Saturday, May 13, 2006

Paul Boyer to Judge Glaeden: Thank you!

May 13, 2006

The Honorable Judge Carrie E. Glaeden

Franklin County Municipal Court

General Division, Court room 13 A

375 South High Street

Columbus, Ohio 43215

Dear Judge Glaeden:

Thank you very much for the sentence you gave to the former STRS Board member, Hazel Sidaway. I was one of those who wrote to you earlier, asking that you give her the maximum penalty. I am grateful for every aspect of the sentence, and hope that someday she will come to terms with herself and realize what she did to the thousands of retired teachers who are depending upon STRS for their monthly benefit and Health Care. I am a little regretful that you suspended the jail sentence but we can live with that.

As members of CORE, we will press on as other members of the board and possibly some STRS staff members are charged by the Ethics Commission. If any of these cases come before you, we will be looking to you for just sentencing.

Keep up the good work.

Paul L. Boyer

Retired since 1985

Life member OEA/OEA-R,


Proud to be named

“Core” of CORE by

Dr. Dennis Leone

Friday, May 12, 2006

John Curry re: Betty Montgomery: Watchdog or Napdog?

From John Curry
May 12, 2006
The 2006 November election is about six months away. Betty Montgomery wants your vote for Attorney General. Let's look at what Betty says and what Betty did:
From her Betty Montgomery for Attorney General Website Betty says and I quote: "Montgomery is dedicated to meeting her commitments to the people of Ohio -- to serve as a watchdog of public funds by aggressively rooting out fraud and waste of public dollars and to provide taxpayers with the highest level of professionalism, service and accountability."
What did Betty Montgomery do as a State Teachers Retirement System Board member -- well, during a 6 year period between 1996 and 2002 (during the years when Betty was your Attorney General) Betty approved (as a board member of the State Teachers Retirement System of Ohio) the increase in hiring staff at STRS from 414 to 725 employees. WHERE WAS BETTY?
In 2001 Betty approved 94.2 million dollars of taxpayer and teachers' monies to build a new STRS building of marble, sculptures, waterfalls and a multi-floored parking garage. WHERE WAS BETTY?
During that year Betty Montgomery approved (as an STRS Board member) the construction of a child-care center inside the STRS building that cost $818,000 and a fitness center inside the STRS building that cost $426,000. WHERE WAS BETTY?
Also during that year Betty Montgomery approved (as an STRS Board member) $869,000 for sculptures and artwork to adorn this building. WHERE WAS BETTY?
During the years of 2000-2002 Betty Montgomery approved bonuses for STRS employees (both investment and non-investment employees) totaling $15,454,408 when STRS was losing billions of dollars of investments in the Stock Market. WHERE WAS BETTY?
During the years 2000-2002 Betty Montgomery approved (as an STRS Board member) travel expenses for eight STRS Board members to globetrot to the taxpayer tune of $255,945. WHERE WAS BETTY?
In the year 2005, Herbert Dyer (former Executive Director of STRS) whom Betty voted in the affirmative to hire (as an STRS Board member) was convicted of an Ohio ethics violation (upon an STRS retiree's complaint to the OEC) for his actions as the former Executive Director of STRS during the tenure of Betty Montgomery. WHERE WAS BETTY?
This year, Hazel Sidaway (17 year STRS Board member) was convicted of multiple Ohio ethics law violations (upon a complaint filed by an STRS retiree) due to her acceptance of gratuities as an STRS board member during the time when Betty Montgomery was on the STRS Board. WHERE WAS BETTY?
In the year 2005, Betty was finally removed from the STRS Board due to the passage of Senate Bill 133 (Retirement System Reform Bill) thanks to the activities primarily due to the wasteful spending habits of both the State Teachers Retirement System and the Ohio Police and Fire Retirement System (Betty was also on their board). That was a nice way to tell Betty thanks, but no thanks. Do we really want Betty to become our Attorney General again?
Note: Monitary findings above came from a report to the STRS Board by Dr. Dennis Leone in his 2003 presentation to the STRS Board. To this day, these figures have not been disputed. Betty Montgomery did receive a copy of Dr. Leone's findings -- DID SHE READ IT?

Hazel Sidaway sentenced

May 11, 2006
Hazel Sidaway, former member of the STRS Board and the OEA Executive Committee, was sentenced today in Franklin County Municipal Court in Columbus on two ethics charges: illegally accepting tickets to the Broadway musical "Hairspray" and illegally accepting tickets to a Cleveland Indians baseball game while she sat on the STRS Board.
Sentencing by Judge Carrie Glaeden is as follows:
  • 180 days of jail time (suspended) for each of the two counts.
  • 200 hours of community service to be performed in the Canton City Schools or senior centers.
  • $1874 in fees, fines and court costs
  • All costs associated with the Ohio Ethics Commission's investigation into her case.

A retiree tells it as he/she sees it

[ John Curry, May 12, 2006: This came to me from a concerned retired educator. I find it interesting and I tend to agree with it - I opine that it is an accurate prediction of the times ahead and a truthful commentary of the past. It "ain't" pretty -- its author doesn't believe in fluff or gilding the lily.]
1. The 5% is dead before it ever is introduced.
2. The active teachers have no idea how serious the HC issue is to future retirees.
3. OSBA opinion is shared by many boards of education.
4. If boards have a choice between money for their local schools or funding medical for retirees-what do you think they will select.
5. The economy in Ohio will not change much in the next 12 months.
6. Until the next governor election is completed and the new governor establishes their positions, legislation will not move.
7. Republicans and Democrats will all position themselves for election. Retired educators are NOT on their radar screen. OEA is probably not on the screen either, although both will jockey for their support. Charter Schools will be a bigger blip on the screen for both of these candidates.
I am discouraged that we allowed this mess to fester for so many years. STRS knew, but never told the retirees or actives. They did not want to send the BAD news. They were TEFLON managers (nothing bad sticks) and operated with the mushroom farmer. (keep them in the dark and cover them with horse sh--.)

Paul Kostyu on Sidaway sentencing: Judge schools teacher in ethics

Canton Repository
May 12, 2006
By Paul E. Kostyu,
Copley Columbus Bureau Chief
COLUMBUS - A former Canton City Schools teacher will be working in the district again, but this time for free as part of her sentence for violating state ethics laws.

Hazel Sidaway of 2915 Parkridge Cir. NW in Plain Township was sentenced to 200 hours of community service, 100 of which must be performed in her former school district. The other 100 hours must be spent working in a nursing home or retirement facility, where a Franklin County judge said she hoped Sidaway would have to help retired teachers.

The sentence came in part, Judge Carrie E. Glaeden said, from retired teachers who wrote her about the case.

Suspended jail term

Sidaway, who was convicted in April on two counts of accepting gifts, was sentenced Thursday to two separate 180-day suspended jail terms and will be on probation for two years.

She was fined a total of $670, or the cost of the four Cleveland Indians tickets and two Broadway show tickets she illegally accepted as a member of the State Teachers Retirement System board. She also has to pay court costs and for the Ohio Ethics Commission for its investigation of her. That comes to $1,204 and $5,381 respectively.

Sidaway apologizes

In a statement before she was sentenced, Sidaway repeatedly apologized.

“I tried for 17 years to represent teachers of Ohio on the retirement board with dedication and to the best of my ability,” she said. “I strove to be an example to other board members who cared about the needs of teachers and retirees. I realize now that on two occasions I let them down.”

But Glaeden didn’t buy it. She blasted Sidaway for not accepting responsibility for her actions during the trial. Glaeden also said she was concerned that Sidaway blamed retirement system staff for not informing her about the state ethics laws. “You’d have to be hiding under a rock not to know about the ethics law,” she said.

Glaeden said Sidaway’s attempt to hide her tickets by reporting them as “meals” was troubling. The judge said Sidaway’s “long list” of trips came at the expense of retirees, teachers and school districts. She said it cost money to replace her in the classroom with substitutes while she was gone.

The judge also sent a message to other board members, who could face charges themselves. She said it appeared they used their positions “for some type of compensation that (they) thought would be nice.”

H. Ritchey Hollenbaugh, Sidaway’s attorney, criticized the jail sentence.

“Based on the circumstances, I thought (it) was harsh,” he said. “That’s not been done in any other case and I was surprised. I’m glad it was suspended.”

Prior to the sentence, David E. Freel, executive director of the ethics commission, told the court the commission was “extremely concerned about this notion of entitlement for service on a public board.”

He said the commission found that “repugnant and thought it has to change.” He said part of the reason there is an ethics law is “so retirees and other citizens have more confidence that public officials are working in the public’s interest, not their own interest or their family’s interests.”

Prosecutor Lara N. Baker said the investigation into retirement system board members who served with Sidaway is continuing.

Reach Copley Columbus Bureau Chief Paul E. Kostyu at (614) 222-8901 or e-mail:

Beacon Journal: Sidaway sentenced

State pension board member sentenced for taking free gifts

The Beacon Journal
Associated Press
Friday, May 12, 2006

Columbus, Ohio - A retired elementary teacher was placed on probation and fined for accepting gifts from investment clients while she served on the board that oversees Ohio's teachers' pension system.

Hazel Sidaway, 62, apologized to Judge Carrie Glaeden of Franklin County Municipal Court for twice violating state ethics law when she accepted tickets to a Cleveland Indians game in 2001 and the Broadway production of "Hairspray" in 2003 while on the payroll of the State Teachers Retirement System. A jury convicted her of two misdemeanor ethics violations April 14.

"I tried for 17 years to represent the teachers of Ohio with dignity and dedication," Sidaway said. "I accepted something of value that I should not have taken."

Glaeden told Sidaway she was having a hard time understanding why she would think taking such gifts was appropriate.

"I would like you to rethink that it was only on two occasions that you let the teachers you represented down," Glaeden said.

The judge named other occasions that came up during Sidaway's trial when she accepted gratuities from companies doing business with STRS, including another baseball game and a free meal she accepted for her grandchildren. A jury acquitted her of charges related to those events.

Sidaway was sentenced to two years' probation, fined $670, ordered to pay $5,382 in court costs and perform 200 hours of community service divided between her former school district in Canton and either a retirement home or senior center.

Computer tip: Making the print appear larger

I've mentioned this before, but I think it's worth mentioning again, in case you missed it. If you are using a mouse with a little wheel on it, you can easily adjust the size of the print on your screen. Here's how:

.....1. Hold down the Ctrl key.
.....2. Move the wheel backward or forward to increase or decrease the print size.

John Curry: An ethics question

In the Dispatch coverage, a troubling thought crosses my mind due to a statement from Sidaway's attorney at Sidaway's sentencing:
"The companies included the cost of the meals for board members in their bill to the board, Hollenbaugh told jurors."
My question: How many other $$$ were billed to STRS (and paid by STRS) for gratuities given STRS Board members/associates by STRS vendors???

Ethics Violation: Ex-pension board member sentenced

Friday, May 12, 2006
Alayna DeMartini
The Columbus Dispatch
A former member of the state teachers pension board apologized to a judge yesterday for twice accepting freebies from companies the board hired.

"I would like you to rethink that it was only on two occasions that you let the teachers you represented down," Franklin County Municipal Court Judge Carrie Glaeden told Hazel Sidaway. "I think it was more than two occasions."

A jury convicted Sidaway last month of two misdemeanor ethics violations of accepting four free tickets to a Cleveland Indians game in 2001 and two free tickets to a Broadway production of Hairspray in 2003.

"I’m having a hard time understanding why ... you thought it appropriate to accept that," Glaeden told Sidaway yesterday when she sentenced her.

A year before Sidaway accepted Cleveland Indians tickets in 2001 she had accepted other baseball tickets, Glaeden said. She also accepted a free meal for her grandchildren, the judge said. The allegations came out during the trial; she was not charged in connection with them.

Glaeden sentenced Sidaway, a retired Canton elementaryschool teacher, to two years on probation and ordered her to pay $670 in fines and $5,382 for the cost of the investigation. She also required her to serve 200 hours of community service split between the Canton school district and a retirement home or senior center.

"I tried for 17 years to represent the teachers of Ohio with dignity and dedication," Sidaway said. "I accepted something of value that I should not have taken."

The free tickets Sidaway received were from investment consultants who had contracts with the State Teachers Retirement System.

The jury acquitted Sidaway of four other ethics violations for accepting free meals at Columbus restaurants from companies the pension board hired.

The companies included the cost of the meals for board members in their bill to the board, H. Ritchey Hollenbaugh told jurors.

If that was the case, the judge said, then the cost was coming out of the pensions of teachers and retired teachers across the state.

Hollenbaugh said his client wasn’t aware of the ethics law when she accepted the tickets.

"At the time there were no red flags raised. There should have been, but there weren’t," he said.

But Glaeden questioned that.

"With all due respect, anyone who works for state government has to be hiding under a rock if they had not heard of an ethics law."

OFT Update (OFT's Electronic Newsletter) 5.10.06

Candidates Fall Short in STRS Vote

Candidates backed by OFT and Protect Our Pensions Ohio did not win election to the STRS Board this year. Vote tallies were presented May 6 by VR Election Services, the company contracted by STRS to conduct the vote. Tellers appointed by each candidate reviewed the tallies and had the opportunity to inspect the ballots. Candidates endorsed by the Ohio Education Association – incumbent Connie Ramser and Mark Meuser - won the two active teacher seats. About 15 percent of the 302,000 eligible voters cast ballots.

Last year, two OFT members backed by Protect Our Pensions and a retired superintendent who blew the whistle on spending abuses at STRS in 2003 won the three open seats. The vote totals suggest that a high percentage of OFT members voted and supported our endorsed candidates again his year. But, OEA clearly worked harder to rally its members and turn out a larger vote than they did in 2005.

University of Cincinnati professor John Brackett and Cleveland teacher Mark Fredrick expressed appreciation for all of the hard work by OFT leaders and members. "We believe we ran an excellent campaign and raised issues that needed to be raised," said Fredrick. "We will continue to be active in advocating for sound policies at STRS, including a dedicated revenue source to preserve retiree health care for the long run."

Brackett and Fredrick also thanked other critical supporters, including the unaffiliated Akron Education Association, Concerned Ohio Retired Educators (CORE), which backed Fredrick as well as Miami University professor Tom Hall, the Ohio Conference American Association of University Professors, which endorsed Brackett, the Columbus Education Association, which endorsed Brackett as well as Ramser, and also listed Fredrick as an acceptable candidate. All of these organizations distributed literature for their endorsed candidates. The independent South Euclid-Lyndhurst Teachers Association also distributed Brackett/Fredrick campaign lit.

Saturday’s results notwithstanding, campaign efforts by OFT, other organizations in the Protect Our Pensions Ohio coalition and CORE have led to a much more balanced board in terms of organizational representation. As of September 2006, the six teacher seats on the Board will be held by two OFT members, three OEA members and two superintendents backed by CORE.

However, OFT president Tom Mooney warns that the results of recent elections leave the Board with no ethnic diversity. Protect Our Pensions and OFT backed the only African-American candidates in the past two elections, but neither was successful. Mooney believes that “All organizations involved with STRS need to own this lack of diversity in the next election and make sure that it is addressed.”

Thursday, May 11, 2006



May 18 & 19: STRS Board meeting
May 18: CORE meeting, 11:45 a.m.
Guest speaker: Betty Montgomery*
*More details about some of these items may be found in this blog. Three ways to look for them: (1) Scroll down and look for them; (2) Use the Search feature by typing key word(s) in the little white box in the upper left hand corner of blog page; (3) Click on Archives and scroll around in there.
Please contact blogger ( if you would like to submit items to be included in the calendar.

Jim Kimmel: Why them and not us?

"As is typical of many Ohio politicians and many nationwide the problem is just pushed down the food chain as far as it can be pushed, hurting those who can no longer push back. Is this real democracy? I don't think so!"
From Jim Kimmel, May 11, 2006
We should point out that the legislature has recently passed a law which will allow school boards in Ohio to pass a levy once and then renew it several times WITHOUT additional voter input. If they can do that for the OSBA they should do the "5% solution" for us. While as a property owner I am not exactly happy that my property taxes can be increased without a vote each time, if schools are going to get this opportunity for more revenue we should also get something as well as we contributed to the quality of those schools in previous years. Schneider and friends should also realize that if the legislature had not wasted so much money on Charter schools more would have been available to public schools and the 5% solution would not be such a problem. Charter schools have been a total disaster and everyone knows it.
Finally, this is just another way many legislators are dodging the issue of the current school funding method which is unconstitutional under the State Constitution of Ohio. Instead of finding a real answer to that problem lawmakers are asking retirees and teachers hoping someday to retire to just "bite the bullet" once again. As is typical of many Ohio politicians and many nationwide the problem is just pushed down the food chain as far as it can be pushed, hurting those who can no longer push back. Is this real democracy? I don't think so!
One more item: How many new college grads in teaching from our Ohio colleges and universities are going to teach in a state which isn't funding schools in a legally accepted way and which pulls the rug out from under teachers who spent many years teaching in the state. If I were just starting out I would go to another state more friendly to education. Of course, many like me were told we had a "Cadillac" retirement -- so go and work your "behind" off and don't worry about retirement. We have a "Cadillac" system -- only it is a ''78 Cadillac with no muffler system, a leaking transmission, bald tires and the front passenger door just fell off. Yes, I will write to some of our illustrious legislators who oppose the 5% solution.
Jim Kimmel

Tuesday, May 09, 2006

Jim N. Reed: An Election Reflection... Bittersweet

As a high school varsity baseball and basketball coach for over 20 years I was frequently asked to rate an official's performance following the game. I found my evaluation of the referees' or umpires' performances was more accurate and valid when I waited a few days to allow the contest to be "absorbed." Immediately after the heat of battle emotional smoke could easily cloud a clear vision of the contest.

Consequently, I have taken a few days to digest what seems to have taken place in the April election for the two active seats on the STRS Board. I must admit to some indigestion.

However, I must preclude a further analysis by suggesting our opponents engineered successful strategies and tactics that got the job done. (I'm reminded of my dear mother-in-law's admonition, "You can always catch more flies with sugar than with vinegar.") We must tip our caps and accept the fact we did not reach as many of our voters as they did.

I've read the words of Mollie, Tom, Kathie, John, Paul, and others and I believe each has offered a valid analysis. CORE has some of the most eloquent writers I have had the pleasure to encounter as a 40-year educator.

Though I admit the CORE-endorsed candidates did not fare well in the election I remain certain they were the most qualified candidates to make decisions in our $65 billion dollar retirement system. We all know the best team doesn't always win. Sour grapes? Nope. Just the facts, Mam.

On an exterior brick wall at Liberty Union High School where I have been a student and teacher for half a century, there is a concrete marker that states "Knowledge Is Power." (The marker is placed in the same location of the double doors of the razed 1917 building. The two rival communities of Baltimore and Basil battled over the site for the new "union" of school districts and finally settled on a piece of property that allowed the building to straddle the boundary. The left door opened into Basil and the right door opened into Baltimore. True story. Thought you might enjoy.)

CORE failed to disseminate enough knowledge to enough of the electorate. Heaven knows it was not from a lack of effort. I can't express my admiration enough for those in the trenches who became foot soldiers around the state to spread the word about being STRS-literate. My cap's off to all of you.

Unfortunately, the STRS election suffered the same humiliation as the state of Ohio did in the primary. An apathetic electorate stayed home at a disgraceful 77%. The genuine importance of the election results did not get transmitted to those who chose not to participate. Too many eligible voters did not feel personally involved and were not motivated to use their franchise for a "bigger picture" than the one they found themselves in on election day. ( If I'm comfortable, why bother the status quo.)

This brings to mind a point that I believe many "removed" educators do not grasp. I can't speak for all CORE members but my sense is that we are not interested in adding another permanent education entity to the plethora of education's "call letters" and acronyms. Being taken seriously and being a part of a correction in our retirement system are the main goals. If an existing organization can show good faith and is willing to carry the ORC 3307.15 ball I sense that CORE would be willing to gracefully and proudly withdraw. Most of us would gladly relinquish the time, effort, and finances to an existing group (ORTA) as long as they are willing to continue to be gladiators and watchdogs for all retired and active educators.

Don't misunderstand and don't take us lightly. CORE has some of the most determined folks I've had the pleasure to meet. We intend to achieve the goals that our charter members established when Dr. Dennis Leone provided the wake-up call. Like many third parties in our political heritage, CORE would accept their fates. Either get what you have targeted and dissipate because the unit has achieved its goal or be gobbled up by a major party that realizes the third party's ideals are the wave of the future and so they make it a part of their platform. Either way, the third party has won the contest. (My apologies to those members of CORE who may disagree. I certainly make no pretense to speak for you.)

Personally, I'm actually encouraged by what I have heard and seen in the past several months. I have encountered many educators, retired and active, who have asked what they could do to make sure that the corrections in STRS, spear-headed by Dr. Leone and John Lazarus, continue. ( I also believe others on the Board are better tuned in to ORC 3307.15 after listening to the words of the public speakers in the Board room.) I don't believe there will ever be the degree of naivete that duped the membership in the past. There is no doubt that the level of awareness has been raised but the bar needs to be continually raised.

I still have faith in my fellow educators to make choices that will protect their families' futures. I still believe if any teacher makes a close inspection of Dr. Leone's findings of STRS conduct in the past he/she will refuse to be a passive on-looker. ( I still feel vehemently that all STRS members must be aware of the history of their organization, the good, the bad, and the ugly. How else can we know what direction to take to best serve our profession and our families?)

We must remain willing to continue the education process. An educator's mind is a terrible thing to waste. We also need to continue to inform the general public. After all, their 14% (or more) is critical to stabilization and they need to understand their investment ripples into the classroom where their children or grandchildren will reach for the future.

We don't need to make a concession speech but we need to continue to be vigilant and offer cooperation and a professional partnership when it solidifies the promises that our retirement system has made to all of us.

Finally, I wish to express my gratitude to Dr. Thomas Hall and Mr. Mark Fredrick for their courage and willingness to put their time and efforts forth to carry the ideals of so many educators in the state of Ohio.

Jim N. Reed

Strategic Position Selling Generic Drugs by Mail Turns Into Lucrative Business

Please read the following Wall Street Journal article to understand why Warren County RTA feels that STRS could save considerable money by operating as its own PBM. Private PBM's are under considerable "fire" for their price-fixing strategies and unbelievable profits made off the needs of their clients--sick people in need of prescriptions!

~ Nancy B. Hamant (Legislative Chair, WCRTA)

Benefit Managers Say They Save Employers Money, As Their Own Profits Rise Off-Patent Bonanza Ahead

Wall Street Journal, May 9, 2006

In many industries, middlemen scrape by on small margins. Not so in generic drugs.

Documents from 2001 filed in an Ohio court case show that Medco Health Solutions Inc. paid $90 that year for the pills to fill 114 prescriptions for a generic copy of Valium. Medco sent its client, the State Teachers Retirement System of Ohio, a bill of $1,028 for the drugs, which also reflected its dispensing costs. Medco paid $766 for the pills to fill hundreds of prescriptions for the blood-pressure medicine atenolol. It billed the Ohio teachers $25,628.

Today, Caremark Rx Inc., another middleman, charges the federal government and employees $96.88 for 90 pills of generic Prozac, according to a Caremark Web site. The same pills can be bought wholesale for less than $5.

Medco, Caremark and Express Scripts Inc. are the big three "pharmacy benefit managers," or PBMs. Employers that offer prescription-drug coverage hire PBMs to do the paperwork and keep costs down when an employee needs a prescription filled. More than 100 million Americans carry a card with the logo of one of the big three, using it at the pharmacy to show they're covered.

It's a hugely lucrative place in the food chain. Generic drugs are popular because they save money by offering alternatives to expensive brand-name drugs. But the PBMs have figured out how to use mail order to turn generics into a bonanza. Buying in bulk, the PBMs typically pay a few cents per pill, then turn around and bill employers a quarter, 50 cents or even a dollar a pill. A Medco spokeswoman, Ann Smith, says final profit is much smaller than that spread because of administrative and dispensing costs.

For the employers, the generic prices look like a bargain because they're generally still much lower than those of brand-name drugs. The employers often don't know the spreads enjoyed by the PBMs.

The big three PBMs' perch could grow even more valuable over the next five years as brand-name drugs with $47 billion in annual sales lose patent protection. Copies of top sellers such as the cholesterol drug Zocor and antidepressant Zoloft will take a big bite out of the drug industry's profits, while giving PBMs more chances to sell high-margin generics.

More than half of Medco's net income comes from filling generic-drug prescriptions at its mail-order facilities, although the mail business including brand-name drugs represents just 37% of revenue. Collectively, the big three recorded net income of nearly $2 billion last year.

The business has brought gains for PBM shareholders and made some PBM executives rich, chiefly from valuable stock options, even as many employers and employees struggle to afford health insurance. Caremark's chief executive, Edwin M. "Mac" Crawford, has sold $185 million in stock since November. (See article2.) At Express Scripts, Chairman Barrett Toan has sold $64.8 million in stock since last fall.

It helps the PBMs that many employers are unfamiliar with the economics of manufacturing pills. While a brand-name pill such as Lipitor or Prozac may cost employers $2 or more, most of that goes into marketing, research into future drugs and profit for the drug company. The cost of actually producing the pills is usually only a few cents each.

After the patent on a drug expires, brand-name makers lose the monopoly that allowed them to charge a high price. But for customers accustomed to the old prices, it may seem like a bargain to get pills that used to cost $2 for just 50 cents.

The PBMs defend their lofty margins on generics, saying that they need the profits there to make up for overhead costs and losses or slim margins on brand-name drugs. They say employers benefit from their efforts to switch patients to generics. Pharmacies also add huge markups on generic drugs for some customers, such as uninsured people who pay for medicines out of pocket.

Recently, some states have been pushing back against PBMs, weighing laws to force the middlemen to reveal where their profits come from. The laws would also make PBMs fiduciaries of their clients, just like accountants or lawyers. That would limit the PBMs' ability to grab lucrative margins through pricing methods that employers find hard to follow. Meanwhile, a handful of employers are looking for ways to buy generics for a price closer to what they cost to make.

But for now, the generic mail-order business is booming. It represents the latest evolution of an industry that has played a key behind-the-scenes role in the $250 billion U.S. pharmaceuticals business.

The PBMs started out by promising to liberate employers from the grunt work of offering a prescription-drug benefit for employees. They could handle the paperwork when prescriptions were filled at pharmacies and make sure employers paid only for approved drugs.

PBMs were early adopters of technology. When people needed a prescription filled, they could simply hand over their Medco or Caremark card to the pharmacist, who could tap into the PBM database to confirm coverage and figure out how much the employee owed out of pocket.

For a while, a good chunk of the PBMs' profits came from incentives provided by drug makers. PBMs would try to badger doctors into switching prescriptions to a particular brand. The PBMs could reap lucrative rebates from drug makers for doing this. After an outcry about the practice a few years ago, PBMs started sharing more of the rebates with employers.

Early on, PBMs came up with the idea of cutting pharmacies out of the equation altogether. Many people fill prescriptions on regular schedules, and have no need to go to a drugstore every time. PBMs could receive orders by phone or online and send pills directly to patients. It would be more convenient for patients and reduce the risk of errors.

It took a while, but gradually employers warmed to the mail-order idea. PBMs sold it in part by promising to switch employees as quickly as possible to cheaper generic copies whenever they were available. Even if the prescription was for a patent-protected drug, the PBMs would try to switch it to a similar generic. PBMs also offered lower prices on brand-name drugs if employees used mail order.

Today, big facilities like Medco's can fill prescriptions in minutes and put them in the mail with barely a human hand intervening. At its Willingboro, N.J., facility, which Medco calls the world's largest automated pharmacy, trays of bottles get filled from 1,200 bins containing almost every major pill for chronic diseases prescribed in the U.S. Robots cap and seal the bottles after their two-mile journey and drop them into plastic mailing bags. The factory churns out more than a million mail-order prescriptions a week.

When the allergy drug Flonase lost patent protection this March, Medco says it converted 95% of brand prescriptions to generics within two days. A similar conversion in 2001 when Prozac went off-patent took more than six months, it says.

An even bigger opportunity is coming in June, when Merck's cholesterol fighter Zocor goes off-patent. Medco vice president Ken Malley says Medco has a "very overt, very aggressive program" to push generic Zocor. Medco will fax letters to 50,000 doctors urging them to put their patients on the generic pill. The letters say, "Help keep your patients' benefits affordable."

Timothy Wentworth, a top Medco executive, says switching to generics will lower employers' costs. Medco plans to waive co-payments for six months for Zocor patients who switch to its mail-order pharmacy from a retail store. That's the longest waiver it has offered, and Medco says experience with shorter waivers suggests many patients will sign up. "We are incredibly motivated" to get patients on generics quickly, says Mr. Wentworth. "Every day we make more money."

Medco's spread can be wide, as documents from the Ohio court case show. In one case in 2001, Medco paid $514 for the pills to fill 666 prescriptions for a blood-pressure drug. It charged the Ohio teachers' retirement system $5,806. In 2000, the group paid $10.5 million in total for generic drugs that cost Medco $2.3 million.

Medco says that after overhead its profit margin on mail-order generic drugs for the retired Ohio teachers was only 23% and its total margin, after losses on brand-name drugs, was 1%. Ms. Smith, the Medco spokeswoman, adds: "To make generalizations on five-year-old pricing of a selective sampling of drugs would be misleading."

The state of Ohio sued Medco, accusing the PBM of cheating the teachers. Medco denied that, saying it acted according to their contract. The judge told the jury to disregard the margins on generics because contracts allowed them. The jury ruled that Medco should pay the teachers' retirement system $7.8 million for fraud and for breaching what the jury called its fiduciary duty. Medco is appealing.

The Ohio data are unusual: Even today, it's difficult to find clear numbers on how much PBMs pay for drugs and how much they charge for them. However, some examples come from a Web site operated by Caremark, which manages the prescription-drug benefit for federal-government employees. The site says it shows federal employees how much Caremark bills the government for many drugs.

According to the site, 90 pills of generic Prozac cost $96.88 via Caremark's mail-order pharmacy -- a bill that the federal government must foot, minus a small co-payment by the employee. Pharmacies, whose business is threatened by PBMs, say those pills cost less than $5 to acquire wholesale. On its Web site, Costco Wholesale Corp. sells 100 pills of generic Prozac to retail customers who lack insurance for $13.59.

In some other cases, the government is also getting a worse deal from mail order than it would if employees filled their prescriptions the old-fashioned way at a pharmacy. According to the Caremark Web site, the government's cost for a full year of atenolol, the widely prescribed blood-pressure pill, is $28.92 if the employee goes to a pharmacy. But when the drug is ordered through the mail, the government's cost rises to $81.12. The employee's co-payment would be higher, too: $40 instead of $9.60.

Mr. Crawford, Caremark's chief executive, says it's irrelevant to look at the price of one drug because PBMs negotiate a pricing system with clients that saves them overall. He says Caremark "loses a lot of money on branded drugs" because of competition with other PBMs. He adds that Caremark has invested significantly in its mail-order facilities and needs to earn a return.

A Caremark spokesman says the prices on the Web site shouldn't be considered actual prices because the company's contract with the federal government "is not based on pricing per individual prescription." Nancy Kichak, a federal government official who oversees benefits for employees, says the government does pay for individual prescriptions. "What you see on the Web site is very close to what we're paying," she says.

Ms. Kichak agrees with Mr. Crawford that just because the government is paying five to 10 times the wholesale cost in some cases doesn't mean it's being taken to the cleaners. "We have to get the absolute best deal possible in total," says Ms. Kichak, associate director for strategic human-resources policy at the Office of Personnel Management. She notes that the government's biggest expense is still for brand-name drugs, not generics.

Ron Lyon, who until recently was a consultant at Towers Perrin helping employers negotiate contracts with PBMs, says some consultants are beginning to insist that PBMs eliminate the big gap between the mail-order price and pharmacy price. But employers won't get that guarantee unless they ask for it -- and many aren't savvy enough to do so, Mr. Lyon says.

Gabriela Garcia is head of human resources at Alamo Group Inc., a Seguin, Texas, manufacturer of tractor-mounted mowing and other equipment with 1,500 employees. Ms. Garcia says she never used to look at individual prescription claims to estimate how much profit Alamo's PBM, one of the big three, was making on generic drugs. When a smaller rival showed her some figures a year and a half ago, "the amount of the markups were a surprise," she says. Alamo switched to the smaller PBM, Hyde Rx Services Corp.

A big part of the PBMs' strategy is selling employers on the idea of requiring patients to fill all prescriptions, except in emergencies, through the mail-order pharmacy. General Motors Corp., International Business Machines Corp., and Southwest Airlines have "mandatory mail" programs. About eight million beneficiaries served by Medco come from employers with such rules, up from two million in 2003.

Medco says clients save 8% to 10% with the program because it has a good track record of switching mail-order patients to generics. According to Medco, the current generic substitution rate for chronic medicines through its mail pharmacy is 95.3% while at a retail pharmacy it is 92.6%.

The results didn't please one customer, Horizon Blue Cross Blue Shield of New Jersey. Medco "sold us on mail order to say it would be cheaper and sometimes it turned out not to be cheaper," says Debra M. Lightner, Horizon's associate general counsel.

The health insurer hired Medco in 1993 to manage pharmacy benefits for its three million members. Now, Horizon is suing Medco in New Jersey state court. It alleges that Medco violated contract terms. However, in recent weeks Horizon dropped its claims that Medco's mail-order pricing violated the contract. Ms. Lightner says that was designed to "streamline" the case as it heads for trial, perhaps next year. Ms. Smith of Medco says the abandoning of the claim "speaks for itself."

PBMs typically advertise that they offer attractive discounts -- sometimes 50% or more -- off the "average wholesale price" of a drug. Publishers of drug-sales data report this price but it rarely reflects actual market prices. The average wholesale price for generic Prozac, as reported by one pharmacy-pricing magazine, is $2.60 a pill, nearly 100 times what generics manufacturers actually charge wholesale customers.

In several states, legislators are pushing bills aimed at bringing more transparency to PBM pricing, but they have run into stiff opposition from the PBMs. The first such law was passed in Maine two years ago, requiring PBMs to reveal where their profits come from. It was recently upheld by a federal appeals court. The Pharmaceutical Care Management Association, which represents PBMs, asked the U.S. Supreme Court last month to review the case. Legislators in about a dozen other states are working on similar legislation.

PBMs say their services are part of health benefits that are governed by federal law, and states can't impose their own laws. They also say that requiring them to disclose proprietary information violates the Fifth Amendment of the Constitution, which bars the government from taking private property except for public use and with just compensation.

Write to Barbara Martinez at Barbara.Martinez@wsj.com3

Sunday, May 07, 2006

Editorial by John Curry: Donuts for votes? Good one, OEA! (By the way, you still have some dirty laundry to tend to)

"Will current and future OEA-backed STRS Board members be nothing more than puppets for the OEA “company line” when it comes to critical decisions affecting retirees or will they think for themselves and the betterment of the lives of retirees that they have a fiduciary responsibility to? There are too many stones yet unturned."

May 7, 2006

Well, the election’s over and we (the OFT also) didn't win! This statement begs the question, “Why?” The following is only my opinion and I would like that to be understood before I go into my theory as to WHY? There are multiple reasons and I would like to touch upon each one:

MONEY: The OEA, in the past, has spent over $100,000 in a former unsuccessful attempt to see that Eugene Norris was reelected to the STRS Board. This time around they spent who knows how much?

COMMUNICATION WITH A CAPTIVE AUDIENCE: After suffering losses in the past two STRS elections and SB 133, the OEA finally realized that their control was rapidly loosening its grip over the STRS. They concentrated upon indoctrinating their local leaders (local chapter presidents) concerning the necessity to be more active when it came to regaining control of the teachers retirement system.

What the OEA didn't tell local leaders was the sordid history of a retirement system that had an ugly past, but is now in a state of reform. A system recently dominated by an OEA majority of entitlement, Ohio ethics law violations, misspending, and arrogance. We CORE members are well aware of this, but a majority of the rank and file classroom teachers still haven't the slightest idea. These teachers, a majority of whom are many years away from retiring, didn't have the time nor interest in reading anything that didn't have an immediate impact on their classroom or their current paychecks. You and I were one of these teachers not that many years ago.

Just how many times, as a young teacher, did you take the STRS ballot and throw it in the trash can so that you could continue to grade papers at your desk rather than worry about something years down the road?

LACK OF COMMUNICATION TO THE PUBLIC: The only newspapers in who Ohio who gave any decent coverage to the STRS scandal (yes, it was a scandal) and ethics convictions were the Canton Repository and the Cleveland Plain Dealer. The Toledo Blade, whose excellent investigative reporting and the subsequent series of editorials led to the arrest of BWC’s corruption king Tom Noe, didn't even mention Hazel Sidaway’s recent conviction. We didn't receive the broad coverage that the Police and Fire people received when their board members traveled the world (families included) with their dime.

A DONUT FOR A VOTE: I will have to give the OEA credit for this one. This was the most important factor in the defeat of CORE backed candidates. The OEA finally discovered the real way to insure that those STRS ballots were filled out (to their way of liking) and turned in rather than thrown in the trash can. Recently a directive was sent to local presidents suggesting that the teachers (a captive audience) meet before the beginning of the school day at the school to have donuts and refreshments. It doesn't take very long to scarf down a donut, drink a cup of java, and place two checkmarks on a ballot. More votes were salvaged by this reason than all the other reasons put together. Was this an example of buying votes? I'll let you be the judge of that one!

What now, will some of us take the path that will see us attempt to “kiss up” to those who have oppressed us and raped our retirement benefits because of a loss at the ballot box? Will we take the approach -- “Why can't we just all get along?”

Well, for one, this CORE member will continue to plod along -- educating the educators as to what has happened and why. With truth comes power. Not enough educators yet know the truth. The job of educating the educators is not finished.

What will become of the strained but still somewhat still friendly relationship between the OFT and the OEA? What will be the result of the class action lawsuit against the OEA for loss of benefits by retired OEA staffers (the lawsuit that the OEA doesn't want to talk about)? Will Conni Ramser finally read Dennis Leone’s 13 page presentation to the STRS Board back in 2003? How many more current/former STRS Board members/associates will be served subpoenas for misdemeanors or will there be felony arrests for evidence tampering to cover up the history of gratuities and other crimes of a felonious nature? Will current and future OEA-backed STRS Board members be nothing more than puppets for the OEA “company line” when it comes to critical decisions affecting retirees or will they think for themselves and the betterment of the lives of retirees that they have a fiduciary responsibility to? There are too many stones yet unturned. One thing is for sure - this STRS retiree will never coalesce with the current OEA leadership. We retirees (and tens of thousands of unknowing active teachers) lost a battle, but we DIDN'T LOSE THE WAR!

John, still a very PROUD CORE MEMBER and still dedicated to “educating the educators” about the rape of our retirement system.

CORE needs you

May 7, 2006
Since May, 2003, one of our greatest challenges has been, and still is, to "educate educators," both active and retired, about what is really going on at STRS, who is really pulling the strings and why OEA in particular is able to use their big money and political muscle in a way the rest of us cannot begin to compete with, and which they can and do use to further their own ends.
OEA continues to sweep past and present history under the rug while professing "more light and less noise." They do shed plenty of light on what they want their dues-paying members to know and make absolutely NO noise about the rest of what they do. OEA members are never given a complete picture of what goes on behind the closed doors of the OEA building. For OEA members, there IS no Sunshine Law, only partial accounting, innuendoes and half-truths. The OEA Way.
CORE is a much smaller, newer group, purely grassroots, with no money backing except, for the most part, what we can come up with out of our own pockets, largely the pockets of retirees who have far less change to spare than the highly paid execs at OEA, or even today's active teachers. We do not want to see history repeat itself at STRS, with the rape and pillage of educators' funds by a Board once dominated by the largest teachers union in the state, and which continues to employ tactics to regain that control to further their own agenda.
CORE needs you to be enlightened and active in spreading the truth about your retirement system and those involved in running it. Everyone has a right to know what is really going on so they can have a hand in making sure that, no matter what, the dictates of ORC 3307.15 are followed to the letter. Only you can prevent past crimes from happening again.
Kathie Bracy
Larry KehresMount Union Collge
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