On August 17, 2017, the U.S. Department of Justice (DOJ) announced that it had reached a $465 million false claims settlement with Mylan, the manufacturer of EpiPen, over the company’s alleged underpayment of Medicaid Drug Rebates for EpiPen. The settlement amount and terms were generally announced by Mylan in October 2016 – but back then DOJ refused to confirm the settlement.

Back in October 2016, we theorized that the announced “settlement” was likely a handshake deal, not yet reduced to writing and not signed off on by the necessary parties.  It’s not surprising that it would take ten months to finalize a health care false claims settlement.  In Ellyn’s government days, she worked cases that took years, not months, to get from handshake deal to announced settlement.

And in reviewing the EpiPen settlement and related unsealed documents, there were things we expected to see in the settlement; admittedly we are grizzled veterans when it comes to false claims settlements.  But there were some things about this settlement that raised our eyebrows. So we will (briefly) recap how we got here and the settlement terms, and discuss the four things that surprised us about this settlement. 

How We Got Here

In the summer of 2016, there was much public angst about the steep increases in the price of EpiPen, the lack of competition for the product, and the classification of the drug by government programs.

CMS administers the Medicaid Drug Rebate Program.  Under that Program, manufacturers pay higher Medicaid rebate percentages on branded drugs, as opposed to generic drugs. Branded drugs are also subject to a rebate “inflation penalty” when price increases outpace inflation; generic drugs are exempt from the inflation penalty.  But when it comes to EpiPen, in 1997 CMS issued a letter to the then-manufacturer, Dey, stating that while the “pen” was an innovator product, since the “epi” part was epinephrine, a generic drug, the manufacturer could classify the product as a generic, thereby subjecting it to lower Medicaid rebates and no inflation penalty.

But, for FDA purposes, EpiPen was in essence a brand drug, with limited competitor products.  Had EpiPen also been classified as a brand drug for Medicaid Drug Rebate purposes, it was theorized that its manufacturer would have been responsible for hundreds of millions of dollars in additional Medicaid Drug Rebates, going back to 1997.   Many politicians were outraged and demanded government action against Mylan.

In the ensuing months, more was learned about what CMS knew about the EpiPen classification. It turns out that the Office of Inspector General for the U.S. Department of Health and Human Services had raised questions about the EpiPen classification as part of a July 2009 report on the Accuracy of Drug Categorizations for Medicaid Rebates.  In that report, HHS-OIG stated that the classification of a number of un-specified named drugs that were considered brand for FDA purposes but generic for Medicaid Drug Rebate purposes, was costing the government millions of dollars in Medicaid rebates. Even before making the report public, HHS-OIG provided CMS with detailed information on the particular drugs at issue, including those in EpiPen.  As we wrote in early June 2017, Senator Grassley has spent months trying to get CMS to cough-up information about what it did after getting that information from HHS-OIG in 2009.

The Settlement

The “Covered Conduct” resolved by the false claims settlement alleges that from July 2010 through March 2017, Mylan had an obligation under its Medicaid Drug Rebate agreement with CMS to submit accurate pricing information to CMS; that the pricing information submitted for EpiPen was allegedly inaccurate because it incorrectly classified EpiPen as generic; and, as a result the company underpaid Medicaid Drug Rebates.  The Covered Conduct also alleges that the incorrect classification and resulting price reports caused an incorrect calculation of the ceiling price under the 340B Drug Discount program, thereby causing 340B covered entities to overpay for the product.  We will get back to this point later.

In the settlement documents, the company did not admit to the allegations and there is no specific finding of liability.  While DOJ has been insisting on some form of admissions in false claims settlements for the past 18 months, frankly given the issues in this case we were not surprised that there was no admission in this settlement.

The company will pay a total of $465 million to settle the allegations.   The settlement is allocated:

• $231,764,000 to the federal government

• $213,936,000 to the states electing to participate in the settlement

• $19,300,000 to 340B covered entities

The company also had to enter a Corporate Integrity Agreement with HHS-OIG.  There are two relator entities that will share in the recovery with the federal government, as well as in the recovery of states that have qui tam statutes.

What Surprised Us

1. Two Qui Tam Relators.

We were surprised to learn that there were not one but two recently filed qui tams where relator-entities brought forth information that moved the case forward.  The fact that the relators were part of the settlement meant that each relator had information that the government did not previously know.

The first relator was Sanofi which filed a qui tam Complaint in August 2016.  According to that now-unsealed complaint, Sanofi learned from its customers that the EpiPen classification and Medicaid rebate percentages were being used in EpiPen marketing and also being leveraged to get EpiPen on Medicaid formularies.  Sanofi first disclosed information on these practices to the government at an in-person meeting in October 2014.

The second relator is a familiar name to false claims practitioners:  Ven-A-Care, which first brought the landmark AWP false claims actions almost twenty years ago.  According to its now-unsealed complaint, Ven-A-Care filed a new qui tam in January 2017, spurred by the media reports and political controversy over the EpiPen classification.  Ven-A-Care asserted that in a prior qui tam filed in 2002, it had in fact raised questions about EpiPen classification for Medicaid Drug Rebate purposes, but that part of the case was not pursued because of the 1997 CMS letter.  Ven-A-Care alleged that by 2009, the chemical makeup of EpiPen had been modified to such an extent that the 1997 CMS letter no longer applied to the product.

2. Inclusion of 340B.

We were surprised by the inclusion of 340B covered entities in the settlement.  The essence of a false claims case is harm/damages to government-funded programs.  While the 340B Drug Discount program was established by federal law and is a government-administered program, the covered entities that purchase 340B drugs are, for the most part, not government programs.  To be fair, a small percentage of 340B covered entities are government-funded/run health care providers, but most 340B covered entities are private hospitals or clinics.  Yet the terms of the settlement do not limit the portion of the settlement allocated to 340B to government-funded/run covered entities, and it appears that privately-run covered entities may share in the settlement proceeds.  In the past, the government has protested mightily any attempt to include losses by non-government entities in false claims recoveries. 340B entities have been included in some Medicaid best price settlements in the past up until July 2012.  Since then the Department of Justice has not included 340B in a number of subsequent cases. Hence the raising of our eyebrows upon seeing that covered entities will be recipients of settlement funds.

Also surprising is the methodology for distributing the portion of the settlement allocated to 340B.  From the language in the settlement, it appears the company will calculate pro rata settlements for 340B covered entities and provide DOJ a report on the calculation methodology and result.  Thereafter, the company will issue checks to covered entities from the settlement fund.  If a covered entity does not cash the check, that portion of the settlement will revert to the federal government.

3. Covered Conduct Date Range.

Given the history of this case, the dates of the conduct alleged and released by the settlement is somewhat surprising:  January 2010 through March 2017 – meaning the allegations resolved through the settlement all post-date the HHS-OIG Report by a year. They also post-date the Ven-A-Care allegations on application of the 1997 CMS letter. It may be as simple as one or more parties being adamant that there was no cause to vary from the general six year statute of limitations applicable to false claims cases. But the date range of the Covered Conduct is sure to be a subject of criticism.

4. States Opting Out.

We were not surprised that a team from the National Association of Medicaid Fraud Control Units was part of the government team that negotiated this settlement.  And we were not surprised that there is an opt-out provision for the states:  if a state chooses not to sign a settlement agreement, the state’s allocated portion of the settlement shall revert to the company.  What was surprising was that only a few state Attorneys General made a simultaneous announcement of a state settlement.

Generally, when a federal settlement of this size involving Medicaid damages is announced, and the settlement is the result of coordinated negotiation with the states, press releases are also coordinated. Put another way, we thought we would see many states announcing the settlement at the same time the DOJ announcement came out. To be fair, in conjunction with the federal settlement announcement, we saw several state Attorneys General announce they had, or intended to, join the settlement. This includes Ohio, which will receive $19.6 million from the settlement; North Carolina who will receive $21.4 million; and New York who will receive $38.5 million.  But a lot of other state Attorneys General were silent, while politicians in their state were not.  For example, Senators Blumenthal and Grassley have both already gone on record criticizing the adequacy of the settlement.

State Attorneys General may be weighing whether to join the settlement, or pursue these allegations on their own, either using their own attorneys or retained private counsel to litigate the claims.  And state-pursued litigation on EpiPen raises another issue.  We noted in our June post that CMS’ failure to act on the HHS-OIG information in 2009 complicated false claims litigation, given the government knowledge of the impact of the EpiPen classification.  But the 2009 HHS-OIG Report that was publicly disseminated did not specify the drugs at issue; HHS-OIG shared that information privately with CMS.  But did anybody tell the states?  And if not, can the states be said to constructively have knowledge of information never provided?

What’s Next?

Senator Grassley has not let go of the issue of CMS’ role in the situation.  In his press release on the false claims settlement, he noted:

Another problem is why CMS and Mylan did nothing about the misclassification until a lawsuit forced them to act.   CMS provided records to the Judiciary Committee that show CMS had concerns about how EpiPen was misclassified years ago, yet Mylan failed to correct the classification, and CMS failed to require the company to fix the problem.

It presents an interesting political quandary: will Senator Grassley go after CMS under this Administration and, if so, how will this Administration defend previous CMS action in this case?

We will have to wait to see if Senator Grassley will follow up with hearings on this issue.  We will also watch with interest to see whether there is fallout from the inclusion of the 340B covered entities in this settlement.  And we will watch with interest to see how many states opt out of the federal settlement to pursue their own litigation and if so how that litigation is pursed.

In other words, we do not expect the recently announced settlement to end the EpiPen controversy.