Medco's Talking Cure

At times, the legal fight has proven quite contentious. Back in February, for example, presiding Judge Clarence Newcomer threatened Medco with legal sanctions if the company didn't start complying with courtroom deadlines and stop obstructing the discovery process. Newcomer, a longtime federal judge appointed by President Richard M. Nixon in 1971, died this summer.

Little has surfaced about the case since that time. Meanwhile, the company's stock has managed to rise by 45% over the past year. The shares slipped 24 cents to $55.48 on Tuesday but continue to trade within a few dollars of their all-time high.

Changing Its Ways

These days, Medco bills itself as the most transparent of the major PBMs.

By now, all three giant PBMs -- Medco, Caremark (CMX Quote) and Express Scripts (ESRX Quote) -- have been accused of secretly pocketing drug rebates and saving their clients less money than they should. Recently, however, Medco has begun offering new contracts that allow clients to see all rebates from manufacturers and keep that money for themselves. It has won some new business, albeit carrying smaller margins than past deals, as a result.

Medco has begun sharing more data with the investment community as well. Importantly, the company now publishes its own "rebate retention rate" -- which keeps dropping -- in its regulatory filings.

Medco CFO JoAnn Reed "stated that this disclosure was initiated in an effort to make Medco's business model more transparent to the public, and that it would become a standard feature of all future quarterly statements," notes Lawrence Abrams, an economist who performs consulting work tied to the PBM industry. But "what she did not say was that the disclosure was part of a $29 million settlement of a suit brought by 20 states alleging improper prescription switching by Medco."

That deal still left the feds asking for some money, however. Medco can now ink a new monetary settlement -- which some believe is happening -- or risk paying triple damages if it loses in court.

Resisting the Trend