Attorney General Cuomo Secures $27 Million Dollar Agreement To Crack Down On Pharmacy Benefit Managers Secretly Switching New Yorkers Prescription Drugs

NEW YORK, NY (July 29, 2008) - Today Attorney General Andrew Cuomo announced a landmark agreement that will crack down on Pharmacy Benefit Managers ("PBMs") in New York State from switching prescription drugs for patients without informing them. The agreement comes after Cuomo alleged that Express Scripts, INC. ("ESI"), the pharmacy benefit manager for the over one million participants in the New York State Health Insurance Program, was engaging in "drug switching".

Cuomo reached a settlement against ESI and CIGNA Life Insurance Company ("CIGNA") that recovers $27 million for the New York State Health Insurance Program ("NYSHIP") and the New York State Department of Civil Service. NYSHIP is the fund New York State uses to pay for the health care plans for more than one million New York State employees and their dependants.

Cuomo's lawsuit alleged that ESI, subcontracted through CIGNA as the Pharmacy Benefit Manager ("PBM") for the State's over one million employees and dependents, regularly engaged in the practice of "drug switching." Drug switching occurs when a PBM seeks to increase profits by contacting a patient's doctor without the patient's knowledge and switching the drug it purchases for the patient so that the PBM increase their profits.

"At a time when New Yorkers are struggling to pay rising health care premiums, today's landmark $27 million agreement cracks down on PBMs that put profits ahead of patients' health," said Attorney General Andrew Cuomo. "The message is clear: companies that switch patients' drugs without informing them will be prosecuted to the fullest. Today's announcement peels back the shroud of deception and forces pharmacy benefit managers to abide by a new standard of transparency."

ESI is the nation's third largest PBM and serves as the intermediary in the provision of prescription drugs to consumers. They negotiate with pharmacies for pricing of the dispensing of prescriptions and with pharmaceutical manufacturers for rebates and discounts that get passed on to the health plans. ESI provides these services for approximately 50 million individuals nationwide.

The New York State Department of Civil Service contracted with CIGNA -- one of the largest insurers in the United States -- to manage the Empire Plan's prescription drug benefits. The Empire Plan covers more than 1.17 million active and retired State employees and their dependants. CIGNA then subcontracted with ESI to administer the Empire Plan drug program and handle all of the plan's pharmacy claims from 1998 to 2005.

The lawsuit alleged that ESI made misrepresentations during their 1999 contract talks regarding the amount of discounts ESI could obtain for the State, which induced the Department of Civil Service into signing a contract. The lawsuit further alleged that ESI inflated prices for generic drugs through various schemes and engaged in drug switching programs to get rebates from manufacturers. ESI also diverted manufacturer rebates to themselves instead of to the Empire Plan, which inflated the costs of prescription drugs in the Empire Plan.

Today's settlement recovered $27 million from ESI and CIGNA that will go back to the NYSHIP. This is the largest settlement of its kind for this type of matter. In May 2008, ESI settled with 28 states for similar type conduct for $9.3 million.

Today's settlement also ends the common practice of "drug switching" by ESI and other PBMs subcontracting with CIGNA. Drug switching occurs when a PBM contacts a patient's doctor without the patient's knowledge and replaces the drug a consumer has been prescribed with a different brand medication.

"These companies need to understand that when a New Yorker orders and expects specific medications, patients should get what they pay for," added Cuomo. "Today's announcement forces pharmacy benefit managers to abide by a new standard of transparency."

Under the settlement, any consumer now served by ESI and other PBMs subcontracting with CIGNA will receive clear notice that a drug switch was initiated by the PBM. Consumers will be advised of their right to refuse a drug switch and may choose to continue taking their regularly prescribed drug. Furthermore, ESI may not switch a patient's prescription if the cost of the new drug exceeds the cost of the current drug, if the current drug's patent will expire within six months, if a generic equivalent is available for the current drug, or if the prescription has already been switched within the past two years.

Additionally, under the settlement ESI agrees to new rules for contracting that will make its business practices transparent to health organizations and consumers. ESI will disclose to its customers and potential customers its pricing methods, the amounts of payments received from manufacturers, the percentage of manufacturer payments it retains, the factors it uses to calculate targeted discount rates, and the current discount rate for each generic drug.

In August 2004, a lawsuit was filed in New York State Supreme Court by the Office of the Attorney General based on an audit from the New York State Office of the State Comptroller and a complaint from DCS. The case was pending before Judge Richard Platkin.

"Prescription drug costs are already sky high. The fact that this provider deliberately inflated drug costs is shameful and wrong," State Comptroller Thomas P. DiNapoli said. "Several state agencies worked diligently together and tapped the unique expertise of their staff to ensure that Express Scripts was held accountable for its actions. Our combined efforts paid off and Express Scripts is being forced to pay back taxpayers."

This case was handled by Assistant Attorneys General Cathy Young Thomer, Carol Hunt, and Brant Campbell, and Legal Assistant Eileen Saddlemire, under the supervision of Health Care Bureau Chief Timothy A. Clune and Deputy Attorney General for Social Justice James Rogers.

Consumers with questions or concerns about health care matters can call the Attorney General's Health Care Bureau at 1-800-428-9071 or visit www.ag.ny.gov/bureaus/health_care/about.html.

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