Medco Probe Exposes Wall Street Split

Medco's stock slipped 16 cents to $39.11 Tuesday morning.

Misunderstood

By now, Simek says that Medco has already managed to settle "big pieces" of government probes into the company's business practices. And analysts clearly seem reassured.

But Burns, for one, insists that Wall Street has displayed a "breathtaking" lack of understanding about the federal case against Medco. His own group has repeatedly stressed that Medco failed to cure its biggest problem with a $29 million multistate settlement announced earlier this year.

"The 20-state settlement very explicitly does NOT settle either federal or state False Claims Act cases," the group said in a press release issued after the deal was announced. And "Medco's liabilities in those cases (are) likely to be astronomical if the charges are upheld."

The multistate settlement focused only on rebates from drug manufacturers "which were not quantified by the states or investigated by the states," one industry source said. In contrast, they source added, the federal government has laid out a solid case showing that Medco defrauded customers -- by delaying, shorting and even destroying their prescriptions -- and causing clear-cut damages in the process.

Simek labeled the final allegation, pertaining to destroyed prescriptions, especially "misleading and unfortunate." He also said that Medco remains "confident in the facts" supporting the company's defense.

Still, Burns claims that federal authorities tend to pursue only select cases they expect to win. The case against Medco has been building since 2000.

"And you won't find the government prosecuting a company for a single problem," Burns said. "It's 'business-plan fraud.' It's a very big deal."

Burns mentioned drug shorting as a simple example. He said the government has uncovered "pervasive" evidence showing that Medco has routinely supplied customers with fewer pills than it should. He said that even a member of the government's General Accounting Office found her family shorted by the company.