Medco, Caremark Itching to Play Medicare Card

Leonard says that Caremark is particularly concerned about dated envelopes that represent "the most direct evidence" that the company falsified turnaround times in order to collect bonuses. He said the company was aware of his clients' evidence for months but filed suit in recent weeks only after a high-ranking Caremark manager offered damaging testimony that bolstered his client's claims.

Leonard has estimated potential damages in the case at $100 million.

Cautious Comments

Legal issues aside, it's far from clear that the Medicare cards will be a windfall. Williams Capital analyst Adam Miller says the benefit cards will probably have little impact now on corporate earnings. And he wonders why so many companies -- particularly in managed care -- have failed to pursue the long-term opportunities that could materialize.

While Miller acknowledged that at least three big insurers -- Aetna (AET Quote), WellPoint (WLP Quote) and UnitedHealth (UNH Quote) -- have signed on to the program, he views the industry's response as cool.

"In our opinion, this lack of participation indicates that health plans are still cautious about the new Medicare prescription benefit," Miller stated. "Only six public health plans are participating, with the remaining players being pharmacy benefits managers and private health plans."

Still, Wall Street is hardly worried. In fact, analysts spent last week celebrating Caremark's successful merger and predicting greater days ahead.

"We view the transaction very positively," declared J.P. Morgan analyst Lisa Gill. "The best is yet to come."

Together, Gill believes, the combined companies can grow earnings by 27% this year and another 32% next. She is especially excited about the lucrative mail-order business that, ironically, has spawned the company's recent legal woes.

For now, Caremark already fills roughly 600 million prescriptions annually for its 70 million customers. It also ranks as the largest mail-order pharmacy in the country.