McKesson Argrees to Pay Record $150 Million Settlement for Failure to Report Suspicious Orders of Pharmaceutical Drugs

DENVER – McKesson Corporation (McKesson), one of the nation’s largest distributors of pharmaceutical drugs, agreed to pay a record $150 million civil penalty for alleged violations of the Controlled Substances Act (CSA), Acting U.S. Attorney Bob Troyer and DEA Denver Division Special Agent in Charge Barbra Roach announced.

“When drug distributors like McKesson fail to alert the DEA of suspicious orders of prescription drugs by pharmacies, the end result can be fatal,” said Acting U.S. Attorney Bob Troyer. “This settlement requires McKesson to comply with the law and holds the company accountable for its past conduct. Avoiding that legal obligation increases the narcotics street trade.”

“This agreement demonstrates that DEA will continue to hold all those accountable – corporations and individuals – who would disregard the public’s safety for their own profit,” said DEA Denver Division Special Agent in Charge Barbra Roach.

The nationwide settlement, led by attorneys from the U.S. Attorney’s Offices in Colorado and the Northern District of West Virginia, with substantial support from the DEA in those districts and nationally, requires McKesson to suspend sales of controlled substances from distribution centers in Colorado, Ohio, Michigan and Florida for multiple years. The staged suspensions are among the most severe sanctions ever agreed to by a DEA registered distributor. The settlement also imposes new and enhanced compliance obligations on McKesson’s distribution system.

In 2008, McKesson agreed to a $13.25 million civil penalty and administrative agreement for similar violations. In this case, the government alleged again that McKesson failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances distributed to its independent and small chain pharmacy customers– i.e., orders that are unusual in their frequency, size, or other patterns. From 2008 until 2013, McKesson supplied various U.S. pharmacies an increasing amount of oxycodone and hydrocodone pills, frequently misused products that are part of the current opioid epidemic.

The government’s investigation developed evidence that even after designing a compliance program after the 2008 settlement, McKesson did not fully implement or adhere to its own program. In Colorado, for example, McKesson processed more than 1.6 million orders for controlled substances from June 2008 through May 2013, but reported just 16 orders as suspicious, all connected to one instance related to a recently terminated customer.

According to the United States, McKesson’s distribution center in Aurora, Colorado, circumvented its own compliance system in order to avoid reporting suspicious orders to the DEA. Although the company was supposed to set thresholds on the amount of certain kinds of prescription drugs that each pharmacy could purchase every month and report any sales over that threshold to the DEA, the United States alleges that McKesson-Aurora repeatedly raised thresholds to avoid having to report orders to the DEA. Sometimes these threshold increases were done at the request of a pharmacy customer; other times, the United States claims that McKesson-Aurora would preemptively raise the threshold when it saw that a pharmacy customer was approaching the maximum amount of drugs it could purchase that month. The United States also alleges that McKesson set some thresholds so high at the outset that the pharmacy customer would never exceed it, and thus, would never trigger any internal review as to whether an order was indeed suspicious. As a result of these practices, the United States contends that orders of unusual size, orders of unusual frequency, and orders deviating from the normal pattern of the pharmacy customer’s orders did not get reported to the DEA.

In addition to the monetary penalties and suspensions, the government and McKesson agreed to enhanced compliance terms for the next five years. Among other things, McKesson has agreed to specific, rigorous staffing and organizational improvements; periodic auditing; and stipulated financial penalties for failing to adhere to the compliance terms. Critically, the settlement will require McKesson to engage an independent monitor to assess compliance – the first independent monitor of its kind in a CSA civil penalty settlement.

This was a multi-district investigation that involved the following DEA Field Divisions: Boston Field Division, Chicago Field Division, Denver Field Division, Detroit Field Division, Miami Field Division, Newark Field Division, San Francisco Field Division, St. Louis Field Division, and Washington District Office. The following U.S. Attorney’s Offices participated in the case: Central District of California, Eastern District of California, District of Colorado, Middle District of Florida, Eastern District of Kentucky, Northern District of Illinois, District of Massachusetts, Eastern District of Michigan, District of Nebraska, District of New Jersey, Northern District of West Virginia, and Western District of Wisconsin.

U.S. Attorneys’ Offices for the District of Colorado and the Northern District of West Virginia, along with DEA Office of Chief Counsel and Diversion Control Division, led the civil settlement negotiations. DEA’s Denver, Detroit and Miami Field Divisions, and its Washington Division Office, led the administrative and civil investigation. The Criminal Division’s Narcotic and Dangerous Drug Section (NDDS) also coordinated and assisted in negotiating certain portions of the settlement. Assistant United States Attorneys Amanda Rocque (Colorado) and Alan McGonigal (NDWV) represented the United States in the civil penalty investigations and negotiations. Associate Chief Counsel Lee Reeves and Senior Attorneys Dedra Curteman, Dana Hill and Krista Tongring represented DEA in the investigations and negotiations. Trial Attorneys Harry Matz and Kirtland Marsh were involved for NDDS.