A Mea Culpa And A Comeback?

As a star linebacker for Boston University and later as a U.S. Marine Corps captain, C.A. "Lance" Piccolo was known for relishing a good fight, backing it up with his 225-pound Mack-truck frame. But for the past four years, the chairman and CEO of Caremark International Inc. has been on the losing side of a battle with federal investigators probing charges that the Northbrook (Ill.) home-health-care company paid kickbacks to physicians in return for referrals within its home-infusion, oncology, hemophilia, and human-growth-hormone businesses.

On June 16, Piccolo's battle ended. Caremark agreed to plead guilty and pay $159 million in civil damages and criminal fines--among the largest health-care-fraud settlements ever obtained. Piccolo, who once vowed to vindicate Caremark of the charges, now sounds almost repentant. "There are no drinks or cheers," he says of the settlement. "I just feel genuinely bad that it happened, and I'm glad it's over."

So are Caremark's investors. Since its 1992 spin-off at $12 a share from Baxter International Inc., a maker of medical devices, Caremark has doubled its net revenues, to $2.4 billion. Speculation over the probe, however, had knocked down its stock price to around $17 a share--well below its high of $26 last August, despite a robust 1994 performance that saw net income rise 22.8%, to $80.4 million. The shares now are trading around $21.

Piccolo is forging ahead with a new vision for Caremark. He intends to shift the company away from its roots in home health care and build a broad network of medical services centered on company-owned doctors' clinics. In the past two years, Caremark has signed up some 700 doctors through its acquisition of six group practices, and Piccolo plans to purchase at least a dozen more over the next three years. Caremark has also spent $70 million on information-software systems that will enable these doctor groups to operate more profitably. By yearend, revenues from physician management should reach $500 million, or 20% of revenues.

Physician management has potential. Squeezed by managed-care programs that shift costs out of hospitals and into doctors' offices, physicians are turning to companies such as Caremark for equipment, offices, and information technology. But establishing physician networks is expensive. To raise money, Piccolo is selling assets. In January, he sold Caremark's home-infusion unit for $310 million. Also gone are the assets of Clozaril, a patient-management business, which Piccolo sold in February for $34 million. He's even eyeing the sale of Caremark's $1 billion drug-distribution unit. "We're not actively seeking a buyer [for the drug unit], but we would give it careful consideration if we got an attractive offer," says Thomas W. Hodson, Caremark's chief financial officer.

With the federal investigation behind it, a considerable weight has been lifted from Caremark's shoulders. Now, the old linebacker is rarin' to fight.

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