CVS 2010 Annual Report Download - page 73

Various lawsuits have been filed alleging that Caremark has 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 filed a putative class action against Caremark in Pennsylvania federal court, seeking treble damages
and injunctive relief. 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 and two PBM competi-
tors, seeking treble damages and injunctive relief. The North Jackson Pharmacy case was transferred to Illinois federal court,
and the Bellevue case was sent to arbitration based on contract terms between the pharmacies and Caremark. The Bellevue
arbitration was then stayed by the parties pending developments in the North Jackson Pharmacy court case.
In August 2006, the Bellevue case and the North Jackson Pharmacy case were both 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 the 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 compelling arbitration
of the Bellevue case. 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.
Beginning in November 2008, the Company received and responded to several subpoenas from the Drug Enforcement
Administration (“DEA”), Los Angeles Field Division, requesting sales data and other information regarding the Company’s
distribution of products containing pseudoephedrine (“PSE”) at certain retail pharmacies and from one California distribution
center. In September 2009, the United States Attorney’s Office for the Central District of California (“USAO”) and the DEA
commenced discussions with the Company regarding whether, in late 2007 and 2008, the Company distributed PSE in violation
of the Controlled Substances Act. In addition, the DEA issued an order to show cause against certain retail pharmacies and the
Company’s La Habra, California distribution center which could have resulted in administrative action against the Company’s
DEA registrations for these facilities. On October 13, 2010, the Company entered into a comprehensive resolution of this
matter, resulting in the payment of $75 million in civil penalties for violations of the Controlled Substances Act and $2.6 million
in criminal forfeiture relating to the sales of products containing PSE. The resolution included the entry of a non-prosecution
agreement and civil settlement agreement with the USAO, the U.S. Attorney’s Office for the District of Nevada and the U.S.
Department of Justice, as well as a memorandum of agreement with the DEA that dismisses the previously referenced orders
to show cause and contains certain ongoing compliance requirements for the Company.
In August 2009, the Company was notified by the Federal Trade Commission (the “FTC”) that it is conducting a non-public
investigation under the Federal Trade Commission Act into certain of the Company’s business practices. In March 2010, the
Company learned that various State Attorneys General offices and certain other government agencies are conducting a multi-
state investigation of the Company regarding issues similar to those being investigated by the FTC. At this time, 24 states, the
District of Columbia, and the County of Los Angeles are known to be participating in this multi-state investigation. The Company
has been cooperating in these investigations, and continues to provide documents and other information as requested. The
Company is not able to predict with certainty the timing or outcome of these investigations. However, it remains confident that
its business practices and service offerings (which are designed to reduce health care costs and expand consumer choice) are
being conducted in compliance with the antitrust laws.
In March 2009, the Company received a subpoena from the OIG requesting information concerning the Medicare Part D
prescription drug plans of RxAmerica, the PBM subsidiary of Longs Drug Stores Corporation which was acquired by the Com-
pany in October 2008. The Company continues to respond to this request for information and has been producing responsive
documents on a rolling basis. The Company cannot predict with certainty the timing or outcome of any review by the govern-
ment of such information.
Since March 2009, the Company has been named in a series of putative collective and class action lawsuits filed in federal courts
around the country, purportedly on behalf of current and former assistant store managers working in the Company’s stores at
various locations outside California. The lawsuits allege that the Company failed to pay overtime to assistant store managers as
– 69 –