Read the following case;

1) what is the ethical dilemma?; 2) who are the stakeholders; 3) which sign(s) of ethical collapse are present?; 4) how was the ethical dilemma resolved?

Health Care, Prescriptions, and Confusing Federal and State Regulations

Filling prescriptions has become a growth service industry, and Medco is one of the largest companies in it. It has been ranked number one for customer service in three of the past four years, has been the number one on Fortune’s list of the most admired companies in America, and number five in Fortune’s customer service satisfaction survey. Medco’s 400% growth in net income has brought its shareholders both outstanding returns and appreciation. It has outperformed both the S&P and the Dow. If you had invested $100 in Medco in August 2003, you would have $160 as of the end of 2004. The figure for the S&P composite is $124, and for the health-care companies in the S&P, it is $109. Medco’s double-digit returns are remarkable, but there are cultural risk factors that could use some antidotes. Medco’s revenues and growth are dependent upon its ability to reduce the cost of drugs an Its expenses in filling those prescriptions. Medco also involves the highly volatile issue of Medicare. Where there is Medicare there is always a chance of audits, fines, whistleblowers, and all manner of intentional or unintentional incorrect reimbursement for Medicare claims. Actions filed against Medco by the federal government include alleged false claims. The company is in settlement discussion with the Justice Department over the 2003 lawsuit that accused the company of fraud. Other class-action litigation is pending, and one Ohio jury concluded that Medco owed the State Teachers Retirement System of Ohio $7.8 million for overcharging its members on generic drugs. Medco is appealing the decision, which is grounded in the jury’s finding that there was a breach of fiduciary duty. Medco may not have violated any laws or regulations, but it, like other companies with intense regulatory environments, operates with discretion in interpretation. That discretion, as in other examples, coupled with earning pressures, can sometimes create an atmosphere of temptation and wide latitude. Checks and balances can help rein in that temptation, but the checks and balances have to be put into place.

But Medco is an industry innovator. In fact, its combination motto and strategic model appears on its website as “solid foundation + innovation = brand of choice.” Here is an excerpt from the president’s letter in the annual report that has the lovely ring of doublespeak:

Our long term strategy is straightforward delivering 3 layers of value:

• a foundation of operational excellence and financial discipline embodied in a client-first commitment to reliability, stability, service, and trust
• An innovation overlay combining technology and clinical expertise into market-focused solutions to help our clients manage and maintain a sustainable, accessible, and affordable pharmacy benefit
• An inspiration layer that will empower clients and members with a suite of knowledge services that shape a new standard of excellence and define Medco as the PBM industry’s brand of choice

It does things faster and better than others in the industry. Medco’s generic substitutions, at an industry high-rate of 91% substitution within two weeks of generic availability, is a model of efficiency. It has double-digit growth in its revenues. One-third of its board is composed of inside directors, and there is a phenomenal stock option plan available to officers, directors, and certain employees.

However, increasing demands for efficiency and reduce costs may have pressured Medco employees into practices currently under scrutiny by several state attorneys general, including allegations of canceling prescriptions to avoid late-fill penalties, not providing the full number of pills for prescriptions favoring Merck drugs over competitors generics (despite cost and Merck’s former ownership of Medco, with affiliations and interconnections carrying over into the now-independent Medco), and not verifying ambiguous prescriptions.

Since I first looked at the company in 2003, it has made significant changes. It’s board went from primarily insiders and those with consulting and other relationships with the company to a board with experience (including a former BIG4 audit firm partner), and independence. But It remains part of a volatile industry, with its phenomenal and continuing performance. There are more antidotes to apply here to prevent the officers, whose stock options hang in the balance, from crossing those lines into false financial reports and other ethical shortcuts.

Answer rating: 100% (QA)

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