McKesson's Board Clears Itself of Fault on Opioid Oversight

(Bloomberg) -- A year after McKesson Corp. announced a $150 million settlement with the U.S. government over allegations it failed to properly oversee shipments of painkillers, a board committee cleared directors and senior executives of wrongdoing.

The drug distributor’s executives “placed great emphasis on compliance, encouraged ethical conduct” and improved the company’s opioid-monitoring processes, a panel of three independent directors said in an April 20 report.

The firm, with annual revenue of about $200 billion, eliminated oxycodone and hydrocodone sales from its incentive program for sales representatives in 2012, after the Drug Enforcement Administration raised concerns about certain shipments, according to the report.

“Members of senior management did not ignore issues raised by the DEA, treat them less than seriously, or decline to devote adequate resources to address the issues,” the directors wrote. Executives “acted in an earnest desire to satisfy the DEA’s expectations and fulfill the company’s obligations as to preventing diversions.”

Kristin Hunter Chasen, a McKesson spokeswoman, said the company has never singled out the sale of controlled substances in determining compensation.

“Compensation has been tied to developing a strong distribution relationship with customers for all their pharmacy needs in the aggregate,” she said Monday in an emailed statement.

Daily Deaths

Over the past decade, the company twice settled with regulators over accusations it didn’t have proper systems in place to catch illegitimate orders of painkillers. McKesson also faces lawsuits from dozens of states, counties and cities grappling with the costs of dealing with a wave of overdoses and treatment demands.

Plaintiffs see the firm as one of the main culprits of the public-health crisis. Almost 45,000 people died in the U.S. from opioid-related overdoses in the 12 months ended July 2017, according to the Centers for Disease Control and Prevention.

In its settlement with the U.S., the company admitted that it failed to identify or report to the DEA “certain orders placed by certain pharmacies, which should have been detected by McKesson as suspicious.”

In other litigation, the drug distributor has denied allegations it didn’t properly monitor shipments and said it complied with regulatory demands that the company fortify systems to pick up on so-called red-flag orders. The board endorsed management’s decisions to hire more regulatory staff and terminate some customers, the independent directors said.

Some McKesson investors sued in Delaware arguing that the company was harmed by the directors’ failure to insure that the company’s shipment-reporting systems were functioning effectively. Board members didn’t follow up on whether the company complied with the settlement’s demands, Stuart Grant, one of the investors’ attorneys, said at a March hearing.

“We’re not alleging that they didn’t do enough,” Grant told Delaware Chancery Court Judge Sam Glasscock, according to a transcript. “We’re alleging they didn’t do anything.”

The report came in response to the International Brotherhood of Teamsters, which last year questioned whether McKesson had failed to comply with its duty to ensure opioids were shipped only to pharmacies filling legitimate orders.

McKesson's Board Clears Itself of Fault on Opioid Oversight

The union also said McKesson’s Chief Executive Officer John Hammergren should be forced to surrender some of his compensation because of his failures to ensure the company upheld its obligations under last year’s settlement. The panel’s members rejected that request, saying they couldn’t find evidence that the CEO violated his legal duties to shareholders.

The panel also backed the board’s decision that the $150 million settlement shouldn’t impact Hammergren’s compensation for fiscal 2017. His reported pay for that year was $20.1 million.

“This investigation failed to assign any responsibility for weaknesses in the company’s monitoring program, reporting systems and internal audits that allowed millions of doses of prescription opioids to flood communities and fuel this crisis,” Ken Hall, the Teamsters’ general secretary-treasurer, said.

©2018 Bloomberg L.P.