California Pharmacists Proposed As Class

A class action has been filed against Medco Health Solutions, Inc. and Merck & Company on behalf of California pharmacists, who allege that the companies engaged in anticompetitive behavior in violation of state antitrust law. The action seeks unspecified compensatory and punitive damages.

Two San Francisco Bay Area pharmacies and the Pharmacy Defense Fund, a nonprofit advocacy fund for retail pharmacies, sued Medco, PAID Prescriptions, Merck-Medco Managed Care of California Inc., and Merck in January, alleging defendants conspired to create higher prices in violation of state antitrust and anticompetition laws. The lawsuit also claims the defendants failed to prevent disclosure of non-public information about pricing to competitors.

The suit alleges Medco, the largest pharmacy benefit manager in terms of net revenue and drug expenditures, used its market power "to engage in illegal anticompetitive activities designed to increase its own revenues and profits at the expense of community retail pharmacies across the nation, and to increase prices for prescription drugs manufactured by Merck and others."

The proposed class includes all California retail pharmacies and pharmacists who contracted with Medco in the last four years to dispense and sell brand name or generic prescription drugs for any prescription plans. A second class seeking certification would include all retail pharmacies and pharmacists that indirectly bought Merck-manufactured prescription drugs.

Merck and Medco's predecessor, Medco Containment Services Inc., in February 1995 entered a three-year consent decree to settle antitrust charges in California in a federal case named Bacon-Normandi Corporation v. Merck & Company. The present action alleges that, since the consent decree from the first lawsuit expired in 1998, Merck and Medco have not observed the original restrictions, and in particular have not maintained a truly open formulary or prevented non-public information received from competitors of Merck or Medco from being disclosed to each other.

Medco's Other Legal Woes

This is not Medco's only experience recently in the litigation mill. In separate litigation, Medco is facing allegations by federal prosecutors that it altered patients' prescriptions to avoid contract liabilities in a deal with Blue Cross and Blue Shield Association to provide mail-in pharmacy benefits for government-sponsored health plans. The government accuses Medco, among other things, of canceling, deleting, and destroying patients' mail order prescriptions to avoid penalties for repeated delays; mailing prescriptions with less then the number of pills for which the patient paid; creating false records; intimidating and coercing pharmacists into certifying new prescriptions; and making false statements to federal investigators.

On February 24, 2004, a Boston judge refused to dismiss an antitrust and racketeering lawsuit by consumer groups accusing Merck and others of artificially inflating the prices of hundreds of prescription drugs. A St. Louis-based energy company also filed a racketeering lawsuit against Merck in December 2003, charging the pharmaceutical giant with using its control of Medco Containment to defraud the energy company of millions of dollars. If that weren't enough, Ohio's attorney general sued Medco in state court December 22, 2003, alleging that Medco overcharged the state teachers pension fund by as much as $50 million.