Merck-Medco, the pharmacy benefits manager that lost a state contract when big pharmacies refused to participate, yesterday sued Rite Aid and three other pharmacy groups, charging they had illegally conspired to organize a boycott.
Other defendants in the suit filed yesterday in federal court in Baltimore, charging violation of state and federal antitrust laws, are NeighborCare Pharmacies, Giant Food and the EPIC pharmacy network.
Medco, based in Montvale, N.J., won a contract last fall to manage the prescription benefits plan for 90,000 Maryland state employees and retirees, plus their dependents, with a bid estimated to save the state $60 million over four years compared to the old contract.
Several large drug chains, including those named in the suit, said they could not make money at the reimbursement level Medco was offering and would not participate.
Just before the contract was to have gone into effect Jan. 1, the state canceled, saying Medco did not have enough pharmacies to serve the employees. The state is seeking new bids.
Wayne Gattinella, senior vice president for marketing for Merck-Medco, said he was "confident" that Medco could have delivered a network that met the terms of the Maryland contract "if it were not for Rite Aid's unlawful activity."
"We will not passively stand by and watch anti-competitive practices, which compromise our clients' access to cost savings -- and that's what this case is about," Mr. Gattinella said.
He said Maryland taxpayers were paying more than a million dollars a month in excess pharmacy costs because of the action of the drug chains.
The defendants each said they had arrived independently at the decision not to participate in the Medco network in Maryland.
"At the end of the day, the reality is that Medco is licking its wounds and trying to save face," said Michael G. Bronfein, president and chief executive officer of NeighborCare. "There is no merit to the suit. They are just trying to preserve their reputation in other states."
The battle between Medco and the pharmacies seemed an almost-inevitable clash given efforts by managed-care companies to cut costs, the small profit margins for drugstores, and the rapid growth of third-party payments for prescriptions, said Francis B. Palumbo, professor of pharmacy at the University of Maryland and associate director of the university's Center on Drugs and Public Policy.
"I think something like this was going to occur somewhere in the United States -- it just happened to be in Maryland," Dr. Palumbo said.
The suit says, "While the retailer defendants may wish that managed care and cost containment had never arrived, neither is a lawful justification for their conduct in Maryland."
It charges that after failing to win the contract for its own pharmacy-benefits subsidiary, Eagle Managed Care, Rite Aid officials "met with and/or communicated with representatives of other pharmacies, including the other defendants, to discuss participation in the Medco network, and signalled Rite Aid's and the other defendants' determination not to participate."
Mr. Gattinella said part of Rite Aid's "signaling" involved full-page advertisements in The Sun about its decision not to participate. The suit says Rite Aid's ads contained "false and misleading statements."
Rite Aid had engaged in similar activities in New York and Maine, the suit says, and signed a consent decree in New York in 1991 after a Federal Trade Commission investigation.
Suzanne Mead, vice president for corporate communications at Rite Aid, said the consent decree was not an admission of any improper activity, and that "Medco's allegations are completely groundless."
The suit seeks an injunction against the pharmacies, ordering them not to conspire to boycott pharmacy networks, and triple damages for the alleged antitrust violation. The suit does not specify the amount of damages suffered.