Concerns delay state action on $2.3 billion drug contract

Low bidder paid multimillion-dollar settlement to Md., 28 other states in '08

March 09, 2011|By Annie Linskey, The Baltimore Sun

A day before they were supposed to choose a company to manage Maryland's prescription drug benefit program, officials on Tuesday halted consideration of the $2.3 billion contract, amid concerns about the low bidder's past legal problems and reservations about spending the money out of state.

Express Scripts Inc., which has underbid the Rockville firm that now manages the program, paid $9.3 million to Maryland and 28 other states in 2008 to settle complaints raised after it encouraged doctors to switch patients' cholesterol drug brands. The St. Louis-based firm joined another company in a $27 million payout to New York in 2004 after it was accused of keeping roughly $100 million in drug rebates that should have gone to that state.

Express Scripts has offered to take over the Maryland contract from Rockville-based Catalyst Rx, for $50 million less over five years.

That savings appeals to the administration of Gov. Martin O'Malley, which has been wrestling with a $1.6 billion budget gap. Going with Express Scripts could save the state $15.7 million next year, enough to fund 300 state jobs, or to restore a proposed budget cut to Baltimore city schools.

But the company's legal history — and the prospect of booting a local company from a lucrative contract — appear to have raised concerns in the minds of the two other officials who sit on the state Board of Public Works.

A spokesman for state Treasurer Nancy Kopp said the contract has prompted "really close examination" by her office.

Spokesman Howard Freedlander said Kopp is troubled that the state is preparing to award the new contract even though Catalyst Rx has lodged a protest. The spending board typically waits for protests to be resolved before acting on a contract, but administration officials say the possibility of saving millions of dollars argues for moving more quickly.

Comptroller Peter Franchot, the third member of the spending panel, declined to comment because the matter has not been taken up by the spending panel. But an official familiar with his thinking said Franchot has "serious doubts" about the award given the company's legal trouble.

Franchot views the Rockville firm as having an "outstanding" record, said the official, who was not authorized to speak publicly about the comptroller's views.

Catalyst Rx is a subsidiary of publicly traded Catalyst Health Solutions Inc., a pharmacy benefit management company that reported revenues of $3.8 billion in 2010. The company employs 1,200.

A spokesman for O'Malley said debate on the contract would now be delayed two weeks for "further study."

Express Scripts declined to comment.

The contract is to manage the prescription drug program for 200,000 current and retired state workers over the next five years. The company would process drugs claims and negotiate lower prices for medications with pharmacies and manufactures.

Pharmaceutical benefit management firms can make more money if they persuade patients to use inexpensive generic drugs, or medications for which they've secured lower prices. Critics say this can lead to a conflict: Does the firm push patients to drugs that yield the best profits or the best health results?

Complicating the question is the hazy pricing structure for medications: Manufacturers and pharmacies cut deals with firms that can deliver large numbers of potential payments.

Such tensions mean the firms are frequently targets of lawsuits. When Express Scripts settled with Maryland and other states, Attorney General Douglas F. Gansler said the agreement would "curb drug switches that do not benefit consumers and health plans, but only cost them more."

Express Scripts did not admit to any wrongdoing. A spokesman for Express Scripts said the settlement required "only minor adjustments" to business practices.

The company made headlines in 2004 when then-New York Attorney General Eliot Spitzer accused it of keeping roughly $100 million in drug rebates that should have gone to the state.

"They were simply committing fraud," Spitzer told the Associated Press at the time.

Express Scripts joined in a $27 million settlement, but did not admit any fault.

CatalystRx wrested the state contract away from Caremark in 2006, even though it was not the lowest bidder. Caremark took up an administrative challenge, a process which took a year. In that instance the state used the incumbent firm until the appeals were settled.

Caremark eventually lost its appeals, but the move effectively turned a five-year contract into a four-year contract for Catalyst Rx.

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