The lawsuit, which was filed in state Supreme Court in Albany, alleged that Express Scripts breached its contract with the state, violated the state's Executive and General Business laws through deceptive and fraudulent business practices, and violated other provisions of state and common law.

The lawsuit alleged that Express Scripts concealed and retained "millions of dollars" in rebates from pharmaceutical manufacturers, artificially inflated drug prices to benefit itself at the expense of the state plan, and engaged in drug "switching" programs that financially benefited the company but resulted in higher costs for the state plan.

About the same time as the Express Scripts lawsuit was filed, it became known that Spitzer also was investigating another pharmaceutical business, the drug and consumer products company Johnson & Johnson. J&J has received requests from Spitzer for information regarding six of its drugs, J&J said Aug. 3 in its quarterly report to the Securities and Exchange Commission.

The Express Scripts lawsuit alleged that the company improperly sold data belonging to the state health plan, and induced the state to enter into its contract by misrepresenting the discounts that would be available to the state plan.

The lawsuit sought an injunction preventing Express Scripts from engaging in the allegedly fraudulent and deceptive practices; restitution; and damages for negligent misrepresentation, inducing the state to enter into its contract, breach of contract, breach of the duty of good faith and fair dealing, breach of fiduciary duty, and unjust enrichment.

The lawsuit also sought civil penalties of $500 for each deceptive act or practice, and indemnification for injury and loss. Also named as a defendant in the lawsuit is Connecticut General Life Insurance Co. (CIGNA), which is the manager of the state employees' health plan and subcontracts with Express Scripts to provide prescription drugs.

The St. Louis-based Express Scripts, in a statement, said it "strongly denies the assertions in this contract dispute" and vowed to "defend itself vigorously in court."

"Express Scripts has saved the state of New York more than $2 billion in drug costs since 1998," the company said. "During the contract, the state got all rebates for which it contracted, and more rebates than guaranteed, initially deep retail discounts got better, and use of low cost generic drugs increased."

"Express Scripts never recommends switches to a higher cost drug in connection with any client's plan and does not accept pharmaceutical manufacturer funding for such programs."

Express Scripts is the third largest pharmacy benefit manager in the United States with about 50 million members. Spitzer, in announcing the lawsuit said the company "improperly lined its pockets at the expense of health plans and consumers, driving up the very drug costs it is supposed to lower."

He said, while pharmacy benefit managers are under scrutiny from state and federal officials, New York is the first to allege that a PBM enriched itself at its client's expense through a complicated pricing scheme.

One of the allegedly deceptive schemes outlined in the lawsuit involved the use of "pass-through" and "spread" pricing arrangements by Express Scripts to "maximize the spread" it receives from pharmacies. The lawsuit alleged that the company used its "pass-though" plan with the state to pay higher prices to pharmacies, while negotiating lower prices for its "spread" plans so it could retain higher profits. Under the pass-though arrangement, the company is required to charge the state the same price it pays the pharmacy.

The Pharmaceutical Care Management Association, the trade association for pharmacy benefit managers, issued a statement saying that PBMs reduce prescription drug costs by an average of 25 percent and will save New York consumers and employers an estimated $91 billion over the next 10 years.

"Every objective analysis--from the U.S. General Accounting Office to the Congressional Budget Office to the Federal Trade Commission and the Harvard Business School--has found that competing PBMs are the key to reining in prescription drug costs," Mark Merritt, president of the association, said.

"Today's assertions from the New York State Attorney General's office fly in the face of everything we know about the value PBMs provide to the system," Merritt said.

In his request to Johnson & Johnson, Spitzer sought documents related to the marketing, off-label sales, and clinical trials of the drugs. J&J's report to the SEC named the six drugs: Aciphex, a drug to relieve heartburn; Procrit, a drug treating anemia; Remicade, a drug to relieve effects of rheumatoid arthritis; Reminyl, a treatment for Alzheimer's Disease; Risperdal, a medication for treatment of bipolar disorder; and Topamax, an antiepileptic drug. Other documents requested included those associated with the off-label sales and clinical trials of the six drugs.

Three of the drugs--Remicade, Risperdal, and Topomax--are under continuing federal investigations, Johnson & Johnson said. According to the report, the company is responding to the request.

Marc Violette, a spokesman for the attorney general, declined to comment on the Johnson & Johnson matter.

A copy of the state's lawsuit against Express Scripts is at http://www.oag.state.ny.us/press/2004/aug/aug4a_04_attach.pdf.