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Report: Drug Giant Merck Reported Billions in Revenue It Never Collected

Published: Jul 8, 2002

 

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NEW YORK (AP) - More than $12 billion in revenue reported by Merck & Co. was never collected by the drug giant's pharmacy-benefits unit, The Wall Street Journal reported.

Merck counted patients' co-payments to pharmacies as revenue generated by its Medco unit, which manages pharmacy-benefit programs for businesses and health insurance companies, the newspaper reported Sunday on its Website.

Medco, however, does not actually receive those co-payments, which totaled almost 10 percent of its overall reported revenue in 1999, 2000 and 2001.

The company told The Wall Street Journal that its accounting practice meet generally accepted standards and that it also counts co-payment amounts as expenses, meaning the practice does not effect its net income.

The exact amount of reported but not collected revenue - $12.4 billion - was reported in a Friday filing by Merck with the Securities and Exchange Commission.

The accounting practice itself was reported in an April SEC filing and publicized two weeks ago by the Journal. Merck stock dropped 5 percent, to a five-year low, after the article was published.

There is no indication that the SEC has taken issue with how Merck treats co-payment amounts, the newspaper reported.

The revenue in question is the co-payment paid by consumers with a prescription drug card to their retail pharmacy to cover their portion of the cost of a drug under an insurance plan. The pharmacy keeps the entire amount of the co-payment.

Merck, the world's third-largest drug maker, hurt by slumping profits and a slowdown in its drug pipeline, has been under pressure to spin off its Merck-Medco subsidiary.

With $29.1 billion in revenues last year, the unit generated over half of its parent's overall sales. But Medco's razor-thin profit margin, barely 1 percent, hurt Merck's bottom line.

Medco is the nation's second-biggest pharmacy benefit manager, handling prescriptions for 65 million Americans through retail pharmacies, a mail-order program and its Internet pharmacy.

AP-ES-07-08-02 0138EDT

 



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ALL INFORMATION, DATA, AND MATERIAL CONTAINED, PRESENTED, OR PROVIDED HERE IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TO BE CONSTRUED AS REFLECTING THE KNOWLEDGE OR OPINIONS OF THE PUBLISHER, AND IS NOT TO BE CONSTRUED OR INTENDED AS PROVIDING MEDICAL OR LEGAL ADVICE.  THE DECISION WHETHER OR NOT TO VACCINATE IS AN IMPORTANT AND COMPLEX ISSUE AND SHOULD BE MADE BY YOU, AND YOU ALONE, IN CONSULTATION WITH YOUR HEALTH CARE PROVIDER.