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).

Highlight on Virginia: Medicaid agency fails to collect $2.9M in drug rebates

For a covered outpatient drug to be eligible for federal reimbursement under the Medicaid program’s drug rebate requirements, manufacturers must pay rebates to the states. States bill the manufacturers for the rebates to reduce the cost of the drugs to the program. Previous HHS Office of Inspector General (OIG) reviews found that states did not always bill and collect all rebates due for drugs administered by physicians to enrollees of Medicaid managed-care organizations (MCOs).

An OIG review of Virginia’s Department of Medical Assistance Services, Division of Health Care Services (Virginia), from January through December 2013, found that Virginia did not bill manufacturers for some rebates for physician-administered drugs dispensed to enrollees of Medicaid MCOs. As a result, it failed to collect an estimated $2.9 million (federal share) in rebates.

Virginia uses a contractor to manage its drug rebate program. According to the OIG audit, in calendar year 2013, Virginia paid MCOs $2,411,629,093 ($1,238,462,930 federal share), which included expenditures for physician-administered drugs.

The OIG found that Virginia properly billed manufacturers for rebates for drugs associated with the National Drug Codes (NDCs) in its audit sample. However, Virginia did not have valid NDCs for other drug utilization data submitted by MCOs for physician-administered drugs, and it did not bill manufacturers for rebates for these drugs. Virginia estimated average rebates per claim billed to manufacturers, and the OIG determined these estimates to be reasonable. The OIG applied the estimates and determined that Virginia did not bill rebates of $5,831,528 ($2,915,764 federal share) to manufacturers for physician-administered drug utilization without valid NDCs.

The OIG concluded that Virginia did not bill manufacturers for rebates for these drugs because the MCOs submitted utilization data to Virginia with a blank NDC field or an invalid NDC. Although Virginia required MCOs to submit valid NDCs for all physician-administered drug utilization, Virginia did not implement edits in its Medicaid Management Information System to ensure that MCOs submitted valid NDCs. As a result, Virginia did not obtain rebates for these drugs.

The OIG recommended that Virginia: (1) work with CMS to resolve the drug utilization data without valid NDCs by determining the correct NDCs, billing manufacturers for the estimated $5,831,528 ($2,915,764 federal share) in rebates, and refunding the Federal share of rebates collected; (2) implement Medicaid Management Information System edits to verify that NDCs are present and valid in all drug utilization data; and (3) ensure that MCOs submit drug utilization data containing NDCs for all physician-administered drugs.

Virginia concurred with the OIG’s findings and plans to take corrective actions.