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<<Pharmacy-Benefit Management Firms
Got Subpoenas in Drug-Marketing Probe
By DAVID S. CLOUD
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- PCS Health Systems Inc. and Merck-Medco Managed Care LLC, two of the largest pharmacy-benefit management companies, received subpoenas last year as part of a broad federal investigation of drug-marketing practices.
The civil probe, which is being handled by the Philadelphia U.S. attorney's office, is still in the early stages, according to people involved. The subpoenas seek documents on rebates paid by drug manufacturers to the two companies, known as pharmacy benefit managers, or PBMs, which administer prescription-drug plans for millions of patients enrolled in managed-care health plans.
The government's moves to subpoena such information came to light recently after drug maker Schering-Plough Corp., Madison, N.J., disclosed that it had received a subpoena and said it believed other drug makers and PBMs also had received them.
The investigation is said to be focusing on whether drug makers provided government health plans, such as Medicaid, with the same discounts and rebates given to PBMs and to large private health plans, as required by law. "There are many concessions given by manufacturers to PBMs and to health plans that are not reported to the Medicaid program," said James Sheehan, who is overseeing the investigation. He declined to comment on the probe itself.
Investigators also are looking at financial relationships that PCS and Merck-Medco have with health plans to favor drugs from certain manufacturers, people familiar with the matter said.
Both companies said they were cooperating in the probe. The subpoenas are administrative subpoenas issued by the Department of Health and Human Services office of the inspector general, which is working with Mr. Sheehan.
A spokesman for Merck-Medco, a unit of pharmaceutical giant Merck & Co., said the company received the subpoena last summer. A person familiar with the matter said PCS, a unit of Rite Aid Corp., had received its subpoena in December. Lawyers for both companies have been meeting with the Philadelphia U.S. attorney's office to discuss the probe and what documents to provide.
"The document request received by PCS seeks general information about our programs and how they operate," said Dale Thomas, a PCS spokesman. "There have been no allegations of wrongdoing, and PCS is working with the OIG [Office of the Inspector General] to respond appropriately."
John Bloomfield, a Merck-Medco spokesman, said, "We're actively cooperating with the inquiry to explain the nature of our business." He added, "We conduct our business in accordance with all applicable local, state and federal laws and consumer regulations."
Mr. Sheehan said he is looking at whether patients are improperly switched to similar drugs than the ones prescribed by their doctors based on the size of the rebate. Such practices could violate antikickback laws if they involve government health plans. Even if the plans are private, the practice could be illegal under federal fraud statutes, he said.
Manufacturers are required to disclose to the government the average wholesale price for a drug, as well as the lowest price at which the drug sells. This is aimed at ensuring that state Medicaid programs pay the lowest price given by drug companies to private health plans.
But Mr. Sheehan said that, in some cases, drug companies make payments to PBMs for services, such as drug marketing and "disease management," that have the effect of lowering the price paid for certain drugs. Those payments, he says, sometimes aren't reported to Medicaid, as required, with the result that the government pays a higher price for a drug than some private plans.
A spokeswoman for the inspector general said the office is continuing to examine whether drug companies are skirting rules that require them to sell drugs to Medicaid at the best market price.
In February, an initial review by the office described how drug companies are classifying HMOs as "repackagers," a special category that allows the organizations to buy medications at lower rates. "Some repackagers did purchase drugs at prices lower than the best price" charged to Medicaid, the review found.
In the case of one drug, two HMOs paid 34.3% less than the Medicaid best price. Medicaid, which covers 36 million poor and disabled people, accounts for about 10% of national drug spending, which now exceeds $100 billion annually.>>
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