Caremark Suit Gets Noticed

A Medicaid fraud investigation targeting Caremark (CMX), one of the nation's largest pharmacy benefit managers, could soon cause more pain.

Already, at least five states have joined with the federal government in an effort to recover money from Caremark that they feel belongs to the Medicaid program. But laws could permit as many as 10 more states, along with the District of Columbia, to demand similar repayments, along with substantial penalties.

Total damages could exceed $500 million, according to a newly expanded whistleblower lawsuit filed just over a week ago. Caremark denies wrongdoing, but the allegations themselves seem to be taking a toll: This month alone, press reports show, county officials in at least two states have questioned whether they should be conducting business with a company suspected of engaging in Medicaid fraud.

"I wish our staff would look into it a bit more," Stony Rushing, a county commissioner in North Carolina, said of the Medicaid probe last week, according to the Charlotte Observer. "If we're endorsing [a discount prescription card managed by Caremark], are we endorsing this company?"

Medicaid ranks as the largest spender on prescription drugs in the country. It is also considered the "payer of last resort," meaning that it should legally cover health care costs only when no other insurance exists.

The government believes that Medicaid has paid for drugs used by people with Caremark benefits and should be reimbursed as a result. However, it claims that Caremark has taken deliberate steps to avoid those repayments and has violated the law for years in the process.

For its part, Caremark had little to say about the latest development.

"We cannot comment regarding ongoing litigation," explains Caremark's Kelly Carper Erickson. But "we believe we have meritorious defenses to the claims."

Caremark's stock, long embraced as a Wall Street favorite, slipped 36 cents to $45.62 on Thursday but remains within $2 of its all-time high.

Troubling Tune

In a lawsuit filed under the False Claims Act six years ago -- and finally unsealed this summer -- Janaki Ramadoss formally accuses Caremark of defrauding multiple government agencies and ignoring her pleas to stop.

Ramadoss used to work in the Caremark division that processed every Medicaid claim submitted to the company for reimbursement, the lawsuit states. She personally audited some 6% of all claims -- including those submitted by other government agencies -- that were received by that department, it adds.