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For immediate release -- Thursday, February 14, 2008
Contact Bob Brammer – 515-281-6699.

Caremark to pay $41 million and Change Unfair and Deceptive Business Practices Related to Prescription Drugs

States alleged that Caremark -- one of the nation’s largest “PBMs” or pharmacy benefit manager companies -- sometimes switched patients to different prescription drugs even though the drugs were more costly to patients or their health plans.

Caremark Rx LLC, one of the nation’s largest “PBMs” or pharmacy benefits management companies, is resolving consumer fraud allegations by 28 states and the District of Columbia by changing business practices and making payments of $41 million, including up to $2.5 million for consumer patients.

Attorney General Tom Miller said: “One of our principal allegations is that Caremark engaged in deceptive business practices by encouraging doctors to switch patients to different brand-name prescription drugs and representing that the patients or health plans would save money, when in fact the switch would result in higher costs to patients and plans.”

Miller said PBMs, or pharmacy benefits management companies, specialize in administering pharmacy or prescription drug benefits for plans provided by employers, government agencies, health plans, unions, and other entities, in return for payment. According to Caremark, it is one of the nation’s largest PBMs, based on 2006 revenues of about $36.8 billion.

“Among other things,” Miller said, “we alleged that Caremark did not disclose to their client plans that rebates to Caremark from drug companies might result from the drug switching process and be retained by Caremark instead of the client plans.”

The states also alleged that Caremark restocked and re-shipped previously-dispensed drugs that had been returned to Caremark’s mail order pharmacies.

Under the settlement with the states, Caremark generally is prohibited from soliciting drug switches when the cost to the patient will be greater than the cost of the originally prescribed drug, or the net drug cost of the proposed drug exceeds the net drug cost of the originally-prescribed drug. (There are numerous other similar prohibitions on switching drugs designed to protect patients and their prescription drug plans. See more details below.)

Caremark also is required to take numerous measures, such as informing patients and prescribers what effect a drug switch will have on a patient’s co-payment, and disclosing to prescribers any financial incentives Caremark might have for certain drug switches. Caremark also must obtain express authorization from the prescriber for all drug switches, and must refrain from restocking and re-shipping returned drugs unless permitted by applicable law. (See more details below.)

Twenty-eight states and the District of Columbia joined in the settlement with Caremark, which has operated seven prescription drug mail order pharmacies around the country and a retail pharmacy network with over 59,000 participating pharmacies.

Iowa’s lawsuit in the matter was filed Thursday morning at Polk County District Court against Caremark Rx, LLC, and two of its subsidiaries, Caremark L.L.C. and CaremarkPCS, L.L.C. (formerly AdvancePCS). Also this morning, District Court Judge Douglas Staskal approved a Consent Judgment spelling out the injunction and monetary settlement between the states and Caremark.

More background and details:

Caremark payments:

Caremark will pay $38.5 million to the States and up to $2.5 million in reimbursement to patients who incurred expenses related to certain switches between cholesterol-controlling drugs. Those patients will be notified. Of the payment to states, $22 million will be used to benefit low-income, disabled or elderly consumers of prescription medications, to promote lower drug costs for state residents, to educate consumers concerning the cost differences among medications, or for similar purposes. Iowa will receive $370,502 for this purpose. Caremark will also pay $16.5 million to the states in costs, including $300,000 to Iowa.

The role of PBMs, or pharmacy benefit manager companies:

PBMs enter into contracts with employers and government health plans to process prescription drug claims for drugs provided to patients enrolled in the health plan, negotiate with drug companies to obtain volume discounts, negotiate discounts with participating retail pharmacies to provide dispensing services at a discount, and dispense drugs to patients through PBM-owned mail order pharmacies. In the thirty years since the first PBMs appeared, their services have evolved to include complex rebate programs, pharmacy networks, and drug utilization reviews.

The settlement generally prohibits Caremark from soliciting drug switches when:

  • The net drug cost of the proposed drug exceeds the net drug cost of the originally-prescribed drug.

  • The cost to the patient will be greater than the cost of the originally-prescribed drug.

  • The originally-prescribed drug has a generic equivalent and the proposed drug does not.

  • The originally-prescribed drug’s patent is expected to expire within six months.

  • The patient was switched from a similar drug within the last two years.

The settlement requires Caremark to:

  • Inform patients and prescribers what effect a drug switch will have on a patient’s co-payment.

  • Inform prescribers of Caremark’s financial incentives for certain drug switches.

  • Inform prescribers of material differences in side effects or efficacy between prescribed drugs and proposed drugs.

  • Reimburse patients for out-of-pocket expenses for drug switch-related health care costs and notify patients and prescribers that such reimbursement is available.

  • Obtain express, verifiable authorization from the prescriber for all drug switches.

  • Inform patients that they may decline a drug switch and tell the conditions for receiving the originally prescribed drug.

  • Monitor the effects of drug switches on the health of patients.

  • Adopt a certain code of ethics and professional standards.

  • Refrain from making any claims of savings for a drug switch to patients or prescribers unless Caremark can substantiate the claim.

  • Refrain from restocking and re-shipping returned drugs unless permitted by applicable law.

  • Inform prescribers that visits by Caremark’s clinical consultants and promotional materials sent to prescribers are funded by pharmaceutical manufacturers, if that is the case.

The participating states in the settlement are:

AZ, AR, CA, CT, DE, FL, IL, IA, LA, MD, MA, MI, MS, MO, MT, NV, NM, NC, OH, OR, PA, SC, SD, TN, TX, VT, VA, WA, and the District of Columbia. The AGs of MD and IL led the investigation into Caremark’s drug-switching practices.

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