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Medco Health Solutions Inc., the nation’s largest pharmacy benefits manager, has agreed to pay $29 million to settle claims of unfair trade practices brought by 20 state attorneys general that the company routinely persuaded doctors to switch patients’ medications to save itself money, not to benefit the patients.

Medco also entered into a partial settlement with federal prosecutors in which it consented to an injunction that requires it to modify its business practices in more than a dozen ways, including mandatory disclosure to doctors and patients of Medco’s financial incentives for certain drug switches.

But the company’s problems are not over yet because the federal government’s claims for damages were not included in the settlement. That portion of the case will continue, according to settlement papers filed yesterday in U.S. District Court in Philadelphia.

U.S. Attorney Patrick L. Meehan said the case against Medco would change the entire industry.

“We want to make sure that profits never come before patients, and today marks an important step toward forever changing the way all PBMs do business,” Meehan said. “When getting the proper medication to the consumer as quickly as possible isn’t the focus of a pharmacy benefit manager, it’s ultimately the patient who suffers.”

In the suit, prosecutors alleged that Medco, of Franklin Lakes, N.J., encouraged prescribers to switch patients to different prescription drugs but failed to pass on the resulting savings to patients or their health care plans.

The drug switches generally benefited Medco despite Medco’s claims that they saved money for patients and health plans, the suit alleged. And Medco also allegedly did not tell prescribers or patients that the switches would increase rebate payments from drug manufacturers to Medco.

Pennsylvania Attorney General Jerry Pappert said, “Consumers and their doctors should make the decision of switching from one medication to another based on the best interests of the patient, not because a (pharmacy benefits manager) has found a way to make money.”

The settlement was spearheaded by the attorneys general in Pennsylvania, Massachusetts and Maine and is joined by the attorneys general of Arizona, California, Connecticut, Delaware, Florida, Illinois, Iowa, Louisiana, Maryland, Nevada, New York, North Carolina, Oregon, Texas, Vermont, Virginia and Washington.

In the settlement, Medco said it will pay $20.2 million to the 20 states involved in the settlement, with each getting approximately $1 million, to help low-income and elderly residents get prescription medicines. An additional $2.4 million will be paid to patients to reimburse them for medical tests needed after they were switched to other cholesterol drugs.

Medco also agreed to pay $6.6 million in litigation costs and will be required to make new disclosures to prescribers and patients.

Those include the minimum or actual cost savings for health plans and the difference in a patient’s co-payment, the difference in side effects between prescribed and proposed medications, and Medco’s financial incentives for certain drug switches.

Medco previously notified patients by letter when their doctors agreed to switch their medicines. Now Medco will also call patients and will tell them why the switch is being made, including the difference in the cost of the drugs involved.

Medco, like other pharmacy benefits managers, contracts with health plans to process prescription drug payments to pharmacies for medications provided to patients enrolled in the health plans. It handles prescription coverage for more than 62 million Americans.

Medco spokeswoman Jennifer Leone said that the settlements with the states were to be filed yesterday in each state, and a partial settlement with the Justice Depart-ment would be filed the same day in Philadelphia.

“This is not admitting guilt. This is about making a good business decision” by the company to put the matter behind it, Leone said.

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