In re Caremark Intern. Inc. Derivative Litigation

Facts

Caremark International Inc. (Caremark) participated in providing patient health care and managed healthcare services. Much of their revenue came from third-party payments, insurers, and Medicare and Medicaid reimbursement programs. The Anti-Referral Payments Law (APRL) applied to Caremark and prohibited payments to induce the referral of Medicare or Medicaid patients. Caremark was involved with entering into service contracts, including consultation and research, with physicians who sometimes prescribed Caremark products or services to Medicare recipients. Although the APRL did not prohibit these contracts, this practice did raise the issue of unlawful kickbacks. Caremark’s board of directors (Defendant) tried to monitor these contracts internally by seeking legal advice and devising employee guidelines. However, the government began an investigation of Caremark. In response to the investigation, Caremark began making structural changes to centralize management. Nevertheless, Caremark and two officers were indicted. This was followed by the filing of derivative actions by several shareholders who charged Defendant with failure to adequately monitor as part of its duty of care. Negotiations for settlement began. In the settlement, Caremark agreed to stop all payments to third parties that referred patients to Caremark and to establish an ethics committee, which it had effectually already done. Caremark also agreed to make reimbursement payments to private and public parties that totaled $250 million. All other claims in the proposed settlement were waived. The proposed settlement was submitted to the court for approval.