CVS 2008 Annual Report Download - page 65

2008 ANNUAL REPORT 61
In December 2007, the Company received a document subpoena
from the Offi ce of Inspector General, United States Department of
Health and Human Services (OIG), requesting information relating
to the processing of Medicaid and other government agency
claims on an adjudication platform of AdvancePCS (acquired
by Caremark in 2004 and now known as CaremarkPCS, L.L.C.).
The Company has initiated discussions with the OIG and with
the U.S. Department of Justice concerning our government
claims processing activities on the two adjudication platforms
used by AdvancePCS and one adjudication platform used by
PharmaCare. We are also cooperating with the requests for
information contained in the document subpoena by producing
responsive documents on a rolling basis. We cannot predict with
certainty the timing, outcome or consequence of any review of
such information.
Caremark was named in a putative class action lawsuit fi led in
October 2003 in Alabama state court by John Lauriello, purport-
edly on behalf of participants in the 1999 settlement of various
securities class action and derivative lawsuits against Caremark
and others. Other defendants include insurance companies
that provided coverage to Caremark with respect to the settled
lawsuits. The Lauriello lawsuit seeks approximately $3.2 billion in
compensatory damages plus other non-specifi ed damages based
on allegations that the amount of insurance coverage available
for the settled lawsuits was misrepresented and suppressed. A
similar lawsuit was fi led in November 2003 by Frank McArthur,
also in Alabama state court, naming as defendants Caremark,
several insurance companies, attorneys and law fi rms involved
in the 1999 settlement. This lawsuit was stayed as a later-fi led
class action, but McArthur was subsequently allowed to intervene
in the Lauriello action. In February 2008, the Lauriello trial
court proceedings were stayed pending an appeal by McArthur
of certain rulings relating to his complaint in intervention. In
September 2008, the Alabama Supreme Court entered judgment
on the appeal and in December 2008, the trial court lifted its stay
and returned the case to its active docket.
Various lawsuits have been fi led alleging that Caremark and its
subsidiaries Caremark Inc. (now known as Caremark, L.L.C.) and
AdvancePCS (now known as CaremarkPCS, L.L.C.) have violated
applicable antitrust laws in establishing and maintaining retail
pharmacy networks for client health plans. In August 2003,
Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy
and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together
with Pharmacy Freedom Fund and the National Community
Pharmacists Association fi led a putative class action against
AdvancePCS in Pennsylvania federal court, seeking treble
damages and injunctive relief. The claims were initially sent to
arbitration based on contract terms between the pharmacies
and AdvancePCS.
In October 2003, two independent pharmacies, North Jackson
Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc.
fi led a putative class action complaint in Alabama federal court
against Caremark, Caremark Inc., AdvancePCS (acquired by
Caremark in March 2004 and now known as CaremarkPCS,
L.L.C.) and two PBM competitors, seeking treble damages
and injunctive relief. The case against Caremark and Caremark
Inc. was transferred to Illinois federal court, and the AdvancePCS
case was sent to arbitration based on contract terms between the
pharmacies and AdvancePCS. The arbitration was then stayed by
the parties pending developments in Caremark’s court case.
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 certifi cation 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 Benefi t Managers
Antitrust Litigation.
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 fi nancial 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 health care or other laws or regulations; (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 governmental investigations of
our business or the pharmacy services industry; (iv) institution of
government enforcement actions against us; (v) adverse develop-
ments in any pending qui tam lawsuit against us, whether sealed
or unsealed, or in any future qui tam lawsuit that may be fi led
against us; or (vi) adverse developments in other pending or
future legal proceedings against us or affecting the pharmacy
services industry.