Caremark Shares Fall as Settlement Talks Stall

Shares of Caremark Rx Inc., a pharmacy-benefits manager formerly known as MedPartners Inc., fell 17% on concerns its operations will be disrupted by its inability to settle a dispute about its former California business.

The shares fell 88 cents to close at $4.38 on the New York Stock Exchange.

Last week, The Times reported that the proposed settlement might be in jeopardy after Caremark stopped making payments on debts owed to doctors, hospitals and health plans. Some doctors haven’t been paid in as many as nine months.

With the settlement proposal bogged down, sources told The Times, the parties left certain legal and financial issues unresolved, only to be settled later. In particular, doctors who are owed money by Caremark want to reserve their right to sue the company later if their debts aren’t paid in full.

Caremark changed its name and business earlier this year. When it was known as MedPartners, it was the largest U.S. manager of physician practices, but decided to exit that unprofitable business. In March, California regulators seized control of MedPartners’ California physician-management business and sought bankruptcy protection for the unit, saying the company didn’t have enough cash to pay new claims.

But the company has thus far been unable to reach a final settlement with the state and doctors to avoid further health industry bankruptcies.

“While the process of implementing the definitive settlement agreement has taken longer than everyone would have hoped, progress continues to be made,” Mac Crawford, Caremark’s chairman and chief executive, said in a statement. “We are committed to doing our part to successfully implement the agreement.”

Investors are concerned that Caremark won’t have funds to pay for a large settlement. Caremark has said it has funds to pay. It had about $8 million in cash, according to a recent federal filing. The amount it will have to pay is unknown.

Last month, Caremark sold $200 million in preferred redeemable securities, about $50 million less than it proposed. It said it will use the funds to pay down debt.

Earlier this year, Caremark said it took a fourth-quarter 1998 charge of $1.23 billion, mostly non-cash, to cover its exit from the business. It took a second-quarter charge of $199.3 million for the same reason.