McKesson Settles RICO Lawsuit for $350 Million

11/21/2008

SEATTLE – Attorneys representing consumers and third-party payers today announced a proposed landmark $350 million settlement with healthcare services giant McKesson (NYSE: MCK) to settle allegations the company fraudulently inflated the price of more than 400 prescription drugs by manipulating drug-pricing benchmarks.

The lawsuit, filed under the Racketeer Influenced and Corrupt Organizations Act (RICO), claimed McKesson conspired with drug publishing company First DataBank (FDB) to fraudulently inflate the widely used Average Wholesale Price (AWP) figures, which insurance companies, retailers and others use to calculate the purchase price, payments and co-payments of the most common prescription medications.

The settlement is one of the nation's largest RICO settlements, and if approved by the court will be distributed among third-party payers, cash and co-pay consumers.

"The impact of this settlement is very significant for all who have paid for brand name drugs," said Steve Berman, managing partner at Hagens Berman Sobol Shapiro and lead counsel.

Retailers typically purchase drugs based on the wholesale acquisition cost (WAC) and base co-pays and charges to third-party payers using the AWP, court documents show. The suit alleged McKesson and FDB increased the AWP spread between WAC and AWP from 20 to 25 percent beginning in 2001, allowing retail clients to reap larger profits at the expense of consumers and third-party payers, such as insurance companies. By 2004, nearly every common prescription drug enjoyed a 25 percent spread between the two benchmarks.

Plaintiffs claimed McKesson orchestrated the scheme to put the company in good favor with retailers who might otherwise choose to purchase wholesale prescriptions from McKesson's competitors in the highly competitive wholesale arena. Retailers make a profit off the increased spread created by the McKesson engineered scheme.

Court documents state that FDB claimed it surveyed a number of wholesalers when it published its AWP benchmark, when in fact it relied on McKesson as its sole source of information. Beginning in 2001 and through 2003, McKesson changed the mark up on hundreds of brand name drugs from 20 percent to 25 percent as part of the scheme.

"For years consumers have been burdened with inflated drug prices and as a firm we feel a sense of gratitude in being able to ease that burden for many," said Berman. "Today's settlement goes a step further in helping to correct corrupt business practices and rectify a damaging situation to consumers."

Plaintiffs in the case include those who paid for the brand name drugs and whose payments were tied to AWP. This includes all purchases from Aug. 1, 2001 until March 15, 2005. The plaintiffs propose the $350 million disperse among three groups: insurers and other entities that paid for drugs ($288,675,000), consumers who paid a graduated co-payment ($20,900,000), and cash paying consumers ($40,425,000).

A settlement approval hearing has not yet been set.

For more information on this case and to sign up as a consumer or third-party payer you can visit the Hagens Berman Web site at www.hbsslaw.com/cases/mckesson-corp.

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About Hagens Berman
Hagens Berman Sobol Shapiro LLP is a consumer-rights class-action law firm with offices in nine cities. The firm has been named to the National Law Journal’s Plaintiffs’ Hot List seven times. More about the law firm and its successes can be found at www.hbsslaw.com. Follow the firm for updates and news at@ClassActionLaw.

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Ashley Klann
ashleyk@hbsslaw.com
206-268-9363


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12/31/06: Case Settled

In late 2006, a settlement was reached with one of the defendants, First DataBank, and in 2008 McKesson agreed to a $350 million settlement for allegedly inflating the price of more than 400 prescription drugs by manipulating drug-pricing benchmarks. Hagens Berman confirmed that more than 315,000 reimbursement checks were distributed by mail to eligible cash-payor consumer class members and “pharmacy” class members.