- Condition Centers
Issue of the Case
The US Department of Justice had joined lawsuits initiated against Medco Health Solutions, alleging that the firm had defrauded federal health care programs and paid, as well as received, kickbacks. This case was settled out of court for $155 million. Hence, it differs from those we usually consider.
Facts of the Case
Two pharmacists who had been employees of Medco Health Solutions filed whistle-blower lawsuits against the firm in 1999. A second lawsuit was filed by a physician-employee during 2000. These 2 suits were later consolidated into one, with the central allegations being that the firm had submitted false claims for reimbursement; that the firm had destroyed and canceled valid prescriptions in its files as a way to conceal its failure to provide the medication in a timely fashion as required by its contract with the government; solicited and accepted kickbacks from pharmaceutical manufacturers to designate their products as preferred; and paid kickbacks to insurers and health maintenance organizations to obtain their business.
A third suit, filed during 2003 by another pharmacist, alleged that Medco had received kickbacks from pharmaceutical manufacturers. It also was linked with the other 2 suits.
Medco agreed to pay the government $155 million plus interest. An added feature of the settlement agreement was a “corporate compliance agreement” with the Office of the Inspector General of the US Department of Health and Human Services. This contract was a requirement for the firm to be eligible to continue to be a participating provider for federal programs.
The Reasoning Underlying a Settlement
These consolidated actions were known by the legal designation of qui tam lawsuits. This designation is derived from a Latin phrase meaning “who sues on behalf of the King, as well as for himself.” The inside information from the whistle-blower is a key feature of such suits.
This person who knows of fraud against the government may initiate the lawsuit on a confidential basis, referred to “being under seal,” in a US District Court. Once the case is filed, the US attorney is called in to investigate the lawsuit and allegations of fraud. The lawyer for the government has 60 days to look into the matter, and if he or she concludes that the claims are meritorious, the United States takes over conduct of the case and either enters into a settlement, as in the Medco case, or pursues the lawsuit against the individual or firm. Even though the government has taken over the legal case, the whistleblower who initiated the action still retains the right to a portion of the proceeds from a successful settlement or judgment.
The government intervenes in one quarter to one third of the cases it investigates. If the government does not intervene, the whistle-blower may settle or pursue the lawsuit alone.
If the lawyers are successful in proving fraud against the government, the law requires the wrongdoer to pay substantial penalties, which can be assessed up to 3 times the amount that the wrongdoer fraudulently stole from the government. Note that this authorization of treble damages mirrors such an authorization applying to antitrust cases, an indication that Congress takes such matters extremely seriously, views them as a significant threat to the operation of the US economy and the government, and has provided a substantial incentive for private parties to take the lead in enforcing these statutes. In addition to recovery of the amount fraudulently paid, a mandatory civil penalty of between $5000 and $10,000 per false claim may be imposed. Out of damages imposed, the whistle-blower who launched the action can receive between 10% and 30% of the lawsuit recovery.
It is critical to emphasize that the settlement agreement that concluded this matter represented “a compromise of disputed claims. It is neither an admission of liability by either Medco...nor a concession by the United States that its claims are not well founded.” So why would the parties reach a contractual settlement on such a high-stakes matter? The wording of the settlement answers this way—“to avoid the delay, uncertainty, inconvenience, and expense of litigation of the...claims.” In addition to the monetary penalties payable to the US government, the 2 pharmacists who initiated the original suit split $20.1 million, and the physician in the second suit was awarded about $3 million. The third pharmacist was awarded $860,000. In all 3 instances, Medco also agreed to reimburse attorney’s fees and legal costs.
In a news release, the US attorney for the Eastern District of Pennsylvania, who took the lead on this case for the federal government, stated: “Pressure by an employer to reduce costs and increase profits must never be allowed to coerce pharmacists into ignoring their duties to patients.”
Dr. Fink is professor of pharmacy law and policy at the University of Kentucky College of Pharmacy, Lexington.