Chicago Tribune (CT) - SATURDAY, June 17, 1995 Edition: NORTH SPORTS FINAL Section: NEWS Page: 3 Word Count: 817
Jan Crawford Greenburg, Washington Bureau.

The Justice Department announced Friday that the Northbrook, Ill., company will plead guilty to two counts of mail fraud for paying doctors for patient referrals and defrauding government medical programs.

The company, which provides health-care goods and services, also agreed to cooperate in the government's ongoing investigation of doctors and company employees and officers involved in the scandal.

As part of the settlement, the government will drop a potentially more damaging charge that Caremark violated a federal anti-kickback statute.

If Caremark had been convicted under that statute, it would have been barred from participating in Medicare and Medicaid programs for at least five years, government officials said.

Investors responded favorably to the settlement, pushing Caremark shares up $1.62 to $21.62 on the New York Stock Exchange.

"This settlement puts an end to a difficult and painful episode for the company and will allow us to move forward," said C.A. Lance Piccolo, Caremark's chairman and chief executive officer. "Caremark acknowledges the improper conduct by certain employees, apologizes and takes full responsibility for the wrongdoing."

After a wide-ranging investigation by several federal and state agencies, Caremark was indicted last fall in Minnesota for the kickback scheme and faced other charges in other states, including Michigan and Ohio.

At the time, government officials characterized the effort as the largest criminal investigation ever of a single medical company.

But Caremark's settlement resulted in fines that were half the size of the largest ever assessed for health-care fraud. Last June, National Medical Enterprises settled a health-care fraud investigation for some $380 million.

Still, the four-year criminal investigation seriously damaged Caremark's home-infusion business, which once was the biggest in the United States.

Home infusion, which involves administering intravenous drugs or liquid food in patients' homes, made up 18 percent of Caremark's 1994 revenues of $2.43 billion, compared with more than 40 percent in 1990.

Just two months ago, Caremark sold its home-infusion business, which typically was used by people with cancer, AIDS or other serious illnesses, to Coram Healthcare Corp. for $309 million. The deal specified that Caremark would retain responsibility for the outcome of the investigation.

Government officials said Friday they also uncovered fraud in Caremark's oncology, hemophilia and human growth-hormone businesses.

The settlement does not affect charges against a doctor and three of the company's middle managers, who are facing trial in July in Minnesota.

Also unaffected are charges of illegal kickbacks against an Ohio doctor. Caremark agreed to cooperate with the government in those cases, officials said.

"Today's settlement sends a clear message to anyone engaged in health-care fraud," Atty. Gen. Janet Reno said in announcing the settlement. "The government is coordinated, and it will pursue wrongdoing."

The FBI investigation began before Caremark was spun off from its one-time parent, Baxter International Inc. in nearby Deerfield, Ill. Baxter itself was the target of a federal investigation that resulted in a 1993 guilty plea to a felony charge of abetting the Arab economic boycott of Israel.

The Caremark investigation focused on whether the company disguised kickbacks to doctors as research grants or payments for legitimate work. The payments violated federal law, officials said, because Caremark was inducing doctors to refer Medicaid and Medicare patients to the company.

In the case of the Ohio doctor, for example, Caremark disguised $40,000 a year in kickbacks by saying the payment was for his service as director of a medical facility, said Ann Arbor, a senior Justice Department attorney who led the government's negotiations on the criminal side of the case.

As part of the settlement, Caremark will pay criminal fines of $9 million for wrongdoing in Minnesota and $20 million for fraud in Ohio. It also will give $2 million to the Public Health Service to help pay for treating HIV and AIDS in young people.

On the civil side, Caremark will pay almost $81.8 million in installments to the federal government for defrauding federal medical-insurance programs. It also will pay some $45 million to the states to help cover their share of Medicaid and other health-care programs.

Finally, it will pay $3.5 million for failing to keep accurate records at its pharmacies, in violation of the Controlled Substances Act.

Caremark also has agreed to institute a "corporate integrity plan" to ensure it will comply with health-care laws in the future. It also agreed to cancel some 2,000 contracts with doctors.

To cover the settlement payments, the company will take an after-tax charge of $110 million to earnings in the second quarter. It expects to increase the charge by $20 million to $35 million after it evaluates its legal fees and other expenses.

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