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Business Organizations Keyed to Chasalow, 3rd Ed.
In re Caremark International Inc. Derivative Litigation
Citation:
698 A.2d 959 (1996)Facts
Caremark International Inc., a Delaware corporation providing patient care and managed care services, was spun off from Baxter International in 1992. A significant portion of Caremark’s revenue came from Medicare and Medicaid reimbursements, which were subject to the Anti-Referral Payments Law prohibiting payments to induce patient referrals. Caremark had entered into various consulting and service agreements with physicians who referred patients to Caremark. In 1991, the Department of Health and Human Services began investigating these relationships. By 1994, Caremark was indicted for multiple felonies related to these practices. Throughout this period, Caremark’s board received some information about compliance efforts, issued ethics manuals, and made policy changes. Ultimately, Caremark pleaded guilty to mail fraud and paid approximately $250 million in fines and settlements. Shareholders brought derivative actions alleging the board failed in its oversight duties by not detecting and preventing these violations.
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