McKesson 2011 Annual Report Download - page 102

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
96
The Louisiana Action
On December 20, 2010, an action was filed in Louisiana state court by the State of Louisiana against the
Company asserting claims under state unfair and deceptive trade practices statutes, the Louisiana Medical
Assistance Programs Integrity Law, state antitrust statutes, and for fraud, negligent misrepresentation, civil
conspiracy, and unjust enrichment, seeking damages, statutory fines, civil penalties, disgorgement of profits, as well
as interest, attorneys’ fees and costs of suit, all in unspecified amounts, State of Louisiana v. McKesson Corporation,
(Case No. C597634 Sec. 23). The Company filed a motion to dismiss the complaint on March 7, 2011. A hearing
on the Company’s motion to dismiss is scheduled for May 9, 2011.
C. The New Jersey United States' Attorney's Office AWP Investigation
In June of 2007, the Company was informed that a qui tam action by an unknown relator was previously filed in
the United States District Court in 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. The Company
has not been provided with the original complaint, which was filed in 2005, and does not know the identity of the
original parties to the action. The Company was advised that the United States and the various states are considering
whether to intervene in the suit, but none has done so to date. The suit thus remains under seal and has not been
served on the Company.
In January 2009, the Company was provided with a courtesy copy of a third amended complaint filed in the qui
tam action. This complaint has also not been served on the Company. The third amended complaint alleges multiple
claims against the Company under the federal False Claims Act and the various states' and District of Columbia's
false claims statutes. These and additional claims are also alleged against other parties. The claims arise out of
alleged manipulation of AWP by defendants which plaintiffs claim caused them to pay more than they should have
in reimbursement for prescription drugs covered by various government programs that base reimbursement
payments on AWP. The complaint is brought on behalf of the United States, the twelve states named above, ten
additional states (Georgia, Indiana, Michigan, Montana, New Hampshire, New Jersey, New York, Oklahoma, Rhode
Island and Wisconsin) and the District of Columbia and seeks damages including treble damages and civil penalties
(which the relator claims would be several billion dollars) as provided under the various false claims act statutes, as
well as attorneys' fees and costs.
As has also been previously reported regarding the New Jersey qui tam action, the United States and various
states have been considering whether to intervene in the suit, but none has done so to date. The Company has at all
times cooperated with these investigations, and has engaged in settlement discussions with the purpose of resolving
all Medicaid related AWP claims by the states and federal government. The pace and progress of settlement
discussions accelerated during and after the third quarter of 2011. Except as previously reported with respect to the
States of Connecticut, Oklahoma and Montana, the Company has not reached agreement relating to those claims.
As previously reported, during the third quarter of 2009, the Company recorded a pre-tax charge of $143
million to establish a reserve for estimated probable losses related to pending and expected AWP claims by public
payer entities. As of March 31, 2009 and 2010, the reserve relating to AWP public entity claims was $143 million.
The Company recorded an additional pre-tax charge of $24 million for the settlement with the State of Connecticut
during the second quarter of 2011. In November 2010, a cash payment of $26 million was made for this settlement.
Following the Company's most recent review of the reserve for estimated probable losses from current and possible
future public entity AWP claims, which review included consideration of the pace and progress of the above
described settlement discussions during and after the third quarter relating to state and federal Medicaid claims, the
Company recorded a pre-tax charge of $189 million within its Distribution Solutions segment's operating expenses
during the third quarter of 2011. As of March 31, 2011, the reserve relating to AWP public entity claims was $330
million and was included in other current liabilities in the consolidated balance sheet. However, 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.