McKesson 2012 Annual Report Download - page 100

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
96
B. The New Jersey United States Attorney’s Office AWP Investigation
In June 2007, the Company was informed that a relator had previously filed a qui tam action in the United
States District Court for the District of New Jersey, purportedly on behalf of the United States, twelve states
(California, Delaware, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Nevada, New Mexico, Tennessee, Texas
and Virginia) and the District of Columbia against the Company and seven other defendants. In January 2009, the
Company was provided with a courtesy copy of the relator’s third amended complaint, which alleges claims against
the Company and seven other defendants under the False Claims Act and various state false claims statutes. The
claims arise out of alleged manipulation of AWP by the defendants. This qui tam action is brought on behalf of the
United States and various states, and seeks damages, treble damages and civil penalties, as well as attorneys’ fees
and costs of suit.
C. General
On January 30, 2012, the Company reached an agreement in principle with a coalition of State Attorneys
General to resolve state Medicaid claims relating to AWP for payment by the Company of approximately $173
million. This amount shall be reduced by the total amount allocated to any state that declines to subscribe to the
settlement. This agreement is subject to execution of written settlement agreements acceptable to the Company and
each participating state. Although the Company believes that there will be substantial participation by the states, the
final level of participation is not yet known. The Company will continue to defend vigorously any action pursued by
a non-settling state. The Company has fully reserved for the financial effect of this agreement in principle.
The Company has a reserve relating to AWP public entity claims, which is reviewed at least quarterly and
whenever events or circumstances indicate changes, including consideration of the pace and progress of discussions
relating to potentially resolving other public entity claims. Pre-tax charges relating to changes in the Company's
AWP litigation reserve, including accrued interest, are recorded in the Distribution Solutions segment. The
Company's AWP litigation reserve is included in other current liabilities in the consolidated balance sheets. In view
of the number of outstanding cases and expected future claims, and the uncertainties of the timing and outcome of
this type of litigation, it is possible that the ultimate costs of these matters may exceed or be less than the reserve.
The following is the activity related to the AWP litigation reserve for the years ended March 31, 2012, 2011 and
2010:
Years Ended March 31,
(In millions) 2012 2011 2010
AWP litigation reserve at beginning of period $
330
$
143
$ 143
Charges incurred
149
213
—
Payments made
(26)
(26)
—
AWP litigation reserve at end of period $
453
$
330
$ 143
The charges for 2012 primarily related to the Douglas County, Kansas Action settlement and the state and
federal Medicaid claims. The charges for 2011 primarily related to the state and federal Medicaid claims.
On April 3, 2012, the Company entered into a settlement agreement with the United States Department of
Justice to resolve the federal share of Medicaid claims related to AWP. The total settlement amount of $191
million, which includes interest, was paid on April 9, 2012. Pursuant to the settlement agreement, the United States
Department of Justice filed a notice seeking the dismissal with prejudice of the claims on behalf of the United States
asserted by the relator in the qui tam action pending in New Jersey federal court to the extent those claims are
encompassed by the settlement release in the parties’ agreement.