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Commitments, Contingent Liabilities and Litigation | 9 Months Ended
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Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract] |
Commitments, Contingent Liabilities and Litigation | 7. Commitments, Contingent Liabilities and Litigation Commitments Generic Sourcing Venture with CVS Health Corporation ("CVS Health") In July 2014, we established Red Oak Sourcing, LLC ("Red Oak Sourcing"), a U.S.-based generic pharmaceutical sourcing venture with CVS Health for an initial term of 10 years. Red Oak Sourcing negotiates generic pharmaceutical supply contracts on behalf of its participants. Due to the achievement of predetermined milestones, we are required to make quarterly payments of $45.6 million to CVS Health for the remainder of the initial term. Legal Proceedings We become involved from time to time in disputes, litigation and regulatory matters. We are named from time to time in qui tam actions initiated by private third parties. In such actions, the private parties purport to act on behalf of federal or state governments, allege that false claims have been submitted for payment by the government and may receive an award if their claims are successful. After a private party has filed a qui tam action, the government must investigate the private party's claim and determine whether to intervene in and take control over the litigation. These actions may remain under seal while the government makes this determination. If the government declines to intervene, the private party may nonetheless continue to pursue the litigation on his or her own purporting to act on behalf of the government. From time to time, we become aware through employees, internal audits or other parties of possible compliance matters, such as complaints or concerns relating to accounting, internal accounting controls, financial reporting, auditing, or other ethical matters or relating to compliance with laws such as healthcare fraud and abuse, anti-corruption or anti-bribery laws. When we become aware of such possible compliance matters, we investigate internally and take appropriate corrective action. In addition, from time to time, we receive subpoenas or requests for information from various federal or state agencies relating to our business or to the business of a customer, supplier or other industry participants. Internal investigations, subpoenas or requests for information have led, and may in the future lead, to the assertion of claims or the commencement of legal proceedings against us or result in sanctions. From time to time, we determine that products we manufacture or market do not meet our specifications, regulatory requirements, or published standards. When we or a regulatory agency identify a potential quality or regulatory issue, we investigate and take appropriate corrective action. Such actions can lead to product recalls, costs to repair or replace affected products, temporary interruptions in product sales, action by regulators and product liability claims and lawsuits, including class actions. Even absent an identified regulatory or quality issue or product recall, we can become subject to product liability claims and lawsuits. We accrue for contingencies related to disputes, litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because these matters are inherently unpredictable and unfavorable developments or resolutions can occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review contingencies to determine whether our accruals and related disclosures are adequate. The amount of ultimate loss may differ from these estimates. Except as otherwise disclosed in this footnote, it is not possible for us to reasonably estimate the amount of any possible loss or range of possible losses in the matters described below. We recognize income from the favorable outcome of litigation when we receive the associated cash or assets. We recognize estimated loss contingencies for certain litigation and regulatory matters and income from favorable resolution of litigation in litigation (recoveries)/charges in our condensed consolidated statements of earnings. Opioid Lawsuits and Investigations Pharmaceutical wholesale distributors, including us, have been named as defendants in over 3,000 lawsuits relating to the distribution of prescription opioid pain medications. The lawsuits seek equitable relief and monetary damages based on a variety of legal theories including various common law claims, such as public nuisance, negligence and unjust enrichment as well as violations of controlled substance laws, the Racketeer Influenced and Corrupt Organizations Act and various other statutes. These lawsuits also name pharmaceutical manufacturers, retail pharmacy chains and other entities as defendants. States & Political Subdivisions Approximately 2,700 of these lawsuits have been filed by counties, municipalities, cities and political subdivisions in various federal, state, and other courts. The vast majority of these lawsuits were filed in U.S. federal court and have been transferred for consolidated pre-trial proceedings in a Multi-District Litigation proceeding in the U.S. District Court for the Northern District of Ohio (the “MDL”). In January 2020, the complaints of the Cabell County, West Virginia and the City of Huntington, West Virginia were remanded to U.S. District Court in West Virginia. A trial date has been set in August 2020. In addition, the complaints of San Francisco, California and the Cherokee Nation have been remanded to their original district courts, but no trial dates have been set. In addition, 25 state attorneys general have filed lawsuits against distributors, including us, in various state courts. A trial in New York for cases brought by the New York State Attorney General and Nassau and Suffolk counties was scheduled to begin in March 2020, but was deferred due to the COVID-19 pandemic. Trial is scheduled to begin in October 2020 for a case brought by the Ohio State Attorney General and trial on a case brought by certain West Virginia political subdivisions is scheduled for March 2021. Additionally, we have received requests from a multi-state task force of state attorneys general, as well as separate civil investigative demands, subpoenas or requests for information from these and other state attorneys general offices and governmental authorities. In October 2019, we agreed in principle to a global settlement framework with a leadership group of state attorneys general that is designed to resolve all pending and future opioid lawsuits and claims by states and political subdivisions (the "Settlement Framework"). This Settlement Framework is subject to contingencies and uncertainties as to final terms, but is the basis for our negotiation of definitive terms and documentation. The Settlement Framework includes (1) a cash component, pursuant to which we would pay up to $5.56 billion over eighteen years, (2) development and participation in a program for distribution of opioid abuse treatment medications for a period of ten years, and (3) industry-wide changes to be specified to controlled substance anti-diversion programs. Definitive terms for a settlement pursuant to the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. In connection with these matters, we have $5.56 billion accrued at March 31, 2020, included in deferred income taxes and other liabilities in the condensed consolidated balance sheets, which represents the cash component. We are unable to reasonably estimate the liability or cost associated with the other components of the Settlement Framework, the potential distribution of treatment medications and any incremental costs for changes to our controlled substance anti-diversion program that we may agree to. We continue to negotiate the definitive terms of the Settlement Framework. In the nine months ended March 31, 2020, we along with two other national distributors entered into a $215 million settlement with two Ohio counties, Cuyahoga and Summit, to resolve all claims in the first bellwether trial in the MDL, which had been set for trial for October 2019. In connection with this settlement, we incurred $66 million within litigation (recoveries)/charges, net during the nine months ended March 31, 2020. In connection with these matters, we recorded a total pre-tax charge of $5.63 billion ($5.14 billion after tax) during the nine months ended March 31, 2020 in litigation (recoveries)/charges, net, in the condensed consolidated statement of earnings for the cash component. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. We will regularly review these opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual. We continue to strongly dispute the allegations made in these lawsuits and reaching an agreement in principle on a global settlement framework is not an admission of liability or wrongdoing. Private Plaintiffs The Settlement Framework does not address claims by private plaintiffs, which includes unions and other health and welfare funds, hospital systems and other healthcare providers, businesses and individuals. Private plaintiffs had brought approximately 400 lawsuits as of May 4, 2020. Of these, 105 are purported class actions. The causes of action asserted by these plaintiffs are similar to those asserted by public plaintiffs. We will continue to vigorously defend ourselves in these matters. Department of Justice Investigations We have received grand jury subpoenas issued on behalf of the District Courts for the Eastern District of New York and the District of Columbia seeking documents and, in the District of Columbia, testimony, related to our anti-diversion policies and procedures, and our distribution of certain controlled substances. We are cooperating with these requests. Cordis Product Liability Lawsuits As of May 4, 2020, we are named as a defendant in 309 product liability lawsuits coordinated in Alameda County Superior Court in California involving claims by approximately 3,924 plaintiffs that allege personal injuries associated with the use of Cordis OptEase and TrapEase inferior vena cava (IVC) filter products. Another 29 lawsuits involving similar claims by approximately 34 plaintiffs are pending in other jurisdictions. These lawsuits seek a variety of remedies, including unspecified monetary damages. We are vigorously defending ourselves in these lawsuits. At March 31, 2020, we had a total of $466 million accrued for losses and legal defense costs related to the Cordis IVC filter lawsuits, net of estimated insurance recoveries. We believe there is a range of estimated losses with respect to these matters. Because no amount within the range is a better estimate than any other amount within the range, we have accrued the minimum amount in the range. We estimate the high end of the range to be approximately $900 million, net of estimated insurance recoveries. Shareholder Securities Litigation In August 2019, the Louisiana Sheriffs' Pension & Relief Fund filed a purported class action complaint against Cardinal Health and certain current and former officers and employees in the United States District Court for the Southern District of Ohio purportedly on behalf of all purchasers of our common shares between March 2015 and May 2018. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by making misrepresentations and omissions related to the integration of the Cordis business and inventory and supply chain problems within the Cordis business, and seeks to recover unspecified damages and equitable relief for the alleged misstatements and omissions. We believe that the claims asserted in this complaint are without merit and intend to vigorously defend against them. Surgical Gown Recalls In January 2020, we issued a voluntary recall for 9.1 million AAMI Level 3 surgical gowns and two voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for 2.9 million Presource Procedure Packs containing affected gowns (together, the "Recalls"). These Recalls were necessary because we discovered in December 2019 that one of our FDA-registered suppliers in China had shifted production of some gowns to unapproved sites with uncontrolled manufacturing environments. Because of this, we could not assure sterility of the gowns. In connection with these Recalls, in the nine months ended March 31, 2020, we recorded total charges of $95 million, of which $55 million is within cost of products sold and $40 million is within SG&A in the condensed consolidated statements of earnings/(loss). In our condensed consolidated balance sheet at March 31, 2020, we had $38 million reserved within inventories, net, and $55 million included in other accrued liabilities related to this charge. This charge represents our best estimate of costs for the Recalls and includes inventory write-off costs and certain remediation and supply disruption costs, such as costs to replace recalled products. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. The amount of ultimate loss may differ materially from this accrual. In addition to the charge for the nine months ended March 31, 2020, the Recalls may have other negative impacts, which could include: government investigations and enforcement actions by the U.S. Food and Drug Administration or other regulators or U.S. or international governmental bodies (possibly resulting in the suspension or revocation of the authority to produce, distribute and sell products and other civil or criminal sanctions); losses due to patient claims, including product liability claims and lawsuits; and customer claims unrelated to their direct costs from the supply disruption. Other Civil Litigation Generic Pharmaceutical Antitrust Litigation In December 2019, pharmaceutical distributors including us were added as defendants in a civil multidistrict litigation consisting of multiple individual and class action lawsuits filed by indirect purchasers of generic drugs, such as hospitals and retail pharmacies. The plaintiffs allege that pharmaceutical distributors encouraged manufacturers to increase prices, provided anti-competitive pricing information to manufacturers and informed manufacturers that they wished to maintain current customer allocations for the purpose of avoiding price erosion. We intend to vigorously defend ourselves in these matters. Blood Pressure Medication Recall Litigation Many participants in the pharmaceutical supply chain, including manufacturers, repackagers (including us), distributors (including us), and retailers have been named as defendants in Multidistrict Litigation in the U.S. District Court for the District of New Jersey (the “Blood Pressure Medication Recall MDL”), which was created in February 2019. The claims arise out of a series of recalls of generic blood pressure medications due to alleged impurities in active pharmaceutical ingredients. We intend to vigorously defend ourselves in these matters.

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