Whistleblowers: DEA attorneys went easy on McKesson, the country's largest drug distributor
In October, we joined forces with the Washington Post and reported a disturbing story of Washington at its worst - about an act of Congress that crippled the DEA's ability to fight the worst drug crisis in American history - the opioid addiction crisis. Now, a new front of that joint investigation. It is also disturbing. It's the inside story of the biggest case the DEA ever built against a drug company: the McKesson Corporation, the country's largest drug distributor. It's also the story of a company too big to prosecute.
In 2014, after two years of painstaking inquiry by nine DEA field divisions and 12 U.S. Attorneys, investigators built a powerful case against McKesson for the company's role in the opioid crisis.
Our reporting turned up the leader of the DEA team, David Schiller, who tells for the first time how his investigators hit a brick wall in Washington when they tried to hold the powerful company accountable.
David Schiller: This is the best case we've ever had against a major distributor in the history of the Drug Enforcement Administration. How do we not go after the number one organization? In the height of the epidemic, when people are dying everywhere, doesn't somebody have to be held accountable? McKesson needs to be held accountable.
Holding McKesson accountable meant going after the 5th largest corporation in the country. Headquartered in San Francisco, McKesson has 76,000 employees and earns almost $200 billion a year in revenues, about the same as Exxon Mobil. Since the 1990s, McKesson has made billions from the distribution of addictive opioids.
David Schiller: I was with DEA for over 30 years. I was the Assistant Special Agent in Charge for the Denver Field Division.
Bill Whitaker: How many people did you supervise?
David Schiller: Approximately 100.
"They're killing people. And their motive? This is all for financial gain. That's the problem."
Before he retired in August, Schiller had supervised investigations in drug trafficking and money laundering cases, but he considered the case against McKesson to be the single most important investigation of his lifetime.
Bill Whitaker: What did they do that was wrong?
David Schiller: The issue with McKesson was they were providing millions and millions and millions of pills to countless pharmacies throughout the United States, and they did not maintain any sort of due diligence. This wasn't just happening in Denver, Colorado. This was happening in Los Angeles, California. It was happening in Detroit, Michigan. It was happening in New York City. It was a national problem and nobody wanted to deal with it.
McKesson told us when it comes to the opioid crisis and pills flooding into American communities, there's plenty of blame to go around: drug makers; other distributors; doctors; pharmacies, all played a role.
But in 2008, McKesson agreed to pay $13.3 million in fines for failing to report huge orders of hydrocodone to shady internet pharmacies. After that settlement, the company promised to do a better job of monitoring shipments of controlled substances. Now, special agent Schiller and his team had caught McKesson again shipping suspicious orders of opioids.
DEA investigators discovered that McKesson was supplying pharmacies and doctors, that were fronts for criminal drug rings and pills were ending up on the black market.
David Schiller: And everybody kept saying, "It's just a prescription drug. It's a pill. It's a liquid. What's the big deal?" And I would say, "They're killing people." And their motive? This is all for financial gain. That's the problem.
Bill Whitaker: One of the Former D.E.A. Administrators said that the McKesson Corporation has fueled the explosive prescription drug abuse problem in this country. Do you agree with that?
David Schiller: 100%. If they woulda stayed in compliance with their authority and held those that they're supplying the pills to, the epidemic would be nowhere near where it is right now. Nowhere near.
Bill Whitaker: So you decided to take a swing at a hornet's nest.
David Schiller: I knew that if we could get to the distributor, we could make a great impact for the United States citizens immediately. Immediately.
McKesson delivers more than 1/3 of all medicines in the U.S. from a network of 30 warehouses around the country. The DEA requires drug distributors to identify, stop and report orders of unusual size or frequency to the agency - something Schiller says McKesson did not do until the company learned it was under investigation.
David Schiller: They had hundreds of thousands of suspicious orders they should have reported, and they didn't report any. There's not a day that goes by in the pharmaceutical world, in the McKesson world, in the distribution world, where there's not something suspicious. It happens every day.
Bill Whitaker: And they had none.
David Schiller: They weren't reporting any. I mean, you have to understand that, nothing was suspicious?
In one case, DEA investigators discovered that McKesson was shipping the same quantities of opioid pills to small-town pharmacies in Colorado's San Luis Valley as it would typically ship to large drugstores next to big city medical centers.
Helen Kaupang: McKesson is supplying enough pills to that community to give every man woman and child a monthly dose of 30 to 60 tablets. Is that not shocking? I found it shocking.
Helen Kaupang, retired from the DEA this fall after 29 years as an investigator and supervisor. She worked with Schiller on this investigation. She says the delivery of so many pills to such small towns should have set off alarms at McKesson.
Helen Kaupang: There was no legitimate reason for that pharmacy in that little town in remote Colorado to be getting hundreds of thousands of pills over a several-year period. None.
Bill Whitaker: Did McKesson know this, or should McKesson have known this--
Helen Kaupang: Absolutely. It was their customer. They were supplyin' it. It was just outrageous. They were turning a blind eye to the very problem that we were trying to address.
Kaupang said to get around reporting suspiciously large orders, at the time, McKesson would simply raise the limit a pharmacy was allowed. No order, no matter how large, was ever reported as suspicious.
Bill Whitaker: They would set a threshold. And if they surpass their own threshold--
Helen Kaupang: Yes.
Bill Whitaker: They would just bump up the threshold to meet this new higher number?
Helen Kaupang: Yes.
Bill Whitaker: So they rigged the system.
David Schiller: Absolutely. Absolutely.
Bill Whitaker: And to be clear here, we're talking addictive opioids.
David Schiller: Highly addictive, Oxycodone and Hydrocodone in particular. That's what we're talking about. The most commonly prescribed and abused controlled substance in the United States.
Bill Whitaker: McKesson would say they're just supplying the doctors and the pharmacies. They're giving them the prescriptions they are allowed to have. How are they wrong?
David Schiller: Because they are going above and beyond those thresholds without any due diligence, with reckless regard and they don't consider any of that suspicious?
A 2014 DEA memo that outlined the investigative findings from all the field offices, obtained by 60 Minutes and the Washington Post, said McKesson, had a pattern of "dramatic increases in thresholds without justification..." And had "supplied controlled substances in support of criminal...Activities" to pharmacies.
David Schiller: I mean the president declared a public health emergency. It's on the front lines of everybody's dinner table conversation. There's not a bigger problem we have in the United States. And who led to the problem? McKesson was at the forefront.
With the opioid epidemic getting worse year by year, special agent Schiller and his team wanted to send a message to the pharmaceutical industry by hitting McKesson hard. They wanted to fine the company more than a billion dollars, revoke registrations to distribute controlled substances, and, more than anything, put a McKesson executive behind bars. But Schiller says, attorneys for the DEA and the Department of Justice retreated at the thought of going against McKesson and its high-powered legal team.
Bill Whitaker: Did a DEA attorney actually tell you that they were not going to pursue McKesson because they had lawyers who had gone to Harvard and Yale?
David Schiller: They told me those exact words, because the case would take too much time and too much effort and, by the way, "What if we lost?" I said, "What if you lost?" I go, "You-- you can't have a better case on a silver platter."
Bill Whitaker: Were they scared?
David Schiller: Yes.
Bill Whitaker: Scared of going after McKesson?
David Schiller: A better word might be "intimidated."
This was at the time whistleblower Joe Ranazzisi, the DEA's then deputy assistant administrator, was sounding alarms that the DEA and Congress were bending to the will of the pharmaceutical industry. In our October report, he told us Justice Department attorneys were pressing him and his investigators to take a softer approach toward the industry.
Bill Whitaker: The summer of 2014 -- you get a request to play nice with the pharmaceutical industry.
Joe Ranazzisi: Yes.
Bill Whitaker: What do you think of that?
Joe Ranazzisi: I didn't think it was appropriate. We told 'em what they need to do. We told 'em what compliance is and how to comply with the act. We met these people over and over again. The time for meetings and reports are over. You either comply or you lose your registration.
But in the McKesson case, negotiations with company attorneys went on for more than two years. In the end, instead of the billion-dollar fine DEA investigators wanted, the company was fined $150 million. That was a record for the DEA, but Schiller called it a slap on the wrist for a fortune five company and a second-time offender.
David Schiller: There was backdoor deals being cut that we didn't know about, I didn't know about, and I was representing DEA nationally on the investigation at the highest level. How do you settle? How do you say it's okay just, "Here, write this check this time and-- and close this place for a little bit, sign this piece of paper." How do you do that? No. Put 'em in jail. You put the people that are responsible for dealing drugs, for breaking the law, in jail. Nobody's in jail. They wrote a check.
Bill Whitaker: Did you think McKesson was getting special treatment?
David Schiller: I don't think -- I know they were getting special treatment. They were getting treatment like I'd never seen in my 30-year career.
Getting special treatment, he said, from lawyers at his agency. In an e-mail, a member of DEA's senior leadership team, who sided with Schiller, told him she was overruled.
"David... I am totally against settling," she wrote, "but how do we hold their feet to the fire...? Our attorneys have us over a barrel with their refusal to go to court."
David Schiller: There is not a man or woman in DEA today that's happy with the settlement and morale has been broken because of it.
Bill Whitaker: Why did you ultimately decide to sit down and talk to us?
David Schiller: I saw what's happening to our country now with this epidemic. I saw the limitations being placed on it-- on us by our own people and chief counsel fighting with our own agents and investigators. And I know I'm gonna make a lotta enemies, because people don't like to hear the truth. I'm doing it because the truth needs to be told.
Schiller pointed out to us the $150 million fine was only about $50 million more than McKesson CEO, John Hammergren's compensation last year. He was the third-highest paid CEO in the country; only Tim Cook of Apple, and Reed Hastings of Netflix earned more. In the last earning period McKesson's revenues were up $8 billion.
We wanted to speak to a McKesson representative on camera but they declined. But in a statement, McKesson said, "In the interest of moving beyond disagreements… The company agreed to settle with the DEA and DOJ." And McKesson promised to do a better job flagging suspicious orders.
We asked the DEA about allegations its attorneys went easy on McKesson. A spokesperson told us the agreement was a good deal; that the priority was to get McKesson to do the right thing going forward. And now an independent monitor has been put in place to watch McKesson more closely.
Maggie Hassan: The pharmaceutical industry is doing everything it can to keep this epidemic going.
Bill Whitaker: That's pretty strong.
Maggie Hassan: Yeah. It is.
New Hampshire Senator Maggie Hassan has been critical of Congress for not aggressively investigating industry's role in this epidemic. New Hampshire has the second highest rate of drug overdose deaths in the country.
Bill Whitaker: What more is it going to take to convince Congress to act?
Maggie Hassan: Well, one of the things we have to do is begin to hold the pharmaceutical companies accountable for this. And right now, when you see a fine for the McKesson Company of $150 million when they make a $100 million a week in profits, that isn't gonna do it.
Bill Whitaker: What incentive do they have to change their behavior?
Maggie Hassan: Well, right now, they don't have a lot of incentives and that's something that has to be changed. This in many ways reminds me of the situation with big tobacco-- and, you know, I think it's one of the reasons you see attorneys general around the country--beginning to file lawsuits against the pharmaceutical industry--to hold them accountable for the cost of this terrible epidemic.
41 state attorneys general have banded together to sue the opioid industry. While at McKesson, John Hammergren begins his 18th year as CEO. This year, the board awarded him an additional $1.1 million performance bonus. A bonus based on ethics and accountability.
Produced by Ira Rosen and Sam Hornblower. Associate Producers, Alex J. Diamond and LaCrai Mitchell.