Medco To Pay $2.8 Million To Resolve CalPERS Payment Probe

Medco Health Solutions Inc. (MHS) agreed to pay the California attorney general's office $2.8 million to resolve allegations that a consultant for the company could have unduly influenced the awarding of a state drug-benefits contract.

Money from the settlement will reimburse the state for attorney fees and investigative costs, though the company did not admit to wrongdoing.

The state accused Medco of failing to ensure a $4 million contract paid to consultant Alfred Villalobos did not help fund improper payments, gifts and campaign contributions to board members of the California Public Employees' Retirement System, also known as CalPERS.

The massive state-benefits manager eventually granted Medco a contract in 2005, though its board later voted against renewing the deal. CalPERS administers retirement benefits for more than 1.6 million public employees in California, making it the largest public pension fund in the U.S.

In a statement Friday, the fund said it had spent the past three years "putting stringent policies into place to avoid conflicts of interest and to ensure the highest ethical standards."

"We have clear divisions of authority and delegation between the Board and CalPERS staff, policies that outline our roles and responsibilities, and an evaluation and self-assessment process," the statement said.

Medco noted the latest agreement didn't find the company guilty of any wrongdoing. The company also said the independent members of its board determined its employees acted ethically and broke no laws, according to its filing with the U.S. Securities and Exchange Commission.

Medco's latest fourth-quarter earnings rose as the pharmacy-benefit manager reported higher prescription volumes and steeper prices for brand-name drugs. Its recent performance has given it some momentum heading into a planned acquisition by rival Express Scripts Inc. (ESRX).

Medco shares were off 8 cents at $68.41 after hours.

 
   -By Drew FitzGerald, Dow Jones Newswires; 212-416-2909; [e-mail]