The Washington Post
May 6, 2004
Letter to the Editor
Rebates, Not Kickbacks
Steven Pearlstein’s April 28 Business column, “Kickbacks Hit Where It Hurts,” mischaracterized the settlement reached by Medco Health Solutions and a multistate task force of state attorneys general and the Justice Department.
The suggestion that Medco “agreed to settle charges that it got more than $400 million in kickbacks from Merck in 2001” is incorrect. Although we receive rebates — that fact is disclosed to our clients — it was never an issue and it was not a “charge.” In fact, in their news conference the attorneys general said they did not want to interfere with the process of obtaining rebates, as rebates lower costs. The agreement is specific to disclosures around rebates.
The rebates received from Merck — or any of the other 70 or so pharmaceutical manufacturers with whom we negotiate for rebates and discounts — are not “kickbacks.” Government clients often directly negotiate with pharmaceutical manufacturers to receive rebates.
This practice is not unique to pharmacy benefits managers: Rebates are even an integral part of the prescription drug benefits program for Medicare that Congress recently enacted. Rebates are recognized by our clients, our competitors, and even attorneys general and the Department of Justice, as critical tools in reducing drug costs for the hundreds of clients and millions of members we serve nationwide.
DAVID B. SNOW Jr.
Chairman, President and Chief Executive
Medco Health Solutions
Franklin Lakes, N.J.
http://www.washingtonpost.com/wp-dyn/articles/A5845-2004May5.html
And…
Wharton School of the University of Pennsylvania Strategic Management
Medco Health Solutions, the largest pharmacy benefits management company in the United States, last week settled lawsuits brought by state and federal authorities by agreeing to stop switching patients over to more expensive drugs not prescribed by their doctors (these drugs were favored by Medco because of private “rebate” agreements with drug manufacturers). Medco also pledged to begin disclosing its rebate practices to employers, doctors and patients.
http://knowledge.wharton.upenn.edu/index.cfm?fa=viewArticle&id=978
And…
The American Heritage Dictionary
rebate: A deduction from an amount to be paid or a return of part of an amount given in payment.
kickback: A return of a percentage of a sum of money already received, typically as a result of pressure, coercion, or a secret agreement.
Comment: A strong case can be made that private rebates not fully disclosed are, in fact, kickbacks. Some may consider this to be a nitpicking, semantic argument. But what should alarm us all is that Medco’s Snow trivializes their abusive practices, for which they are being punished, by suggesting that the patients and employers who were cheated actually benefited because the kickbacks were really only rebates (with disclosure issues regarding the nefarious substitution of higher cost drugs for lower cost drugs).
David Snow should be issuing a public apology for the egregious abuses of his company. Instead he releases a statement implying that the only blame lies with others who use the pejorative term, “kickback,” when Medco was actually following sound business practices through the rebate program.
This seemingly trivial dispute has major policy implications. The Medicare bill prohibits the government from being the direct purchaser of drugs, but instead requires that middlemen, such as pharmacy benefit managers like Medco, maintain control of the pharmaceutical benefit. Not only do they add middlemen administrative costs, but they also expose us to the compromised ethics of unrepentant executives who believe that kickbacks awarded for making lucrative drug substitutions are actually good business practices since, really, they’re only “rebates.”