McKesson’s Federal Contract Could Protect It in Opioid Suit

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By Dana A. Elfin

Drug distributor McKesson Corp. says its contract with the federal government to supply prescription medications to the Cherokee Nation may protect it from liability for the opioid epidemic.

According to the drug distributor’s filing in federal court, McKesson acted under the direction of a federal government officer for at least some of the allegedly illegal acts the Cherokee Nation claims.

The nation seeks to hold McKesson and other drug retailers and distributors responsible for the epidemic, which could mean significant potential financial liability, particularly given the suit is just one of more than 500 actions filed around the country by counties, cities, Indian tribes, and other entities seeking to recover damages on the basis of expenses they have incurred in dealing with opioid addiction.

McKesson’s invocation of its supply contract with the federal government could be a successful defense to the nation’s claims that McKesson enabled prescription opioids to fall into illegal channels, didn’t alert regulators to suspiciously large quantity orders, and used financial incentives to increase opioid sales.

A lot is at stake: McKesson recorded $198.5 billion in annual revenue for its most recent fiscal year, according to data on Bloomberg Law.

McKesson’s supply contract, a pharmaceutical prime vendor (PPV) contract with the Veterans’ Administration (VA), is governed by federal law and overseen by a federal contracting officer, McKesson said in its court filing.

“This PPV Contract obligates McKesson to supply prescription medications to Tribal facilities when they are ordered by the Indian Health Service (IHS) through the PPV Contract and likewise to supply the VA facilities in and around the Tribal Area,” it said.

Government Contractor Defense

The government contractor defense “provides immunity to contractors for conduct that complies with the specifications of a federal contract,” McKesson said. Although McKesson raised the defense in support of its argument that a federal court and not state court should hear the nation’s suit, its filing makes clear the company meets the minimal burden of sufficiently alleging the government contractor defense.

Whether McKesson’s defense will ultimately succeed is an open question.

The Cherokee Nation, in its own filing seeking to send its case from federal court back to state court, is calling McKesson’s potential government contractor defense into question.

“McKesson’s brief is devoid of any explanation how its potential exposure to liability in this lawsuit is ‘because of’ its compliance with a government contract—which is not surprising, since the [PPV] Contract attached to McKesson’s brief actually prohibits the misconduct at issue here,” the nation said in the filing.

“McKesson’s statement that the federal government somehow directed its actions in this case is patently untrue, and it is puzzling how McKesson can even make that claim in light of the federal government’s $150 million fine against McKesson last year for conduct substantially similar to what the Cherokee Nation has alleged in this lawsuit,” it said.

Fine Paid in 2017

In 2017, McKesson paid a $150 million fine to the federal government for failing to report certain opioid shipments to the Drug Enforcement Administration.

In addition to McKesson, defendants in the nation’s suit also include Cardinal Health Inc., AmerisourceBergen, CVS Health, Walgreens Boots Alliance Inc., and Wal-Mart Stores Inc., all of whom are accused of failing to monitor their supply chain under the Controlled Substances Act and of violating the Cherokee Nation’s Unfair Trade and Deceptive Practices Act.

The case is The Cherokee Nation v. McKesson Corp. , E.D. Okla., No. , E.D. Okla., No. 18-CV-00056, 2/26/18, complaint filed 2/26/18 .

To contact the reporter on this story: Dana A. Elfin in Washington at delfin@bloomberglaw.com

To contact the editor responsible for this story: Randy Kubetin at rkubetin@bloomberglaw.com

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