CalPERS Among Potential Victims in Alleged Caremark Drug Scheme

August 23, 2005 ( - A giant Nashville, Tennessee -based pharmacy benefits manager has been accused by four former employees of defrauding customers by illegally restocking prescription drugs for mail order resale.

Although the false-claims lawsuit against Caremark Rx was filed December 4, 2003, it remained under court seal pending a review by the office of California Attorney General Bill Lockyer, the Sacramento Bee reported. The suit was unsealed earlier this summer after the attorney general declined to intervene, citing a lack of resources, said Michael Leonard, a Chicago-based lawyer who is also representing the former Caremark workers.

Plaintiffs in the suit are former Caremark pharmacists Michael and Peppi Fowler of Florida, both 12-year company veterans, and Victor Cortes and Danny Nevarez, workers at a Texas drug center, the Bee reported.

The suit also alleges that Caremark defrauded the California Public Employees’ Retirement System (CalPERS) for whom it manages pharmacy benefits under a $265 million 2002 contract. The plaintiffs alleged that the company secretly delayed, changed and canceled drug orders, then lied on records about order turnaround times to avoid contract penalties for slow service.

CalPERS spokeswoman Pat Macht told the Bee that CalPERS officials have known about the false-claims lawsuit for 18 months. Macht said CalPERS recently launched an audit into the claims, exercising its contractual rights. Macht said the fund was aware only that Caremark engaged in “benign restocking,” cases in which a mail-order prescription was returned unopened after a customer moved and did not update his address.

CalPERS is the biggest buyer of health-care benefits in the United States after the federal government. The $190 billion pension fund is not only a Caremark customer, but also a Caremark shareholder with about 2.8 million shares, a stake worth more than $123 million at Friday’s closing price but constituting less than 1% of all shares, filings show. Caremark is also among bidders for a new CalPERS pharmacy benefits contract, to be awarded in June.

The lawsuit alleges Caremark used several other tactics: The company made deliberate efforts to “convert” prescriptions for antihistamines to over-the-counter medications by contacting doctors’ offices. This forced the unsuspecting plan members to pay for their own medicines, or they had to return to their doctor, pay for a second visit and get their prescription reinstated, the newspaper reported.