CVS 2007 Annual Report Download - page 67


63 I 2007 Annual Report
In August 2006, the Bellevue case and the North Jackson
Pharmacy case were transferred to Pennsylvania federal court by
the Judicial Panel on Multidistrict Litigation for coordinated and
consolidated proceedings with other cases before the panel,
including cases against other PBMs. Caremark has appealed a
decision which vacated the order compelling arbitration and
staying the proceedings in the Bellevue case to the Third Circuit
Court of Appeals. Motions for class certification in the coordinated
cases within the multidistrict litigation, including the North Jackson
Pharmacy case, remain pending. The consolidated action is now
known as the In Re Pharmacy Benefit Managers Antitrust Litigation.
Caremark and its subsidiaries Caremark Inc. (now known as
Caremark, L.L.C.) and AdvancePCS (now known as CaremarkPCS,
L.L.C.) have been named in a putative class action lawsuit filed
in California state court by an individual named Robert Irwin,
purportedly on behalf of California members of non-ERISA health
plans and/or all California taxpayers. The lawsuit, which also
names other PBMs as defendants, alleges violations of California’s
unfair competition laws and challenges alleged business practices
of PBMs, including practices relating to pricing, rebates, formulary
management, data utilization and accounting and administrative
processes. Discovery in the case is ongoing.
The Rhode Island Attorney General’s Office, the Rhode Island
Ethics Commission, and the United States Attorney’s Office
for the District of Rhode Island have been investigating the
business relationships between certain former members of
the Rhode Island General Assembly and various Rhode Island
companies, including Roger Williams Medical Center, Blue Cross
& Blue Shield of Rhode Island and CVS. In connection with the
investigation of these business relationships, a former state
senator was criminally charged in 2005 by federal and state
authorities and has pled guilty to those charges, and a former
state representative was criminally charged in October 2007
by federal authorities and pled guilty to those charges. In
January 2007, two CVS employees on administrative leave from
the Company were indicted on federal charges relating to their
involvement in entering into a $12,000 per year consulting
agreement with the former state senator eight years ago. The
indictment alleges that the two CVS employees concealed the
true nature of the Company’s relationship with the former state
senator from other Company officials and others. CVS will
continue to cooperate fully in this investigation, the timing and
outcome of which cannot be predicted with certainty at this time.
The Company has been named in a putative class action lawsuit
filed in California state court by Gabe Tong, purportedly on behalf
of current and former pharmacists working in the Company’s
California stores. The lawsuit alleges that CVS failed to provide
pharmacists in the purported class with meal and rest periods or
to pay overtime as required under California law. In October
2007, the Company reached a conditional agreement, subject to
the approval by the court, to resolve this matter. In addition, the
Company is party to other employment litigation arising in the
normal course of its business. The Company cannot predict the
outcome of any of these employment litigation matters at this
time, however, none of these matters are expected to be material
to the Company.
The United States Department of Justice and several state
attorneys general are investigating whether any civil or criminal
violations resulted from certain practices engaged in by CVS
and others in the pharmacy industry with regard to dispensing
one of two different dosage forms of a generic drug under
circumstances in which some state Medicaid programs at various
times reimbursed one dosage form at a different rate from the
other. The Company is in discussions with various governmental
agencies involved to resolve this matter on a civil basis and
without any admission or finding of any violation.
The Company is also a party to other litigation arising in the
normal course of its business, none of which is expected to be
material to the Company. The Company can give no assurance,
however, that our operating results and financial condition
will not be materially adversely affected, or that we will not be
required to materially change our business practices, based on:
(i) future enactment of new healthcare or other laws or regula-
tions; (ii) the interpretation or application of existing laws or
regulations, as they may relate to our business or the pharmacy
services industry; (iii) pending or future federal or state govern-
mental investigations of our business or the pharmacy services
industry; (iv) institution of government enforcement actions
against us; (v) adverse developments in any pending qui tam
lawsuit against us, whether sealed or unsealed, or in any future
qui tam lawsuit that may be filed against us; or (vi) adverse
developments in other pending or future legal proceedings
against us or affecting the pharmacy services industry.