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California Drug Company Agrees to Settlement

The nation’s largest drug wholesaler (according to revenue) has agreed to pay $151 million to 30 separate states in a settlement over claims that the company overcharged for about 1,400 brand-name medications from 2001 to 2009. According to state and federal officials, McKesson Corp. is accused of deliberately overcharging for prescription drugs in order to earn a profit. Widely-used prescriptions, such as Lipitor and Prozac, were allegedly marked up by as much as 25 percent.

The company allegedly inflated the prices when reporting to First DataBank Inc., which is a publisher of medication prices and is used by most state Medicaid programs to set payment rates. New York Attorney General Eric Schneiderman released a statement saying that the settlement “holds McKesson accountable for attempting to make millions of dollars in illegal profits.” New York is set to receive $64 million out of the total amount in restitution. California and Illinois are also among the states to receive money from the settlement.

Perhaps most troubling is the fact that the company faced similar allegations back in 2008 and ended up paying almost $500 million as a result. The amount was distributed to both private and public payers. However, McKesson continues to deny any wrongdoing and a company spokesman said that it “did not manipulate drug prices” or “violate any laws.”

Further, McKesson is not the only manufacturer to face such allegations in recent years. According to the Justice Department, there has been more than $2 billion in settlements with drug companies over issues relating to price gouging. These cases have been pursued at both the state and federal level.

Although First Databank has declined to comment on the allegations, officials have said that the problem lies in the method used by Medicaid to determine pharmacy reimbursements. As the Wall Street Journal explained, it had been calculating these amounts at wholesale prices published by First DataBank, but McKesson was the only source for these figures.

Officials claim that the prices were raised deliberately, but McKesson claims that it is not responsible for setting the pricing benchmark used by most states. According to Adam J. Fein, president of Pembroke Consulting Inc., a group which works with pharmaceutical companies, states have started to move away from the average wholesale price as the preferred method of pricing. Fein also said that the litigation “shined a light on the flaws of AWP” and “showed how easy it was to manipulate the number.”

With regard to the settlement, McKesson said the following: “Given the inherent uncertainty of litigation, we determined that this settlement was in the best interest of our employees, customers, suppliers and shareholders.”

McKesson to Pay $151 Million to Settle Drug-Pricing Suit, The Wall Street Journal, July 27, 2012
UPDATE 2-McKesson to pay $151 mln to states in drug pricing pact, Reuters, July 27, 2012