Mckes­son set­tling up

$190 mil­lion pay­ment lat­est in drug-price flap

Modern Healthcare - - THE WEEK IN HEALTHCARE - Joe Carl­son

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.”

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