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McKesson Pays Up for Unhealthy Practices

April 27, 2012 | About:

While McKesson Corp. (NYSE:MCK) gets sued for allegations such as inflating prices, the pharmaceutical company's CEO John Hammergren is earning a healthy paycheck.

McKesson agreed to pay more than $190 million to settle claims that it allegedly inflated pricing information for a large number of prescription drugs between 2001 and 2005, the U.S. Attorney's office announced Thursday. As a result, Medicaid overpaid for those drugs. Federal and state governments have already recovered more than $2 billion from drug manufacturers that alleged to have committed similar crimes, the regulator said.

This isn't the first time McKesson has had a run in with its regulators. To name just one recent example, colonoscopy patients allegedly contracted hepatitis in 2008 because the company, along with Baxter International Inc., distributed reusable vials of the anesthetic Propofol on behalf of Teva Pharmaceutical Industries Ltd. A jury ruled in October 2011 that McKesson should be penalized $17.9 million for its involvement in the matter, according to news reports.

These developments took place under the watch of Hammergren, who became president and CEO in 2001. Since taking on the additional responsibility of chairman in 2002, he's earned $46.1 million as of the company's June 2011 proxy filing, well over four times the median for other named executive officers. In 2011 alone, Hammergren raked in $12.5 million. Moreover, he's entitled to a potential payment of nearly $469 million in the event of a termination following a change in control.

Clearly, Hammergren has pulled off some impressive financial results for both himself and McKesson. But profits aren't the only measure of a company's performance, especially in health care, which has a purpose that goes beyond money. Hammergren's record at providing people with the safest, most affordable medicine possible is much less clear, given McKesson's involvement in recent lawsuits.

In part for issues such as its high compensation of executives, GMI gives McKesson an F on its corporate governance overall. Since March 2011 the accounting and governance risk reflected in McKesson's financial statements has ranked third out of four categories at GMI Ratings, which range from conservative to very aggressive.

Rating: 3.8/5 (8 votes)


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