Caremark's Medicaid Mess

Caremark's (CMX Quote - Cramer on CMX - Stock Picks) days as an independent company are numbered, but its legal problems appear to be far from over.

Last week, a federal appeals court ruled that Caremark should be picking up bills that it has been leaving for Medicaid, the federal program that by law is the so-called payer of last resort.

The ruling came just days before shareholders approved a huge merger between Caremark and drugstore chain CVS (CVS Quote - Cramer on CVS - Stock Picks). When the merger closes in the next week or so, CVS will be on the hook for any Caremark liabilities. Some say damages could reach into the "hundreds of millions of dollars" as states line up to collect on disputed back claims.

Peter Coughlan, a state prosecutor who has been pursuing Caremark for the past four years, says he "could not be happier" with the recent court ruling.

"It says, once and for all, 'Caremark, you're wrong on the law,'" explains Coughlan, senior counsel for the Tennessee attorney general. "We've believed that all along. ... Now, with the AG's approval, I'm going to try to go after some of these other [pharmacy benefit managers] just to see what's out there."

Coughlan singles out Medco (MHS Quote - Cramer on MHS - Stock Picks), the nation's largest PBM, as a likely target.

Medco said it won't comment on litigation involving other parties. Caremark declined to comment, and CVS wasn't immediately available for comment.

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