McKesson to pay state $15M for drug overcharges

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Pharmaceutical distributor McKesson Corp. will pay Connecticut $15 million for "illegal and deceptive practices" that inflated drug costs for both individual consumers and state-funded programs, Attorney General Richard Blumenthal announced Tuesday.

The settlement calls for $9 million to be used for reimbursing Connecticut's Medicaid program and $3 million for ConnPace, a state program that provides drug coverage for seniors. In addition, $2.3 million will be paid as a civil penalty and $700,000 will go into the state's drug-assistance program for AIDS patients.

Blumenthal had charged in a lawsuit that San Francisco-based McKesson conspired with First DataBank - which publishes average wholesale prices of drugs - to increase the amounts Connecticut paid for brand-name remedies by about 25 percent over usual wholesale costs. Previously, the prices had been 20 percent above wholesale.

McKesson used the increase to sweeten the "spread" - the amount of profit - that could be taken by pharmacies, thereby increasing its share of the market, he said.

"McKesson manipulated the drug market - conspiring to inflate costs for hundreds of drugs and exploiting public programs that serve our most vulnerable citizens," Blumenthal said in a statement.

"This settlement is (an) indication that government oversight continues to be necessary to protect taxpayers' interests," added Michael P. Starkowski, commissioner of the state Department of Social Services.

Starkowski and Consumer Protection Commissioner Jerry Farrell Jr. were involved in hammering out the agreement with McKesson.

Blumenthal said the prices of more than 400 brand-name drugs were inflated as a result of McKesson's actions. These drugs included Pfizer Inc.'s cholesterol pill Lipitor and pain medications Celebrex and Neurontin. His office said monetary damages were not sought against San Francisco-based First DataBank because it did not directly benefit financially from the arrangement with McKesson.

First Data relied on the price markups provided by McKesson, according to a press release, and did not survey other wholesalers to determine their prices.

"First Data allegedly agreed to the scheme in order to ease its burden of having to establish and maintain accurate spreads," the release stated.

According to Blumenthal's lawsuit, the scheme between First Data and McKisson was hatched in late 2001. A lawsuit over the excessive markup was first filed in 2005.


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