ylan Pharmaceuticals overcharged Medicaid for its EpiPen device for years, even though the company had been told it should have provided bigger rebates, a federal agency said on Wednesday.
From 2011 to 2015, Medicaid paid $797 million on EpiPen, after rebates. But the federal and state health care program for the poor should have spent less because Mylan Pharmaceuticals did not pay the appropriate rebates, according to the Center for Medicare and Medicaid Services.
In all, Medicaid spent more than $960 million on the emergency allergy device. This did not reflect a 13 percent rebate the company paid. However, as Acting CMS administrator Andy Slavitt noted, Mylan should have been paying a higher rebate of 23 percent, but did not do so because the company improperly classified EpiPen, despite being told its classification was incorrect.
“This incorrect classification has financial consequences for the amount that federal and state governments spend because it reduces the amount of quarterly rebates Mylan owes for EpiPen,” he wrote in a letter to Senator Ron Wyden (D-Ore.), one of a growing number of lawmakers who are investigating Mylan over its EpiPen pricing, which jumped 548 percent over the past decade to $608 for a two-pack device.
Although CMS last week stated that, in its view, Mylan had not classified EpiPen correctly, this marks the first time that the agency has disclosed how much Medicaid had spent on the device. Under the Medicaid Drug Rebate Program, companies must accurately report — and pay — a rebate on drugs paid for by the agency. And the rebate is a taxpayer issue.
Mylan reported EpiPen as a generic, instead of a brand-name, product. This is an important distinction, because 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 — 13 percent versus 23 percent for a brand-name product. Some states are examining whether Mylan underpaid.
“The letter is more evidence that while Mylan irresponsibly raised the price of EpiPen, they were also bilking taxpayers out of millions of dollars,” Wyden and Representative Frank Pallone (D-N.J.) said in a statement. “We will ensure that taxpayers get their due.”
Wall Street, meanwhile, has estimated this type of liability, when multiplied across the country, might amount to a few hundred million dollars, but Evercore ISI analyst Umer Raffat said the liability may be two to three times higher. He calculated that about 20 percent of EpiPen sales have gone to Medicaid, although he cautioned the liability may be lower depending upon any clarification of the rebate that Slavitt reported.
In explaining its actions, Mylan has repeatedly pointed to 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 have contended this is inconsistent with the way Medicare Part D views the product.
“Obviously, it is a bit premature to judge if Mylan is guilty here,” Sanford Bernstein analyst Ronny Gal writes in an investor not. “The company is in the hot seat and it is a bit convenient that CMS decides after 19 years that Mylan has been wrong all along while it did nothing about it, just in time to suit Congress’ needs. However, Mylan acquired Epipen in October 2007 and had plenty of time to review its regulatory status.
“It seems it was a business mistake to leave this issue lingering (especially if it was notified by CMS). Similarly, it seems management made an error of judgment in not realizing the risk of public rebuke to its pricing strategy (as high deductible plans become more common). Mylan’s argument to shareholders, as we understood it, for the last year has been – you may not like our governance, but we are great operators. This argument looks weaker now.”
Last month, three senators asked the US Department of Justice to investigate whether Mylan violated the law with its Medicaid classification. In a Sept. 28 letter to US Attorney General Loretta Lynch, Richard Blumenthal (D-Conn.), Chuck Grassley (R-Iowa), and Amy Klobuchar (D-Minn.) suggested the company “may have knowingly misclassified EpiPens.”