Medco Ponies Up to States

Some old wounds have finally healed at Medco Health (MHS Quote).

Following a two-year investigation, prosecutors from 20 states this week agreed to settle unfair-trade charges against the giant pharmacy benefit manager. The states are set to receive a total of $29.3 million -- and a pledge for improved business practices -- from the nation's largest PBM. Massachusetts has negotiated an additional settlement, pegged at $5.5 million by The Boston Globe.

The federal government has endorsed the deal, offering support for the changes to Medco's business model, but continues to pursue monetary damages of its own. U.S. Attorney Patrick Meehan, who filed a sweeping whistleblower complaint against the company last year, celebrated progress in the case on Monday.

"Although the settlement of the United States' claims against Medco for injunctive relief does not resolve the remaining counts of the amended complaint filed against the company in December 2003," Meehan said, "we believe that the changes in Medco's business practices resulting from this agreement will positively impact health care consumers across the nation."

Medco still faces a multicount federal complaint that accuses the company of, among other things, defrauding federal customers by shorting -- and even canceling -- their mail-order prescriptions. But the new multistate agreement settles charges that Medco violated unfair-trade laws by switching customers to expensive drugs and then pocketing rebates from the manufacturers. Going forward, Medco may pursue such changes only after informing the proper parties and ensuring that the switches will actually save customers money.

Medco itself praised the arrangement.

"The resolutions with the attorneys general and the Justice Department represent significant milestones in Medco's effort to put its portion of the industrywide litigation behind us," Medco CEO David Snow announced. "This arrangement is consistent with our goal to position Medco as the most transparent company in our industry."