The Feds have backed two whistleblower suits against Medco. The allegations claim that Medco used a variety of techniques to favor Merck (which owned Medco at the time) and was paid $430m in 2001 to switch scripts from Merck’s competitors. Back in March 2003, Milt Freudenheim in the New York Times highlighted Medco’s income from rebates (some $1 billion a year) and its ability to move share towards Merck’s drugs.
PBMs have for a long time made money from rebates, and have also been very economical with the truth to their health plan customers about how much they got from pharma companies for those rebates and how much was passed through to their customers. However, during the late 1990s their performance seemed very ineffective in keeping down the cost of drugs for their plan and employer clients, either in reducing their usage or by holding down their unit price. For more of my take on PBMs see this post.
Interestingly enough, Medco’s stock price went up over a dollar in the latter part of the afternoon after 2pm when the confirmation (of somewhat old news) came out that the US Attorney’s office was joining the suit.