Melissa Davis

Return to Article

Medco Layoff Hits Quietly

Melissa Davis

Some Medco (MHS Quote) employees have a bitter pill to swallow.

Nine hundred workers -- nearly 7% of the company's staff -- learned on Friday that they will soon lose their jobs or be transferred to another location. Medco has decided to shut down a big facility in Parsippany, N.J., that currently houses a mail-order pharmacy and a customer call center. The giant pharmacy benefit manager reached its decision after losing some major contracts amid a federal probe of its business practices.

Medco quietly informed affected employees of the layoffs Friday morning but, by Monday, had yet to issue a public announcement. The company did, however, confirm the news when contacted by TheStreet.com.

Medco spokeswoman Soraya Rodriguez-Balzac described the action as a "difficult decision" that will nevertheless enhance the efficiency of the company's overall operations. She blamed outdated technology and rising rent -- not employee performance -- for the pending closure. But she stressed that "several hundred" of the workers will be transferred to another facility.

Still, one Medco employee said the company seemed to be treating the layoffs like a "non-event."

"There is nothing written down and handed out by the company," another employee said in an email to TheStreet.com. "The company has still refused to post the announcement to their investor Web site."

Medco is making the cuts after losing business -- most notably its contract with the federal government -- to competitor Caremark (CMX Quote). Medco is the target of a federal whistleblower lawsuit that accuses the company of, among other things, destroying prescriptions and favoring expensive drugs manufactured by former parent Merck (MRK Quote). The company has already agreed to pay $29 million to settle similar allegations levied by 20 different states.

Rodriguez-Balzac dismissed any connection between the layoffs and lost business. But at least one Parsippany employee viewed the situation differently.

"I will not speak directly as to how I feel about ... the history behind what caused the loss of" the federal contract, the employee wrote in a union message board posting forwarded to TheStreet.com on Monday. "Enough of us know why they left us. I'm sorry that we have to suffer for that. ... Today was a very devastating day."

The employee went to say that Medco has changed dramatically -- for the worse -- over the years.

"The long and short of it is that this is not the same company I came to work for long ago and not the same leadership that we had respect for back in the day," the employee wrote. "It's not the same business we built and loved."

Medco employs a business model that, critics believe, places profits above patient safety. The company collects bonuses -- and avoids penalties -- when it meets speedy turnaround deadlines. But it has been accused of carrying out questionable practices, such as destroying dated prescriptions, to make its performance look better.

Medco has repeatedly proclaimed its innocence and defended its business practices. But news of the Parsippany layoffs, announced on the heels of a new labor contract at the facility, had one employee questioning the strength of the company. The employee wondered whether management had negotiated the labor contract in bad faith or simply been surprised by the need to shut the facility -- and felt troubled either way.

"Which of the above do you believe?" the employee asked. "They all reveal to me -- an employee -- the unsteadiness and unpredictability of our business model or the hopelessness of our senior management team."

Employees describe the Parsippany operations, relocated from Elmwood Park nearly a decade ago, as the oldest in the company. The Daily Record, a local newspaper covering the area, said on Friday that the facility had begun with 300 workers and employed as many as 1,500 two years ago before it began sending work to more automated operations around the country. It will permanently shut its doors "on or around Aug. 21," Rodriguez-Balzac told TheStreet.com on Monday.

Rodriguez-Balzac went on to point out that Medco still employs 85% more New Jersey residents that it did 10 years ago and, even after the layoffs, will remain one of the 50 largest employers in the sate. But one local employee wasn't comforted.

"This is a sad day all the way around," the employee wrote on the union message board. "Does anyone in ANY facility feel secure?"

Medco's stock jumped 2.9% to $35.34 on Monday.