For McKesson Corporation, the Mission is Price Manipulation

For McKesson Corporation, the Mission is Price Manipulation

With 2010 revenues of $108.7 billion and earnings of $1.2 billion, McKesson Corporation ranks #15 on the Fortune 500.  It is the nation’s largest healthcare provider, with pharmaceuticals distribution being the backbone of the company:  One-third of all medicines used in the U.S. run through the McKesson pipeline.  The company is also the dominant player in healthcare information systems, as more than 70% of our major hospitals use its technology to digitize prescriptions and patient medical records.

McKesson is also one of the U.S. government’s largest contractors with billions in federal contracts awarded annually, over $4.6 billion in 2010 alone.  It also ranks high in the POGO (Project On Government Oversight) Federal Contractor Misconduct Database (FCMD), with 14 documented instances of misconduct totalling more than $1.3 billion.

Aside from a history of securities fraud beginning with the infamous McKesson-Robbins scandal of 1938 to their more recent McKessonHBOC debacle, the focus of McKesson’s white-collar criminal activity is the manipulation of prices paid for pharmaceuticals.  As they compete with the CIA for the “America’s Drug Dealer” moniker, obviously the more they charge for each prescription that moves through their pipeline the more money they make.  Here’s a judge’s description of how one of their recent schemes worked:

“Beginning in 2001, FDB and McKesson reached a secret agreement to raise the markup between WAC (wholesale average cost)and AWP (average wholesale price) from its standard 20% to 25% for over four hundred drugs. … McKesson communicated these new 25% WAC to AWP markups to FDB, which then published AWPs with the new markup…  McKesson has estimated that by 2002, 95% of all prescription drug manufacturers used the inflated 25% markup, and by 2004, 99% of all prescription drug manufacturers did so. … The scheme ended on March 15, 2005, when FDB told its customers that it would ‘no longer survey drug wholesalers for information relating to’ AWP.  The scheme resulted in higher profits for retail pharmacies that purchase drugs on the basis of WAC but are reimbursed on the basis of AWP, a differential called ‘the spread’. … McKesson implemented the scheme in order to provide a greater ‘spread’ to important retail pharmacy clients like Rite Aid as well as to its own pharmacy related businesses.”

Nobody went to jail over this, but thanks to a class-action lawsuit McKesson was forced to pay a $350 million penalty:

“The prices of about 1,400 branded drugs are about to get a little cheaper because of a $352.7 million class action settlement with wholesale drug distributor McKesson…  In addition to the payment, the prices of 1,442 medicines will be lowered by 4 percent, according to a federal court ruling…  The court-approved deal wraps up a lengthy case in which McKesson and First Databank were accused of engaging in a ‘racketeering enterprise to fraudulently increase the published ‘average wholesale price’ (‘AWP’) of over four hundred branded drugs by five percent from late 2001 to 2005,’ Judge Patti Saris wrote.  MediSpan published the same false prices…  Affected drugs include Lipitor, Claritin, Prozac, Nexium, Plavix, Allegra, Wellbutrin, Ambien, Prilosec, Zantac, Valtrex, Zyprexa, Celebrex, Imitrex, Risperdal, Seroquel, and Neurontin.”

In April 2011 the U.S. Supreme Court decision in the “AT&T Mobility v. Concepcion” case made it easy for corporations to shield themselves from class action lawsuits like this going forward.  But even if that shield is taken away, McKesson has an ample $442 million litigation reserve set aside so they can continue to focus on profits regardless of propriety:

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