Medicare and Medicaid spending on Mylan’s EpiPen increased by 463 percent from 2011 to 2015 not accounting for rebates and other point-of-sale concessions, from $86 million to $487 million. In a letter to the Senate Finance Committee, CMS Acting Administrator Andy Slavitt also indicated that the EpiPen has been improperly classified as a generic, rather than a brand-name, drug under the Medicaid Drug Rebate Program since the fourth quarter of 1997. CMS “expressly told Mylan,” which acquired the EpiPen from Merck in 2007, that the drug is misclassified. The misclassification has financial consequences for federal and state governments and could subject the manufacturer to liability under the False Claims Act (FCA) (31 U.S.C. § 3729, et seq.) and other penalties.
In September 2016, Senate Finance Committee Ranking Member Ron Wyden (D-Ore) and House Energy and Commerce Committee Ranking Member Frank Pallone, Jr., (D-NJ) notified HHS of its concerns that the EpiPen—the source of public outcry stemming from its shocking price increase—was improperly classified under the Medicaid Drug Rebate Program and that Mylan was receiving improper payments from Medicaid (see Mylan CEO highlights EpiPen® access improvement efforts before House committee, Health Law Daily, September 22, 2016; Mylan attempts to mitigate EpiPen® cost hike controversy, Health Law Daily, August 25, 2016). It asked HHS pointed questions about EpiPen’s classification under the Program, which requires participating drug manufacturers to enter into and maintain national rebate agreements with HHS in exchange for state Medicaid coverage of most of the manufacturer’s drug, and helps to offset federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients.
In the October 2016 letter, Slavitt stated that the EpiPen is misclassified as a generic—non-innovator, multiple source—drug, despite the fact that it is approved under a New Drug Application (NDA) by the FDA, has patent protection, and has no therapeutic equivalents, making it properly classified as a brand—single source—drug. Slavitt indicated that brand drugs pay a rebate of the greater of 23.1 percent of the average manufacturer price (AMP) or the difference between the AMP and the drug’s best price. (The difference is increased by a rebate if the rate of increase of the AMP outpaced the rate of inflation.) The rebate for generic products, however, is only 13 percent of the AMP. Mylan thus paid less in rebates than it should have. Slavitt noted that manufacturers that fail to accurately report product and pricing data and pay inadequate rebates may be subject to FCA liability, penalties of up to $100,000 per item of false information, and other government claims.
In February 2016, CMS issued the covered outpatient drug final rule, which stated that covered outpatient drugs approved by the FDA under an NDA must be reported as brand drugs, and will be classified as brand drugs by default, until the manufacturer applies for, and CMS grants, an exception to classify the drug as generic (see CMS paves the way for bigger, better Medicaid drug rebates, Health Law Daily, February 1, 2016). Manufacturers of drugs currently reported as generic, but marketed under an NDA, have until March 31, 2017, to submit an exception request before CMS takes administrative action.
In response to CMS’ letter, Wyden and Pallone noted, “While Mylan irresponsibly raised the price of EpiPen, they were also bilking taxpayers out of millions of dollars” (see Mylan calculatedprofitability using 37.5% tax it doesn’t pay, Health Law Daily, September 27, 2016; Mylan and Congress agree:the epinephrine auto-injector market needs a generic, Health Law Daily, August 30, 2016). They stated that Mylan and other drug companies must take responsibility for their actions to keep “essential medicines” from families, and pledged to get taxpayers their due.