There's nothing like being probed and sued by the Feds to bring you down.
Merck's (NYSE:MRK) pharmacy benefit company, Medco Health Solutions, has long faced lawsuits, but today the federal government joined the brigade, accusing Medco of providing misleading information to the government in order to sell more Merck drugs.
Medco is the country's largest manager of prescription drug programs. It serves more than 1,000 company health-care plans with the promise of lower drug prices through bulk purchasing. The inherent conflict of interest isn't surprising. Lawsuits claim that Medco unnecessarily switched patients from non-Merck drugs to Merck drugs, usually costing patients more money.
The federal suit also claims that Medco fabricated records and didn't explain prescription changes to doctors. This may sound ominous, but the reaction from Merck's stock is benign. Why? Because Medco's problems emerged long ago and Merck has been looking to dump the subsidiary.
A Medco initial public offering planned for July was aborted after revelations of $12 billion in misstated revenue at the division. Now the plan is to spin off Medco to Merck shareholders.
Also today, shares of Pediatrix MedicalGroup (NYSE:PDX), a network of physician practices, weren't so lucky, getting slammed about 20% on word that federal prosecutors are investigating the company's nationwide Medicaid billing practices.
Pediatrix joins a slew of health-care-related firms recently under investigative pressure, including King Pharmaceuticals (NYSE:KG), Tenet Healthcare (NYSE:THC), AstraZeneca (NYSE:AZN), and Bristol-Myers Squibb (NYSE:BMY).
