CVS 2009 Annual Report Download - page 70

Notes to Consolidated Financial Statements
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-specified
damages based on allegations that the amount of insurance
coverage available for the settled lawsuits was misrepresented
and suppressed. A similar lawsuit was filed in November 2003
by Frank McArthur, also in Alabama state court, naming as
defendants Caremark, several insurance companies, attorneys
and law firms involved in the 1999 settlement. This lawsuit
was stayed as a later-filed class action, but McArthur was
subsequently allowed to intervene in the Lauriello action. The
attorneys and law firms named as defendants in McArthur’s
intervention pleadings have been dismissed from the case, and
discovery on class certification and adequacy issues is underway.
Various lawsuits have been filed alleging that Caremark and
its subsidiaries Caremark, L.L.C. and CaremarkPCS, L.L.C. have
violated applicable antitrust laws in establishing and maintain-
ing 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 filed a putative
class action against CaremarkPCS 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 CaremarkPCS.
In October 2003, two independent pharmacies, North Jackson
Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc.
filed a putative class action complaint in Alabama federal court
against Caremark, Caremark, L.L.C., CaremarkPCS, L.L.C. and
two PBM competitors, seeking treble damages and injunctive
relief. The case against Caremark and Caremark, L.L.C. was
transferred to Illinois federal court, and the CaremarkPCS case
was sent to arbitration based on contract terms between the
pharmacies and CaremarkPCS. 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 appealed
a decision which vacated the order compelling arbitration and
staying the proceedings in the Bellevue case and, following
the appeal, the Court of Appeals reinstated the order compel-
ling arbitration. Motions for class certification in the coordinated
The parties previously filed cross motions for partial summary
judgment, and in August 2008, the court granted several of
Caremark’s motions and denied the motions filed by the
plaintiffs. The court’s rulings are favorable to Caremark and
substantially limit the ability of the plaintiffs to assert false
claims act allegations or statutory or common law theories
of recovery based on Caremark’s processing of Medicaid and
other government reimbursement requests. The state plaintiffs
and the relator filed motions asking the court to reconsider its
rulings, and these motions were subsequently denied. The
court’s rulings are on appeal before the United States Court of
Appeals for the Fifth Circuit. In April 2009, the State of Texas
filed a purported civil enforcement action against Caremark for
injunctive relief, damages and civil penalties in Travis County,
Texas alleging that Caremark violated the Texas Medicaid
Fraud Prevention Act and other state laws based on our
processing of Texas Medicaid claims on behalf of PBM clients.
The claims and issues raised in this lawsuit are related to
the claims and issues pending in the federal qui tam lawsuit
described above.
In December 2007, the Company received a document
subpoena from the Office of Inspector General, United States
Department of Health and Human Services (“OIG”), request-
ing information relating to the processing of Medicaid and
other government agency claims on an adjudication platform
of CaremarkPCS, L.L.C. The Company has initiated discus-
sions with the OIG and with the U.S. Department of Justice
concerning our government claims processing activities on
the two adjudication platforms used by CaremarkPCS and
one adjudication platform used by PharmaCare. In October
2009, the Company received two civil investigative demands
from the Office of the Attorney General of the State of Texas
requesting information produced under the OIG subpoena
referenced above. The civil investigative demands are sub-
stantively identical and state that the Office of the Attorney
General of the State of Texas is investigating allegations
currently pending under seal relating to two adjudication
platforms of CaremarkPCS. The Company is cooperating with
the requests for information contained in OIG subpoena and
in these two civil investigative demands. The Company
cannot predict with certainty the timing or outcome of any
review of such information.
Caremark was named in a putative class action lawsuit filed
in October 2003 in Alabama state court by John Lauriello,
purportedly on behalf of participants in the 1999 settlement of
various securities class action and derivative lawsuits against
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