On The Money: CalPERS Awards Pharmacy Contract To Firm Accused of Fraud

By Mike Luery

Would you do business with a firm accused of defrauding you?

The state of California is doing just that, CBS13 has learned, thanks to a viewer tip.

David Boliou of Galt is a CalPERS member. Recently he got a letter in the mail from CalPERS announcing that starting this month, CVS Caremark would be his new pharmacy. His old provider, Medco Health Solutions, was no longer an option.

"One of the reasons that I needed to retire was for health reasons," Boliou told CBS13. "And to me prescription coverage is important."

But there was something that bothered Boliou about the switch. It was a whistleblower lawsuit from former CVS pharmacists, alleging that CVS Caremark had defrauded CalPERS by falsifying patient records and reselling returned drugs.

CVS Caremark admitted no wrongdoing but settled the nationwide case for nearly $20 million, with $7 million going to California.

Yet despite the warning signs, CalPERS negotiated and signed a three-year contract with CVS Caremark for pharmacy services worth $565 million a year.

"It raised red flags in my mind," Boliou said. "What other kinds of decisions are they making that might seem somewhat questionable?"

"I certainly understand how it could seem that we haven't changed," said Ann Boynton, deputy executive officer of CalPERS. "I could see how someone could think that."

But Boynton told CBS13 that CalPERS' first choice was the original provider, Medco – until that firm became embroiled in a bribery scandal involving former CalPERS officials. So CalPERS opted to go with the second choice, CVS Caremark, despite a pending lawsuit with allegations of fraud.

"We were aware," Boynton told CBS13. "(We) had been from the beginning."

CalPERS insists the new contract has protections in place, including full access to CVS Caremark's internal records.

"We're completely satisfied that they've got appropriate processes in place to ensure that those things don't happen again," Boynton told CBS13.

CalPERS believes its 346,000 members are protected, but David Boliou is not convinced.

"If it looks a little fishy and seems a little fishy, maybe it's fishy," Boliou said.

CVS Caremark sent this response to CBS13:

"CVS Caremark successfully settled three related qui tam lawsuits brought by the same plaintiffs in California, Florida and Illinois. There were no findings of wrongdoing or any admission of liability in any of the cases. The company is pleased to have concluded these matters in a combined settlement in order to avoid the costs of continued litigation related to alleged historical practices. The aggregate settlement amount has been allocated to settle all three separate lawsuits. These lawsuits were filed more than eight years ago as qui tam cases, and all three states declined to intervene and participate in them, resulting in the individual plaintiffs pursuing these cases on their own as private litigation."

- Christine K. Cramer, CVS Caremark director of public relations

This story started with a tip from David Boliou. Send us your story ideas with an e-mail to onthemoney@kovr.com. You can also follow On The Money stories in progress via Facebook and on Twitter.