Medco Health Solutions, the pharmacy benefits management company that drugmaker Merck & Co. plans to spin off this month, disclosed today that it is the target of a federal shareholder derivative suit.
In a filing with the Securities and Exchange Commission, Franklin Lakes, N.J.-based Medco says that on July 31, unspecified shareholders filed a derivative complaint against Medco, parent company Merck, unnamed company officers and directors and former auditor Arthur Andersen.
A shareholder derivative suit is an action filed by stock owners on behalf of the company that questions the conduct of officers and directors.
According to the SEC filing, the suit, entered in the U.S. District Court for New Jersey, alleges that the individual defendants breached their fiduciary duty by failing to prevent actions that have resulted in other legal setbacks for the company.
Medco has been charged with counting co-payments made to retail pharmacies as its own revenue and is the target of federal whistleblower suits brought by a physician and two former employees, who allege that the PBM manipulated prescriptions to defraud federally funded health plans.
Merck and Medco deny the allegations.
"We're confident that our practice of recording co-payments as revenue is legal, in accordance with GAAP (generally accepted accounting procedures)," says Merck spokesperson Tony Plohoros.
Additionally, Medco is one of several PBMs under federal investigation for accepting rebates from pharmaceutical manufacturers, which prosecutors believe is in conflict with their mission to lower drug costs.
On Monday, a federal judge tentatively approved a $42.5 million settlement in a lawsuit filed against Merck and Medco for alleged failure to disclose their relationship. In that case, Medco was accused of favoring Merck drugs in contracts with unaffiliated health plans.
Medco is a wholly owned subsidiary of Merck, though Merck, based in Whitehouse Station, N.J., said Tuesday that its long-delayed plan to spin off the PBM will go through Aug. 19.
Plohoros confirms today that the suit will not change the Aug. 19 spinoff date.