Medco Will Pay $7.9 Million to Resolve Kickback Allegations Related To Formulary Placement; Follows Astra Zeneca’s $7.9 Million Payout Earlier This Year

Medco Health Solutions Inc., a wholly-owned subsidiary of the pharmacy benefit manager Express Scripts Holding Company, has agreed to pay $7.9 million to settle allegations that it engaged in a kickback scheme in violation of the False Claims Act, the Justice Department announced on Wednesday.  Medco provides pharmacy benefit management (PBM) services to clients who receive subsidies under the Medicare Retiree Drug Subsidy program.

PBMs such as Medco act as intermediaries between pharmaceutical manufacturers and third-party payers to administer a plan’s prescription drug benefits. PBMs use the purchasing power of their healthcare plan clients to negotiate lower prices for prescription drugs from pharmaceutical manufacturers. These manufacturers have an incentive to offer discounts to PBMs if that means the company’s drug will be featured on the PBM’s formulary of preferred medicine. 

Here, though, the government alleges that Medco solicited remuneration from AstraZeneca in exchange for identifying Nexium as the “sole and exclusive” proton pump inhibitor on Medco’s drug formulary list.  The United States alleged that Medco received some or all of the remuneration from AstraZeneca in the form of reduced prices on other AstraZeneca drugs, including Prilosec, Toprol XL and Plendil.  The United States contended that this kickback arrangement between Medco and AstraZeneca violated the Federal Anti-Kickback statute, and thereby caused the submission of false or fraudulent claims for Nexium to the Retiree Drug Subsidy Program. 

In January 2015, the United States and AstraZeneca reached a $7.9 million settlement to resolve kickback allegations arising out of the same conduct. This case is examined in our free sample issue of our new publication, Life Science Compliance Update.

The allegations implicating AstraZeneca and Medco were initially made in a whistleblower lawsuit filed in 2010 by two high ranking former AstraZeneca employees–Paul DiMattia, a former executive director of commercial operations, and F. Folger Tuggle, who had been a managed markets account director in charge of the Medco account. The two relators split $1,422,000 from the AstraZeneca settlement, and DOJ notes that they will be entitled to a further share from the Medco settlement as well.

“We will continue to pursue pharmacy benefit managers that enter into kickback arrangements with pharmaceutical manufacturers,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “Hidden financial agreements between drug manufacturers and pharmacy benefit managers can improperly influence which drugs are available to patients and the price paid for drugs.”

“Pharmacy benefit managers that seek or accept kickbacks will be held accountable for their improper conduct,” echoed Special Agent in Charge Nick DiGiulio of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG).  “We will continue to crack down on kickback arrangements, which can undermine drug choices for patients and corrode the public’s trust in the health care system.”

It will be important to follow the government’s interest in pharmacy benefit manager negotiations with drugmakers, as the line between permissible discounts and illegal kickbacks still seems blurry, even after a number of settlements.