract. He said no evidence was presented of Medco forcing system members to use a Merck product - or causing adverse health effects.

Maiman also denied the system's claim that Medco had a fiduciary duty to the retiree group. He cited contract language that identified Medco "solely" as an independent contractor.

Medco manages pharmacy benefits for four other large public retiree groups in Ohio, and Maiman pointed out that none has voiced complaints like those of the teachers system.