Caremark Rx, the prescription drug plan manager, agreed yesterday to pay $137.5 million to settle federal lawsuits filed by whistle-blowers that accused a company it acquired in 2003 of improper dealings with pharmaceutical manufacturers.
The lawsuits said that the acquired company, AdvancePCS, accepted kickbacks from drug makers to promote their products over those of rivals under contracts with government programs including the Federal Employees Health Benefit Program, the Mail Handlers Health Benefit Program and Medicare health maintenance plans.
There was no admission of wrongdoing by Caremark or AdvancePCS.
The chief executive of Caremark, Mac Crawford, said in a statement, "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."
Wall Street analysts said the settlement could amount to $80 million after taxes, which they said was provided for in an adjustment to good will when Caremark bought AdvancePCS for $5.6 billion. In trading yesterday, Caremark shares lost 39 cents, to close at $48.26.
The United States attorney in Philadelphia, Patrick L. Meehan, said the settlement and a similar agreement with Medco Health Solutions, another large pharmacy benefit manager, "opens the door to much more transparency" as the two companies and their competitors take on a significant role in the new federal Medicare drug program that starts in January.
Caremark also agreed yesterday to be more open about business dealings involving the AdvancePCS unit - something that will be monitored by the inspector general of the Department of Health and Human Services.
In return, it received assurances that it would not be excluded from serving the Medicare, Medicaid and federal employees benefits programs, said Barbara Rowland, an assistant United States attorney in Philadelphia who worked on the six-year investigation of the pharmacy benefits industry.
Lawsuits filed by state attorneys general that accuse Caremark of pocketing part of the payments that health plans intended for retail pharmacies are pending in nine states - California, Delaware, Florida, Illinois, Louisiana, Massachusetts, Tennessee, Texas and Virginia - as well as the District of Columbia, said W. Scott Simmer, a lawyer for the whistle-blowers, three former employees of0 AdvancePCS and its predecessors, PCS Health Systems and Advance Paradigm.
How much of the settlement will be shared by the three former employees - Mary Jean Brown, an AdvancePCS clinical director; Kevin Waite, an AdvancePCS director of network development; and Karl Schumann, a former vice president of Advance Paradigm - is still unresolved, Mr. Simmer said.
Medco announced a $29 million settlement with attorneys general of 20 states in April 2004. A federal civil complaint involving Medco is pending, Ms. Rowland said.
In addition, the New York State attorney general, Eliot Spitzer, accused Express Scripts, another drug plan manager, last year of defrauding the state of tens of millions of dollars by inflating the cost of drugs. That case is pending.
Spokesmen for Caremark, Medco and Express Scripts say they already disclose the payments they receive from drug companies as the pharmacy benefit managers select certain drugs for preferred status, which translates into larger sales. With the Medicare drug benefit, Congress has asked federal officials to make sure that such practices do not result in increased costs to the program.