Judge Certifies Class-Action Case against Nation's Largest Pharmaceutical Distributor in Alleged Pricing Scheme

BOSTON - A U.S. District judge yesterday certified a class-action lawsuit against McKesson Corporation (NYSE: MCK) in what could be one of the largest legal battles concerning drug pricing.

The suit, originally filed in U.S. District Court in Boston in October 2006 by Seattle-based Hagens Berman Sobol Shapiro on behalf of consumers and third-party payers alleges that McKesson - the largest pharmaceutical distributor in North America-entered into a secret agreement to artificially inflate the reported average wholesale price (AWP) of thousands of drugs, a benchmark used by Medicaid and insurance plans to determine payment to pharmacies.

In her ruling, Judge Patti Saris certified the case as a class action representing millions of healthcare consumers who made co-payments on what the suit alleges were artificially inflated drug prices.

According to the complaint, beginning in late 2001, McKesson and First Databank, a publishing company, reached a secret agreement on how the AWP would be set for brand-named drugs, and in doing so, raised the spread between the published AWP and the actual acquisition costs in an effort to increase profits.

Earlier this year First Databank reached a settlement with the plaintiffs which includes a roll-back of AWP prices and an agreement to stop publishing the data all together.

According to the complaint, McKesson communicated the price increase to First Databank, who published the information, even amid questions by manufacturers who recognized the impact to consumers and third-party payers.

"It is clear to us that McKesson's motivation was to extract higher profits on the backs of healthcare consumers, many of whom are stretched to the economic breaking point," said Steve Berman, HBSS managing partner and co-lead attorney.

In her ruling certifying the class, Judge Saris cites that prior to 2000, McKesson estimated that 20 percent of drug manufacturers used a 25 percent markup, but by 2002, that number had increased to 95 percent.

"As a result of this artificial increase in the markup, thousands of TPP [third-party payers] public entities and consumers have had their drug prices increased," Saris wrote in her ruling.

The case claimed that McKesson violated federal Racketeer Influenced and Corrupt Organizations (RICO) act, and various California consumer laws. If found guilty, McKesson could be forced to pay treble damages under the RICO statute.

"We believe that the damages incurred by healthcare consumers and third party payers could range in the billions of dollars," Berman said.

About Hagens Berman Sobol Shapiro

The law firm of Hagens Berman Sobol Shapiro is based in Seattle with offices in Chicago, Cambridge, Los Angeles, Phoenix and San Francisco. Since the firm's founding in 1993, it has developed a nationally recognized practice in class-action and complex litigation. Among recent successes, HBSS has negotiated a pending $300 million settlement as lead counsel in the DRAM memory antitrust litigation; a $340 million recovery on behalf of Enron employees which is awaiting distribution; a $150 million settlement involving charges of illegally inflated charges for the drug Lupron, and served as co-counsel on the Visa/Mastercard litigation which resulted in a $3 billion settlement, the largest anti-trust settlement to date. HBSS also served as counsel in a $850 million settlement in the Washington Public Power Supply litigation and represented Washington and 12 other states in lawsuits against the tobacco industry that resulted in the largest settlement in the history of litigation. For a complete listing of HBSS cases, visit www.hbsslaw.com.

Hagens Berman purchases advertisements on search engines, social media sites and other websites. Transmission of the information contained or available through this website is not intended to create, and receipt does not constitute, an attorney-client relationship. If you seek legal advice or representation by Hagens Berman, you must first enter a formal agreement. All information contained in any transmission is confidential and Hagens Berman agrees to protect information against unauthorized use, publication or disclosure. This site is regulated by the Washington Rules of Professional Conduct.