Updated at 6:45 p.m. ET
San Francisco-based drug distributor McKesson Corp. has finalized an agreement to pay a record $150 million civil penalty and suspend sales of controlled substances from distribution centers in four states over allegations that it has once again failed to detect and report suspicious orders of controlled substances.
In one of the most severe sanctions ever agreed to by a distributor, McKesson will be required to suspend sales of controlled substances from distribution centers in Colorado, Ohio, Michigan and Florida for multiple years. The nationwide settlement also imposes “new and enhanced compliance obligations” on McKesson's distribution system, according to an announcement Tuesday by the U.S. Justice Department.
McKesson announced an “agreement in principle” in a securities filing in 2015, and the anticipated settlement payment was reflected in the company's fiscal 2015 financial results. The terms of the settlement were finalized this week.
The latest announcement follows a 2008 settlement in which McKesson agreed to a $13.25 million civil penalty and committed to come up with an “effective system” to detect and report suspicious orders for controlled substances distributed to its independent and small-chain pharmacy customers. The Justice Department says McKesson designed a compliance program but failed to fully implement or adhere to it, resulting in the latest penalties.
Under the new agreement, McKesson must hire an independent monitor to assess its compliance. This is the first time the government has required such a monitor in a civil penalty settlement related to the Controlled Substances Act.
McKesson said in a statement that the DOJ brought the most recent allegations to its attention in 2013 and the company has since implemented “significant changes to its monitoring and reporting processes.” The company said it settled with the Drug Enforcement Agency and the DOJ “in the interest of moving beyond disagreements about whether McKesson was complying with the controlled substance regulations during the applicable period and to instead focus on the company's partnership with regulators and others to help stem the opioid epidemic in this country.”
As one example of McKesson's alleged negligence, the Justice Department described that the company reported just 16 orders as suspicious in Colorado out of more than 1.6 million orders for controlled substances in the state between June 2008 and May 2013. All 16 of those orders were connected to one instance involving a recently terminated customer.
In Florida, DEA investigators determined that McKesson failed to report pharmacy orders for hydromorphone that dramatically exceeded historical sales levels originating from its distribution center based in Lakeland. That center has been barred from selling hydromorphone products for one year as a part of the agreement.
A distribution center in Aurora, Colo., will be required to cease sales of all controlled substances for three years. Another in Livonia, Mich., must suspend sales for two years, and a center in Washington Courthouse, Ohio, will face the same penalty after the completion of the Michigan suspension.
A McKesson spokeswoman said customers who would have received controlled substances from these distribution centers will receive the medications from one of the 28 other distribution centers in the company's network and will experience no disruption in service.
Over the next five years, McKesson has agreed to “specific, rigorous staffing and organizational improvements,” periodic auditing and stipulated financial penalties for failing to adhere to the terms of the compliance obligations.
McKesson laid off 4% of its workforce last year and is in the process of merging its technology business with Nashville-based Change Healthcare.
Woonsocket, R.I.-based drug store chain CVS Health and distributor Cardinal Health have also settled similar violations with the federal government.
Cardinal also settled with the state of West Virginia earlier this month to resolve allegations that the company failed to maintain adequate controls to prevent the diversion of opioids.
