Medco believes it has addressed record-keeping problems uncovered at its Tampa and Dallas pharmacies by changing the top executives at each facility.

Medco replaced the VP/general manager of its Dallas/Fort Worth pharmacy call center after uncovering record-keeping problems at the facility in March. Medco General Counsel David Machlowitz disclosed the change during a Sept. 29 conference call held in response to the filing of False Claims Act case against the PBM by the Philadelphia U.S. Attorney.

In 2001, Medco replaced the VP/GM at one of its Tampa facilities after discovering what it characterizes as a more significant problem with fraudulent records.

Medco characterizes the two episodes (and more recently discovered "minor policy violations") as "isolated" cases of misbehavior, inevitable in a company of its size (see ¹ [A#00650400021]).

The U.S. Attorney's ² complaint paints a different picture, citing the Tampa and Dallas problems as signs of a larger cultural problem at Medco. The complaint alludes to similar practices at three other facilities: a second Tampa pharmacy, a Massachusetts facility, and a large mail order site in Las Vegas.

The government's complaint only goes into detail on the Tampa and Dallas problems. Medco suggests that the lack of detail supporting the other claims reflects a lack of evidence.

However, Medco's acknowledgement of two recent problems at the VP/GM level underscores one of the allegations in the suit: that compliance violations are in effect encouraged by Medco's motivational tactics involving its facility managers.

"VP/GMs who stayed with the company for five years often received stock options valued at a million dollars," the complaint states, "but relatively few VP/GMs lasted that long."

"VP/GMs who failed to meet their numerical goals were first subjected to humiliation before their peers in Monday morning conference calls known as 'the Monday beatings,'" conducted by former Exec VP Robert Blyskal, the complaint alleges.

"VP/GMs who continued to fail to meet their cost or turnaround goals were terminated and given 15 minutes notice to leave the building, never to return. VP/GMs often worked 70 hour weeks, and left needed management and supervisory positions vacant in order to keep costs down."

The accounts provided by the company and the details outlined in the complaint offer two very different pictures of the scope of the record-keeping problems.

Medco's position is that the problems at the Tampa pharmacy were the result of the general manager, who "had been going in the dead of night to the pharmacy with a handful of people to change the receipt date of prescriptions to make it appear that those prescriptions had been fulfilled earlier than they had in fact been in order to meet a contractual obligation to the client," Machlowitz said.

"This is not behavior that was in any way authorized by the company or even known to the company," he declared. The ex-GM "has always said that she did this on her own, and, after all, that's why she was doing it in the middle of the night, because she knew that what she was doing was wrong."

"With the client's agreement," Medco "had the situation investigated by an experienced health care prosecutor," Machlowitz said. The company gave the report to the federal employees program and "eventually, we also gave it to" Philadelphia Associate U.S. Attorney James Sheehan, he said.

"The client resolved the matter with us for the payment of $16,000 and change in penalties, and renewed with us," despite a very competitive bidding process for the contract, Machlowitz said.

The U.S. Attorney's complaint tells a different story. The complaint alleges that Medco employees routinely canceled and re-entered overdue prescriptions and took shortcuts on physician contacts, including "discouraging" pharmacists from calling to clarify ambiguities in prescriptions and using "non-pharmacist personnel to adjudicate and dispense or cancel patient prescriptions."

The practices in Tampa were organized to the point where Medco kept a "semitrailer parked behind" the facility to hide "purple pans (that is, pans containing prescriptions which were already out of time) whenever visitors from Blue Cross/Blue Shield came to the pharmacy," the complaint alleges.

"These practices have gone on in various Tampa pharmacies within Medco Health for at least the last eight years," the suit alleges, "and have occurred at other pharmacies as well, including the Texas, Nevada and Massachusetts pharmacies."

The VP/general manager blamed by Medco for the problems took charge of the Tampa facility in January 1999, the complaint states. She hired "a supervisory employee from" Medco's other Tampa facility who had "experience in improperly canceling prescriptions," the complaint maintains.

An investigation into the supervisors practices at the other Tampa pharmacy "had been taken over by the Exec VP of Medco Health," the complaint adds. "All records relating to that investigation have disappeared."

"The VP/GM developed a system at Tampa II to allow her personally to create and to assist others in creating false records and reports to be submitted to" BCBSA.

The problems in Tampa were exposed when Medco implemented a policy of contacting all patients who had a prescription pending for 14 days. When the director of pharmacy practices in Tampa "was directed to make those calls, she immediately realized that task was impossible because of the volume of calls required, and that she would be disciplined for the failure to carry out these instructions."

The director of pharmacy contacted Medco's VP-professional practices to "complain about the VP/GM's 'management style.'"

Because BCBSA was bidding out the federal employees contract, "senior management at Medco Health realized that...it was necessary to limit the allegations of misconduct to the Tampa II pharmacy," the complaint asserts.

During the investigation, the VP/GM denied "all responsibility." Although the company was aware she was lying, the complaint maintains, she "was offered a year's severance pay and full benefits....She demanded and received an additional bonus of $40,000."

The U.S. Attorney "believes and avers that the severance package provided to the VP/GM was intended by Medco Health to and did cause her to assume full responsibility for all improper conduct at the Tampa II pharmacy, to protect the regional VP, the senior VP of pharmacy operations, and the Exec VP of Medco Health from being implicated."

The former Tampa GM has asserted her Fifth Amendment rights in response to a subpoena from the U.S. Attorney, the complaint notes.

The report on the episode presented to the Federal Employee Program account executive and BCBSA "was intended to place all responsibility for the improper cancellations of prescriptions on the VP/GM and the turnaround team manager, and to prevent BCBSA from looking beyond Tampa II or above the VP/GM," the complaint maintains.

"Over the next two years," Medco "undertook a series of actions including false and misleading statements and reports to prevent the U.S. from learning the full extent of the improper conduct at Tampa II...and the extent to which improper practices existed at other Medco Health pharmacies," the suit claims.

Neither Medco nor the complaint goes into as much detail about the problems in Dallas. The complaint describes the issue as involving discrepancies between physician contacts logged in by the pharmacy and calls actually placed.

As in the Tampa case, the complaint maintains that Medco has deliberately limited the scope of the investigation in Dallas to ensure that the episode would be viewed as an isolated incident. According to the complaint, a total of nine employees were disciplined or terminated in Dallas.

The complaint also accuses Medco of making a "false statement" in its Securities & Exchange Commission filings in describing the circumstances of the Dallas problems.

The exec VP alluded to in the complaint, Blyskal, departed the company soon after David Snow joined as CEO. On the conference call, Snow described the management change as unrelated to the Philadelphia case. "I determined that in fact I needed to bring in a chief operating officer." Snow recruited Kenneth Klepper for the post from Wellchoice.

Blyskal "had already been out for a month on a medical leave of absence," when Snow joined, "so in fact Bob never worked under me," the CEO noted.

A Tale Of Two Cities: Medco Admits Past Problems In Tampa, Dallas

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