On October 7, 2016, Mylan announced it reached an agreement with the United States Department of Justice (DOJ) to settle claims related to the classification of EpiPen under the Medicaid rebate program. Mylan noted that the settlement, under which the company admits no wrongdoing, resolves all “potential rebate liability claims by federal and state governments.”
The question in the underlying matter of the settlement was whether the EpiPen Auto-Injector was properly classified with the Centers for Medicaid and Medicare Services (CMS) as a non-innovator drug under the applicable definition in the Medicaid rebate statute and subject to the formula that is used to calculate rebates to Medicaid for such drugs. According to Mylan, EpiPen has been classified as a non-innovator drug since prior to Mylan’s acquisition of the product in 2007, based on “longstanding written guidance from the federal government.”
According to the federal government, EpiPen is a branded drug, meaning Mylan should have been paying Medicaid a far higher rebate under the government’s pricing rules. Pharmaceutical manufacturers are required to pay Medicaid rebates of just thirteen percent for generic products purchased, compared to a 23.1 percent rebate for brand-name drugs, which cost much more.
On October 6, 2016, CMS stated that besides paying Medicaid a too-low rebate on EpiPen purchases, Mylan also hasn’t been paying Medicaid a second rebate that is required whenever the price of a brand-name drug price rises more than inflation. On the other hand, the price of an EpiPen pack rose twenty-three percent a year on average between 2007 and 2016. Inflation has averaged less than two percent per year over the same period.
In connection with the settlement, Mylan expects to enter into a corporate integrity agreement with the Health and Human Services (HHS) Office of Inspector General (OIG).
Based on the settlement, Mylan disclosed that it will reduce its full-year earnings guidance to a per-share range of $4.70 to $4.90, down from prior guidance of $4.85 per share to $5.15 per share. The company also added that it will take a pre-tax charge of approximately $465 million for the quarter ending September 30.
Mylan CEO Heather Bresch commented,
This agreement is another important step in Mylan’s efforts to move forward and bring resolution to all EpiPen Auto-Injector related matters. The agreement is in addition to the significant steps Mylan has taken in relation to EpiPen Auto-Injector over the past several weeks, including the unprecedented, pending launch of a generic version of EpiPen Auto-Injector and expansion of our patient access programs for this product. Entering into this settlement is the right course of action at this time for the Company, its stakeholders and the Medicaid program.
Congressional Influence
Congress took a front seat in the investigation of Mylan, including taking testimony from CEO Heather Bresch. Some in the Senate have been pushing for the DOJ to investigate the matter more fully. Interestingly, Mylan short-circuited that possibility by reaching this settlement.
However, several Senators, have spoken out against this settlement. For example, Senator Richard Blumenthal called the deal “a shadow of what it should be,” and accused it of “lacking real accountability for Mylan’s apparent lawbreaking.”
Senator Chuck Grassley believes that there are still some questions remaining, even following the settlement. He noted, “It’s unclear whether this settlement is fair or in proportion to the amount Mylan overcharged the taxpayers. It’s also unclear how much money is going back to the states. The Justice Department should make all of the details as transparent as possible, including when it opened the investigation into Mylan. This is public money, and the public’s business generally ought to be public.”
This deal (one of the quickest we can remember) follows months of controversy and investigations over EpiPen price increases, and two weeks of close scrutiny on Mylan’s rebates to Medicaid.