[Pharm-policy] WSJ: Merck-Medco lawsuit

[Mike Palmedo]

http://interactive.wsj.com/articles/SB999125605380937633.htm

August 30, 2001

Merck-Medco Policy on Switching
To Costlier Drugs Faces Scrutiny
By BARBARA MARTINEZ
Staff Reporter of THE WALL STREET JOURNAL

Merck-Medco, a pharmacy-benefits manager hired by employers and health
plans to help lower their pharmaceutical costs, sometimes switches
patients to more expensive drugs in order to win discounts from drug
makers on other popular medicines.

Details about Merck-Medco's drug-switching practices are emerging from a
group of lawsuits being heard in U.S. District Court for the Southern
District in New York against the Franklin Lakes, N.J., pharmacy-benefits
manager. The suits are brought by various individuals and employers.

Merck Unit Starts Sampling Blitz to Promote Use of Generic Drugs (Nov.
14, 2000)

The complaints allege that Merck-Medco, a subsidiary of Merck & Co.,
Whitehouse Station, N.J., breached its fiduciary duty to its customers
because it doesn't disclose the payments it receives from drug makers
for promoting certain drugs over competitors in the same therapeutic
class. In addition, the suits claim that Merck-Medco's employees
persuade doctors to switch patients to its parent-company's drugs, even
if they are higher priced, to help increase Merck's market share.

The suits open a window into the workings of so-called PBMs. The timing
of this case is especially important because PBMs are likely to play a
crucial role in managing the prescription-drug discount plan being
developed by the Bush administration. The four biggest PBMs provide
prescription-drug benefits for about 200 million Americans.

Switching patients' prescriptions is a controversial practice. But the
switches are mostly tolerated because consumers and doctors generally
believe they will be getting less-expensive drugs.

Merck-Medco said the suits are based "on a series of incorrect factual
assertions, which are tied together with assumptions and unsupported
conclusions." But the company doesn't deny that sometimes patients get
switched to higher-cost drugs.

Merck-Medco's general counsel, David Machlowitz, said it isn't right to
look at individual drug prices in making conclusions about the company's
actions. He said the company often negotiates with drug makers for
packages of different drugs, whose prices are varied. Overall, he says,
these drug packages are discounted for Merck-Medco's customers, even if
individual drugs are higher than their alternatives, and Merck-Medco
guarantees savings. Moreover, he denies that Merck-Medco treats Merck
drugs any differently than other companies' drugs. Merck-Medco says
patients who are switched to higher-priced drugs don't pay a higher
copayment.

Plaintiffs attorneys contend that secret deals between drug makers and
Merck-Medco lead to huge profit gains not passed on to customers. In a
hearing last month, Merck-Medco attorney James P. Tallon said Pfizer
Inc. "accounts for hundreds of millions of dollars in revenue to Medco
in terms of rebates," sometimes in exchange for moving patients into
higher-priced Pfizer drugs. Mr. Machlowitz said "most" rebates are
passed on to the health plans.