Mylan 'incorrectly' classified EpiPens, shortchanging government: Regulators

Federal health regulators said Wednesday that Mylan (MYL) is shortchanging the government on rebates for sales of EpiPen — its increasingly pricey, lifesaving allergic reaction device — despite the drugmaker having been repeatedly admonished that the way it classified the device for rebates is "incorrect."

But the Centers for Medicare and Medicaid Services refused say what, if anything, CMS "or our other federal partners" are doing "to correct this misclassification" that results in shortfalls of many millions of dollars in rebates owed by Mylan to Medicaid.

CMS' comments came after a trio of U.S. senators wrote the Justice Department asking if it was considering an investigation of whether Mylan violated the law "when it apparently misclassified its EpiPen product for the purposes of the Medicaid Drug Rebate Program."

"The facts laid out ... suggest that Mylan may have knowingly missclassified EpiPens, potentially in violation of the False Claims Act and other statutes," said the letter from Sens. Amy Klobuchar, D-Minn, Richard Blumenthal, D-Conn. and Charles Grassley, R-Iowa.

Under the Medicaid rebate program, Mylan is paying Medicaid a rebate of 13 percent for every EpiPen it sells through that health-coverage program for primarily poor people, because the company has classified the device as a generic product.

But CMS said Wednesday that Mylan should be paying, but isn't, a rebate rate of 23.1 percent for brand-name drugs, as well as an inflation rebate that is legally required when drugmakers raise the prices of brand-name drugs above the inflation rate.

"CMS has, on multiple occasions, provided guidance to the industry and Mylan on the proper classification of drugs, and has expressly advised Mylan that their classification of EpiPen for the purposes of the Medicaid Drug Rebate Program was incorrect," said CMS spokesman Aaron Albright.

"This incorrect classification has financial consequences for the amount that federal and state governments spend by reducing the amount of quarterly rebates Mylan owes for EpiPen," Albright said.

CMS noted that EpiPen is currently classified by Mylan as a non-innovator multiple source, or generic, drug in that rebate program.

However, the device was approved under a "New Drug Application" by the Food and Drug Administration, has patent protection and has no FDA-recognized therapeutic equivalents. That means it does not meet the definition of a multiple-source drug, but it does meet the definition of a single-source drug, which is supposed to result in the higher rebate amount, according to CMS.

Mylan, whose CEO Heather Bresch is the daughter of U.S. Sen. Joe Manchin, D-W.Va., has come under fire from Congress and consumers for having hiked the price of EpiPens more than 500 percent in recent years.

EpiPens now sell for more than $600 per two-pack, or more than $300 apiece. When Mylan bought the product in 2007, they were selling for about $57 apiece.

The devices are used to counteract the potentially fatal allergic reaction anaphylaxis. Experts have said the auto-injection devices likely cost not more than $30 to make, and that the medication contained in them, epinephrine, costs just a $1 or so.

In Klobuchar's home state of Minnesota alone, the alleged misclassification of EpiPen by Mylan will cost the state's Medicaid program $4.3 million in overpayments this year alone, according to the state health department.

Senate staffers noted that Minnesota is just one state, and that all of the other states have their own Medicaid programs, which are jointly run with the federal government.

This isn't the first time Mylan's classification of EpiPens for Medicaid has been questioned.

Last week, the Senate Finance Committee asked the inspector general of the Health and Human Services Department to investigate the issue.

James Matthews, a partner and litigation lawyer at Foley & Lardner in Boston, said that if Mylan is found to have misclassified EpiPens, the company runs risks beyond "simply repaying the amount of money they should have paid."

Matthews said that if the Justice Department brings a successful False Claims Act case against Mylan, "they have the ability to obtain very large, potentially massive penalties ... for every violation of the False Claims Act."

"But beyond that, they have the ability to obtain injunctive relief. The United States could disqualify, could bar Mylan, from participating in any [federal government] programs going forward," Matthews said. Those programs include the huge health-care programs of Medicare and Medicaid, which combined have more than 110 million people enrolled.

Mylan, when asked for comment Wednesday, said the company "has previously stated that the EpiPenAuto-Injector meets the definition of 'non-innovator' drug in the Medicaid rebate law."

"EpiPen Auto-Injector has been classified as a non-innovator since long before Mylan acquired the product," a spokeswoman said. "Mylan's classification of EpiPen Auto-Injector as a non-innovator drug is consistent with longstanding written guidance from the federal government."

"Just this year, the government adopted a new rule intended to clarify ambiguities in the Medicaid rebate law," the spokeswoman said. "The rule establishes a new process for pharmaceutical companies to follow if they have products like EpiPen approved under what the FDA calls a 'new drug application' that they believe should continue to be treated as a non-innovator drug."

"The new process calls for the submission of an application for non-innovator status to be submitted to CMS on or before April 1, 2017. It would be premature to comment further on this issue until the CMS process has concluded," she said.