Exhibit 10.3

SETTLEMENT AGREEMENT

AND MUTUAL RELEASES

I. PARTIES

This Settlement Agreement (this “Agreement”) is entered into by and among the
United States of America, acting through the United States Department of
Justice, on behalf of the Office of Inspector General (“OIG-HHS”) of the
Department of Health and Human Services (“HHS”) (collectively the “United
States”); and defendant Medco Health Solutions, Inc. (“Medco”). (OIG-HHS and
Medco are each referred to herein as a “Party” and are collectively referred to
as the Parties.”)

II. PREAMBLE

As a preamble to this Agreement, the Parties recite the following:

A. Medco is a pharmaceutical services company that administers pharmacy benefit
management (“PBM”) services for health plans and employers, including
governmental employers. Medco operates mail order pharmacies and call centers
licensed by states and other political subdivisions, and employs pharmacists
subject to state licensing requirements. Medco provides mail order prescriptions
and related benefit services, and submits claims to Medicare and Medicare
Advantage Organizations and Medicare + Choice Plans. Medco also provided the
Medco Coordination of Benefits Recovery Program (the “COB Program”) to certain
commercial payer clients which allows the beneficiaries of those clients to have
their claims submitted to the Medicare Part B program retroactively for services
provided by Medco. Medco is a Delaware corporation with its principal executive
offices located at 100 Parsons Pond Drive, Franklin Lakes, New Jersey 07417.
Medco is the corporate successor of Merck-Medco Managed Care, L.L.C., and
operates or has operated prescription drug mail order pharmacies under the names
of wholly-owned subsidiaries including Merck-Medco Managed Care of California,
Inc., Merck-Medco Rx Services of Florida No. 2, L.L.C., Merck-Medco Rx Services
of Florida, L.L.C., Merck-Medco Rx Services of Massachusetts, L.L.C.,
Merck-Medco Rx Services of Nevada, Inc., Merck-Medco Rx Services of New Jersey,
L.L.C., Merck-Medco Rx Services of New York, L.L.C., Merck-Medco Rx Service of
Ohio, Ltd., Merck-Medco Rx Services of Ohio No. 2, Ltd., Merck-Medco Rx Services
of Oklahoma, L.L.C., Merck-Medco Rx Services of Pennsylvania, L.L.C.,
Merck-Medco Rx Services of Texas, L.L.C., Merck-Medco Rx Services of Virginia,
L.L.C., and Merck-Medco Rx Services of Washington, Inc. For purposes of this
Agreement, unless the context clearly requires otherwise, the term “Medco” shall
be deemed to include Medco Health Solutions, Inc., and its past and present
parents, subsidiaries, affiliates, predecessors and successors and each of the
assigns of any of the foregoing.

 

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B. The United States contends that it has certain civil claims against Medco, as
specified in subparagraphs B.1-B.11 below, for alleged errors and related
conduct during the period from January 1, 1999 through December 31, 2004, and
pertaining only to claims submitted to the Medicare program using Durable
Medical Equipment Regional Carrier (“DMERC”) numbers set forth in subparagraph
(3) below (hereinafter referred to as the “Covered Conduct”):

(1) Medco’s submission of Medicare claims for payment through its hired vendor,
Other Carrier Liability Recoveries (“OCLR”), pursuant to the operation of the
COB Program with its clients from January 1, 1999 through December 31, 2004.

(2) Medco’s receipt of payments of Medicare claims submitted through OCLR,
pursuant to the operation of the COB Program with its clients, submitted for
services rendered during calendar years 1999 through December 31, 2004.

(3) The Medicare claims covered by this Agreement include only claims submitted
to the Medicare program using the following DMERC numbers:

1242200001

4359220001

1242260001

1241520001

1239700001

1241240001

1240280001

1242350001

1240290001

1241880001.

(4) Any allegation that Medco denied Medicare beneficiary claim requests by
patients who use Medco as their supplier, but whose plans or employers are not
enrolled in the Medicare Part B Recovery Program for services rendered during
the calendar years 1999 through December 31, 2004.

(5) Any allegation that Medco has adopted a practice of representing dates of
service on claim forms to Medicare, false or otherwise, in order to obtain
payments for diabetic supplies, inhalation drugs, or other items for services
rendered during the calendar years 1999 through December 31, 2004.

 

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(6) Any allegation that Medco failed to give proper credit to Medicare for
returned products when the product is returned after the claim has been
submitted for products returned during the calendar years 1999 through
December 31, 2004.

(7) Any claim that Medco failed to have a system to accurately record or
acknowledge that products for which claims are submitted were actually ordered
and received by the Medicare beneficiary, or to assure that products were
actually ordered and received by the Medicare beneficiary, for services rendered
during the calendar years 1999 through December 31, 2004.

(8) Any allegation that Medco failed to assure that signed patient authorization
forms existed with respect to each patient as to whom Medco submitted a claim
representing that it had a signed patient authorization on file for services
rendered during the calendar years 1999 through December 31, 2004.

(9) Any allegation that Medco failed to charge the client price when a claim is
submitted by Medco to the Medicare program for a client beneficiary for services
rendered during the calendar years 1999 through December 31, 2004.

(10) Any claim relating to the 2003 review by SMS, a vendor hired by Medco, of
OCLR’s relationship with Medco in the operation of the Medco Part B program.

(11) Any claims relating to any DMERC overpayment determination letters received
by Medco prior to the mailing of the letter dated January 27, 2005, from James
G. Sheehan to Craig Holden, counsel for Medco.

C. This Agreement is made in compromise of disputed claims. It is neither an
admission of liability by Medco nor a concession by the United States that its
claims are not well founded. Medco expressly denies the allegations of the
United States as set forth herein and denies that it has engaged in any wrongful
conduct relating to the Covered Conduct. Neither this Agreement, its execution,
or the performance of any obligations under it, including any payments, nor the
fact of the settlement, is intended to be, or shall be understood as, an
admission of liability or wrongdoing, or other expression reflecting upon the
merits of the dispute by Medco. Further, nothing contained in this Agreement
shall be interpreted or construed as an agreement or acknowledgment by Medco as
to whether any customer, or other entity which has, or previously has had, a
contract with Medco has at any time engaged in any of the conduct alleged in
this Agreement.

 

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To avoid the delay, uncertainty, inconvenience, and expense of protracted
litigation of the above claims (collectively, the “Protracted Litigation
Costs”), the Parties reach a full and final settlement of all claims arising out
of the Covered Conduct pursuant to the Terms and Conditions below.

III. TERMS AND CONDITIONS

1. In consideration for the promises and agreements of the Parties as set forth
herein, Medco agrees to pay to the United States $8,000,000 (the “Settlement
Amount”) plus interest as described in the letter from Medco to the United
States of October 3, 2006. The Settlement Amount shall constitute a debt
immediately due and owing on the Effective Date (as defined in Paragraph 22
below) of this Agreement. Medco agrees to pay the full Settlement Amount to the
United States by electronic funds transfer pursuant to written instructions to
be provided by the United States Attorney’s Office for the Eastern District of
Pennsylvania. Medco agrees to make this electronic funds transfer within
fourteen (14) calendar days of the Effective Date of this Agreement.

2. Subject to the exceptions set forth in Paragraph 4 below, and in
consideration of the obligations of Medco set forth in this Agreement,
conditioned upon Medco’s full and timely payment of the Settlement Amount, the
United States (on behalf of itself, its officers, agents, agencies, and
departments), releases Medco and each of its past and present officers,
directors, employees, attorneys, insurers, and assigns of any of the foregoing
(each a “Medco Released Part”y and, collectively, the “Medco Released Parties”)
from any civil or administrative monetary claim the United States has or may
have for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733;
the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a; the Program Fraud Civil
Remedies Act, 31 U.S.C. §§ 3801-3812; and any common law causes of action the
United States may have for fraud, unjust enrichment, payment by mistake, or
breach of contract.

3. In consideration of the obligations of Medco set forth in this Agreement and
the Corporate Integrity Agreement entered into by and between Medco, the Office
of Inspector General of OPM (“OIG-OPM”) and OIG-HHS (the “CIA”), conditioned
upon Medco’s full and timely payment of the Settlement Amount, OIG- HHS agrees
to release and refrain from instituting, directing, or maintaining any
administrative action seeking exclusion from the Medicare, Medicaid, and any
other Federal health care programs (as defined in 42 U.S.C. § 1320a-7b(f)) under
42 U.S.C. § 1320a-7a (Civil Monetary Penalties Law), or 42 U.S.C. §
1320a-7(b)(7) (permissive exclusion for fraud, kickbacks, and other prohibited
activities), for the Covered Conduct against Medco, except as expressly reserved
in Paragraph 4, below, and as reserved this Paragraph. The OIG-HHS

 

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expressly reserves all rights to comply with any statutory obligations to
exclude any Medco Released Party from Medicare, Medicaid, and other Federal
health care programs under 42 U.S.C. § 1320a-7(a) (mandatory exclusion) relating
to the Covered Conduct. Nothing in this Paragraph precludes the OIG-HHS from
taking action against entities or persons, or for conduct and practices, for
which claims have been reserved in Paragraph 4 below.

4. Notwithstanding any term of this Agreement, specifically reserved and
excluded from the scope and terms of this Agreement as to any entity or person
are the following claims of the United States:

a. Any civil, criminal, or administrative liability arising under Title 26, U.S.
Code (Internal Revenue Code);

b. Any criminal liability;

c. Except as explicitly stated in this Agreement, any administrative liability,
including mandatory exclusion from Federal health care programs;

d. Any liability to the United States (or its agencies) for any conduct other
than the Covered Conduct;

e. Any liability of any individuals or entities not specifically and expressly
released by this Agreement, including clients and customers of Medco;

f. Any liability based upon such obligations as are created by this Agreement;

g. Any liability based upon obligations created by the Consent Order of Court
for Permanent Injunction consented to by Medco and the United States, acting
through the United States Department of Justice, on or about April 26, 2004 and
entered by the Clerk of Court on May 20, 2004; and

h. Any administrative liability against individuals, including current and
former directors, officers, and employees of Medco; and,

i. Any liability for personal injury or property damage or for other
consequential damages arising therefrom;

5. Medco waives and will not assert any defenses Medco may have to any criminal
prosecution or administrative action relating to the Covered Conduct not
otherwise released pursuant to the terms hereof that may be based in whole or in
part on a contention that, under the Double Jeopardy Clause in the Fifth
Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth
Amendment of the Constitution, this Agreement bars a remedy sought in such
criminal prosecution or administrative action. Nothing in this Paragraph or any
other provision of this Agreement constitutes an agreement by the United States
concerning the characterization of the Settlement Amount for purposes of the
Internal Revenue laws, Title 26 of the United States Code.

 

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6. Medco releases and forever discharges the United States, its agencies,
employees, servants and agents from any and all claims that any Medco Releasor
ever had, has or may have through the Effective Date arising out of or in
connection with the Covered Conduct and the United States’ investigation and
prosecution of thereof.

7. The Settlement Amount shall not be decreased as a result of the denial of
claims for payment now being withheld from payment by any Medicare carrier or
intermediary related to the Covered Conduct; and Medco shall not resubmit to any
Medicare carrier or intermediary any previously denied claims related to the
Covered Conduct, and shall not appeal any such denials of claims.

8. Medco agrees to the following:

a. Unallowable Costs Defined: that all costs (as defined in the Federal
Acquisition Regulation, 48 C.F.R. § 31.205-47; and in Titles XVIII and XIX of
the Social Security Act, 42 U.S.C. §§ 1395-1395hhh and 1396-1396y; and the
regulations and official program directives promulgated thereunder) incurred by
or on behalf of Medco, its present or former officers, directors, employees,
shareholders, and agents in connection with the following shall be “unallowable
costs” on government contracts and under the Medicare Program, Medicaid Program,
TRICARE Program, and Federal Employees Health Benefits Program (FEHBP):

i. the matters covered by this Agreement;

ii. the United States’ audit(s) and civil investigation(s) of the matters
covered by this Agreement;

iii. Medco’s investigation, defense, and corrective actions undertaken in
response to the United States’ audit(s) and civil investigation(s) in connection
with the matters covered by this Agreement.

iv. the negotiation and performance of this Agreement;

v. the payment Medco makes to the United States pursuant to this Agreement; and

vi. the negotiation of, and obligations undertaken pursuant to the CIA to:

(a) retain an independent review organization to perform annual reviews as
described in Section III of the CIA; and

 

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(b) prepare and submit reports to the OIG-HHS.

However, nothing in this Paragraph 8.a.(vi) that may apply to the obligations
undertaken pursuant to the CIA affects the status of costs that are not
allowable based on any other authority applicable to Medco. (All costs described
or set forth in this Paragraph 8.a. are hereafter “unallowable costs.”)

b. Future Treatment of Unallowable Costs: These unallowable costs shall be
separately determined and accounted for by Medco, and Medco shall not charge
such unallowable costs directly or indirectly to any contracts with the United
States or any State Medicaid program, or seek payment for such unallowable costs
through any cost report, cost statement, information statement, or payment
request submitted by Medco or any of its subsidiaries or affiliates to the
Medicare, Medicaid, TRICARE, or FEHBP Programs.

c. Treatment of Unallowable Costs Previously Submitted for Payment: Medco
further agrees that within 90 days of the Effective Date of this Agreement it
will identify to applicable Medicare fiscal intermediaries, carriers, or
contractors, and Medicaid fiscal agents, any unallowable costs (as defined in
this Paragraph) included in payments previously sought from the United States,
or any State Medicaid program, including payments sought in any cost reports,
cost statements, information reports, or payment requests already submitted by
Medco or any of its subsidiaries, and shall request, and agree, that such cost
reports, cost statements, information reports, or payment requests, even if
already settled, be adjusted to account for the effect of the inclusion of the
unallowable costs. Medco agrees that the United States, at a minimum, shall be
entitled to recoup from Medco any overpayment plus applicable interest and
penalties as a result of the inclusion of such unallowable costs on
previously-submitted cost reports, information reports, cost statements, or
requests for payment.

Any payments due after the adjustments have been made shall be paid to the
United States pursuant to the direction of the Department of Justice or the
affected agencies. The United States reserves its rights to disagree with any
calculations submitted by Medco or any of its subsidiaries on the effect of
inclusion of unallowable costs (as defined in this Paragraph) on Medco’s or any
of its subsidiaries’ or affiliates’ cost reports, cost statements, or
information reports.

d. Nothing in this Agreement shall constitute a waiver of the rights of the
United States to audit, examine, or re-examine Medco’s books and records to
determine that no unallowable costs have been claimed in accordance with the
provisions of this Paragraph.

 

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9. Medco agrees to cooperate fully and truthfully with the United States’
investigation, if any, of individuals and entities not released in this
Agreement. Upon reasonable notice, Medco shall (a) make reasonable efforts to
facilitate access to, and encourage the cooperation of its directors, officers,
and employees for interviews and testimony, consistent with the rights and
privileges of such individuals; (b) furnish to the United States, upon
reasonable request, any non-privileged documents in its possession, custody or
control; and (c) make commercially reasonable efforts to cause any attorneys,
auditors, investment bankers, or consultants engaged by Medco to furnish to the
United States, upon reasonable request, any non-privileged documents in the
possession, custody or control of any such third party. Medco and the United
States will cooperate in good faith to avoid duplicate production of documents.

10. Medco agrees that it shall not seek payment for any of the monies owed under
this Agreement from any health care beneficiaries or their parents, sponsors,
legally responsible individuals, or third-party payers. Medco waives any causes
of action against these beneficiaries or their parents, sponsors, legally
responsible individuals, or third party payers based upon the claims for payment
covered by this Agreement. Medco waives and shall not seek payment for any of
the health care billings covered by this Agreement from any health care
beneficiaries or their parents, sponsors, legally responsible individuals, or
third party payors based upon the claims defined as Covered Conduct

11. Except as expressly set forth above, this Agreement is intended to be for
the benefit of the Parties only, and no Party releases, waives or otherwise
discharges, and each Party expressly reserves, any claims such Party may have
against any other person or entity.

12. Medco warrants that it has reviewed its respective financial situations and
that it currently is solvent within the meaning of 11 U.S.C. §§ 547(b)(3) and
548(a)(1)(B)(ii)(l), and will remain solvent following payment to the United
States of the Settlement Amount. Further, the Parties warrant that, in
evaluating whether to execute this Agreement, they (a) have intended that the
mutual promises, covenants, and obligations set forth constitute a
contemporaneous exchange for new value given to Medco, within the meaning of 11
U.S.C. § 547(c)(1); and (b) conclude that these mutual promises, covenants, and
obligations do, in fact, constitute such a contemporaneous exchange. Further,
the Parties warrant that the mutual promises, covenants, and obligations set
forth herein are intended to and do, in fact, represent a reasonably equivalent
exchange of value that is not intended to hinder, delay, or defraud any entity
that Medco was or became indebted to on or after the date of this transfer,
within the meaning of 11 U.S.C. § 548(a)(1).

 

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13. Except as expressly provided to the contrary in this Agreement and allowed
by law, each Party shall bear its own legal and other costs incurred in
connection with this matter, including the preparation and performance of this
Agreement.

14. Medco represents that this Agreement is freely and voluntarily entered into
without any degree of duress or compulsion whatsoever.

15. This Agreement is governed by the laws of the United States. The Parties
agree that the exclusive jurisdiction and venue for any dispute arising between
and among the Parties under this Agreement is the United States District Court
for the Eastern District of Pennsylvania, except that disputes arising under the
CIA shall be resolved exclusively under the dispute resolution provisions in the
CIA.

16. This Agreement, together with the CIA, constitutes the complete agreement
between the Parties with respect to the subject matter hereof and thereof and
supersedes all prior oral or written communications between or among the Parties
or any of their affiliates regarding the subject matter hereof and thereof. This
Agreement may not be amended except by written consent of the Parties, provided,
however, that only Medco, OIG-OPM and OIG-HHS must agree in writing to any
modification of the CIA.

17. The individuals signing this Agreement on behalf of Medco represent and
warrant that they are authorized by Medco to execute this Agreement. The United
States signatories represent that they are signing this Agreement in their
official capacities and that they are authorized to execute this Agreement. Each
Party further warrants and represents that such Party has not assigned or
transferred, or purported to assign or transfer, to any person or entity, any
claims that such Party has or may have that are subject to this Agreement.

18. This Agreement may be executed in counterparts, each of which constitutes an
original and all of which constitute one and the same Agreement. Facsimiles of
signatures shall constitute acceptable, binding signatures for purposes of this
Agreement.

19. This Agreement is binding on Medco’s successors, transferees, heirs, and
assigns.

20. Neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any of the Parties hereto without the prior written
consent of each other Party, and no assignment of any right, interest or
obligation shall release any such assigning Party therefrom unless each other
Party

 

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shall have consented to such release in writing specifically referring to the
right, interest or obligation from which such assigning Party is to be released.
Any purported assignment not in conformity with this Paragraph shall be null and
void and of no effect.

21. All Parties consent to the United States’ disclosure of this Agreement, and
information about this Agreement, to the public.

22. The term “Effective Date” as used herein shall refer to the date that the
last signatory to the Agreement has executed the Agreement. This Agreement shall
not be used in any proceeding, except one to enforce this Agreement or as a
defense to any claim released hereunder.

23. All recitals are incorporated herein as material provisions of this
Agreement. The captions and headings of the Sections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement. Unless the context of this Agreement clearly requires otherwise:
(a) references to the plural include the singular, the singular the plural, and
the part the whole, (b) references to one gender include all genders, (c) “or”
has the inclusive meaning frequently identified with the phrase “and/or,”
(d) “including” has the inclusive meaning frequently identified with the phrase
“including but not limited to” or “including without limitation,” (e) references
to “hereunder,”“herein” or “hereof” relate to this Agreement as a whole, and
(f) the terms “dollars” and “$” refer to United States dollars. Section and
subsection references are to this Agreement as originally executed unless
otherwise specified. Any reference herein to any person shall be deemed to
include the heirs, personal representatives, successors and permitted assigns of
such person. Any reference herein to a corporate entity shall be deemed to
include (a) the entity’s past and present parents, subsidiaries, affiliates,
predecessors, and successors and each of the assigns of any of the foregoing.

24. In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.

25. Each Party agrees that the United States District Court for the Eastern
District of Pennsylvania shall retain jurisdiction to enforce the Agreement.

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the      day
of                      , 2006.

 

  THE UNITED STATES OF AMERICA DATED:                        BY:  

/s/ JAMES G. SHEEHAN

    PATRICK L. MEEHAN     United States Attorney     JAMES G. SHEEHAN    
Associate United States Attorney

 

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DATED: 10-23-06   BY:  

/s/ DAVID T. SHAPIRO

    MICHAL L. TINGLE     DAVID T. SHAPIRO     Trial Attorneys     Commercial
Litigation Branch     Civil Division     United States Department of Justice

 

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DATED: 10/23/06   BY:  

/s/ GREGORY E. DEMSKE

    GREGORY E. DEMSKE     Assistant Inspector General for Legal Affairs    
Office of Counsel to the Inspector General     Office of Inspector General    
United States Department of Health and Human Services

 

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  MEDCO HEALTH SOLUTIONS, INC. DATED: 23 Oct 2006   BY:  

/s/ ELIZABETH S. FERGUSON

    ELIZABETH S. FERGUSON     Vice President, Litigation and Government Programs
    Medco Health Solutions, Inc. DATED: 23 Oct 2006   BY:  

/s/ WILLIAM McDANIELS

    WILLIAM McDANIELS     Counsel for Medco Health Solutions, Inc.

 

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