Maine will receive $650,000 of a $29 million deal.

AUGUSTA – Saying it’s not right to switch a patient’s medicine just to boost corporate profits, Maine’s Attorney General Steven Rowe and other state and federal prosecutors Monday announced a $29 million settlement with Medco, the world’s largest pharmaceutical benefit management company.

“This case is about lifting the cloak of secrecy about Medco, about exposing the transactions to sunlight,” Rowe said. “It’s about returning control to doctors and patients.”

PBMs such as Medco are the companies behind the prescription cards consumers use at pharmacies. The cards represent insurance benefits that workers often receive from employers. PBMs process the majority of all prescriptions in the United States.

The management companies are designed to save money for the insurance plans as well as for the businesses and workers they represent. They often switch brands of the same medicines in order to save clients money.

In recent years, however, PBMs have come under fire for receiving kickbacks from drug manufacturers for steering consumers to certain medicines even if it cost more.

The practice adds to the explosion in health-care costs, prosecutors said. The Medco settlement will create a new industry standard and help bring “law and order in the wild west of American health care,” said Connecticut Attorney General Richard Blumenthal. “This sends a powerful message that companies cannot compromise medical treatment to boost their profits,” Blumenthal said.

In the unfair trade practice settlement announced Monday, Medco will pay $20.2 million to 20 states based on population; $6.6 million to the states to cover legal costs; plus $2.5 million to patients who spent more because the drug their doctor prescribed was switched.

Maine, which was a leader in the case, will receive $650,000 to cover legal costs.

In the settlement Medco agreed to change its practices and adopt a code of ethics, but made no admission of wrongdoing or inappropriate conduct. In a statement, Medco President and CEO David Snow Jr. said the settlement “is consistent with our goal to position Medco as the most transparent company in our industry.”

He added, “The resolutions with the attorneys general and the Justice Department represent significant milestones in Medco’s effort to put its portion of the industry wide litigation behind us – allowing our people to focus all of our energies on meeting the needs of our customers.”

Rowe said the two-year investigation concluded that in dozens of cases Medco received rebates from drug makers and did not pass those savings on to consumers it represented. Sometimes the switched drug was cheaper, “often it was not,” Rowe said. Medco often switched Lipitor with Zocor, manufactured by Merck, even though it did not save money for consumers, prosecutors said.

The settlement prohibits Medco from switching drugs if it is more expensive, or if the switch is made to avoid competition with generic drugs. Medco must also inform clients how much it receives from drug companies, and tell customers a switch was made and why.

Prosecutors stressed the case will help set new, national consumer protection standards. Companies hiring PBMs will want to know how much their PBM receives from drug companies, and whether they benefit from the rebate money. That trend will become important, especially considering in 2006 Medicare will offer drug coverage and PBM firms will be vying for the business.

The states involved were Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Nevada, New York, North Carolina, Oregon, Pennsylvania, Texas, Vermont, Virginia and Washington.

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