CVS 2014 Annual Report Download - page 83

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2014 Annual Report
The Company’s contingencies are subject to significant uncertainties, including, among other factors: (i) the
procedural status of pending matters; (ii) whether class action status is sought and certified; (iii) whether asserted
claims or allegations will survive dispositive motion practice; (iv) the extent of potential damages, fines or penalties,
which are often unspecified or indeterminate; (v) the impact of discovery on the legal process; (vi) whether novel
or unsettled legal theories are at issue; (vii) the settlement posture of the parties, and/or (viii) in the case of certain
government agency investigations, whether a sealed
qui tam lawsuit (“whistleblower” action) has been filed and
whether the government agency makes a decision to intervene in the lawsuit following investigation.
Except as otherwise noted, the Company cannot predict with certainty the timing or outcome of the legal matters
described below, and is unable to reasonably estimate a possible loss or range of possible loss in excess of
amounts already accrued for these matters.
• In December 2007, the Company received a document subpoena from the Office of Inspector General (“OIG”)
within the U.S. Department of Health and Human Services, requesting information relating to the processing of
Medicaid and certain other government agency claims on behalf of its clients (which allegedly resulted in under-
payments from our pharmacy benefit management clients to the applicable government agencies) on one of the
Company’s adjudication platforms. In September 2014, the Company settled the OIG’s claims, as well as related
claims by the Department of Justice and private plaintiffs, without any admission of liability. The Company is in
discussions with the OIG concerning other claim processing issues.
• Caremark (the term “Caremark” being used herein to generally refer to any one or more PBM subsidiaries of the
Company, as applicable) 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 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, among others,
Caremark and several insurance companies 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. Following the
close of class discovery, the trial court entered an Order on August 15, 2012 that granted the plaintiffs’ motion to
certify a class pursuant to Alabama Rule of Civil Procedures 23(b)(3) but denied their request that the class also
be certified pursuant to Rule 23(b)(1). In addition, the August 15, 2012 Order appointed class representatives and
class counsel. On September 12, 2014, the Alabama Supreme Court affirmed the trial court’s August 15, 2012
Order. The Defendants timely filed an Application for Rehearing asking the Alabama Supreme Court to clarify or
modify its September 12, 2014 decision. The proceedings in the trial court remain stayed pending resolution of
the rehearing application.
• 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. This case was initially sent to arbitra-
tion based on the contract terms between the pharmacies and Caremark. 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 competitors, seeking treble damages
and injunctive relief. The North Jackson Pharmacy case against two of the Caremark entities named as defen-
dants was transferred to Illinois federal court, and the case against a separate Caremark entity 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.