Va. plays key role in McKinsey $650M opioid settlement

Global management firm McKinsey & Co. filed an agreement in Virginia on Friday to pay the federal government $650 million in a five-year deferred prosecution agreement with the U.S. Department of Justice focused on opioid abuse.

The Virginia attorney general’s Medicaid Fraud Control Unit (MFCU) collaborated with U.S. attorney’s offices in the Western District of Virginia and the District of Massachusetts in investigating McKinsey’s role in advising Purdue Pharma on increasing sales of OxyContin, an opioid drug, according to Attorney General Jason Miyares’ announcement.

Also, a former McKinsey senior partner, Martin Elling, has been charged with obstruction of justice in federal court in Abingdon for destroying company documents related to its work with Purdue Pharma. He has agreed to plead guilty, the U.S. Department of Justice said in a statement Friday.

According to Miyares’ statement, “As part of the resolution, McKinsey acknowledges its role in aiding and abetting the misbranding of prescription drugs and obstructing justice by knowingly destroying and concealing records and documents related to the investigation.”

Virginia’s Medicaid fraud unit has been in operation since 2007, and it is funded through the U.S. Department of Health and Human Services’ Office of Inspector General.

According to court filings in the U.S. District Court in the Western District of Virginia, McKinsey will pay $323 million plus interest at a rate of 4.125% per year from July 10, 2024, on any unpaid balance of McKinsey’s civil settlement agreements. Previously, the consulting firm reached multiple settlements totaling $989.9 million, including a $642.4 million settlement with all 50 states and five U.S. territories, and civil settlements totaling $347.5 million, according to court records.

McKinsey also agreed to pay $231 million plus interest on any unpaid balance designated as “criminal”; $93.5 million plus interest on forfeiture of proceeds; and $2 million to go toward the state’s matching fund for the Virginia Medicaid fraud fund. Payments are due annually through Dec. 16, 2028, according to the court filing.

In addition to the $2 million for the MFCU, the Virginia Office of the Attorney General “will recover a portion of the $93 million forfeiture. Those funds are distributed through the DOJ forfeiture process under federal guidelines and as they are forfeited,” a spokesperson for the attorney general said Friday. “We do not have an exact figure on that at this time.”

McKinsey also agreed to post a prominent link on its website for three years titled, “Deferred Prosecution Agreement Relating to Our Work for Purdue Pharma,” providing a public statement “detailing McKinsey’s contrition for its conduct,” as well as its DOJ agreement and an agreed-upon statement of facts. The company also will not do any work related to “the marketing, sale, promotion or distribution of controlled substances” during the five-year deferred prosecution agreement.

According to The New York Times, McKinsey released a statement of apology Friday: “We are deeply sorry for our past client service to Purdue Pharma and the actions of a former partner who deleted documents related to his work for that client. We should have appreciated the harm opioids were causing in our society and we should not have undertaken sales and marketing work for Purdue Pharma. This terrible public health crisis and our past work for opioid manufacturers will always be a source of profound regret for our firm.”

“For the first time in history, the Justice Department is holding a management consulting firm and one of its senior executives criminally responsible for the sales and marketing advice it gave resulting in the commission of crime by a client,” U.S. Attorney Christopher R. Kavanaugh for the Western District of Virginia said in a statement. “This groundbreaking resolution demonstrates the Justice Department’s ongoing commitment to hold accountable those companies and individuals who profited from our nation’s opioid crisis.”

Long-running issue

In 2021, then-Virginia Attorney General Mark R. Herring announced the resolution of a lawsuit against Purdue Pharma and its owners, the Sackler family, in which the two parties were required to pay more than $4.3 billion for prevention, treatment and recovery efforts in communities affected by the opioid abuse crisis. Virginia was expected to receive at least $80 million in its share of the agreement.

However, in June, the U.S. Supreme Court rejected the settlement, which would have protected the Sackler family members from future civil liability claims. Calling the 5-4 decision “heart-crushing,” Purdue Pharma said it would work toward a new deal that would allow the company to emerge from bankruptcy.

Although opioid addiction has scarred communities across the nation, Roanoke author Beth Macy’s 2018 nonfiction book “Dopesick: Dealers, Doctors, and the Drug Company that Addicted America” focused on the 1996 release of OxyContin, falsely billed as a safer, less-addictive pain medication, and the drug’s impact on small towns in Appalachia.

In 2004, McKinsey began consulting with Purdue Pharma, and according to Friday’s court filing, between 2004 and 2019, McKinsey worked with the pharmaceutical company on various topics, including how to improve OxyContin revenue. The consultant received $93.5 million in payment over that 15-year period. In 2004, the document notes, Purdue Pharma was under criminal and civil investigation by federal and state authorities.

“McKinsey knew the risks and dangers associated with OxyContin, a powerful and addictive opioid,” according to the agreed-upon facts in the court document. “McKinsey also knew that Purdue Pharma’s affiliate and its top executives had previously pled guilty to federal crimes relating to the marketing and promotion of OxyContin.”

Despite that, “between 2013 and 2014, McKinsey designed strategies to help Purdue Pharma identify which prescribers the Purdue Pharma sales force should call on to increase OxyContin prescriptions,” the filing says. In 2007, a Purdue Pharma affiliate company pled guilty to falsely marketing the drug from 1996 to 2001 as “less addictive, less subject to abuse and diversion, and less likely to cause dependence and withdrawal,” and the affiliate and parent company agreed to pay more than $600 million to settle federal False Claims Act charges.