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Drugmaker Fights $212 Million Fine

PHOENIX (CN) - McKesson Corp. claims that Arizona's Medicaid agency does not have the authority to fine it $212 million. The Arizona Health Care Cost Containment System claims McKesson inflated the costs of its prescription drugs for 2 years, but McKesson says it "vigorously disputes these allegations" and claims the state agency does not have "jurisdiction and authority to impose penalties or assessments on McKesson."

In its complaint in Maricopa County Court, the drugmaker says: "These regulations apply only to 'providers' and 'non-contracting providers' that submit claims for payment under Medicaid. McKesson is not a provider, and it did not submit claims for payment under Medicaid. AHCCCS's attempt to impose penalties and assessments on a non-provider such as McKesson violates the Administrative Procedure Act, and also violates due process because McKesson never received constitutionally-required 'fair notice' that it could become subject to a penalty proceeding."

McKesson says it received a notice of proposed civil penalty from AHCCCS on Nov. 5, 2010. The AHCCCS alleged that "McKesson and another company, First DataBank Inc., increased a drug pricing benchmark known as 'Average Wholesale Price.' AHCCCS further alleged that reimbursement payments for one million prescription drug claims during the 2004-2006 period were based on Average Wholesale Prices, and therefore had been inflated by five percent. Average Wholesale Price (commonly 'AWP') is an industry benchmark that despite its name, is not an average of actual transaction prices. It has historically been set using a markup of 20 percent or 25 percent over another benchmark price, Wholesale Acquisition Cost (commonly 'WAC')." (Parentheses in complaint.)

McKesson says that pharmacies and other providers submit claims for payment directly to AHCCCS health plans - not to McKesson. It claims that the state's notice "did not assert that McKesson was a provider or non-contract provider ... [or] identify Medicaid claims that McKesson allegedly had submitted."

McKesson says it responded on Dec. 6, 2010, seeking a compromise - denying the AHCCCS findings on the penalty, and stating that "it was not a provider or non-contracting provider, and that it did not submit any claims under Medicaid."

The AHCCCS denied McKesson's request on Dec. 28, but "did not justify its assertion of jurisdiction and authority," the drugmaker says.

McKesson says that if it has to proceed with the penalty proceeding, "the factual record developed during this process will not bear on the threshold issue of AHCCCS's jurisdiction and authority."

McKesson seeks a stay of the penalty, without prejudice, a judgment that AHCCCS does not have the jurisdiction to impose penalties against it, and an injunction to stop AHCCCS from resuming the penalty proceeding.

McKesson is represented by Roger Morris with Quarles & Brady.

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