Mallinckrodt in Hot Water: Tries to Reach Settlement, Gets Hit With New Problems

01On June 5, 2019, the United States Department of Justice (DOJ) announced that it filed a complaint under the False Claims Act against Mallinckrodt ARD LLC, alleging that the company (also previously known as Questcor Pharmaceuticals Inc) engaged in conduct that violated the False Claims Act by using a foundation as a way to pay kickbacks in connection with its drug H.P. Acthar Gel (Acthar) from 2010 through 2014. The next day, the company announced a settlement to resolve some of the claims outlined in the False Claims Act complaints against it.

DOJ Intervention and New Complaint

The government alleges that Mallinckrodt used a foundation as a conduit to pay illegal kickbacks via copay subsidies for Acthar so it could market the drug as “free” to doctors and patients while increasing its price. Mallinckrodt allegedly paid these illegal subsidies through three funds to a foundation that the company had set up to pay only Medicare copays for Acthar, at the exclusion of other drugs.

The government alleges that Mallinckrodt then routed patients with Acthar prescriptions to these funds, of which Mallinckrodt allegedly made continuing payments as the sole “donor.” The government alleges that the Company paid these subsidies to induce Medicare-reimbursed purchases of Acthar at it continued to raise the price, and used the subsidies to counteract doctor and patient concerns about the drug’s high cost and to market the drug as “free.”

The government further alleges that since 2001, Mallinckrodt raised the price of Acthar from roughly $50 to over $32,200 per 5 milliliter vial by the end of 2014.

“Drug companies are not allowed to pay patients’ co-pays. That rule is designed to prevent the very thing Mallinckrodt allegedly did here – outrageously jack up Acthar’s price and leave the government with the entire bill,” said U.S. Attorney William M. McSwain, in announcing the lawsuit. “We will not allow drug companies to use so-called charitable patient assistance funds to do what they otherwise are not allowed to do. That’s an illegal kickback and undermines the viability of Medicare Part D, which our nation instituted to help seniors cover prescription drug costs.”

Mallinckrodt has defended its actions, saying, “Contrary to the DOJ’s characterizations in the complaint, the allegations relate to legacy Questcor conduct as all the donations to the Chronic Disease Fund (CDF) referenced in the complaint occurred prior to the acquisition of Questcor or were for grandfathered patients who had been approved by CDF for co-pay assistance prior to the acquisition.”

Expected Settlement

One day after the DOJ announced it was intervening in two qui tam cases filed against Mallinckrodt, the company announced that it expects to pay $15.4 million to resolve some of the claims outlined in the qui tam suits and the DOJ complaint. The $15.4 million settlement would not cover any allegations relating to Questcor’s charitable foundation activities, only the company’s sales and marketing activities. Therefore, the lawsuit regarding activities surrounding the patient assistance charity remains active.

“Mallinckrodt looks forward to finalizing our settlement agreement with the government relating to legacy Questcor sales and marketing activities. As we have said repeatedly, where we can resolve legacy legal matters in a reasonable and manageable way, we will do so,” said Mark Casey, Mallinckrodt General Counsel. “Unfortunately, that has not been possible to date regarding the allegations relating to Questcor’s charitable foundation activities, despite what we believe was lawful and appropriate activity. We are confident that the litigation process will focus the contested issues and be a productive step in reaching resolution.”

The terms of the settlement are still being worked out, but it is expected that they will not include any admission of wrongdoing on behalf of Mallinckrodt.

Conclusion

Mallinckrodt is no stranger to controversy and investigations, as the company previously agreed to pay $100 million to settle charges from the United States Federal Trade Commission that the company violated antitrust laws when Questcor acquired the rights to a competing drug that threatened its monopoly in the United States for adrenocorticotropic hormone drugs.

In January 2019, the company also received a letter from the United States House Committee on Oversight and Reform, which requested information relating to its pricing strategy for Acthar.

The ongoing lawsuit is likely to bring an additional settlement from Mallinckrodt, time will tell if it will be resolved in the finalization of the $15.4 million settlement reached, or if it will continue on for weeks or months to come.