Warren: EpiPen® Medicaid rebate settlement shows ‘crime does pay’

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.

EpiPen classification

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.

Purported settlement

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.”

Federal EpiPen® spending up 463 percent, Mylan misclassified drug as generic

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.

Mylan calculated profitability using 37.5% tax it doesn’t pay

Mylan is being met with yet more derision after a profitability analysis released by the company to the Securities and Exchange Commission (SEC) revealed that its profits are calculated after factoring in a U.S. tax rate that is much higher than the actual rate—which the Washington Post reports is nearly nothing.

When Mylan CEO Heather Bresch appeared before the House Committee on Oversight and Government Reform to address the pen’s price increases, she claimed that the company receives about $100 of profit from each sale of the $608 EpiPen® 2-Pak (see Mylan CEO highlights EpiPen® access improvement efforts before House committee, Health Law Daily September 22, 2016). The SEC’s profitability analysis revealed that Mylan includes a 37.5-percent tax rate when calculating its net product profitability.

According to the Washington Post, Mylan relocated its headquarters to the Netherlands, which reduced its tax rate. In 2015, the company’s overall tax rate was 7 percent in 2015, but an independent tax expert reported that the U.S. tax rate is actually close to zero. Mylan argued that standard profitability analyses include tax for the jurisdiction reviewed. Representative Elijah Cummings (D-Md) expressed Congress’s skepticism over the numbers provided, and noted that Mylan has until Friday, September 30, 2016, to give Congress files that will allow the government to determine the company’s actual profits.

Mylan CEO highlights EpiPen® access improvement efforts before House committee

Mylan CEO Heather Bresch attempted to deflect the conversation away from the EpiPen® price hike before the House Committee on Oversight and Government Reform by emphasizing Mylan’s efforts to improve access to the device. Dr. Douglas Throckmorton, Deputy Director for Regulatory Programs for the FDA’s Center for Drug Evaluation and Research, also testified about the FDA’s efforts to support the development of new auto-injector products to compete with the EpiPen.

Price hike

When Mylan first purchased the EpiPen from Merck in 2007, the list price for the device was about $57. Today, a 2-Pak is listed at $608. These numbers gained national attention, resulting in outcry from consumers, government scrutiny, and falling stock prices. In response, Mylan doubled eligibility for the patient assistance program allowing consumers to use a savings card when purchasing the EpiPen. Consumers and the press found this action insufficient, especially considering that those without insurance and patients enrolled in federal health care programs are not eligible to use the savings card (see Mylan attempts to mitigate EpiPen® cost hike controversy, Health Law Daily, August 25, 2016).

Testimony

Throckmorton noted that four epinephrine auto-injectors have been granted FDA approval, but only two are on the market. Amedra’s brand name Adrenaclick® is not currently marketed, but the company is marketing its own generic version. Its Twinject® product was discontinued. Kaleo purchased Auvi-Q® from Sanofi after it was recalled and has not yet returned the product to market. According to Throckmorton’s testimony, the FDA is willing to provide one-on-one guidance for products like an auto-injector that combines drug and device components and is working to assist manufacturers in bringing generic drugs to market.

Bresch believes that the issue of access to the EpiPen is equally critical as the pricing aspect. She testified that in 2007, fewer than one million out of the 43 million consumers at risk for anaphylaxis had access to an auto-injector. Since then, about 80 percent more patients have been reached and 85 percent who obtain the EpiPen pay less than $100 for the 2-Pak. Mylan has also provided 700,000 free EpiPens to schools.

Turning to price, she clarified that Mylan does not receive $600 in profits per 2-Pak sold. Although the wholesale acquisition cost (WAC) is $608, Mylan receives $274 after rebates and fees. After subtracting cost of goods and costs, Mylan’s profit is about $100 per 2-Pak. Bresch outlined four steps Mylan has taken to combat the pricing issue:

  • announcing a generic EpiPen to be priced at $300;
  • providing a direct ship option for the generic;
  • increasing the savings card program benefit to $300, from $100; and
  • doubling the income eligibility limit for receiving free pens.

Medicare Part D costs

The Kaiser Family Foundation (KFF) found that between 2007 and 2014, Part D spending on EpiPens increased by 1151 percent. Although the total number of EpiPen users grew from about 80,000 to 211,500 during that time frame (164 percent growth), the average total spending per prescription went from $71 to $344 (383 percent increase). Part D spent $7 million on EpiPens in 2007 and almost $88 million in 2014.

Out-of-pocket spending increased dramatically as well, even though Part D covers some of enrollees’ drug costs. The increase in users and price resulted in a jump in out-of-pocket spending from $1.6 million to $8.5 million. The report noted that the price of the EpiPen has increased by 74 percent since 2014, but Part D spending information for this time period is not yet available.