McKesson Corp. has drawn one step closer to resolving sprawling national litigation that alleges the company caused government health plans to pay more than they should have for brand-name prescription drugs.
The company agreed last week to pay $190 million to settle False Claims Act liability without admitting wrongdoing, on top of a pending settlement of as much as
$173 million with state attorneys general, over allegations that McKesson inflated markups on prices of certain drugs that it distributes to pharmacies.
All told, McKesson had set aside $449 million in reserves as of Dec. 31, 2011, for payments related to litigation over alleged manipulation of average wholesale prices for branded drugs, including the federal and state settlements and a $24 million settlement with the state of Connecticut, filings with the Securities and Exchange Commission say.
Nationally, average wholesale price litigation has been unfolding for more than a decade. The U.S. Justice Department said drugmakers have already paid more than $2 billion to settle claims about how their pricing information is reported.
“These are hugely important cases,” said W. Daniel Miles III, an attorney with Beasley Allen who is representing four states suing McKesson that are not part of the group settling along with the Justice Department. “These are companies that took advantage of the most needy people in our country, and because they took advantage of these state programs, there are people that didn't get healthcare.”
McKesson officials strongly deny doing anything wrong, saying that they adhered to all applicable laws and regulations and noting that the company does not set average wholesale prices for drugs.
“We did not manipulate drug prices and did not violate any laws,” said Kris Fortner, director of corporate public relations. “However, when we weighed our conviction that we did not violate any laws against the inherent uncertainty of litigation, we determined that this settlement was in the best interest of our employees, customers, suppliers and shareholders.”
The San Francisco-based drug wholesaler and information technology provider stands accused of reporting inflated markups on branded drugs to First Databank, which publishes the average wholesale statistics on drugs that Medicare and Medicaid then use to set the prices they will pay for drugs. First Databank declined to comment on McKesson's settlement.
The False Claims Act litigation settled last week says that by inflating those markups, McKesson caused Medicaid programs to pay more for the drugs than they would have if the figures were reported accurately.
It's not clear how many of the state attorneys general will accept their shares of the $173 million that McKesson said was negotiated. The Justice Department said the states were free to resolve their claims individually. Numerous other states, including Miles' clients, are pursuing litigation apart from the federal government's negotiations.
John Kelly, a former healthcare fraud assistant chief at the Justice Department who is now a managing partner for Bass Berry & Sims, said the settlements and ongoing litigation show the government's continuing interest in drug prices.
“It certainly confirms that the issues surrounding average wholesale prices continue to be a priority for the regulatory agencies and a source of extensive risk for the companies that manufacture and sell pharmaceuticals,” Kelly said. “When you look at drug pricing, it is obviously a very important part of what the government regulates.”
In a written statement on the McKesson settlement, HHS Inspector General Daniel Levinson said the settlement highlighted his office's interest in “artificially inflated drug prices.”
“Our analyses of drug price reporting practices—including the use of ‘average wholesale price'—have consistently identified excessive Medicare and Medicaid payments resulting from these practices,” Levinson's statement said.
Miles said the CMS has been investigating alternate drug-pricing methods in order to move away from average wholesale prices, but that process is still ongoing. “AWP is being phased out,” he said. “I don't think that there will be any more future conduct like this. The companies and the industry are trying to put this behind them.”