Recently, Mallinckrodt ARD LLC reached a $260 million settlement to resolve allegations that Mallinckrodt violated the False Claims Act by knowingly underpaying Medicaid rebates for its drug H.P. Acthar Gel and for using a foundation as a conduit to pay illegal co-pay subsidies in violation of the Anti-Kickback Statute.
False Claims Act Violations
In its complaint filed on March 3, 2020, the government alleged that Mallinckrodt knowingly underpaid its quarterly drug rebates to state Medicaid programs for Acthar from 2013 to 2020. According to the complaint, Mallinckrodt and its predecessor Questcor began paying rebates for Acthar in 2013 as if Acthar was a “new drug” first marketed in 2013, rather than a drug that had been approved since 1952. Allegedly, this practice meant the companies ignored all pre-2013 price increases when calculating and paying Medicaid rebates for Acthar from 2013 until June 30, 2020. In particular, the government alleged that Acthar’s price had already risen to over $28,000 per vial by 2013, and therefore ignoring all pre-2013 price increases for Medicaid rebate purposes significantly lowered Medicaid rebate payments for Acthar. Under the settlement agreement, Mallinckrodt admitted that Acthar was not a new drug as of 2013 but rather was approved by the U.S. Food and Drug Administration and marketed prior to 1990, and agreed to correct Acthar’s base date AMP and that it will not change the date in the future.
To resolve these allegations, Mallinckrodt has agreed to pay $233,707,865.18. Of the amount allocated to the Medicaid rebate claims, Mallinckrodt will pay approximately $123.6 million to the United States and approximately $110.1 million to the participating Medicaid States, pursuant to the terms of separate settlement agreements Mallinckrodt has or will enter into with those states. The whistleblower in the initial qui tam suit will receive roughly $24.7 million from the federal recovery.
Anti-Kickback Statute Violations
In its complaint filed on June 5, 2019, the government alleged that Mallinckrodt knowingly used a foundation as a conduit to pay illegal kickbacks in the form of 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 that Mallinckrodt had a foundation set up to induce Medicare-reimbursed purchases of Acthar and used the subsidies to counteract doctor and patient concerns about the drug’s high cost.
Additionally, the government alleges that Mallinckrodt was the sole “donor” to the patient assistance funds and that since Mallinckrodt’s acquisition of Acthar in 2001, raised the price of the drug from $50 to more than $32,000 per 5 ml vial by the end of 2014.
To resolve these allegations, Mallinckrodt has agreed to pay $26,292,134.82 to the United States. The whistleblowers in the qui tam suit will receive roughly $4.9 million.
Corporate Integrity Agreement
Mallinckrodt entered into a five-year corporate integrity agreement (CIA) with the United States Department of Health and Human Services Office of Inspector General (HHS OIG). The CIA includes some of the general terms we have come to see, as well as unique drug price transparency provisions and monitoring provisions focused on Medicaid rebate and patient assistance program charities. Some of the general terms including requiring Mallinckrodt to establish a risk assessment program, implement executive recoupment provisions, and obtain compliance related certifications from company executives and board members.
Statements
“Mallinckrodt illegally reduced the amounts it paid to state Medicaid programs by improperly calculating the rebates it owed,” said U.S. Attorney Rachael S. Rollins for the District of Massachusetts. “Today’s settlement vindicates the interests of the American taxpayer by ensuring that no pharmaceutical manufacturer can illegally boost its profits at the expense of state Medicaid programs, and the people and families those programs serve. This company unlawfully siphoned money out of the Medicaid program which poor people depend on for their medical care.”
“When pharmaceutical companies manipulate Medicare Part D by covering patient copays, the whole structure of the Part D program is undermined,” said U.S. Attorney Jennifer Arbittier Williams for the Eastern District of Pennsylvania. “Our office is committed to maintain the financial integrity of taxpayer-funded programs like Medicare, and therefore we will continue to pursue fraud actions like this so that Medicare Part D and other federal healthcare programs remain viable for those who rely on the benefits.”
Bankruptcy Court
Interestingly, the settlement is based on Mallinckrodt’s financial condition and required approval of the United States Bankruptcy Court for the District of Delaware, which has approved the settlement. However, with Mallinckrodt in bankruptcy, the question remains how is a company with Market Capitalization of $10 million going to pay a $240 million settlement to the Government.
Not the First Rodeo for Mallinckrodt
These settlements are in addition to Mallinckrodt’s prior settlements totaling $275 million, where the company was similarly alleged to have violated the Anti-Kickback Statute and the False Claims Act.