McKesson to Pay $190 Million in Overbilling Settlement

April 26 (Bloomberg) -- McKesson Corp., the largest U.S. drug distributor, will pay more than $190 million to resolve claims that it caused the U.S. to overpay for prescription drugs.

The settlement, unsealed today in federal court in New Jersey, came in a False Claims Act lawsuit filed by a whistle-blower and joined by the U.S. Justice Department. They claimed McKesson defrauded the Medicaid program by falsely reporting inflated prices of drugs, causing the government to set higher reimbursement rates.

The case is part of the so-called average wholesale price litigation, which has led the federal and state governments to recover more than $2 billion from drugmakers, U.S. Attorney Paul Fishman said in a statement. Under the settlement, state governments can separately negotiate with McKesson, he said.

“This is the latest example of a corporation’s intentionally manipulating the complicated system by which drug purchases are reimbursed,” Fishman said. “We have no tolerance for those who take advantage of that system to bring in more business by falsely increasing reimbursements to retailers.”

Whistle-Blower Case

The whistle-blower in the case was David Morgan, who sued in March 2005, according to the settlement agreement. The settlement requires McKesson to pay $187 million, plus interest. The False Claims Act lets whistle-blowers sue on behalf of the government and share in any recovery.

“We continue to believe that the AWP claims against McKesson are without merit,” spokesman Kris Fortner said in a statement. “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.”

Fortner said: “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 case is U.S. ex rel. Morgan v. Express Scripts Inc., 05-cv-1714, U.S. District Court, District of New Jersey.

To contact the reporter on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.