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Commitments and Contingent Liabilities
9 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingent Liabilities
Commitments and Contingent Liabilities
In addition to commitments and obligations in the ordinary course of business, we are subject to various claims, including claims with customers and vendors, pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our business. As described below, many of these proceedings are at preliminary stages and many seek an indeterminate amount of damages.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be reevaluated at least quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure of the proceeding is provided.
Disclosure is also provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the potential loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low estimates.
Significant developments in previously reported proceedings and in other litigation and claims, since the filing of our 2018 Annual Report and our Quarterly Report on Form 10-Q for the quarters ended June 30, 2018 and September 30, 2018 are set out below. We are party to the legal proceedings described below. Unless otherwise stated, we are currently unable to estimate a range of reasonably possible losses for the unresolved proceedings described below. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any or a combination of these matters, we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our financial position or results of operations.
Litigation, Government Subpoenas and Investigations
As previously disclosed, the Company is a defendant in many cases alleging claims related to the distribution of controlled substances to pharmacies, often together with other pharmaceutical wholesale distributors and pharmaceutical manufacturers and retail pharmacy chains named as defendants. The plaintiffs in these actions include state attorneys general, county and city municipalities, hospitals, Indian tribes, pension funds, third-party payors and individuals. The Company has been served with more than 1,400 complaints filed in state and federal courts throughout the United States and in Puerto Rico and Canada. Since December 5, 2017, nearly all the cases pending in federal district courts have been transferred to a multi-district litigation (“MDL”) proceeding in the United States District Court for the Northern District of Ohio captioned In re: National Prescription Opiate Litigation, Case No. 17-md-28-04. On January 29, 2019, the court entered a new case management order setting forth new deadlines and moving the trial date to October 21, 2019 for the three Ohio bellwether cases, The County of Summit, Ohio v. Purdue Pharma L.P., et al., Case No. 18-OP-45090 (N.D. Ohio); The County of Cuyahoga v. Purdue Pharma L.P., et al., Case No. 17-OP-45004 (N.D. Ohio); and City of Cleveland v. AmerisourceBergen Drug Corp., et al., Case No. 18-OP-4532 (N.D. Ohio.) On October 5, 2018, the magistrate judge issued a report and recommendation to the district court judge on defendants’ motions to dismiss in these three cases. The defendants filed objections to this report. On December 19, 2018, the court dismissed the City of Akron’s public nuisance claim and denied dismissal of all other claims challenged in defendants’ motions to dismiss. On December 31, 2018, the Court issued an order creating a “Track Two” litigation and selected two cases for this track, Cabell County Commission, West Virginia v. AmerisourceBergen Drug Corp., et al., Case No. 17-OP-45053 (N.D. Ohio) and City of Huntington, West Virginia v. AmerisourceBergen Drug Corp., et al., Case No. 17-OP-45054 (N.D. Ohio). The Court also set a briefing schedule for the parties to address the viability of plaintiffs’ public nuisance claims in each state and territory where an MDL plaintiff is located. On January 15, 2019, the Company filed its answer to the second amended complaint.
On December 12, 2018, the court in Gobierno de Puerto Rico v. Cardinal Health, Inc., et al., Estado Libre Asociado de Puerto Rico, Tribunal de Primera Instancia, Centro Judicial de Bayamón Sala Superior, Civil Núm. SJ2018cv03958, dismissed plaintiff’s unjust enrichment claim and declined to dismiss claims of public nuisance, negligence/fault, and violation of Puerto Rico’s Fair Competition Act. On December 27, 2018, the distributor defendants filed a motion for reconsideration. On December 28, 2018, the court denied the distributors’ motion to dismiss in a case filed by eight West Virginia counties in the circuit court of Marshall County, West Virginia, Boone County Commission, et al., v. Purdue Pharma L.P., et al., Civil Action No. 17-C-248. On January 8, 2019, the court overseeing the Connecticut actions granted defendants’ motion to dismiss and dismissed all claims in suits filed by 21 municipalities for lack of subject matter jurisdiction, City of New Haven v. Purdue Pharma, L.P., et al., Judicial District of Hartford, Connecticut Superior Court, Docket No. X07 HHD CV 17 6086134. These municipalities appealed this decision on January 22, 2019. As previously reported, the court in a consolidated proceeding pending in Suffolk County, New York Supreme Court, In re Opioid Litigation, Index No. 400000/2017, denied the distributors’ motions to dismiss. The distributors appealed this decision to the Appellate Division of the Supreme Court of the State of New York on August 3, 2018.
As previously disclosed, the two shareholder derivative complaints filed in the United States District Court for the Northern District of California were consolidated under the caption In re McKesson Corporation Derivative Litigation, No. 4:17-cv-1850. On September 17, 2018, a Special Litigation Committee established by the Board of Directors of the Company moved to stay the litigation while the Special Litigation Committee conducts an independent investigation concerning the plaintiffs’ allegations. On November 13, 2018, the court granted the motion to stay as to deposition discovery and denied the motion in all other respects.
As previously disclosed, on June 15, 2018, an amended complaint was filed in the United States District Court for the Southern District of Illinois alleging that McKesson Medical-Surgical Inc., among others, violated the Sherman Act by restraining trade in the sale of safety and conventional syringes and safety IV catheters. Marion Diagnostic Center, LLC v. Becton, Dickinson, and Co., et al., No. 18:1059. On July 20, 2018, the defendants filed a motion to dismiss and a hearing was held on October 17, 2018. On November 30, 2018, the district court granted the motion to dismiss, and dismissed the complaint with prejudice. On December 27, 2018, plaintiffs appealed the order to the United States Court of Appeals for the Seventh Circuit. On September 25, 2018, plaintiffs filed a complaint in the Eastern District of Pennsylvania alleging that the Company and McKesson Medical-Surgical Inc., among others, violated the Sherman Act by restraining trade in the sale of generic drugs. Marion Diagnostic Center, LLC v. McKesson Corporation, et al., No. 2:18-cv-4137.
As previously disclosed, on April 16, 2013, the Company’s wholly-owned subsidiary, U.S. Oncology, Inc. (“USON”) was served with a third amended qui tam complaint filed in the United States District Court for the Eastern District of New York alleging that USON solicited and received illegal “kickbacks” from Amgen in violation of the Anti-Kickback Statute, the False Claims Act, and various state false claims statutes, United States ex rel. Piacentile v. Amgen, Inc., et al., CV 04-3983. Previously, the United States declined to intervene in the case as to all allegations and defendants except for Amgen. On April 4, 2014, USON filed a motion to dismiss the claims against it. On September 17, 2018, the court granted USON’s motion to dismiss with leave to amend. On November 16, 2018, the relators filed a Fourth Amended Complaint. On January 25, 2019, USON filed a motion to dismiss.
As previously disclosed, on June 17, 2014, the Company’s subsidiary, U.S. Oncology Specialty, LP (“USOS”) was served with a fifth amended qui tam complaint filed in the United States District Court for the Eastern District of New York alleging that USOS solicited and received illegal “kickback” from Amgen in violation of the Anti-Kickback Statute, the False Claims Act, and various state false claims statutes, United States ex rel. Hanks v. Amgen, Inc., et al., CV 08-03096. Previously, the United States declined to intervene in the case as to all allegations and defendants except for Amgen. On August 1, 2014, USOS filed a motion to dismiss the claims against it. On September 17, 2018, the court granted USOS’s motion to dismiss and gave the relator leave to file another action after the Piacentile action is no longer pending. The relator appealed the order to the United States Court of Appeals for the Second Circuit, and on December 11, 2018, the defendants moved to dismiss the appeal.
As previously disclosed, on March 5, 2018, the Company’s subsidiary, RxC Acquisition Company (doing business as RxCrossroads) was served with a qui tam complaint filed in the United States District Court for the Southern District of Illinois alleging that UCB, Inc. provided illegal “kickbacks” to providers, including services provided through RxC Acquisition Company, in violation of the Anti-kickback statute, the False Claims Act, and various state false claims statutes. United States ex rel. CIMZHNCA, LLC v. UCB, Inc., et al., No. 17-cv-00765. The United States and the named states declined to intervene in the case. On April 25, 2018, the defendants filed a motion to transfer the suit to the United States District Court for the District of New Jersey. On December 17, 2018, the Department of Justice filed a motion to dismiss the complaint in its entirety.
On November 27, 2018, the Company’s subsidiary, RxC Acquisition Company (doing business as RxCrossroads) was served with a qui tam complaint filed in the United States District Court for the Eastern District of Pennsylvania alleging that EMD Serono, Inc. and Pfizer, Inc. provided illegal “kickbacks” to providers, including services provided through RxC Acquisition Company and others, in violation of the Anti-kickback statute, the False Claims Act, and various state false claims statutes. United States ex rel. Harris et al. v. EMD Serono, Inc. et al., No. 16-5594. The United States and the named states declined to intervene in the case. On December 17, 2018, the Department of Justice filed a motion to dismiss the complaint in its entirety. On December 28, 2018, relators filed a second amended complaint, and on January 7, 2019, relators and defendants jointly moved for a stay on the defendants’ response deadline until after the Department of Justice’s motion to dismiss has been resolved.
As previously disclosed, on April 3, 2018, a second amended qui tam complaint was filed in the United States District Court for the Eastern District of New York by a relator, purportedly on behalf of the United States, 30 states, the District of Columbia, and two cities against the Company, McKesson Specialty Care Distribution, McKesson Specialty Distribution LLC, McKesson Specialty Care Distribution Joint Venture, L.P., Oncology Therapeutics Network Corporation, Oncology Therapeutics Network Joint Venture, L.P., U.S. Oncology, Inc. and U.S. Oncology Specialty, L.P., alleging that from 2001 through 2010 the defendants repackaged and sold single-dose syringes of oncology medications in a manner that violated the federal False Claims Act and various state and local false claims statutes. United States ex rel. Omni Healthcare Inc. v. McKesson Corporation, et al., 12-cv-06440. The United States and the named states have declined to intervene in the case. On October 15, 2018, the defendants filed a motion to dismiss the complaint, and a hearing on that motion was held on January 10, 2019.
As previously disclosed, on December 29, 2017, two investment funds holding shares in Celesio AG filed a complaint against the Company’s wholly-owned subsidiary McKesson Europe Holdings in a German court in Stuttgart, Germany, Polygon European Equity Opportunity Master Fund et al. v. McKesson Europe Holdings GmbH & Co. KGaA, No. 18 O 455/17 (the “Polygon” matter). The complaint alleges that the public tender offer document published by McKesson Europe in its acquisition of Celesio AG incorrectly states that McKesson Europe’s acquisition of convertible bonds would not be treated as a relevant acquisition of shares for the purposes of triggering minimum pricing considerations under the German Takeover Offer Ordinance. On December 30, 2017, four additional funds filed a substantially identical claim, Davidson Kempner International (BVI) Ltd., et al. v. McKesson Europe Holdings GmbH & Co. KGaA, No. 16 O 475/17 (the “Davidson” matter.) On May 11, 2018, the court in the Polygon matter dismissed the claims against McKesson Europe. Plaintiffs appealed to the Higher Regional Court (Oberlandesgericht) of Stuttgart. On December 19, 2018, the Higher Regional Court confirmed the full dismissal. McKesson Europe filed its statement of defense in the Davidson matter on April 21, 2018 and the hearing is scheduled to take place on January 31, 2019.
As previously disclosed, on May 17, 2013, the Company was served with a complaint filed in the United States District Court for the Northern District of California alleging that the company sent unsolicited marketing faxes in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Protection Action of 2005, True Health Chiropractic Inc., et al. v. McKesson Corporation, et al., CV-13-02219. On August 22, 2016, the court denied plaintiffs’ motion for class certification. On November 16, 2016, plaintiffs were granted leave to appeal that ruling to the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit.”) On July 17, 2018, the Ninth Circuit affirmed in part and reversed in part the district court’s denial of class certification and remanded the case to the district court for further proceedings. On January 25, 2019, the Company filed a petition for writ of certiorari in the Supreme Court of the United States asking the court to review the ruling by the Ninth Circuit.
On January 24, 2019, the Company was served with a qui tam complaint that had previously been unsealed in the Eastern District of Texas, alleging that the Company and its subsidiary, U.S. Oncology, Inc., among others, received payments for unnecessary medical services in violation of the False Claims Act and the Texas Medicaid Fraud Prevention Act. United States ex rel. Nguyen v. McKesson Corp., et al., No. 4:15-00814. Previously, the United States and Texas declined to intervene in the case.
On December 12, 2018, the Company was served with a class action complaint in the United States District Court for the Northern District of California, alleging that McKesson and several of its officers violated the Securities Exchange Act of 1934 by reporting profits and revenues from 2013 until early 2017 that were false and misleading, due to an alleged conspiracy to fix the prices of generic drugs. Evanston Police Pension Fund v. McKesson Corporation, No. 3:18-06525. On December 26, 2018, several plaintiffs filed motions for appointment as lead plaintiff with the court.
From time to time, the Company receives subpoenas or requests for information from various government agencies. For example, in January 2019, the Company was served with a subpoena by the U.S. Department of Health and Human Services, Office of Inspector General, related to the Company’s participation in the Medicaid Drug Rebate Program. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely matter. These responses sometimes require time and effort and can result in considerable costs being incurred by the Company. Such subpoenas and requests also can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the healthcare industry.
New York Opioid Statute
Legislative, regulatory or industry measures to address the misuse of prescription opioid medications could affect the Company’s business in ways that we may not be able to predict. For example, in April 2018, the State of New York adopted the Opioid Stewardship Act (the “OSA”) which required the creation of an aggregate $100 million annual surcharge on all manufacturers and distributors licensed to sell or distribute opioids in New York.  The initial surcharge payment would have been due on January 1, 2019 for opioids sold or distributed during calendar year 2017. On December 19, 2018, the U.S. District Court for the Southern District of New York found the law unconstitutional and issued an injunction preventing the State of New York from enforcing the law. On January 17, 2019, the State filed a notice of appeal. In addition, other states are considering legislation that could require us to pay taxes or assessments on the distribution of opioid medications in those states. These proposed bills vary in the amounts and the means of calculation. Liabilities for taxes or assessments under any such laws will likely have an adverse impact on our results of operations, unless we are able to mitigate them through operational changes or commercial arrangements where permitted.