CVS 2011 Annual Report Download - page 73

CVS CAREMARK 71 2011 ANNUAL REPORT
will not have a material adverse effect on the Company’s
consolidated financial condition, results of operations or
future cash flows.
Legal Matters
Caremark (the term “Caremark” being used herein to gener-
ally refer to any one or more pharmacy benefit management
subsidiaries of the Company, as applicable) is a defendant
in a qui tam lawsuit initially filed by a relator on behalf of vari-
ous state and federal government agencies in Texas fed-
eral court in 1999. The case was unsealed in May 2005. The
case seeks monetary damages and alleges that Caremark’s
processing of Medicaid and certain other government claims
on behalf of its clients (which allegedly resulted in underpay-
ments from our clients to the applicable government agen-
cies) on one of Caremark’s adjudication platforms violates
applicable federal or state false claims acts and fraud stat-
utes. The United States and the States of Texas, Tennessee,
Florida, Arkansas, Louisiana and California intervened in the
lawsuit, but Tennessee and Florida withdrew from the law-
suit in August 2006 and May 2007, respectively. Thereafter,
in 2008, the Company prevailed on several motions for partial
summary judgment and, following an appellate ruling from the
Fifth Circuit Court of Appeals in 2011 which affirmed in part
and reversed in part these prior rulings, the claims asserted
in the case against Caremark have been substantially nar-
rowed. 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. In September 2011,
the Company prevailed on a motion for partial summary judg-
ment against the State of Texas and narrowed the remaining
claims in the lawsuit. The claims and issues raised in this law-
suit are related to the claims and issues pending in the federal
qui tam lawsuit described above.
In December 2007, the Company received a document sub-
poena from the Office 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 a different adjudication plat-
form of Caremark. In October 2009 and October 2010, the
Company received civil investigative demands from the Office
of the Attorney General of the State of Texas requesting,
respectively, information produced under this OIG subpoena,
and other information related to the processing of Medicaid
claims. These civil investigative demands state that the Office
of the Attorney General of the State of Texas is investigat-
ing allegations currently pending under seal relating to two of
Caremark’s adjudication platforms. The Company has been
producing documents on a rolling basis in response to the
requests for information contained in the OIG subpoena and
in these 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 settle-
ment of various securities class action and derivative law-
suits 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-specified damages based on allegations that
the amount of insurance coverage available for the settled
lawsuits was misrepresented and suppressed. A similar law-
suit was filed in November 2003 by Frank McArthur, also in
Alabama state court, naming as defendants Caremark, sev-
eral 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 has
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 puta-
tive class action against Caremark in Pennsylvania federal
court, seeking treble damages and injunctive relief. This case
was initially sent to arbitration based on the contract terms
between the pharmacies and Caremark. In October 2003,
two independent pharmacies, North Jackson Pharmacy, Inc.
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