Recently, a subsidiary of Mallinckrodt PLC, Mallinckrodt ARD LLC, filed a lawsuit against the United States Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) over a change the agencies made to the Medicaid rebates for the company’s Acthar gel.
The lawsuit alleges that CMS and HHS illegally reset a benchmark – the average manufacturer price (AMP) – that is used to calculate rebates the company pays Medicaid for Acthar, one of its most important drugs and highest revenue generators. The CMS decision, according to Mallinckrodt “attempts to reverse without explanation the Agency’s 2012 express, written approval (on two occasions) of the base date AMP used since 2013, prior to Mallinckrodt’s acquisition of Acthar Gel.”
Mallinckrodt says CMS notified the company on May 10, 2019, that unless it reverted to the old base date AMP within two weeks, the Agency would identify Mallinckrodt as being “out of compliance” with its Medicaid Drug Rebate Program reporting requirements. This finding would result in immediate repercussions for Mallinckrodt, including being barred from submitting pricing data for Acthar to Medicaid and a suspension from the Medicaid Drug Rebate Program 90 days after its next reporting deadline.
Through the lawsuit, Mallinckrodt is hoping to “hold unlawful and set aside” the decision by CMS, noting that “a drug’s ‘base date AMP’ is used to calculate the Medicaid rebate amount payable by the drug’s manufacturer to state Medicaid agencies when the drug is prescribed to Medicaid beneficiaries” and that “because the base date AMP is generally used to calculate Medicaid rebates for the entire life of the relevant drug product, it is critically important to get the base date AMP right.”
In an FAQ posted to the company’s blog, Mallinckrodt explains that after the 2012 approval, the company made the change in 2013 and for nearly three years it relied on CMS’ written authorization. In 2016, CMS first raised the issue with Mallinckrodt regarding the base date AMP. After the issue was raised, Mallinckrodt says it “engaged in good faith with the Agency,” but after more than three years of discussions, CMS gave the company a deadline to revert to Acthar gel’s base date AMP that was in effect prior to the 2012 approval and 2013 change.
According to Mallinckrodt, the attempted actions by CMS would “substantially eliminate” Medicaid net sales of the gel and would “significantly undermine” the company’s efforts to continue building its investment in non-sales and marketing activities of more than $500 million to modernize the gel. The CMS decision, if permitted to stand, would also impede the company’s ability to continue its current pace of investment in research and development for a pipeline of drugs that benefit sick patient populations, including patients suffering from ALS, Duchenne muscular dystrophy, Niemann-Pick disease type C, hepatorenal syndrome type-1, and severe burns.
“We are disappointed with the action taken by CMS. With our repeated attempts to engage both HHS and CMS in productive discussions ultimately rebuffed, we find ourselves with no other choice than to vigorously defend our position, through the courts, that Medicaid patients should have access to this important therapy,” said Mark Casey, General Counsel of Mallinckrodt.