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[click here]Caremark Faces Another Legal Challenge
Melissa Davis
By Melissa Davis
Senior Writer
6/28/2005 7:02 AM EDT
URL: http://www.thestreet.com/stocks/melissadavid/10229835.html
Caremark's (CMX:NYSE) legal headache just got worse.
The giant pharmacy benefit manager faces a new whistleblower suit filed by the same firm that helped make Erin Brockovich famous. The complaint, unsealed in California last week, accuses the company of defrauding the California Public Employees' Retirement System, or Calpers -- the largest buyer of health care benefits behind the U.S. government -- in a manner that allegedly compromised patient safety.
"When we sat down and looked at this case, our feeling was that we have to be involved," says Paul Traina, a partner at Engstrom, Lipscomb & Lack. "We have to do something -- and we have the type of firm that can take on Caremark."
So far, Traina says, the California attorney general has yet to intervene in the case.
Caremark didn't return calls from TheStreet.com on Monday. However, the company has denied any wrongdoing in the past.
To be sure, plaintiffs who file and win whistleblower lawsuits stand to reap huge sums, sometimes in the tens of millions of dollars. Moreover, two of the four whistleblowers involved in the new lawsuit have come under fire from Caremark in the past. They have been accused of engaging in misconduct at work but have still managed to keep building their case against the company.
Their suit is still pending in Florida and has been covered extensively by TheStreet.com. The new suit includes two additional whistleblowers, however, and it adds a sensational charge of reselling refrigerated drugs -- including blood products used by hemophiliacs -- that were returned through the mail but never tested for possible damage.
"According to one former employee who was regularly involved with the re-stocking of returned refrigerated prescription drugs and returned controlled substances at the California specialty facility, Caremark's pharmacists regularly restocked returned drugs ' [as] long as the expiration dates were good,'" the lawsuit alleges. "That former Caremark employee found the restocking and resale of returned prescription drugs at the California specialty facility to be 'weird.'"
The complaint goes on to allege that Caremark workers restocked a number of refrigerated drugs -- ranging from blood products to insulin to chemotherapy -- on a daily basis. Moreover, it alleges, the company actually profited twice by reselling the potentially damaged drugs to unsuspecting customers.
In a footnote, the complaint raises another unusual concern.
"According to the ... whistleblowers and other former employees of Caremark," it says, "the Florida facility, in addition to allowing and encouraging its employees to engage in the fraudulent practices described herein, even allowed its employees for some period of time to sell live animals -- namely turtles -- inside the Florida facility."
The lawsuit takes aim at the company's lucrative mail-order specialty pharmacy business in particular.
"All of Caremark's specialty pharmacies, including the California specialty facility, that engaged in those .... [alleged] practices did so in accordance with Caremark's established corporate policies, practices and procedures and with the full knowledge and approval of Caremark's management and corporate representatives," the complaint says. "Caremark chose revenues and profit-taking over the health and welfare of its plan members."
Caremark's stock rose 48 cents to $43.60 Monday.
Multiple allegations
The complaint includes some familiar allegations as well.
For example, it says that Caremark trained its workers to alter the dates when prescriptions arrived so that it would look like the company had operated efficiently by meeting the turnaround deadlines established in its contract. As a result, it says, Caremark avoided monetary penalties.
Moreover, the lawsuit says, Caremark actually canceled some prescriptions that were going to be filled too late. Afterwards, it says, the company would fail to notify patients of those cancellations and then lie to them, suggesting that the prescriptions had been lost in the mail or offering "some other such false statement." In the end, it says, Caremark would then create a "new" prescription and act as if the original had never existed.
In addition, the complaint says, Caremark would change or cancel prescriptions to "save" Calpers money. To achieve these so-called conversions, it says, the company would seek authorization "from virtually anyone in the doctor's office -- including receptionists and others with no authorization or competence to make medical decisions." Moreover, it says, the company would mislead even those people about what it was really attempting to do.
Meanwhile, it adds, the patients remained in the dark.
"Consequently, on numerous occasions where the patients found out what had happened to their prescription and their refills, they were forced to return to their doctor, or otherwise contact their doctor, to attempt to have their refills reinstated or another prescription written," the lawsuit says. "This could include making yet another co-pay to their doctor for a medication that had already been prescribed to them but, subsequently, eliminated by Caremark."
The suit alleges that Caremark targeted refill eliminations by drug -- meaning
that the same patients could see their prescriptions canceled over and over
again. Moreover, it says, those patients often suffered from illnesses that
were long-term or chronic in nature. Some of those patients, it adds, were even
quadriplegics with lifetime medication needs.
Street drugs
The lawsuit also raises allegations covered by TheStreet.com already.
Specifically, it says that Caremark bought drugs from a Florida wholesaler that had itself purchased the drugs "off the street." The situation, it says, was so serious that a state representative even alerted a member of Gov. Jeb Bush's staff. However, it says, the company failed to inform the public at large.
Moreover, the lawsuit claims that Caremark ignored concerns raised by its own employees. It portrays the company's ethics hotline as "bogus" and its compliance program as "toothless." Rather than addressing employee concerns, it says, Caremark instead simply tried to identify "those who were bold enough" to make their worries known.
Meanwhile, it says, the company has continued to mislead the public by falsely proclaiming its innocence.
"Caremark has issued press releases and other statements denying the whistleblowers' allegations and characterizing them as baseless, even though Caremark's management knew the allegations, or some of them, to be absolutely true," the lawsuit says. "Those activities had the purpose and effect of misleading the public, shareholders, Calpers, Caremark's plans and plan members and government officials about the nature of Caremark's business practices."
Caremark currently operates under a $265 million contract with CalPERS, according
to the complaint.