The managed-care industry is under the microscope once again, this time with several of the nation's largest HMOs mixed up in a government investigation into drugmakers' marketing practices.
In the past two months, Humana, PacifiCare Health Systems and WellPoint Health Networks have received federal subpoenas from the U.S. attorney's office in Boston related to the distribution of prescription drugs. Cigna Corp. has received a comparable subpoena from the U.S. attorney's office in Philadelphia. And analysts believe that other insurers, particularly those with pharmacy benefits-management units, could face similar scrutiny soon.
Other health insurers with pharmacy benefits-management divisions include Aetna, Anthem and First Health Group Corp., according to a research note by Merrill Lynch analyst Roberta Goodman.
In October 2001, TAP Pharmaceuticals agreed to pay a record $875 million and plead guilty to a criminal charge of conspiring with doctors to fraudulently bill Medicare and Medicaid for free samples of Lupron, its drug for prostate cancer. The company allegedly used the scheme to woo doctors to buy more of the product instead of cheaper alternatives. Federal authorities have since begun investigating whether other drug firms, including giants Pfizer, Bristol-Myers Squibb and Schering-Plough Corp., have profited from similar schemes.
But precisely how the insurers subpoenaed this year fit into the growing investigation is still uncertain.
A report by Merrill Lynch analyst Thomas Gallucci, however, speculated that, at least with regard to Cigna, investigators appear "to be reviewing such industry issues as rebates, formulary decisionmaking, intervention activities, disease-management programs and Medicaid rebate calculations."
Cigna spokesman Wendall Potter would say only that the Philadelphia-based insurer is responding to subpoenas concerning "contractual relationships between pharmaceutical companies and insurers' healthcare operations."
"At this point, we don't know if we're an actual target or not," Potter said.
Other insurers, though, contend they are not direct targets of the federal probe, which largely has focused on the individual doctors who received the drug samples and their billing circumstances.
Todd Richter, a healthcare analyst with Banc of America Securities in New York, said authorities are using WellPoint's records to track which doctors had prescribed Lupron and Prevacid, another TAP drug, to the company's members, "nothing more."
WellPoint spokesman John Cygul declined to comment. But the Thousand Oaks, Calif.-based insurer stated in its quarterly filing with the Securities and Exchange Commission that the subpoena, received by its pharmacy-benefits unit in late April, "appears to focus primarily on (management's) relationship with TAP." Although the company "does not believe that its (pharmacy benefits-management) business is presently a target of investigation," the statement was one of several listed under the heading "Factors That May Affect Future Results of Operations."
PacifiCare spokesman Dan Yarbrough said the U.S. attorney's office in Boston requested additional information last month from the Santa Ana, Calif.-based insurer regarding "pharmaceutical marketing and contracts." PacifiCare had received a subpoena "related to a pharmaceutical product" in early 2000.
"We have been advised that we are not a target in the investigation, so we are complying fully," Yarbrough said.
Even so, the scrutiny put further pressure on an industry already plagued by class-action litigation. Several leading HMOs are named in lawsuits filed on behalf of thousands of doctors and patients accusing the plans of everything from illegally denying claims to fraud and conspiracy (May 20, p. 16).
"Because TAP already negotiated a settlement with the U.S. attorney, it is difficult to ascertain the motives behind these investigations," Prudential Securities analyst David Shove said in a research note released last week. "Since drug marketing arrangements are complex and far-reaching, this fishing expedition could continue for a long time."
That uncertainty was enough to shake investors' confidence, at least temporarily. Shares of Cigna, Humana, PacifiCare and WellPoint slid early last week. By later in the week, WellPoint's shares were trading near $69, down 3% from their close a week before at $71. Humana's shares had slid 7% to $14.50 over the same period. Cigna's shares were almost unchanged at $103.70. And PacifiCare's stock had tumbled 6% to $28.20, although PacifiCare also cut its second-quarter earnings estimates earlier last week.
Pharmacy benefits managers Express Scripts and Caremark Rx also received subpoenas this month regarding their relationship with TAP.