McKesson agrees to $190-million settlement with DoJ over Medicaid drug overpayments

Case revolved around AWP pricing data between McKesson and First DataBank from 2005

Although US Attorney Paul Fishman used tough words—“This is the latest example of a corporation’s intentionally manipulating the complicated system by which drug purchases are reimbursed,” the case has been lingering for a long time, tracing back to a whistleblower suit filed in 2005, later joined by DoJ. The allegation was that McKesson fed inflated price data to First DataBank (South San Francisco), one of a handful of companies that produce price lists of Average Wholesaler Prices (AWPs) used by drug purchasers. The inflated prices caused higher reimbursements for Medicaid.

Upon the settlement, McKesson said: “We continue to believe that the AWP claims against McKesson are without merit. McKesson adhered to all applicable laws and regulations, and we do not set AWPs. We did not manipulate drug prices, and did not violate any laws. 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." In McKesson’s latest 10Q (filed on Jan. 30), the company has set aside upwards of $449 million to settle this case, as well as ongoing litigation with, among others, Indiana, Louisiana, Mississippi, Michigan and Oklahoma.

AWP (also known among industry insiders as “ain’t what’s paid”) has been fading from commercial practice for several years, as HHS has tried to get an alternative, Average Manufacturer Price (AMP), in place, while many state Medicaid programs have gone forward with Maximum Allowable Cost (MAC) formulas. Some aspects of AMP are tied up in the Obamacare law which is, of course, before the Supreme Court at this time.

The litigation with HHS and DoJ didn’t stop the Dept. of Veterans Affairs from renewing its primary pharmaceutical supplier contract with McKesson, announced earlier in April. VA runs the largest integrated healthcare system in the country, with 700 locations and a mail-order service. And McKesson has been doing well financially; in anticipation of its quarterly earnings report on Apr. 30, the Wall Street buzz is that the company will have earnings up by about 25% over year-ago levels.