Whistles Toot in New Medco Suit

During negotiations with the government, Medco had asked federal prosecutors to partially unseal any qui tam lawsuits pending against the company in the Eastern District of Pennsylvania overseen by U.S. Attorney Patrick Meehan. Meehan's assistant, James Sheehan, is leading the investigation of Medco and has become well-known for his tough stance against health care fraud.

In response to Medco's request, Meehan said the company could simply disclose the lawsuit in regulatory filings without discussing it further. He refused to unseal the case, offering details of the basic allegations in a two-page letter instead, and kept the whistleblower unnamed.

Medco has attacked the credibility of whistleblowers involved in the two other qui tam lawsuits, which -- unlike the latest -- have already attracted government intervention.

"The United States Attorney's office has not indicated whether it intends to intervene in the matter, and has not yet requested any information from the company with regard to the complaint," Medco's 8-K filing states. "Accordingly, the company is not in a position to evaluate the complaint or speculate on the timing of any related proceedings in the matter."

Medco's stock tumbled 1.3% to $34.94 on Thursday. The stock, publicly traded since a spinoff from giant drugmaker Merck (MRK Quote) last year, peaked near $40 per share in February but has since suffered a series of downgrades due to the company's loss of big contracts like the one covering federal employees.

The In Crowd

Still, the PBM industry itself remains popular on Wall Street. And it has scored big fans in the political arena as well.

Last month, the Associated Press calculated that companies offering new Medicare discount drug cards spent at least $35 million lobbying the Bush administration ahead of the Medicare reforms. The AP singled out Medco, in particular, for hosting a $100,000 fund-raiser for President Bush -- headlined by Health and Human Services Secretary Tommy Thompson -- just weeks after Medco won approval for its Medicare card.

For its part, Medco vigorously denies there's any link between the Medicare cards and any political activities. "The event was not a Medco-sponsored event," the company said Thursday. "One member of our management team, Dr. Alan Lotvin, co-chaired the fundraiser for Secretary Thompson as a private citizen. It was not organized by Medco; however, it was legal, appropriate and properly disclosed. Dr. Lotvin is the President of our Specialty Pharmacy group; his responsibilities do not include Medco's Medicare Discount Card program."

"Medco services more than 10 million members over age 65, more than any other pharmacy benefit manager, and 2 million Americans currently use one of our non-Medicare drug discount card programs," Medco adds. "We suggest that is a far more likely reason that Medco was chosen as one of the Medicare-approved card sponsors than any political activity on the part of Medco employees."