Medco will pay all "drug interchange-related health care costs" incurred by consumers under a consent order entered April 26.

"Medco shall pay all out-of-pocket costs for Drug Interchange-Related Health Care Costs incurred by a patient by reimbursing the patient for such costs within 30 days of receipt of a claims form for such costs," an injunction entered in Philadelphia federal court states.

The injunction and an identical ¹ consent order are included in settlements with 20 state attorneys general and the Philadelphia U.S. Attorney resolving a portion of the pending litigation against the pharmacy benefit management company.

The settlement follows a five-year investigation into PBM practices spearheaded by the Philadelphia U.S. Attorney. The injunctive relief resolves the non-monetary portions of two "whistleblower" cases and a related DoJ complaint filed against Medco in 2003 (² [A#00650400021], p. 30).

New Rules For PBMs

The Medco injunction is likely to become a de facto code of conduct for all other PBMs, particularly in the context of the roll-out of a Medicare prescription drug benefit in 2006 (see ³ Also see "Medco Settlement Sets “Gold Standard” For PBMs Ahead Of Medicare Rx" - Pink Sheet, 3 May, 2004.).

The injunction essentially defines therapeutic interchange as a category of PBM activity that will be highly regulated.

The net impact of the changes will be to limit the circumstances under which Medco would be motivated to pursue therapeutic interchanges - either because of explicit restrictions on certain types of switches, or because the procedural requirements will make switches economically unattractive.

In the simplest terms, brand-to-brand switching will now be limited to categories where pricing concessions offset the costs of complying with the new rules.

Not All Switches Affected

Other classes of drug switches, however, are explicitly excluded from the rules.

The five exempt classes are switches: (1) "initiated pursuant to a Drug Utilization Review"; (2) "initiated for patient safety reasons"; (3) "required due to market unavailability of the currently prescribed drug"; (4) "from a brand drug to its generic or chemical equivalent, as defined by FDA"; and (5) "required for coverage reasons, that is, where the currently prescribed drug is not covered by the formulary or plan applicable to the patient."

The requirement for Medco to pay for ancillary health costs arose from one of the main consumer complaints brought forward by the state AGs.

Statin Switch Costs

The example cited by the prosecutors involves the statin category and specifically Medco-initiated switches to Merck's Zocor (simvastatin), for which Medco receives favorable pricing. However, the prosecutors maintain, the "switch usually required patients to receive follow-up blood tests" that would increase out-of-pocket costs.

The injunction requires Medco to set up a procedure for reimbursing out-of-pocket expenses, and to disclose the policy "conspicuously and clearly" when contacting patients about switches.

Medco is required to reimburse "a patient's co-pays for tests, doctor visits and other health care services that are incurred in accordance with a treating physician's instructions."

Medco Liability Extends Six Months

Medco must cover charges that are incurred "as a result of a drug interchange for the purpose of assessing the continuum of the previous therapy for up to six months following a drug interchange."

Medco must also reimburse costs incurred "for the purpose of assessing whether to undertake a proposed drug interchange."

The agreement stipulates that Medco can cancel the proposed interchange upon being notified of potential monitoring costs. Medco is also only responsible for the co-pay amount, even if a patient pays the full cost of a given service because of deductibles or coverage limits.

The injunction allows Medco to hire a third-party to audit claims in excess of $500. However, Medco is obliged to pay all claims in 30 days; "if a determination is made that the costs were not related to an interchange, nothing herein shall prevent Medco from pursuing any legal remedies Medco may have against the patient and any other party involved."

Medco has also agreed to monitor the impact of drug interchanges at a higher level by collecting patient and provider communications "that concern the efficacy or health effects" of switches, and to report the findings "not less than quarterly" to the P&T committee.

Preserving Generic Markets

Other terms of the injunction more directly limit the circumstances under which Medco can propose a switch.

Medco is prohibited from making switches away from a brand name drug that has a generic equivalent (except when the switch will still reduce net costs).

In addition, Medco cannot switch patients away from a drug "where the patent protection for the currently prescribed drug is scheduled to expire within six months," or, more generally, "where the effect of the proposed drug interchange reasonably is to avoid substitution for, or generic competition against, the currently prescribed brand."

Those provisions address the allegation that Medco encourages switches away from brands that are about to face generic competition in order to preserve brand rebates in the class (⁴ Also see "Generics Last? Medco Accused Of Shifting Away From Mature Brands" - Pink Sheet, 30 June, 2003., p. 35).

Other Limits On Switches

Medco is also prohibited from making any drug switch where the "net cost" of the new therapy exceeds the prescribed drug. The "net cost" is defined in the agreement as the amount paid by the client, meaning that Medco cannot favor brands where it receives rebates or incentives that do not translate into lower end-user prices.

Medco already changed its policy on switches effective Jan. 1 to ensure that it never moves patients from a product with a lower list price to a higher list price (⁵ Also see "Abbott “Nominal Prices” Cited In Medco Suit; “Improper” Payments Alleged" - Pink Sheet, 6 October, 2003., p. 34).

Medco is also prohibited from attempting to switch brands for a single patient who has previously been switched (or declined a switch) for a product in the same class within the past two years.

The injunction outlines an extensive list of procedures for contacting doctors and patients regarding drug switches. Many of the provisions fall generally under the theme of "transparency" regarding pricing and rebate relationships (see ⁶ Also see "PBM “Transparency” Defined In Medco Settlement" - Pink Sheet, 3 May, 2004.).

Others relate more directly to the nuts-and-bolt process of managing a therapeutic switch.

Medco is required to obtain an "express verifiable authorization from the prescriber" to support a switch.

However, the agreement is still relatively liberal in allowing Medco to obtain the consent. The switch can be made based on a "verbal" authorization from the prescriber, or from "a person who affirms (in writing or verbally) that the interchange has been authorized by the prescriber." Medco (as is its current practice) must follow up with a written confirmation of the switch.

A Bigger Phone Bill

One small but important change for Medco involves informing mail order customers of switches. Under the injunction, Medco is required to contact all patients by phone (and by letter) to alert them to the switch.

Medco's current practice is to include a written notice of the switch with the prescription mailed to the patient. Medco said its call centers have the capacity to handle the new requirement.

Medco is also required to set up a process for allowing prescribers and patients to reject switches. "Unless a currently prescribed drug is no longer on the client plan's formulary or the patient is unwilling to pay any higher applicable co-pay or other costs, Medco shall cancel and reverse the drug interchange upon written or verbal instructions from a prescriber or patient," the settlement states.

Medco is required to maintain a toll-free number for patients and prescribers to call with questions about or to reject a switch. "The customer service standards (e.g., waiting time) for those telephone numbers shall be equivalent to Medco's other customer service standards."

If Medco already dispensed the new drug, the company will be required to ship the original brand and cover all costs for the return; if the patient is in immediate need of the drug, "Medco shall arrange for dispensing of an appropriate quantity of replacement medications at a participating Medco network pharmacy."

Medco Injunction Changes Equation For Switches: PBM Must Cover All Costs

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