is now under investigation by nearly half the states in the country -- including one state that previously appeared bent on helping the company instead.
The giant pharmacy benefit manager revealed this week that the number of state prosecutors questioning its business practices has risen from 19 to 23 over the past month. The District of Columbia has joined the probe as well.
News of the widening probe pushed Caremark's stock down 1.7% to $27.98 -- near a six-month low -- halfway through Thursday's session. The news comes as the company's rivals
deal with pending inquiries as well.
Caremark originally disclosed in July that the attorney general of Washington state had requested documents from the company and that 18 other attorneys general were expected to follow suit. The Nashville, Tenn., company has yet to identify the other states involved.
But the Florida attorney general's office -- which previously lent some assistance to the company -- informed a judge last month that it is co-chairing the multistate investigation. A Florida prosecutor made the disclosure when arguing that the state should assume control of a whistleblower lawsuit against the company, which has a lucrative state contract. The state tried, but failed, to intervene in the case at the company's own request.
"The Florida attorney general's office is co-chair lead state, along with the attorney general's office in Illinois, of that 19 state multi-state investigation," Assistant Attorney General John Kraus told the court in late July. "And while the issues are not identical to the issues of the Florida False Claims Act case, we believe they are closely enough aligned that it makes sense for the attorney general's office to be in control of both this litigation and that newly initiated multi-state investigation."
Kraus explained that the states are examining "certain pricing practices" employed by the company. In contrast, the whistleblower lawsuit accuses the company of defrauding and endangering Florida customers by, among other things, selling them drugs that were returned through the mail and never tested for possible damage.
Mike Leonard, a Chicago attorney representing whistleblowers Michael and Peppi Fowler, successfully argued that his clients should retain control over the whistleblower lawsuit.
"This is probably one of the first times in history where you had a defendant committing
what could be criminal acts begging to be prosecuted by the government," Leonard stated. "There is no reason except for the following: They believe they will be less vigorously prosecuted."
When seeking to intervene in the case, the Florida attorney general cited concerns about the whistleblowers -- and a possible conflict of interest -- instead of allegations against the company itself. But Leonard argued that the state appeared to be the more conflicted party. He pointed out, for example, that David Moye -- then Florida's assistant deputy attorney general for health care fraud -- until last year worked for the law firm now representing Caremark.
But that situation has since changed.
"Mr. Moye has submitted a letter of resignation to the attorney general and will be returning to private practice," Kraus told the court on July 26. "I think his last date is next Friday with our office. And he will not be directing this litigation."
Kraus further maintained that Moye's firm never even represented Caremark until several months after Moye had departed. Meanwhile, Howard Pearl -- an outside attorney for the company -- offered an even stauncher defense of Moye and attacked Leonard for suggesting that a conflict ever existed in the first place.
"Mr. Moye was kind enough to remain silent, classy enough to have remained silent," Pearl said. "But the attack on Mr. Moye was ... vicious."
Pearl also criticized Leonard for raising concerns about another state official as well. Leonard had complained that Richard Barnum, who presides over Florida's group insurance division, praised Caremark's performance after accepting expensive trips as a member of the company's advisory board.
The state of Florida, which prohibits employees from accepting gifts of value, is conducting a review to determine whether Barnum violated its strict code of ethics.
But Pearl told the court last month that "Caremark shared the expense with the state" for the trips in question. He said the state may have paid for Barnum's airfare on some occasions. And he ridiculed the notion that Caremark won favors from Barnum simply by putting him up in a nice hotel room.
"The idea that this man went in the tank and sold out 200,000 of his fellow state workers in order to go to Chicago once and Scottsdale once for a two-day meeting because he got to stay in a first-class hotel is outrageous," Pearl stated.
Indeed, complaints about Leonard's conduct dominated much of last month's hearing. Pearl argued that Leonard, who is "as media-savvy as anyone could ever hope to be," was unfairly vilifying innocent people in the press. But Leonard noted that Caremark had used the press to present its case as well. In the end, the judge threatened to silence both parties.
"I'm not going to tolerate any unprofessional behavior by any attorneys in this case," Davey warned. "If I see any, I am going to report you to the Florida Bar ...
and you will be off the case. Or I will just disqualify you myself on my own motion. I have the authority to do that, and I will do it."
Both Leonard and Caremark have since told
that they will no longer be commenting on the case.