UPDATE 2-McKesson to pay $151 mln to states in drug pricing pact

Fri Jul 27, 2012 11:04pm IST

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* McKesson accused of inflating drug prices

* Company settled with federal gov't in April for $190 mln

* McKesson denies wrongdoing

By Karen Freifeld

NEW YORK, July 27 (Reuters) - Drug wholesaler McKesson Corp has agreed to pay $151 million to settle claims by U.S. states that it inflated pricing information for over 1,400 brand name drugs.

The settlement, announced on Friday, resolves claims by 30 states under state and federal false claims laws. New York and California led negotiations for the states and were major beneficiaries of the settlement.

McKesson, based in San Francisco, said it continues to believe the claims are without merit.

According to court papers, McKesson marked up prices by 25 percent when reporting to First Databank, a publisher of drug prices that most state Medicaid programs use to set payment rates.

"This settlement holds McKesson accountable for attempting to make millions of dollars in illegal profits," New York Attorney General Eric Schneiderman said in the statement.

New York will receive $64 million of the $151 million in restitution, Schneiderman said.

California will receive more than $23 million, according to California Attorney General Kamala Harris. "We cannot allow dollars meant for patients to be diverted to inflate corporate profits," Harris said in a statement.

Illinois will receive $10 million, Lisa Madigan, attorney general for that state, said in a statement.

McKesson said that it does not set the "average wholesale price" benchmark used by most states to set payment rates. "We did not manipulate drug prices and did not violate any laws," the company said.

"However, given the inherent uncertainty of litigation, we determined that this settlement was in the best interest of our employees, customers, suppliers and shareholders," it said.

McKesson agreed to pay $190 million in April to settle the federal portion of the Medicaid costs.

Medicaid, a healthcare program for people on low incomes, is jointly funded by the federal government and states.

Federal and state governments have recovered more than $2 billion from drug companies alleged to have reported inflated pricing information, U.S. Attorney Paul Fishman in New Jersey, who announced the federal settlement, said in April.

McKesson reported fiscal first-quarter earnings Thursday well above forecasts, helped by cost cuts and lower-than-expected taxes, but its revenue came in below Wall Street projections.

Its shares were down 50 cents at $91.76 in early afternoon trading.

The case is U.S., ex rel. Morgan v. Express Scripts Inc et al, U.S. District Court, District of New Jersey, No. 05-01714.

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