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FOR IMMEDIATE RELEASE
February 14, 2008
Attorney General McKenna announces Caremark to pay $41 million to resolve multistate consumer protection claims

SEATTLE – Attorney General Rob McKenna announced today that Washington will receive nearly $1.7 million as part of a $41 million settlement between 29 states and Caremark Rx, LLC, one of the nation’s largest pharmacy benefits management companies.

As part of the settlement filed today in King County Superior Court, Caremark denied any wrongdoing but agreed to significantly change its business practices.

“Washington is gratified to have played a key role in reforming aspects of how Caremark does business,” McKenna said. “We have forced Caremark to make more transparent its communications with clients, doctors and patients. I want to thank Assistant Attorney General Bob Lipson for his leadership on the executive committee that negotiated this important settlement.”

The states’ complaint, also filed today in court, claims Caremark Rx, LLC, and two of its subsidiaries, Caremark, LLC and CaremarkPCS, LLC (formerly AdvancePCS), of engaging in deceptive business practices that violate state consumer protection laws.

The states allege that Caremark encouraged doctors to switch patients’ prescriptions and represented that patients or their health insurance plans would save money. But doctors were not adequately informed of the effect this switch would actually have on costs. Moreover, Caremark did not clearly disclose to health plans that money the company earned as a result of the drug-switching process would be retained by Caremark.

The complaint further alleges that Caremark restocked and re-shipped previously dispensed drugs that had been returned to its mail-order pharmacies as undeliverable.

“Pharmacy benefit managers play an important role in administering the drug benefit of almost every health care plan in America, and Caremark is one of the largest,” Lipson said. “The agreement describes the sort of ethical business standards that government, health insurance providers and the public expect.”

The settlement generally prohibits Caremark from soliciting drug switches when:

  • The net cost of the proposed drug exceeds that of the originally prescribed drug;
  • The cost to the patient will be greater,
  • The originally prescribed drug has a generic equivalent and the proposed drug doesn’t,
  • The originally prescribed drug’s patent is expected to expire within six months, or
  • The patient was switched from a similar drug within the last two years.

The agreement 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 health care costs related to drug switches and notify patients and prescribers that reimbursement is available,
  • Obtain express, verifiable authorization from the prescriber for all drug switches,
  • Inform patients that they may decline a drug switch and 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 claims,
  • Refrain from restocking and re-shipping returned drugs unless permitted by applicable law, and
  • 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 company will pay a total of $41 million, to be distributed as follows:

  • $22 million in a cy pres payment that states will use to benefit low-income, disabled or elderly consumers of prescription medications, to promote lower drug costs for state resident, to educate consumers concerning the cost differences among medications or for similar purposes. Washington will receive $680,000 of this amount.
  • $16.5 million for state attorney costs, fees and consumer education, including $1 million for Washington.
  • $2.5 million in reimbursement to patients who incurred expenses related to certain switches between cholesterol-controlling drugs, including up to $200,000 for Washington residents. Caremark will notify eligible consumers of their right to request a refund.

In addition to Washington, the following states participated in the settlement:  Arizona, Arkansas, California, Connecticut, Delaware, District of Columbia, Florida, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont and Virginia.  

Background:
Pharmacy benefits management companies, or PBMs, enter into contracts with employers, health insurance providers and government health plans to process claims for prescription medicines provided to patients enrolled in the health plan. They also negotiate with drug companies to obtain volume discounts, negotiate with retail pharmacies to provide dispensing services at a discount and dispense drugs to patients through mail-order pharmacies. In the 30 years since the first PBMs appeared, their services have evolved to include complex rebate programs, pharmacy networks and drug use reviews.

Documents:
Caremark Complaint
Caremark Consent Decree

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Media Contacts:  Kristin Alexander, Media Relations Manager – Seattle, (206) 464-6432
Bob Lipson, Assistant Attorney General, (206) 389-2513

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