1.0.0.3 false Commitments and Contingencies false 1 $ false false Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 2 Commitments and Contingencies [Abstract] 0 mhs_CommitmentsAndContingenciesAbstract mhs false na duration string Commitments and Contingencies Footnote Disclosure false false false false false true false false false 1 false false 0 0 false false Commitments and Contingencies Footnote Disclosure false 3 Commitments and Contingencies 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration string No definition available. false false false false false false false false false 1 false false 0 0 <div><div><a name="_AUCaccfad1c991e4abfa065ed918a63942b">14.  COMMITMENTS</a> AND CONTINGENCIES   Legal Proceedings   <p class="MsoBodyText" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 11.0pt; font-family: 'Times New Roman','serif'; margin: 0in; color: black; text-indent: .25in;">In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations, charges and proceedings, including, but not limited to, those relating to regulatory, commercial, employment, employee benefits and securities matters.  The significant matters are described below. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">There is uncertainty regarding the possible course and outcome of the proceedings discussed below. Although it is not feasible to predict or determine the final outcome of any proceedings with certainty, the Company believes there is no litigation pending against the Company that could have, individually or in the aggregate, a material adverse effect on the Company’s business, financial condition, liquidity and operating results.  However, there can be no assurances that an adverse outcome in any of the proceedings described below will not result in material fines, penalties and damages, changes to the Company’s business practices, loss of (or litigation with) clients or a material adverse effect on the Company’s business, financial condition, liquidity and operating results.  It is also possible that future results of operations for any particular quarterly or annual period could be materially adversely affected by the ultimate resolution of one or more of these matters, or changes in the Company’s assumptions or its strategies related to these proceedings. The Company continues to believe that its business practices comply in all material respects with applicable laws and regulations and is vigorously defending itself in the actions described below.  The Company believes that most of the claims made in these proceedings would not likely be covered by insurance. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  In accordance with the FASB’s standard on accounting for contingencies, the Company records accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.  These assessments can involve a series of complex judgments about future events and may rely heavily on estimates and assumptions that have been deemed reasonable by management. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">Government Proceedings and Requests for Information. The Company is aware of the existence of three sealed qui tam matters. The first action is filed in the Eastern District of Pennsylvania and it appears to allege that the Company billed government payors using invalid or out-of-date national drug codes (“NDCs”). The second action is filed in the District of New Jersey and appears to allege that the Company charged government payors a different rate than it reimbursed pharmacies; engaged in duplicate billing; refilled prescriptions too soon; and billed government payors for prescriptions written by unlicensed physicians and physicians with invalid Drug Enforcement Agency authorizations. The Department of Justice has not yet made any decision as to whether it will intervene in either of these matters. The matters are under seal and U.S. District Court orders prohibit the Company from answering inquiries about the complaints. The Company was notified of the existence of these two qui tam matters during settlement negotiations on an unrelated matter with the Department of Justice in 2006. The Company does not know the identities of the relators in either of these matters.   A third qui tam matter relates to PolyMedica, a subsidiary of the Company acquired in the fourth quarter of 2007.  The Company is currently complying with a subpoena for documents relating to this matter from the Department of Health and Human Services Office of the Inspector General and fully cooperating with the Government’s investigation.  The Company has learned that the Government’s investigation arose from a qui tam complaint that was filed against the Company and PolyMedica. The Company was able to make the public disclosure of the existence of the qui tam pursuant to an order issued by the Court where the qui tam complaint was filed, permitting disclosure of the existence of the qui tam complaint.  The qui tam complaint itself, and all filings in the case, remain under seal until further order of the applicable Court.  By order of the Court, Medco is prohibited from disclosing any additional information regarding the qui tam complaint.  The Government has not made an intervention decision at this time.  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">ERISA and Similar Litigation. In December 1997, a lawsuit captioned Gruer v. Merck-Medco Managed Care, L.L.C. was filed in the U.S. District Court for the Southern District of New York against Merck & Co., Inc. (“Merck”) and the Company. The suit alleges that the Company should be treated as a “fiduciary” under the provisions of ERISA (the Employee Retirement Income Security Act of 1974) and that the Company had breached fiduciary obligations under ERISA in a variety of ways. After the Gruer case was filed, a number of other cases were filed in the same Court asserting similar claims. In December 2002, Merck and the Company agreed to settle the Gruer series of lawsuits on a class action basis for $42.5 million, and agreed to certain business practice changes, to avoid the significant cost and distraction of protracted litigation. In September 2003, the Company paid $38.3 million to an escrow account, representing the Company’s portion, or 90%, of the proposed settlement. The release of claims under the settlement applies to plans for which the Company administered a pharmacy benefit at any time between December 17, 1994 and the date of final approval. It does not involve the release of any potential antitrust claims. In May 2004, the U.S. District Court granted final approval to the settlement and a final judgment was entered in June 2004. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  Various appeals were taken and in October 2007, the U.S. Court of Appeals for the Second Circuit overruled all but one objection to the settlement that had been the subject of the appeals.  The appeals court vacated the lower court’s approval of the settlement in one respect, and remanded the case to the District Court for further proceedings relating to the manner in which the settlement funds should be allocated between self-funded and insured plans.  Since that time, the settlement has been revised to allocate a greater percentage of the settlement funds to self-funded plans, and in June 2009, the District Court approved the modified plan of allocation. The plaintiff in one of the similar Gruer series of cases discussed above, Blumenthal v. Merck-Medco Managed Care, L.L.C., et al., has elected to opt out of the settlement.   <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">Similar ERISA-based complaints against the Company and Merck were filed in eight additional actions by ERISA plan participants, purportedly on behalf of their plans, and, in some of the actions, similarly situated self-funded plans. The ERISA plans themselves, which were not parties to these lawsuits, had elected to participate in the Gruer settlement discussed above and, accordingly, seven of these actions had been dismissed pursuant to the final judgment discussed above. The plaintiff in another action, Betty Jo Jones v. Merck-Medco Managed Care, L.L.C., et al., has filed a Second Amended Complaint, in which she seeks to represent a class of all participants and beneficiaries of ERISA plans that required such participants to pay a percentage co-payment on prescription drugs. The effect of the release under the Gruer settlement discussed above on the Jones action has not yet been litigated. In addition to these cases, a proposed class action complaint against Merck and the Company has been filed in the U.S. District Court for the Northern District of California by trustees of another benefit plan, the United Food and Commercial Workers Local Union No. 1529 and Employers Health and Welfare Plan Trust. This plan has elected to opt out of the Gruer settlement. The United Food and Commercial Workers Local Union No. 1529 and Employers Health and Welfare Plan Trust v. Medco Health Solutions, Inc. and Merck & Co., Inc. action has been transferred and consolidated in the U.S. District Court for the Southern District of New York by order of the Judicial Panel on Multidistrict Litigation. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">In September 2002, a lawsuit captioned Miles v. Merck-Medco Managed Care, L.L.C., based on allegations similar to those in the ERISA cases discussed above, was filed against Merck and the Company in the Superior Court of California. The theory of liability in this action is based on a California law prohibiting unfair business practices. The Miles case was removed to the U.S. District Court for the Southern District of California and was later transferred to the U.S. District Court for the Southern District of New York and consolidated with the ERISA cases pending against Merck and the Company in that Court.   The Company does not believe that it is a fiduciary under ERISA (except in those instances in which it has expressly contracted to act as a fiduciary for limited purposes), and believes that its business practices comply with all applicable laws and regulations. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">Antitrust and Related Litigation. In August 2003, a lawsuit captioned Brady Enterprises, Inc., et al. v. Medco Health Solutions, Inc., et al. was filed in the U.S. District Court for the Eastern District of Pennsylvania against Merck and the Company. The plaintiffs, who seek to represent a national class of retail pharmacies that had contracted with the Company, allege that the Company has conspired with, acted as the common agent for, and used the combined bargaining power of plan sponsors to restrain competition in the market for the dispensing and sale of prescription drugs. The plaintiffs allege that, through the alleged conspiracy, the Company has engaged in various forms of anticompetitive conduct, including, among other things, setting artificially low reimbursement rates to such pharmacies. The plaintiffs assert claims for violation of the Sherman Act and seek treble damages and injunctive relief. The plaintiffs’ motion for class certification is currently pending before the Multidistrict Litigation Court. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">In October 2003, a lawsuit captioned North Jackson Pharmacy, Inc., et al. v. Medco Health Solutions, Inc., et al. was filed in the U.S. District Court for the Northern District of Alabama against Merck and the Company. In their Second Amended Complaint, the plaintiffs allege that Merck and the Company engaged in price fixing and other unlawful concerted actions with others, including other PBMs, to restrain trade in the dispensing and sale of prescription drugs to customers of retail pharmacies who participate in programs or plans that pay for all or part of the drugs dispensed, and conspired with, acted as the common agent for, and used the combined bargaining power of plan sponsors to restrain competition in the market for the dispensing and sale of prescription drugs. The plaintiffs allege that, through such concerted action, Merck and the Company engaged in various forms of anticompetitive conduct, including, among other things, setting reimbursement rates to such pharmacies at unreasonably low levels. The plaintiffs assert claims for violation of the Sherman Act and seek treble damages and injunctive relief. The plaintiffs’ motion for class certification has been granted, but this matter has been consolidated with other actions where class certification remains an open issue. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">In December 2005, a lawsuit captioned Mike’s Medical Center Pharmacy, et al. v. Medco Health Solutions, Inc., et al. was filed against the Company and Merck in the U.S. District Court for the Northern District of California. The plaintiffs seek to represent a class of all pharmacies and pharmacists that had contracted with the Company and California pharmacies that had indirectly purchased prescription drugs from Merck and make factual allegations similar to those in the Alameda Drug Company action discussed below. The plaintiffs assert claims for violation of the Sherman Act, California antitrust law and California law prohibiting unfair business practices. The plaintiffs demand, among other things, treble damages, restitution, disgorgement of unlawfully obtained profits and injunctive relief.   <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">In April 2006, the Brady plaintiffs filed a petition to transfer and consolidate various antitrust actions against PBMs, including North Jackson, Brady, and Mike’s Medical Center before a single federal judge. The motion was granted in August 2006. These actions are now consolidated for pretrial purposes in the U.S. District Court for the Eastern District of Pennsylvania. The consolidated action is known as In re Pharmacy Benefit Managers Antitrust Litigation. The plaintiffs’ motion for class certification in certain actions is currently pending before the Multidistrict Litigation Court. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">In January 2004, a lawsuit captioned Alameda Drug Company, Inc., et al. v. Medco Health Solutions, Inc., et al. was filed against the Company and Merck in the Superior Court of California. The plaintiffs, which seek to represent a class of all California pharmacies that had contracted with the Company and that had indirectly purchased prescription drugs from Merck, allege, among other things, that since the expiration of a 1995 consent injunction entered by the U.S. District Court for the Northern District of California, if not earlier, the Company failed to maintain an Open Formulary (as defined in the consent injunction), and that the Company and Merck had failed to prevent nonpublic information received from competitors of Merck and the Company from being disclosed to each other.  The plaintiffs further allege that, as a result of these alleged practices, the Company has been able to increase its market share and artificially reduce the level of reimbursement to the retail pharmacy class members, and that the prices of prescription drugs from Merck and other pharmaceutical manufacturers that do business with the Company had been fixed and raised above competitive levels. The plaintiffs assert claims for violation of California antitrust law and California law prohibiting unfair business practices. The plaintiffs demand, among other things, compensatory damages, restitution, disgorgement of unlawfully obtained profits and injunctive relief. In the complaint, the plaintiffs further allege, among other things, that the Company acts as a purchasing agent for its plan sponsor customers, resulting in a system that serves to suppress competition. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: 22.5pt; text-autospace: none;">  Contract Litigation. In 2006, a group of independent pharmacies filed an arbitration demand against Medco captioned Tomeldon Company, Inc. et al. v. Medco Health Solutions, Inc. The claimant pharmacies allege, among other things, breach of contract arising out of Medco’s Pharmacy Services Manual and Medco’s retail pharmacy audits of compound claims. The arbitration demand was filed on behalf of a purported class of retail pharmacies that had been audited for overpriced compounds. The claimants later expanded their claims to include two additional classes: one for pharmacies that claimed they lost profits after leaving Medco's network following an audit finding of overpriced compounds and one for pharmacies subject to audits that were not yet finalized.  In August 2008, the arbitration panel certified the original class but only concerning certain breach of contract claims. The panel declined to certify the additional proposed classes and also declined to certify the original class based on business tort or quasi-contract claims. In June 2009, the parties reached an agreement in principle to settle the dispute for an immaterial amount.  The arbitration panel issued a final order approving the settlement on November 11, 2009.   <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">PolyMedica Shareholder Litigation. In August 2007, a putative stockholder class action lawsuit related to the merger was filed by purported stockholders of PolyMedica in the Superior Court of Massachusetts for Middlesex County against, amongst others, the Company and its affiliate, MACQ Corp.  The lawsuit captioned Groen v. PolyMedica Corp. et al., alleged, among other things, that the price agreed to in the merger agreement was inadequate and unfair to the PolyMedica stockholders and that the defendants breached their duties to the stockholders and/or aided breaches of duty by other defendants in negotiating and approving the merger agreement.  Shortly thereafter, two virtually identical lawsuits (only one of which named the Company as a defendant) were filed in the same Court.  In September 2007, the parties to these actions reached an agreement in principle to settle the actions for an immaterial amount and in May 2008, the Court granted final approval of the settlement and dismissed the actions with prejudice on the merits.  Plaintiffs’ counsel’s application for attorneys’ fees was rejected by the Court, resulting in the award of costs only.  Plaintiffs’ counsel has filed a motion for reconsideration of the fees with the Court.   Other Matters <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">The Company entered into an indemnification and insurance matters agreement with Merck in connection with the Company’s spin-off in 2003. To the extent that the Company is required to indemnify Merck for liabilities arising out of a lawsuit, an adverse outcome with respect to Merck could result in the Company making indemnification payments in amounts that could be material, in addition to any damages that the Company is required to pay. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">  <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">In the ordinary course of business, the Company is involved in disputes with clients, retail pharmacies and vendors, which may involve litigation, claims, arbitrations and other proceedings.  Although it is not feasible to predict or determine the final outcome of any proceedings with certainty, the Company does not believe that any of these disputes could have, individually or in the aggregate, a material adverse effect on the Company’s business, financial condition, liquidity or operating results. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">  Purchase Commitments   As of December 26, 2009, the Company has purchase commitments primarily for contractual commitments to purchase inventory from certain biopharmaceutical manufacturers associated with Accredo’s Specialty Pharmacy business consisting of a firm commitment of $324.6 million, and firm commitments for 2010 of $123.5 million with additional commitments through 2012 subject to price increases or variable quantities based on patient usage or days on hand. The Company also has purchase commitments for diabetes supplies of $69.9 million, technology-related agreements of $44.0 million and advertising commitments of $11.8 million. <p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in; text-autospace: none;">  Insurance   The Company maintains insurance coverage with deductibles and self-insurance that management considers adequate for its needs under current circumstances, including commercial professional liability coverage of $85 million per individual claim. Such coverage reflects market conditions (including cost and availability) existing at the time coverage is written. In addition to the Company’s commercial professional liability insurance policies, the Company has a retained liability component requiring certain self-insurance reserves to cover potential claims. The Company currently processes any claims included in self-insured retention levels through a captive insurance company. The Company’s PBM operations, including, for example, the dispensing of prescription drugs by its mail-order pharmacies, may subject the Company to litigation and liability for damages. Historically, the Company has not had any professional liability claims that have exceeded its insurance coverage amount, and any claims have not been material. The Company believes that its insurance coverage protection for these types of claims is adequate. However, the Company might not be able to maintain its professional and general liability insurance coverage in the future, and insurance coverage might not be available on acceptable terms or adequate to cover any or all potential professional liability claims. A successful professional liability claim in excess of the Company’s insurance coverage, or one for which an exclusion from coverage applies, could have a material adverse effect on the Company’s financial condition and results of operations. </div></div> 14.  COMMITMENTS AND CONTINGENCIES   Legal Proceedings   In the ordinary course of business, the Company is involved in litigation, claims, false false No definition available. No authoritative reference available. false false 1 2 false UnKnown UnKnown UnKnown false true