Merck & Co., the nation's largest drugmaker, last week agreed to settle antitrust charges with the Federal Trade Commission over the company's Merck-Medco Managed Care unit.
In 1993 Merck became the first drugmaker to buy a pharmacy benefits management company, Montvale, N.J.-based Medco, which serves as middleman between drug companies and health insurance plans.
Pharmacy benefits companies control the list of approved drugs for formularies and negotiate drug pricing and rebates with manufacturers.
The FTC reviewed and cleared Merck's $6.6 billion acquisition of Medco at the time.
Since then, however, the combined company's behavior required antitrust intervention to safeguard consumer choice and assure adequate price and service competition in the drug and pharmacy benefit management industries, the FTC said.
The FTC said that through Medco, Merck had become privy to "sensitive pricing information" about competitors' drugs, which raised the risk that the drugmakers would collude on pricing.
Merck said the agreement codifies a voluntary course of "operational independence" for Merck and Medco, which has been in effect for more than three years, according to a statement by Per G.H. Lofberg, president of Merck-Medco.
Merck said that since 1993, drug spending managed by Medco had quadrupled to $12 billion and the number of plan enrollees had increased 34%, to more than 51 million.
Under the settlement with the FTC, Merck agreed that Merck-Medco would maintain an "open formulary," which would be chosen by independent pharmacists and physicians without financial interests in Merck.
The agreement assures that the ranking of preferred drugs in the formulary accurately reflects financial incentives, such as rebates, without regard for the manufacturers' identity. In addition, Merck agreed that its drugmaking divisions and Merck-Medco would not share proprietary information about one another's competitors.
In 1995, after Eli Lilly & Co. bought another pharmacy benefits company called PCS from McKesson Corp., the FTC said it would monitor the industry for signs that such combinations would lessen competition in price and service among drugmakers and pharmacy benefits managers.