McKinsey & Company Inc., a management consulting firm, recently agreed to pay $650 million to resolve a civil and criminal investigation into consulting work performed by the firm with opioids manufacturer Purdue Pharma LP. The settlement revolves around McKinsey’s advice to Purdue regarding the sales and marketing of Purdue’s extended-release opioid, Oxycontin, including a 2013 agreement in which McKinsey advised Purdue on specific steps to “turbocharge” sales of the drug.
The $650 million resolution consists of a penalty of more than $231 million, a forfeiture amount of more than $93 million (all money it was paid by Purdue between 2004 and 2019), a payment of $2 million to the Virginia Medicaid Fraud Control Unit, and $323 million as part of a civil settlement agreement resolving liability under the False Claims Act.
In addition to the monetary resolution, McKinsey entered into a five-year deferred prosecution agreement (DPA) – links can be found here and here – in connection with a criminal Information that charges McKinsey U.S. with one felony count of knowingly destroying records, documents and tangible objects with the intent to impede, obstruct, and influence the investigation and proper administration of a matter within the jurisdiction of the Justice Department; and one misdemeanor count of knowingly and intentionally conspiring with Purdue and others to aid and abet the misbranding of prescription drugs, held for sale after shipment in interstate commerce, without valid prescriptions. For the duration of the DPA, McKinsey agreed to not engage in any work related to the marketing, sale, promotion or distribution of controlled substances. The managing partner of McKinsey will need to annually certify the firm’s compliance with its obligations under the DPA and federal law.
The DPA notes that McKinsey did receive credit for cooperating with the United States during the criminal investigation, including providing updates regarding information obtained through an internal investigation, highlighting documents of interest in voluminous packages, and facilitating various interviews. McKinsey also implemented remedial measures, including voluntarily stopping all work in 2019 on any opioid-specific business issues; terminating two senior partners – including Elling mentioned below; hiring a new chief legal officer and chief ethics and compliance officer; engaging its new client selection framework; and using a formal diligence review and intake process for all clients. McKinsey agreed to continue its cooperation.
McKinsey has further agreed to implement a robust compliance program, including a system of policies and procedures intended to identify and assess higher-risk client engagements. This system will include document retention procedures and training for all partners, officers and employees who provide or implement advice to clients.
In addition to the monetary resolution and DPA, a former McKinsey senior partner who worked on Purdue matters was charged with obstruction of justice. Martin Eric Elling allegedly destroyed records, documents, and tangible objects with the intent to impede, obstruct, and influence the investigation and proper administration of a matter within the jurisdiction of the Department of Justice. Elling has agreed to plead guilty and will be sentenced at a later date.
This settlement marks the first time a management consulting firm has been held criminally liable for advice rendered that resulted in the client committing a crime. It also reflects the seriousness of the opioid crisis and the commitment the Department of Justice has to holding all actors accountable for their role in the crisis.
An Agreed Statement of Facts, which details McKinsey’s work with Purdue relating to OxyContin can be found here.
“McKinsey’s management consulting work with Purdue Pharmaceuticals significantly contributed to a devastating public health crisis affecting American families and communities nationwide,” said Inspector General Christi A. Grimm of the Department of Health and Human Services Office of Inspector General (HHS-OIG). “HHS-OIG is committed to holding accountable those who violate the law and put the public at risk, including health care consultants who are complicit in fraudulent schemes.”