Pharmacy Co-op Says McKesson Strangles It

MADISON (CN) – A 6,300-member pharmaceutical co-op claims McKesson Corp. is striking side deals to steal its members, and using a punitive, $100 million early termination penalty to keep the group tied to McKesson. The Independent Pharmacy Cooperative wants to be able to terminate its 10-year contract “without subjecting itself to enormous financial risk of the punitive early termination fee.”

     In its federal complaint, the Independent Pharmacy Cooperative, or IPC, says it represents 3,300 primary and 3,000 affiliate pharmacy members across the United States.
     “McKesson is the largest pharmaceutical distributor in North America,” the complaint states. “On February 21, 2003, IPC and McKesson entered into a ten-year Supply Agreement in which McKesson agreed to sell pharmaceutical products to IPC members. This lawsuit arises from McKesson’s unlawful efforts to induce IPC members to leave the cooperative and its efforts to strike side deals with IPC members. This conduct breaches the terms of the Supply Agreement, undermines its core purposes, and tortiously interferes with IPC’s contractual relationships with its members.”
     IPC claims McKesson strikes secret side deals with co-op members to “peel them away from IPC” and have them buy directly from McKesson, or to become part of other competing buying groups – still benefiting McKesson.
     IPC claims that as many as 20 percent of its members have executed such side agreements.
     The complaint states: “McKesson has attempted to sanitize its wrongful acts by asking the IPC members it approaches, including those in Hawaii and Fresno, to sign a letter prepared by McKesson, which states:
     ‘As part of our discussions regarding our supply relationship with you, you have indicated that you want to terminate your membership in your retail buying group, Independent Pharmacy Cooperative (‘IPC’), a Wisconsin Cooperative. Please confirm by signing in the space below that your agreement with IPC (whether embodied in IPC membership forms, contracts and/or governance documents such as bylaws) does not prohibit or restrict you from terminating your membership at this time.’
     “McKesson has distributed this letter to IPC members whom McKesson has unilaterally approached and urged to terminate their agreements with IPC-IPC members who had not approached McKesson about termination. On information and belief, McKesson has offered former IPC members additional economic incentives if, after quitting IPC, they sign this letter. The Mina chain of pharmacies, for example, received an additional rebate on its purchase of generic drugs after it signed this letter.”
     IPC says McKesson is undermining the 2003 supply agreement, forcing IPC to spend time, resources and money to combat McKesson’s breaches of contract.
     McKesson is the 14th-largest company in the United States, according to the 2010 Fortune 500 List. It dominates the health-care industry through its manufacture of health care systems, medical supplies and pharmaceutical products.
     IPC, based just outside Madison in the small town of Sun Prairie, has made a name for itself as well. It claims that in the past 25 years it “has evolved into the nations’ largest group purchasing organization for independent pharmacies.”
     The IPC website claims that its members’ purchases exceed $8 billion and that it returns 100 percent of the rebates it earns to member pharmacies.
     In its complaint, IPC calls McKesson “ongoing and relentless” with its “intentional and unjustified acts.”
     IPC asks the court to release it from the $100 million early termination fee because of McKesson’s breaches of contract and violations of the supply agreement.
     IPC also seeks specific performance under the contract and wants McKesson enjoined from interfering with its members and business operations, and punitive damages for breach of contract and tortious interference.
     IPC’s lead counsel is James Peterson with Godfrey & Kahn, with assistance from Mark Helm of Munger Tolles & Olson Los Angeles.

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