Medco reaches settlement with Department of Justice; legal paper seeks change in FDA warning letter process

The US Department of Justice (DOJ) and Medco Health Solutions, a large pharmacy benefit manager (PBM) based in Franklin Lakes, NJ, reached a settlement over allegations that the PBM had submitted false claims to the federal government, had paid kickbacks to health plans to obtain business, and had both solicited and accepted kickbacks from pharmaceutical companies.

In the $155 million settlement of the case, which involved claims originally filed in 1999 and 2000 and an investigation into conduct between 1998 and 2004, Medco did not admit any wrongdoing and entered into a corporate compliance agreement and a consent decree with the Office of Inspector General (OIG), US Department of Health and Human Services (HHS), and the Inspector General of the Office of Personnel Management in order to continue its participation in government-backed health programs.

"This settlement and others like it represent a sweeping change in the way pharmacy benefit managers do business," said US Attorney Pat Meehan, who announced the settlement with Medco, the second-largest PBM in the United States with responsibility for the prescription drug benefits of more than 60 million Americans. "Pharmacy benefit managers are ultimately accountable to their patients, and these agreements increase that level of accountability."

Dana Felthouse, president of the Pharmacy Benefit Manager Institute (PBMI), a privately held provider of research-based education to help professionals design and manage pharmacy benefit programs, said the PBM industry has changed its conduct considerably since its early days to become more open in regard to their financial practices.

"The federal government started to look at the PBMs back in the early '90s when some pharmaceutical companies purchased them," Felthouse said. "That was the start of the creation of the PBMs as very large, publicly traded entities. These settlements are a result of things that happened quite a while ago...the PBM industry has matured and evolved, and they have really opened up dialogue with their customers to educate the market about how they manage drug benefit costs."

A recent report by PBMI found a relationship between the degree of financial transparency provided by PBMs and employer satisfaction with the service provided by the PBM-those PBMs that provided more financial information to their customers tended to receive higher satisfaction scores.

In addition, the PBM industry also is awaiting the formulation of standards currently being undertaken by URAC, to promote industry best practices and encourage quality improvement within the industry.

"The PBM accreditation is a natural evolution in the PBM market," Felthouse said. "They're clearly the result of the industry maturing."

FDA WARNING LETTERS

A legal background paper by an attorney who helped the medical devices manufacturer Utah Medical Products successfully challenge an FDA warning letter in 2005 stated that the agency's attempts to rework the process have failed and that a major revision is necessary.

"This is a good time for the administration, as managed by a new commissioner and Congress, to function as partners in fixing a broken communications system," Larry R. Pilot, a partner in the Washington, DC, law firm McKenna Long and Aldridge, which represented Utah Medical Products, said in the legal paper.

Utah Medical Products received a warning letter in September 2001 for alleged manufacturing-and quality-related violations, saying that FDA lacked evidence, especially in light of the fact that inspections by FDA in 1998 and 2001 did not support the claims. After 4 years of subsequent inspections, a US District Court judge dismissed FDA's case after a 7-day trial.

FDA began issuing warning letters in 1991, replacing the system of the agency issuing a "notice of advanced findings/regulatory" letter that had been in place to warn firms of alleged violations. A key differentiator between the 2 programs was that power was given to various FDA district directors to issue warning letters, instead of the more centralized approach of having FDA headquarters review evidence of any alleged violations and then to supply that evidence to the DOJ prior to seeking enforcement through federal court. FDA adjusted the warning letter system in 2001 to reduce the number of letters through additional review by FDA's Office of Chief Counsel (OCC).

Despite that modification 5 years ago, the newer system lacks the legal clout of the previous one, Pilot said.

"Evidence, not just allegations, represented the strength of the regulatory letter, as well as the fact that those receiving it would have no second chance," Pilot said in the paper. "In contrast, some recipients of a warning letter have received multiple numbers of warning letters, which undercuts the clarity and certainty of the agency's message."

Pilot cited a study conducted in June 2006 for US Rep Henry Waxman, D-Calif, the potential chair of the House Government Reform Committee when Democrats take control of Congress in January, that reported that the number of warning letters issued by FDA has fallen from 1,154 in 2000 to 535 in 2005, a decline of more than 50%.

While Pilot disagreed with the conclusion in the Waxman report that failures in the warning letter system signify that FDA "enforcement efforts have been severely compromised," he did say that an adjustment on the part of the agency is necessary.

"The appearance of a new commissioner, coupled with congressional oversight, should be directed toward a more effective method of communication with the regulated industry," Pilot said.

BIOMARKER COLLABORATION

An effort among FDA, the National Institutes of Health (NIH), the Foundation for NIH (FNIH), and the Pharmaceutical Research and Manufacturers of America (PhRMA) has identified the first studies it will undertake to accelerate the development of new biomarkers.

Biomarkers, a key component in FDA's Critical Path initiative, are distinctive indicators-either molecular, biological, or physical-to an underlying physiologic state that eventually can lead to safer, more efficacious treatment of various conditions such as heart disease and diabetes.

"It can help identify areas of opportunity, clarify responsibilities, and make important new findings openly available," HHS Secretary Mike Leavitt said of the consortium. "Most of all, it can help propel us towards an era of personalized healthcare and improved development of medical treatments."

A main function of the consortium will be to speed the development of these biomarkers, which have in the past taken decades to develop. One of its strategies would be to harmonize procedures related to identifying, verifying, and formalizing the use of the biomarkers.

Projects currently being explored by the consortium include:

The consortium will be overseen by an executive committee and will be managed by the FNIH, which will supply some of the funding. Other private-sector funding sources also are being sought.

SOURCES

U.S. announces $155 million settlement of Medco false claims [press release]. US Department of Justice. Philadelphia, Pa: October 23, 2006. Available at: http:// http://www.usdoj.gov/usao/pae/News/Pr/2006/oct/MedcoPressReleaseUpdated10.20.06.pdf. Accessed November 15, 2006.

Pilot LR. A priority for the FDA: fix the "warning letter" process. Washington DC: Washington Legal Foundation; October 20, 2006. Available at: http:// http://www.wlf.org/upload/102006pilot.pdf. Accessed November 15, 2006.

US House of Representatives Committee on Government Reform-Minority Staff Special Investigations Division. Prescription for harm: the decline in FDA enforcement activity. Washington DC: June 2006. Available at: http:// http://www.democrats.reform.house.gov/Documents/20060627101434-98349.pdf. Accessed November 15, 2006.

Private-public partnership forms the Biomarkers Consortium to advance the science of personalized medicine [press release]. Foundation for the National Institutes of Health. Washington, DC: October 5, 2006. Available at: http:// http://www.fnih.org/news/TBC_Press_Release.shtml. Accessed November 15, 2006.

Statement by Mike Leavitt, secretary of Health and Human Services, regarding announcement of Biomarkers Consortium [press release]. Leavitt M. Washington, DC: October 5, 2006. Available at: http:// http://www.hhs.gov/news/press/2006pres/20061005a.html. Accessed November 15, 2006.