Medco subpoenaed in Florida Medicaid probe

Tuesday, Sept. 23, 2003 | 11:06 a.m.

SUN STAFF AND WIRE REPORTS

FRANLIN LAKES, N.J. -- Medco Health Solutions Inc., the biggest pharmacy-benefit manager and operator of an automated pharmacy in Henderson, said Monday it received a subpoena from the Florida Attorney General's Medicaid Fraud Control Unit seeking records on contracts with certain health maintenance organizations.

The request is part of an ongoing criminal probe, the company said in a regulatory filing. Franklin Lakes, N.J.-based Medco is working on a response, spokesman Jeffrey Simek said. The company doesn't yet know if it is the target of the Medicaid investigation, Simek said.

"We aren't clear on what that involves," Simek said. "We are in discussions to try and determine what their interest is and how we might be able to cooperate."

Pharmacy-benefit managers act as middlemen, using large purchases of medicines to get discounts for clients, such as HMOs. Medco and rivals have been the subject of investigations over charges they collaborated to fix prices, didn't give consumers the best price on drugs and mishandled mail order prescriptions.

David Moye, an attorney in the fraud unit of Florida's Attorney General's office, didn't return a call seeking comment.

Shares of Medco, spun off from Merck & Co. last month, fell 18 cents to $24.02 as of 4:00 p.m. in New York Stock Exchange composite trading Monday.

"People are numb to subpoenas in this sector at this point," said Robert Willoughby, a Banc of America analyst with a "neutral" rating on Medco shares. "I don't think this latest disclosure changes anyone's view on the near-term expectations for Medco -- which remain modest."

New York State Attorney General Eliot Spitzer in January said he was investigating whether Medco violated that state's consumer-protection and pharmacy laws. Separately, Assistant U.S. Attorney James Sheehan in Pennsylvania is conducting a federal investigation of Merck's Medco practices.

In April, Maine's Attorney General asked Medco for information about its pharmacy benefits business, as part of a probe involving 21 other states. The company also faces lawsuits from retail pharmacies.

Sheehan may issue a report on his investigation by the end of the month, according to Willoughby. That could boost shares of Medco and rivals if it appears that investigators' concerns with the industry are relatively superficial, he said.

"Once he says something (about where the investigation is headed) that offers clarity, and we can see the group doing better," said Willoughby, who does not hold shares.

Medco leads the industry by sales, posting a 13 percent gain in revenue to $33 billion last year as it filled 82 million mail-order prescriptions.