EpiPen® misclassification cost $1.27B over 10 years, says OIG

If the EpiPen® had been classified as brand name instead of generic for purposes of the Medicaid Drug Rebate Program, CMS would have saved $1.27 billion from 2006 to 2016, the HHS Office of Inspector General (OIG) found. This estimate is far greater than the $465 million settlement that the federal government and EpiPen’s manufacturer, Mylan Inc., entered into in October 2016 concerning the classification of the drug under the Program (see Mylan settles EpiPen Medicaid rebate dispute for $465M, Health Law Daily, October 11, 2016).

“The fact that the EpiPen overpayment is so much more than anyone publicly discussed should worry every taxpayer,” said Sen. Charles Grassley (R-Iowa). Grassley reported that CMS recently provided records showing that Mylan was made aware of the misclassification years ago but failed to act (see Federal EpiPen® spending up 463 percent, Mylan misclassified drug as generic, Health Law Daily, October 6, 2016). At the time Sen. Elizabeth Warren (D-Mass) opposed the settlement, calling it “shamefully weak” (see Warren: EpiPen® Medicaid rebate settlement shows ‘crime does pay,’ Health Law Daily, October 26, 2016).

Manufacturers generally owe a higher rebate amount for brand-name drugs than generic under the Medicaid Drug Rebate Program. The basic rebate amount for a generic drug is based on a percentage (currently 13 percent) of its average manufacturer price (AMP) (see 42 C.F.R. Sec. 447.509). The basic rebate amount for a brand-name drug is based on the greater of (1) a fixed percentage (currently 23.1 percent) of the drug’s AMP; or (2) the different between the drug’s AMP and best price. In addition to the rebate amount, manufacturers of brand-name drugs (and, beginning in 2017, manufacturers of generic drugs) pay an inflation-related rebate amount if a drug’s price has increased more than the rate of inflation.

The EpiPen controversy led Grassley to request that the OIG review the Medicaid Drug Rebate Program (see HHS Inspector General to investigate Medicaid Drug Rebate Program, Health Law Daily, December 12, 2016).

Part D catastrophic cost protections don’t prevent specialty drug payment disasters

Despite Medicare Part D protections against catastrophic costs, some beneficiaries will pay thousands of dollars out-of-pocket for a single specialty drug in 2016. A new analysis by researchers at Georgetown University and the Kaiser Family Foundation determined that for 12 specialty drugs used to treat four serious health conditions—hepatitis C, multiple sclerosis, rheumatoid arthritis, and cancer—enrollees will pay between $4,000 and $12,000 out of pocket. Further, the analysis found that a “significant share” of the out-of-pocket costs for drugs that cost more than $600 per month can be incurred even after enrollees’ drug spending reaches the drug benefit’s catastrophic threshold.

Part D prescription drug coverage

Medicare Part D includes a gap in coverage between the initial coverage limit of drugs subject to an annual deductible and coinsurance, and catastrophic coverage after an individual incurs out-of-pocket expenses above a certain annual threshold. The gap between the initial coverage limit and catastrophic coverage is known as the “donut hole,” which requires beneficiaries to pay the full costs of certain drugs out of pocket before catastrophic coverage takes effect.

Sections 3301 and 3314 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and section 1101 of the Health Care and Education Reconciliation Act of 2010 (HCERA) (P.L. 111-152) made Medicare Part D more affordable by gradually closing the donut hole and requiring manufacturers to discount the cost of certain drugs (mostly brand-name drugs) by 50 percent.

Analysis findings

Despite the ACA’s protections, the analysis found that Part D enrollees will pay thousands of dollars out of pocket for a single specialty drug in 2016, even after their drug costs exceed the catastrophic coverage threshold. Part D providers determine which drugs to put on formulary—the list of drugs which are covered by the plan. CMS requires certain drugs to be on formulary, including cancer drugs and at least two drugs in every category or class; beyond those requirements, plans determine their own formularies. According to the analysis, whether a drug is on formulary is the most significant driver of out-of-pocket costs for a specialty drug. Further, specialty drugs, even when on formulary, tend to require prior authorization from the insurance provider and are subject to quantity limits.

The analysis considered 12 specialty drugs, and found that when they are on formulary, the maximum out-of-pocket cost is never more than 10 percent higher than the minimum out-of-pocket cost; however, that amount is still thousands of dollars. Monthly out-of-pocket costs vary widely for both brand-name and generic drugs depending on the plan an individual is enrolled in, making it essential for beneficiaries to consider the medications they require when choosing a plan. Out-of-pocket costs for commonly used brand and generic drugs are often significantly higher when they are off formulary. The analysis found that medial off-formulary costs for six top brands and one top generic drug are at least $200 more per month.