CVS, Seeking Calpers Pact, Faces Trial Over Past Work For Fund
May 18 2011 - 3:38PM
Dow Jones News
CVS Caremark Corp. (CVS), in competition for a major
pharmacy-benefits contract with the California Public Employees'
Retirement System, faces at the same time a trial in a long-running
whistle-blower lawsuit alleging the company defrauded Calpers while
overseeing the pension fund's drug plan from 2003 to 2006.
As the nation's largest public pension fund decides whether to
award the 2012, three-year contract to CVS Caremark or another
finalist, company lawyers must prepare for a trial scheduled to
start June 13 in California Superior Court in Los Angeles. The
whistle-blower plaintiffs--several former Caremark
employees--allege the company cheated Calpers out of millions of
dollars through fraudulent practices at its mail-order pharmacy
business.
The Calpers contract represents some $500 million in drug
spending a year, as the pension fund is one of the largest
purchasers of employee health benefits in the U.S. Besides CVS
Caremark, the other finalists for the Calpers contract include
MedImpact and UnitedHealth Group Inc.'s (UNH) Prescription
Solutions.
Calpers' search for a new drug-benefits manager follows the
organization's move in March to drop the incumbent and favored
finalist, Medco Health Solutions Inc. (MHS), from consideration
after an investigation detailed Medco's payments of more than $4
million to a former Calpers official.
Medco had hired the former official as a consultant as it tried,
successfully, to win the Calpers business from Caremark in the
mid-2000s; state and federal agencies are now investigating Medco's
relationship with the consultant.
Medco and CVS Caremark are two of the largest PBMs in the
U.S.
The whistle-blower lawsuit against Caremark, which predates the
PBM's acquisition by CVS, makes a host of allegations of fraudulent
practices.
Specifically, the complaint alleges Caremark changed patient
prescriptions without authorization from prescribing physicians,
neglecting to credit Calpers for the unauthorized changes, and
falsified prescription turnaround times to avoid monetary penalties
set forth in the contract.
CVS Caremark noted that the amended suit has been pursued as a
private matter because California declined to intervene a few years
ago.
"CVS Caremark does not believe that any of the allegations in
the lawsuit have merit, and we are vigorously defending against the
allegations," company spokeswoman Christine Cramer said. "We are
confident that our prior services to Calpers were conducted in
accordance with both our Calpers contract and applicable law.
"We do not believe this lawsuit should have any impact on
possible negotiations with Calpers to provide PBM services," she
added
Calpers representatives indicate the pension fund will weigh the
lawsuit in considering its PBM contractor, but the complaint won't
necessarily eliminate CVS Caremark as a candidate. Calpers staff
remained in negotiations with CVS Caremark as of this week.
"Assessment of the lawsuit is going to be part of the due
diligence that (Calpers) undertakes with respect to making a
decision on entering a contract with CVS and Caremark," said Tom
Dresslar, spokeswoman for California Treasurer Bill Lockyer, a
Calpers board member. "Clearly the lawsuit involves allegations,
disturbing allegations, including ripping off (Calpers)."
For an organization the size of Calpers, however, competition is
limited, Dresslar noted. "You can count the PBMs that can serve the
organizations of this size on a couple of fingers, maybe three,"
and they frequently are subject to lawsuits and investigations, he
said. He said the Calpers board had been unaware of the lawsuit
when it authorized staff members to enter contract negotiations
with CVS Caremark.
"We take everything into consideration when we're negotiating
for any of our vendors," Calpers spokesman Bill Madison said. "We
look at what's going on with every potential contractor." Calpers
had no comment on the lawsuit itself.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-982-5582;
dinah.brin@dowjones.com
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