McKesson 2009 Annual Report Download - page 112

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
106
On November 30, 2006, plaintiffs filed a Second Amended Complaint (“SAC”) which added a class of
consumers that made percentage co-payments in addition to the third party payor class (“consumer co-pay class”).
In addition, the SAC added a claim under California Civil Code § 3345 for treble damages for unfair practices. On
November 6, 2007, plaintiffs filed a Third Amended Complaint (“TAC”) largely repeating the allegations of the
SAC and adding a new class of uninsured consumers who paid usual and customary (“U&C”) prices for the
prescription drugs at issue in the case (“U&C class”). The TAC asserts the same claims asserted in the SAC on
behalf of the third party payor class, the consumer co-pay class and the U&C class, with the exception that the
claims of the U&C class are alleged to run through the present.
On March 19, 2008, the district court denied McKesson’s motion to dismiss and for judgment on the pleadings
with respect to the RICO claims asserted in the TAC. On May 1, 2008, McKesson answered the TAC, denying the
core factual allegations and asserting numerous affirmative defenses.
Also on March 19, 2008, the district court entered an order certifying the consumer co-pay class for all purposes
for the period August 1, 2001 to May 15, 2005, certifying the third party payor class for liability and equitable relief
for the period from August 1, 2001 to May 15, 2005 and certifying the third party payor class for damages for the
period August 1, 2001 to December 31, 2003. This order supplanted an earlier order of the court which denied,
without prejudice, plaintiffs’ motion to certify a damages class for the third party payor class.
On April 2, 2008, McKesson petitioned the First Circuit Court of Appeals to allow immediate appeal of the
district court’s March 19 class certification order. On May 16, 2008, the First Circuit denied the petition for leave to
appeal.
On December 10, 2007, the same plaintiffs named in the TAC in the Private Payor RICO Action filed a
separate civil class action complaint under federal and state antitrust laws against the Company in the United States
District Court, District of Massachusetts, New England Carpenters Health Benefits Fund, et al. v. McKesson
Corporation, (Civil Action No. 1:07-CV-12277-PBS) (the “Antitrust Action”). The Antitrust Action purports to be
brought on behalf of the same classes and is based on the same set of operative facts as the Private Payor RICO
Action.
The complaint purports to state claims against the Company for violation of the Sherman Act, 15 U.S.C. § 1,
California Business & Professions Code § 16700 et seq., and antitrust laws for indirect purchasers for the States of
Arizona, Hawaii, Iowa, Kansas, Maine, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, New
York, North Carolina, North Dakota, South Dakota, Tennessee, Vermont, West Virginia and Wisconsin and the
District of Columbia. The complaint seeks declaratory relief, as well as compensatory and treble damages,
attorneys’ fees and costs.
McKesson moved to dismiss the complaint in the Antitrust Action on January 31, 2008. On August 26, 2008,
the court granted McKesson’s motion to dismiss the complaint, without leave to amend, and terminated the action.
No appeal was filed.
On November 21, 2008, the Company announced that it had reached an agreement with plaintiffs to pay $350
million in settlement of all claims on behalf of the three private payor classes alleged in the Private Payor RICO
Action relating to FDB’s published AWPs, along with the claims brought by these same private payors alleged in the
Antitrust Action. The Company also announced on November 21 that it recorded a reserve of $143 million for
pending and expected claims by public payor entities relating to FDB’s published AWPs. As a result, in the third
quarter of 2009, we recorded a $493 million pre-tax charge. The private payor settlement provides that the
Company will pay $350 million into a settlement escrow in installments following preliminary and final approvals
of the settlement, which escrow account shall be used for settlement administration costs, including notice,
attorneys’ fees as approved by the court and distribution to class members in a manner determined by plaintiffs
subject to court approval. To date, approximately $55 million has been paid by the Company into the settlement
escrow and the balance of the $350 million will be due and owing 45 days following final approval of the settlement
by the trial court. Accordingly, $350 million is recorded in current liabilities on our consolidated balance sheet at
March 31, 2009. The settlement also provides that the certified settlement classes will release all claims against the
Company relating to FDB’s published AWPs, whenever such claims were incurred. On March 5, 2009, the court
gave preliminary approval to the amended settlement and scheduled a fairness hearing for July 23, 2009, at which
time final approval will be considered.