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Business Associations Keyed to Diamond, 6th Ed.
In re Caremark International Inc. Derivative Litigation
Citation:
698 A.2d 959 (1996)Facts
Caremark International Inc. was a Delaware corporation providing patient care and managed care services, including alternative site health care services such as infusion therapy and prescription drug programs. A substantial portion of Caremark’s revenue came from third-party payments, including Medicare and Medicaid reimbursements, which were subject to the Anti-Referral Payments Law (ARPL). Caremark had contracts with physicians, some of whom referred patients to Caremark. In 1991, federal authorities began investigating Caremark for potential ARPL violations. By 1994, Caremark was indicted for multiple felonies related to payments to physicians in exchange for patient referrals. The company eventually pleaded guilty to a single count of mail fraud and paid approximately $250 million in criminal fines and civil settlements. Throughout this period, Caremark’s Board received reports about the company’s compliance efforts, including revisions to its contractual relationships with physicians and the implementation of ethics programs. Shareholders filed derivative actions alleging that the directors breached their fiduciary duty by failing to adequately monitor corporate operations and prevent legal violations.
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