Caremark Rx Agrees to $137.5M Settlement With DOJ

Tennessee-based pharmacy benefit manager Caremark Rx on Thursday reached an agreement with the Department of Justice to pay $137.5 million to settle whistleblower lawsuits filed over allegations that Texas-based PBM AdvancePCS, which Caremark acquired in March 2004, received and paid kickbacks that affected several federal health care programs, the AP/Long Island Newsday reports (AP/Long Island Newsday, 9/8).

The lawsuits, filed in 2002 by three former employees of AdvancePCS, alleged that the company received kickbacks from pharmaceutical companies to provide favorable treatment to their products in contracts with the Federal Employees Health Benefits Program, the Mailhandlers Health Benefit Program, Medicare+Choice and other federal health care programs (Baltimore Sun, 9/9). The lawsuits, which DOJ later joined, also alleged that AdvancePCS paid kickbacks to current and potential customers to agree to contracts.

All of the allegations in the lawsuits occurred before Caremark acquired AdvancePCS (AP/Long Island Newsday, 9/8). In an investigation, DOJ found that AdvancePCS had received and paid kickbacks and failed to pass rebates and other payments from pharmaceutical companies onto customers. Caremark has denied any wrongdoing (Martinez, Wall Street Journal, 9/9).

According to analysts, the settlement, which has received approval from U.S. District Court in Philadelphia, could amount to about $80 million after taxes. The amount of the settlement that the three whistleblowers will receive remains undetermined, attorney Scott Simmer, who represents the whistleblowers, said (Freudenheim, New York Times, 9/9).

In the future, Caremark will disclose to customers information about payments that AdvancePCS receives from pharmaceutical companies and avoid "drug switching," a practice in which more expensive medications are substituted for treatments prescribed to patients (Smith, Philadelphia Daily News, 9/9). In addition, the HHS Office of Inspector General will monitor operations at AdvancePCS, and the federal government will not exclude Caremark from participation in Medicare, Medicaid and FEHBP, according to Barbara Rowland, an assistant U.S. attorney in Philadelphia (New York Times, 9/9).

U.S. attorney Patrick Meehan said that the settlement "addresses AdvancePCS's hidden financial relationships with drug manufacturers and health plans that influence what drugs we are prescribed and how much we pay for them." He added, "Ultimately, disclosing these relationships should result in lower costs to consumers" (Philadelphia Daily News, 9/9). Meehan said that the settlement "opens the door to much more transparency" as Caremark begins to participate in the new Medicare prescription drug benefit next year (New York Times, 9/9).

Caremark CEO Mac Crawford said, "Caremark and the marketplace were aware of this situation prior to our acquisition of AdvancePCS. We are pleased with the settlement with the federal government as it allows us to avoid the expense, uncertainty and distraction of potentially time-consuming litigation" (AP/Long Island Newsday, 9/8). He added that Caremark "strongly stands behind our business practices."

Caremark officials said that the settlement will not have a significant effect on current business practices because the company had previously implemented many of the changes sought by DOJ. In addition, the settlement likely will not affect the finances of Caremark because the settlement "had been accounted for as part of its purchase of AdvancePCS," the Philadelphia Inquirer reports (Shiffman/Loyd, Philadelphia Inquirer, 9/9).

According to the Journal, the "settlement marks the Justice Department's first major one among" PBMs. Medco Health Solutions and Express Scripts face similar DOJ lawsuits, although both companies have denied the allegations (Wall Street Journal, 9/9).

In addition, Caremark faces an investigation of company business practices by 28 states and the District of Columbia. Thomas Gallucci, an analyst at Merrill Lynch, said Thursday's settlement could "create a framework" for resolving those cases (Philadelphia Inquirer, 9/9).

Increased scrutiny of PBMs has resulted in some changes to business practices in recent years. However, associate U.S. attorney James Sheehan said, "We don't know to what extent" illegal practices "still exist" among PBMs (Wall Street Journal, 9/9).