Medco ( MHS) could soon cure one of its problems.

The giant pharmacy benefit manager is apparently on the verge of settling one of the government lawsuits it faces. Tom Sargent, a spokesman for the Nevada attorney general, told TheStreet.com this week that the agency would make "a major announcement on Monday" about its case against the PBM. The state has been investigating Medco for allegedly engaging in unfair trade practices.

Government authorities have accused Medco of defrauding customers by, among other things, favoring expensive drugs manufactured by former parent Merck ( MRK) and falsifying records in order to collect "turnaround" bonuses for delivering prescriptions on time. Last month, two states -- Nevada and Massachusetts -- indicated that they might seek their own settlements against Medco instead of joining a federal antitrust lawsuit filed against the company.

Nevada, at least, is now strongly hinting at a deal.

Still, Medco faces serious legal challenges ahead. Most notably, the company is grappling with a federal whistleblower lawsuit filed by prosecutors who are attempting to crack down on healthcare fraud. Last September, U.S. Attorney Patrick Meehan formally accused Medco of defrauding federal employees who have seen their prescriptions changed -- and even canceled -- by the giant PBM.

"Getting the proper medication in the hands of patients as quickly and efficiently as possible should be the mission of any pharmacy benefit manager," Meehan stated last year. "However, these allegations suggest that somewhere along the line, the focus became the profit instead of the patient."

Medco recently lost its contract with the federal government to its largest competitor, Caremark ( CMX), a company accused of remarkably similar transgressions. ( See related story. )

Nevertheless, Medco has consistently dismissed the government's claims as unfounded. The company has also attacked the three "self-styled whistleblowers" who fed the government information. It describes the first, physician Joseph Piacentile, as a "felon convicted of Medicare fraud and federal tax evasion ... who pleaded guilty to charges that stemmed from a scheme to bilk the government in what an investigator termed 'a phenomenal abuse of the elderly in one of the largest Medicare scams ever.'"

Medco also questions the credibility of two whistleblowers who once worked as pharmacists at its Nevada facility. The company said that Walter Gauger resigned after being suspended for poor performance and that he has a federal tax lien filed against him in Florida. But Medco came down even harder on George Hunt, another pharmacist who left the company supposedly in disgrace.

"Hunt later filed a sworn document that renounced his United States citizenship claiming that he is an indigenous native from the 6,000-year-old Washitaw de Dugdahmoundyah Empire," Medco stated. "The 48-page document argued that as a resident of the Empire, he owed no income taxes of any kind to the United States, and that his Empress was entitled to reparations of $80 quadrillion, plus $388 billion in gold and silver."

Medco critics have described the Hunt situation as a joke that the company has chosen to spin in an effort to discredit the whistleblower. Meanwhile, the government has expressed confidence in its case against the company.

"The decision by the Department of Justice to intervene in a case does not necessarily mean that it endorses, adopts or agrees with every factual allegation or legal conclusion in the relators' complaint," federal prosecutors acknowledged last year. Still, "the notice of intervention follows an extensive investigation of the factual allegations and evidentiary support" provided by the whistleblowers.

Medco's stock -- widely recommended by analysts -- inched up 15 cents to $34.71 late Friday morning.

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