Amid efforts to restructure, MedPartners now must fight a $3.3 billion lawsuit filed by 22 insurers against its Caremark International subsidiary, which the insurers say committed fraud.
The plaintiffs, which include some of the nation's largest Blue Cross and Blue Shield plans (See box), accuse Northbrook, Ill.-based Caremark of submitting false claims for medical care for nearly a decade. MedPartners, a Birmingham, Ala.-based physician practice management company, bought Caremark in 1996 for $2.5 billion.
MedPartners denied the allegations and said in a statement: "Caremark intends to vigorously defend the lawsuit as management believes the factual and legal basis for the claim is without merit."
The insurers filed their suit March 2 in U.S. District Court in Chicago. MedPartners has 60 days to respond to the suit. No date has been set for a hearing or trial.
The insurers allege Caremark engaged in an elaborate scheme to pay kickbacks to physicians for referring patients to its home infusion therapy business. They say Caremark concealed payments it made to doctors who were trying to give it business.
The insurers said they collectively paid "in excess of $800 million and as much as $1.1 billion" to Caremark between 1986 and 1995. They say they learned of a "fraudulent scheme" sometime in 1995.
Also that year Caremark paid the government $161 million in criminal and civil fines to settle a 4-year-old federal kickback and fraud investigation of its former home infusion unit. Caremark pleaded guilty to two counts of criminal federal mail fraud. It later sold the home infusion unit to Denver-based Coram Healthcare for $309 million. Coram isn't a defendant in the case.
MedPartners must defend Caremark in the suit because it is an entirely owned subsidiary. It insists it shouldn't be held liable because any misdeeds by Caremark occurred before the acquisition.
The suit comes in the aftermath of MedPartners' failed sale to PhyCor of Nashville. After that deal fell through in January, Larry House resigned as MedPartners' president and chief executive officer. That spot's been taken over temporarily by Richard Scrushy, chairman and CEO of Birmingham-based HealthSouth Corp. Scrushy is leading a search for House's successor while integrating some of HealthSouth and MedPartners' operations (March 2, p. 48).