Calling a purported settlement between the Department of Justice (DOJ) and Mylan Pharmaceuticals “shamefully weak” and “shockingly soft,” Sen. Elizabeth Warren (D-Mass) warned that the DOJ is failing to deter drug companies from engaging in schemes to defraud Medicaid. In a letter to Attorney General Loretta Lynch, Warren detailed her concerns about the settlement, and requested a full briefing from the DOJ on the matter. Warren’s letter echoed similar concerns raised by Sen. Richard Blumenthal (D-Conn), who asked the DOJ to reject the proposed settlement agreement.
Medicaid drug rebate program
The Medicaid drug rebate program, authorized by Sec. 1927 of the Social Security Act, requires drug manufacturers to participate in exchange for state Medicaid coverage of most drugs. Manufacturers pay a rebate on drugs for which payment was made under the state plan, and the rebates are shared between states and the federal government to offset the cost of Medicaid prescription drugs. The rebate for brand-name drugs is 23.1 percent of the average manufacturer price (AMP) per unit, adjusted for changes in drug costs that exceed the inflation rate; the rebate for generic drugs is 13 percent of AMP per unit, with no inflation adjustment. Manufacturers are responsible for ensuring that their drugs are correctly classified and for paying the correct rebate amount.
After cost increases in Mylan’s EpiPen® Auto-Injector came under scrutiny (see Mylan attempts to mitigate EpiPen® cost hike controversy, August 25, 2016), CMS Acting Administrator Andy Slavitt confirmed that since 1997, the EpiPen has been misclassified as a generic (non-innovator, multiple source) drug. Under CMS’ definitions, the EpiPen—approved under a New Drug Application (NDA) by the FDA, under patent protection, and with no therapeutic equivalents—should have been classified as a brand (single source) drug (see Federal EpiPen® spending up 43 percent, Mylan misclassified drug as generic, October 6, 2016). Further, Slavitt confirmed that CMS “expressly told Mylan that the product is incorrectly classified,” though the agency could not comment on the total amount of rebates owed by Mylan—which purchased the EpiPen from Merck in 2007—as a result of the misclassification.
In October 2016, Mylan announced that it had settled allegations of fraud against the Medicaid drug rebate program related to the company’s classification of the EpiPen® Auto-Injector as a generic drug, rather than a brand drug; the DOJ, however, has not released any information about the alleged settlement (see Mylan settles EpiPen® Medicaid rebate dispute for $465M, October 11, 2016). According to Mylan, it will pay $465 million and enter into a corporate integrity agreement with the HHS Office of Inspector General (OIG), resolving all potential rebate liability claims by federal and state governments, and with no finding of wrongdoing.
Shame and shock
In her letter, Warren wrote that there is no excuse for Mylan’s misclassification of the EpiPen, since the company “had multiple opportunities, over multiple years” to correct the classification. According to calculations done by Warren’s staff, Mylan should have paid an estimated rebate of $416 per dose, rather than the $58 per dose it paid; as a result, Warren says, Mylan underpaid Medicaid rebates by an estimated $530 million. The $465 million settlement, therefore, would reward Mylan by fining the company about $65 million less than the amount Mylan earned by its purportedly fraudulent classification of the EpiPen. Warren reminded the DOJ of “extensive tools” to hold the company accountable, including penalties of up to $100,000 per item of false classification under the Medicaid drug rebate law (42 U.S.C. §1396r-8(b)(3)(C)(ii)), treble damages under the False Claims Act (31 U.S.C. §3729(a)(1)), and criminal penalties under the Health Care Fraud law (18 U.S.C. §1347). She called the announced settlement terms a “limp response” that fails to hold Mylan accountable and with “no deterrent value to prevent drug companies from engaging in abusive schemes to defraud Medicaid and rip off taxpayers.”