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kaisernetwork.org
Kaiser
Daily Health Policy Report
Friday,
September 09, 2005
Prescription Drugs
PBM Caremark Agrees To Pay $137.5M To Settle Kickback Charges
Tennessee-based pharmacy benefit
manager Caremark Rx on Thursday reached an agreement
with the Department of Justice to pay $137.5 million
to settle whistleblower lawsuits filed over allegations that Texas-based PBM
AdvancePCS, which Caremark acquired in March 2004, received and paid
kickbacks that affected several federal health care programs, the AP/Long Island Newsday reports (AP/Long Island Newsday, 9/8) The lawsuits, filed in
2002 by three former employees of AdvancePCS, alleged that the company
received kickbacks from pharmaceutical companies to provide favorable
treatment to their products in contracts with the Federal Employees Health Benefits Program,
the Mailhandlers Health Benefit Program, Medicare+Choice and other federal
health care programs (Baltimore Sun, 9/9). The lawsuits,
which DOJ later joined, also alleged that AdvancePCS paid kickbacks to
current and potential customers to agree to contracts. All of the allegations
in the lawsuits occurred before Caremark acquired AdvancePCS (AP/Long Island Newsday, 9/8). In an investigation,
DOJ found that AdvancePCS had received and paid kickbacks and failed to pass
rebates and other payments from pharmaceutical companies onto customers.
Caremark has denied any wrongdoing (Martinez, Wall Street Journal, 9/9).
Settlement
According to analysts, the settlement, which has received approval from U.S.
District Court in Philadelphia, could amount to
about $80 million after taxes. The amount of the settlement that the three
whistleblowers will receive remains undetermined, attorney Scott Simmer, who
represents the whistleblowers, said (Freudenheim, New York
Times, 9/9). In the future, Caremark will disclose to
customers information about payments that AdvancePCS receives from
pharmaceutical companies and avoid "drug switching," a practice in
which more expensive medications are substituted for treatments prescribed to
patients (Smith, Philadelphia
Daily News, 9/9). In addition, the HHS Office
of Inspector General will monitor operations at AdvancePCS, and
the federal government will not exclude Caremark from participation in
Medicare, Medicaid and FEHBP, according to Barbara Rowland, an assistant U.S. attorney in Philadelphia (New York Times, 9/9).
Comments
U.S. attorney Patrick Meehan said that the settlement "addresses
AdvancePCS's hidden financial relationships with drug manufacturers and
health plans that influence what drugs we are prescribed and how much we pay
for them." He added, "Ultimately, disclosing these relationships
should result in lower costs to consumers" (Philadelphia Daily News, 9/9). Meehan
said that the settlement "opens the door to much more transparency"
as Caremark begins to participate in the new Medicare prescription drug
benefit next year (New York Times,
9/9). Caremark CEO Mac Crawford said, "Caremark and the marketplace were
aware of this situation prior to our acquisition of AdvancePCS. We are
pleased with the settlement with the federal government as it allows us to
avoid the expense, uncertainty and distraction of potentially time-consuming
litigation" (AP/Long Island
Newsday, 9/8). He added that Caremark "strongly stands
behind our business practices." Caremark officials said that the
settlement will not have a significant effect on current business practices
because the company had previously implemented many of the changes sought by
DOJ. In addition, the settlement likely will not affect the finances of
Caremark because the settlement "had been accounted for as part of its
purchase of AdvancePCS," the Philadelphia Inquirer
reports (Shiffman/Loyd, Philadelphia
Inquirer, 9/9).
Lawsuits Against Caremark, Other PBMs Continue
According to the Journal,
the "settlement marks the Justice Department's first major one
among" PBMs. Medco Health Solutions
and Express Scripts face similar DOJ lawsuits,
although both companies have denied the allegations (Wall Street Journal, 9/9). In
addition, Caremark faces an investigation of company business practices by 28
states and the District of Columbia. Thomas Gallucci, an
analyst at Merrill Lynch, said Thursday's settlement
could "create a framework" for resolving those cases (Philadelphia Inquirer, 9/9).
Increased scrutiny of PBMs has resulted in some changes to business practices
in recent years. However, associate U.S. attorney James
Sheehan said, "We don't know to what extent" illegal practices
"still exist" among PBMs (Wall
Street Journal, 9/9).
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