Groundhog Day: Medco Settles CALPERS Probe with $2.75M Payment


Zachary French

Watching the mega PBMs conduct their daily business is reminiscent of the movie Groundhog Day. In the 1993 movie, Bill Murray’s character is hilariously doomed to relive the same day’s events day after day until he finally figures out what’s really important in life—or at least in his life. Similarly, mega PBMs often seem tragically doomed to repeat many of their ethical lapses day after day without ever really discovering that pharmacy benefit management has to be about the patients not just profits.

The most recent example of a PBM “not getting it” is Medco Health Systems’ regrettable role in the misadventure that played out over the last 18 months at the California Public Retirement System (CalPERS). CalPERS manages retirement benefits, including a pharmacy benefit, for more than 1.6 million California public employees, retirees, and their families. Medco was awarded the honor and responsibility of insuring that CalPERS’ beneficiaries had a well-managed and cost effective pharmacy benefit that maximized healthcare outcomes.

By any estimate this should have been a straight forward business agreement with mutual benefit to CalPERS and Medco. But few things are ever straight forward with mega PBMs like Medco. Instead Medco’s business practices embroiled CalPERS, its beneficiaries and California taxpayers in a dark Byzantine plot with so many twists and turns that even the most cynical PBM observers were aghast. Things became so bad that CalPERS had to revoke the business it had awarded to Medco, and move the business to Medco’s competitor, CVS Caremark, a defendant in a whistle blower lawsuit brought by CVS pharmacists that alleged that CVS Caremark defrauded CalPERS when the PBM previously managed the CalPERS’ pharmacy benefit.

According to press reports, a CalPERS report issued last March said Medco paid a former CalPERS board member $4 million to help the company land a pharmacy benefits contract at the fund. California’s attorney general office had also been looking into Medco’s ties to the former board member. The AG’s office agreed to accept a Medco payment of $2.75 million to settle the matter. Medco’s payment will reimburse California for its investigation costs and attorney fees, and the AG’s office will close its probe.

In its statement about the settlement, the California AG’s office said “Medco agrees, under the settlement, to a court order requiring the company to not unlawfully interfere or tamper with the competitive bidding process of any California governmental or quasi-governmental agency, and agrees to a requirement that Medco’s independent directors comprehensively review the investigative materials in order to take internal measures to ensure that problems do not occur again.”

This conclusion is regrettably typical of how mega PBMs deal with inquiries into their conduct and ethics. They have paid millions of dollars to conclude probes and settle court cases and then often return to similar behaviors that led to the investigations in the first place. The health plan customers are different but the PBMs egregious practices remain the same. NCPA has documented at least $370 million in PBM payments to effect such settlements. This money could have been better spent ensuring that PBMs deliver more value to their clients.

Medco lost a contract for a reported $565 million, paid nearly $3 million to settle the probe while subjecting CalPERS to ridicule and uncertainty regarding the management of its pharmacy benefit. And what happened in the CVS Caremark whistle blower fraud case involving CalPERS? Groundhog’s Day! CVS Caremark admitted no wrongdoing but settled the nationwide case for nearly $20 million, with $7 million going to California.

3 Responses to “Groundhog Day: Medco Settles CALPERS Probe with $2.75M Payment”


  1. 1 an observer April 14, 2012 at 2:08 am

    May I comment on these articles from ncpa. What this organization needs to do is stop preaching to the choir and take these messages to reuters, Ap or any reputable news organizations that can perk up the ears of aggressive anti fraud state attorney generals so they can go after the frauds of the PBMs. Example ftc commissioner julie brill when she was AG. We all know how they manipulate the system to gain profits. If 50 percent of a PBMs Profit is from their wholly owned mail order facility when that revenue is 1/8 of there whole pbm book of business seems very colluded since every rph onthese boards know OUR actual reimbursement are no where near what the reimburse their own Mail facility. Food for thought

  2. 2 Van G. Coble Dph, CDM, FASCP April 16, 2012 at 3:15 am

    Zach: What is really amazing is that Calpers went back to the well again when re-contracting with Caremark. No wonder California as a state is swimming in red-ink. State governments are very naive when they believe they can control the large PBMs. We are now in the middle of this in Kansas with the movement of Medicaid to all MCO coverage.

  3. 3 JUDY COALTER April 21, 2012 at 4:03 am

    My meds have increased GREATLY since CalPers recontracted with CVS/Caremark. A three months supply which cost five dollars for generics and ten dollars for non-generic now costs $40.00,$68.00 for generic and they refuse to cover Celebrex which is a drug for arthritis inflammation and pain and for which there is NO generic subsitute And costs $400.00 for a 3 month supply. Now I understand how,why, and by whom we’re getting ripped off. I have talked myself silly trying to convince CalPers,Anthem and caremark of ther folly and it’s effect on me.They all blame each other which is of no help to me.


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