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Probe of Caremark ends in settlement


NORTHBROOK, Ill. -- Caremark International Inc. shares soared as much as 15 percent yesterday after the company said it reached a $161 million agreement to settle a four-year federal investigation of an alleged kickback scheme.

The amount is on the low end of many analysts' estimates.

"It's comfortably within the range of what I expected," said Brooks O'Neil, an analyst at Piper Jaffray in Minneapolis.

The settlement removes a cloud that has hung heavily over the Northbrook, Ill.-based company, which is focusing on acquiring physician group practices. Caremark sold its home infusion unit, the subject of the probe, to Coram Healthcare Corp. in January.

Several analysts said they were in the process of recalculating earnings estimates to reflect the settlement, which Caremark will pay from bank borrowings. Will Hicks, an analyst at Cowen & Co. raised his rating on the stock yesterday to "buy" from "neutral." Caremark ended up $1.875, at $21.875. Earlier in the day, the shares traded as high as $23. New York Stock exchange trading reached 2.21 million shares, more than five times the stock's three-month average daily volume of 415,500. Under the terms of the settlement, Caremark will plead guilty to two charges of mail fraud, one each in Minnesota and Ohio.

The Justice Department and the inspector general for the Department of Health and Human Services have been investigating whether Caremark's home infusion unit paid kickbacks to doctors for patient referrals. Caremark admitted it sent claims to two government health programs without disclosing that Caremark employees had made payments to physicians.

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