June 24 (Bloomberg) -- McKesson Corp., the biggest U.S. drug wholesaler, will probably be forced to settle damage claims of as much as $15 billion, or $50.34 a share, for inflating prices on prescription drugs paid by private health-benefit plans and individuals.

The claims stem from 2005 suits by the New England Carpenters Health Benefits Fund and other plaintiffs accusing McKesson of conspiring with Hearst Corp.'s First DataBank to push up the amount pharmacies pocket on medicines in an effort to increase the wholesaler's share of the business.

U.S. District Judge Patti B. Saris in Boston has certified the suits as class actions and allowed them to be tried under U.S. racketeering law. Invoking the Racketeer Influenced and Corrupt Organizations Act means any damages awarded would be tripled.

``These cases rarely go to trial because the exposure to a company like McKesson is enormous,'' said Geoff Moulton, a former federal prosecutor who teaches public-corruption law at Widener University in Wilmington, Delaware.

The judge's rulings on RICO and class-action status increase that possibility as well.

The size of damages being claimed ``could be material to the company, but we're not making any assumptions about the outcome of the case,'' Diana Lee, an analyst for Moody's Investors Service in New York, said in an interview. ``The fact that the judge has certified some classes of plaintiffs is not viewed as a favorable development'' for McKesson.

Previous Settlements

McKesson, with $101.7 billion in annual revenue, has been a distributor of medical products for 175 years. It has settled potentially expensive lawsuits in the past, including a 2006 agreement to pay $960 million to investors seeking $8.6 billion for a one-day drop in the stock triggered by a restatement related to the acquisition of HBO & Co.

``The odds heavily favor a settlement'' in the drug-price case, said Ira Loss, an analyst with Washington Analysis who has followed the litigation. ``If I had to guess, they'll settle for a fraction of the claims.''

McKesson fell $1.51, or 2.6 percent, to $55.68 in New York Stock Exchange composite trading. The shares have fallen 15 percent this year.

Company spokesman James Larkin said San Francisco-based McKesson ``believes the allegations lack merit. We intend to vigorously defend against them.''

Other Lawsuits

The company faces similar suits by state and local governments. San Francisco and the city's health plan for the poor sued last month, saying McKesson price manipulation cost consumers ``hundreds of millions of dollars.'' The state of Connecticut filed a similar complaint.

In all of the suits, McKesson and First DataBank have been accused of secretly manipulating an industrywide pricing system based on published average wholesale prices, known as AWP.

``As we have previously stated, McKesson does not set Average Wholesale Prices (AWPs) and does not set the drug prices paid by consumers or health plans,'' McKesson's Larkin said in an e-mail in response to the charges.

The plaintiffs claimed that the listed prices, used by pharmacies to set reimbursement rates on drugs, were ``arbitrarily'' increased from 2001 to 2005 by the publisher and McKesson, and not through surveys of wholesalers as was asserted.

While McKesson itself didn't directly financially gain from the alleged manipulation, according to the plaintiffs, the distributor did this to curry favor with drug retailers like Rite Aid Corp. and Wal-Mart Stores Inc. and increase its market share.

400 Medicines

The result, they said, was to push up the cost of more than 400 prescription drugs, including Pfizer Inc.'s Lipitor cholesterol medicine and Forest Laboratories Inc.'s Celexa and Lexapro depression pills.

The plaintiffs claim the scheme cost consumers $5 billion in unnecessary drug charges. They cited internal McKesson e-mail to show how and why the alleged scheme worked.

To mask the arbitrary increases, McKesson and First DataBank agreed to change a reimbursement price only after a drug manufacturer actually increased its wholesale price, according to the complaint.

The practice ended in March 2005, when First DataBank disclosed it had ceased to conduct surveys of the market to obtain its price information, according to the plaintiffs.

Steve Berman, managing partner at Hagens Berman Sobol Shapiro in Seattle and the co-lead plaintiffs' attorney, said the wholesaler extracted money from customers ``stretched to the economic breaking point.''

A nonjury trial on the first part of the claims is scheduled before the judge in January. She set up a test case of plaintiffs who paid for cancer drugs and other medicines that doctors administer. She intends to use the findings to prod all sides to reach an out-of-court settlement.

The case is New England Carpenters Health Benefits Fund v. McKesson Corp., 05-cv-11148, U.S. District Court, District of Massachusetts (Boston).

To contact the reporters on this story: Cary O'Reilly in Washington at caryoreilly@bloomberg.net; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net.

Last Updated: June 24, 2008 16:30 EDT