McKesson agrees to pay record $150 million settlement for failure to report suspicious orders of pharmaceutical drugs

WHEELING, WEST VIRGINIA – 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 United States Attorney Betsy Steinfeld Jividen and Special Agent in Charge of the Drug Enforcement Administration Karl C. Colder announced today. The Drug Enforcement Administration and the United States Attorney’s Office describe the settlement of the civil penalty claims historic and unprecedented.

Acting U.S. Attorney Betsy Steinfeld Jividen stated, "The settlement with McKesson announced today illustrates the coordinated response we are taking in addressing the prescription narcotics crisis in West Virginia and puts those who play a significant role in supplying narcotic medications in our district on clear notice that they must comply with the law and regulatory requirements or be held accountable." 

The settlement resolves allegations that beginning in 2008 and continuing into 2012, McKesson’s former Landover, Maryland distribution facility routinely failed to report, and fulfilled, suspicious orders for Schedule II and III controlled substances placed by retail pharmacies, including numerous pharmacies in the Northern District of West Virginia.  Acting U.S. Attorney Jividen stated, "in many instances, the suspicious orders placed by West Virginia pharmacies resulted in prescription narcotics being diverted for illegal use and abuse.”  One such pharmacy was Judy’s Drug Store, located in Grant County, West Virginia.  The U.S. Attorney’s Office for the Northern District of West Virginia entered into a $2 million civil penalty settlement with Judy’s Drug Store in 2014.  According to Acting U.S. Attorney Jividen “the Judy’s Drug Store probe led to the investigation of McKesson and the settlement announced today.”

“The abuse of prescription drugs has rampantly spread throughout our communities," stated DEA Special Agent in Charge Karl C. Colder. "This abuse has directly resulted in the escalation of heroin addiction and related overdoses. Today's settlement sends a clear message to all distributors of pharmaceutical drugs that it is essential to dispense controlled substances in compliance with DEA's record keeping requirements. DEA is dedicated to combat the prescription drug abuse problem in West Virginia and throughout the country and to hold all DEA registrants accountable," said Colder.   

The nationwide settlement 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. 

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 initiated by Diversion Investigator Lindsey Malocu of the Washington Division of the Drug Enforcement Administration and involving the following DEA Field Divisions:  Boston, Chicago, Denver, Detroit, Miami, Newark, San Francisco, St. Louis, and also the Washington District Office. The following U.S. Attorney’s Offices participated in the case: Northern District of West Virginia, 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, and Western District of Wisconsin.

U.S. Attorneys’ Offices for the Northern District of West Virginia and the District of Colorado, 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 Alan McGonigal (NDWV) and Amanda Rocque (Colorado) 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.