The pharmacy benefit manager Medco will pay $155 mil. to settle fraud and anti-kickback charges in three false claims investigations by the U.S. government. The Department of Justice announced it had reached a final settlement with Medco Oct. 23.

The deal settles allegations that Medco "submitted false claims to the government, solicited and accepted kickbacks from pharmaceutical manufacturers to favor their drugs, and paid kickbacks to health plans to obtain business," according to the DoJ.

Among the investigations included in the government complaint is one filed on Dec. 9, 2003 by the Philadelphia U.S. Attorney's Office, charging Medco with submitting false claims for mail-order pharmacy services under the Federal Employee Health Benefits Program.

The complaint also alleges that Medco canceled valid patient prescriptions to avoid contractual late fees; solicited kickbacks from pharmaceutical manufacturers to favor drugs on formularies; paid kickbacks to health plans to obtain business; shorted pills on filled prescriptions; and filled prescriptions with drugs other than those prescribed to earn undisclosed rebates from manufacturers.

That complaint was based on two qui tam actions filed in 1999 and 2000. The case had been set to go to trial in June, but was postponed while Medco negotiated a settlement with the government.

The parties also reached an agreement on a second False Claims Act case filed in 2003 by a former Medco employee who alleged kickbacks by pharmaceutical manufacturers to Medco, and an investigation that began in 2004 based on Medco's alleged submission of false Medicare claims, according to the U.S. Attorney's Office.

In May, Medco had announced a tentative settlement and took a charge of $163 mil. pre-tax, or $0.47 per share, to settle the pending federal legal cases (¹ Also see "Medco Agrees To $163 Mil. Settlement With U.S. Attorney" - Pink Sheet, 5 May, 2006.).

The final agreement also includes a five-year corporate integrity agreement with the Office of Inspector General, the Department of Health & Human Services and the Inspector General of the Office of Personnel Management.

"This settlement and others like it represent a sweeping change in the way pharmacy benefit managers do business," Philadelphia U.S. Attorney Pat Meehan said in a statement.

The agreement, however, releases Medco from admitting any wrongdoing.

"After nearly seven years of inquiry, these issues end as they began - with no finding of wrongdoing by Medco or any of its people," the firm said in a statement. "Even though we did nothing wrong, for our company and our clients it is the right decision to put these aged matters in the past."

The settlement also resolves government complaints against Medco VP Diane Collins, who managed the Medco mail-order pharmacy in Tampa, Fla. The DoJ alleged that "Collins had cancelled, and had instructed others to cancel, valid patient prescriptions to cover up Medco's failure to fill patient prescriptions in the time required by the contract."

Medco had already reached a settlement related to its business practices in April 2004 with 20 state attorneys general that resulted in a $29.3 mil. payment (² Also see "Medco Settlement Will Become PBM "Gold Standard," Prosecutors Say" - Pink Sheet, 26 April, 2004.).

In the past year, false claims cases have been settled against King ($124 mil.), Schering-Plough ($435 mil.), and Serono ($567 mil. in civil liabilities).

-Jessica Merrill (j.merrill@elsevier.com)

Medco Pays $155 Mil. To Settle With DoJ On Fraud, Kickback Charges

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