fter weeks of controversy, the Centers for Medicare and Medicaid Services formally blamed Mylan Pharmaceuticals for misclassifying EpiPen with the Medicaid Drug Rebate Program. Under the program, companies must accurately report and pay a rebate on drugs paid for by Medicaid.
“CMS has, on multiple occasions, provided guidance to the industry and Mylan on the proper classification of drugs and has expressly advised Mylan that their classification of EpiPen for purposes of the Medicaid Drug Rebate program was incorrect,” the agency said in a statement. But CMS declined to say what steps are being taken to correct the misclassification.
The statement followed nagging questions about how Mylan classified the emergency allergy device. The company reported EpiPen as a generic, instead of a brand-name, product. This is a significant distinction, because the classifications are used to determine the size of rebates that companies pay Medicaid. Rebates, which are paid in exchange for having their products covered, are lower for generics.
This is a taxpayer issue, because states and the federal government use the rebates from drug makers to offset the cost of covering medicines. This explains why a growing number of lawmakers are demanding investigations into the episode, especially after CMS earlier this month indicated that Mylan had, in fact, reported EpiPen incorrectly.
The latest agency statement, however, is more explicit in assigning blame to the company and underscored lawmakers’ concerns that Mylan may have shortchanged Medicaid. “This incorrect classification has financial consequences for the amount that federal and state governments spend by reducing the amount of quarterly rebates Mylan owes for EpiPen,” CMS added.
As one example, Minnesota officials believe the misclassification may have cost the state about $4 million. “If this is true and indicative of the relative costs at other states, we believe the misclassification could be sizable for Mylan, as Minnesota represents less than 2 percent of the US population,” Wells Fargo analyst David Maris wrote in an investor note Thursday.
EpiPen has become the latest focus of national outrage over drug pricing after Mylan raised the price of the device by 548 percent over the past decade to $608. The constant price hikes have angered families, who keep the device on hand to combat life-threatening allergies, but must often pay most or all of the cost as insurers shift more costs onto patients.
The origins of the disputed rebates go back awhile. A 1997 letter from the Medicaid Drug Rebate program that was written to Dey Laboratories, which Mylan purchased in 2007, noted that it was “fitting and proper” to classify EpiPen as a “non-innovator,” or generic drug product. However, several lawmakers contend this is inconsistent with the way Medicare Part D views the product
For its part, Mylan continues to maintain that EpiPen was classified and reported to Medicaid correctly.
A Mylan spokeswoman wrote us that the company “has previously stated that EpiPen meets the definition of a ‘non-innovator drug in the Medicaid rebate law. EpiPen has been classified as a non-innovator since long before Mylan acquired the product. Mylan’s classification of EpiPen as a non-innovator drug is consistent with longstanding written guidance from the federal government.
“Just this year, the government adopted a new rule intended to clarify ambiguities in the Medicaid rebate law,” she added. “The rule establishes a new process for pharmaceutical companies to follow if they have products, like EpiPen … that they believe should continue to be treated as a non-innovator drug.” Pursuant to a new rule, Mylan intends to file an application for generic status by April. (By the way, non-innovator is a regulatory term, but another way to say generic).
Meanwhile, the investigations are stacking up.
On Wednesday, three US senators asked the US Department of Justice to investigate whether Mylan violated federal law with its classification of its EpiPen device. And earlier this month, 15 House Republicans and Republicans on the Senate Finance Committee separately asked the HHS Inspector General to investigate whether the Centers for Medicare and Medicaid Services is properly overseeing the Medicaid program and how medicines are classified.