The latest installment in the ongoing saga over EpiPen Medicaid Drug Rebates came on May 31, 2017, when Senator Charles Grassley issued a press release stating that between 2006-2016 taxpayers may have overpaid for EpiPen by as much as $1.27 billion, “far more” than the announced-but-never-confirmed or finalized $465 million DOJ settlement with Mylan.

To understand what the latest news means in the ongoing saga over EpiPen Medicaid Drug Rebates, it is important to understand how we got here.   And why at the end of the day, the information Senator Grassley included in the May 31, 2016 release may be less important than the information he hinted at but omitted from the release.

History of EpiPen Classification

We have followed, with admitted insalubrious interest, the public angst over EpiPen Medicaid Drug Rebates since the late summer of 2016.  That is when the media began hammering on the significant price increases for EpiPen and the lack of alternative products.  Which led to questioning why EpiPen was considered a branded product for FDA purposes, but reported as a generic product for Medicaid Drug Rebate purposes?

We previously blogged about Mylan’s October 2016 announcement that it had reached a $465 million settlement with the U.S. Department of Justice (DOJ) over Mylan’s alleged underpayment of Medicaid Drug Rebates for EpiPen.  Although Mylan stated that the settlement resolved “all” potential liability to government programs over EpiPen’s classification for Medicaid Drug Rebate purposes, DOJ would not confirm the settlement.  We commented that the “settlement” was likely just a handshake deal that had yet to be agreed to by all potentially impacted federal and state entities, or to be reduced to writing.

And as we blogged in January 2016, while many federal and state officials had denounced the announced settlement as inadequate and insufficient, there were many questions about the legal underpinnings of any government case against Mylan.

Under the Medicaid Drug Rebate Program, manufacturers pay higher rebate percentages on branded drugs, as opposed to generic drugs. Branded drugs are also subject to an “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 that said 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, subject to lower Medicaid rebates and no inflation penalty.  To the best of our knowledge, that authorization has never been publicly or officially revoked.

The basis of the outrage is that for FDA purposes, EpiPen was in essence a brand drug, with limited competitor products, and “should” have been treated as a brand drug by CMS for purposes of Medicaid Drug Rebates.  Had EpiPen instead 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.  Thus, it was argued that the classification and resulting rebate filings/payments could be used as the basis for a False Claims action against the manufacturer, for impliedly certifying the rebates it paid based on the product’s classification were accurate.

However, this legal theory was potentially undercut by the government’s own actions.  It was the government itself, in the form of HHS-OIG, which first raised the question of the EpiPen classification.  In a July 2009 Report on the Accuracy of Drug Categorizations for Medicaid Rebates, HHS-OIG stated that the classification of EpiPen and several other drugs as generic for Medicaid Drug Rebate purposes but brand for FDA 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 situation with EpiPen.  But there was no public information available about what CMS did with this information.

And thanks to the U.S. Supreme Court, what CMS did, or did not do, with the information about the impact of the EpiPen classification, is significant.  In a landmark June 2016 False Claims ruling, now colloquially known as the Escobar case, the Supreme Court held that information a company impliedly certifies to the government must be material to the government if that information is to be the basis of a False Claims action.  In recent months, multiple courts have relied on that ruling in finding that materiality of information for False Claims purposes is not to be found in what the government says about that information, but in what the government does, or does not do, upon receiving the information.

Is Classification of EpiPen Material for False Claims Purposes?

Manufacturer price reports used for Medicaid Drug Rebate purposes are filed quarterly with CMS.   It was CMS who first authorized the manufacturer to classify EpiPen as generic for Medicaid Drug Rebate purposes in 1997.  And objectively, CMS had reason to question that classification and the attendant impact on Medicaid Drug Rebates in 2009, upon receipt of the 2009 HHS-OIG Report.

If CMS took no action after receiving the HHS-OIG findings in 2009, was the EpiPen classification as generic for Medicaid Drug Rebate purposes material to CMS?  And if it was not material, than how can that classification be the basis for a False Claims Act case against Mylan?

 Where Are We Now?

Since last fall Senator Grassley has consistently pushed government officials on two questions:

1. What did CMS do after it received the information from HHS-OIG in 2009 questioning the EpiPen classification as generic and the resulting costs in terms of Medicaid Drug Rebate?

2. Just how much more would the manufacturer have paid in Medicaid Drug Rebates for EpiPen from 2006-2016, if the product had been classified as brand instead of generic.

Senator Grassley’s release, and his posting of a cover letter from HHS-OIG, provided a partial answer to the second question.  HHS-OIG estimated the total differential in the rebate Mylan paid for EpiPen, and what it might have paid had the product been classified as brand, 2006-2017, was $1.27 billion – with an asterisk.  HHS-OIG did not access or consider Medicaid Best Price reporting for EpiPen, which could impact Medicaid Drug Rebate calculations.  Moreover, in recent years many states have negotiated supplemental Medicaid rebates with manufacturers, especially for more costly drugs.  Those supplemental rebates should be credited to this calculation, but OIG did not access or include information on Medicaid supplemental rebates in its calculation.

Thus the $1.27 billion figure should be viewed as a ceiling not a floor, to the question of how much in Medicaid Rebates would be owed if EpiPen had been classified as brand between 2006-2016.  The actual figure may be much less.

But importantly, as part of his release Senator Grassley hinted at the answer to his first question.  The release acknowledges that Senator Grassley has for months “sought records of communications between CMS and Mylan about the misclassification” of EpiPen.  According to Senator Grassley’s May 31, 2017 press release:

“Recently, CMS provided records to the Committee that show CMS told Mylan on several occasions that the EpiPen was misclassified, yet Mylan failed to correct the classification.”

However, unlike the link to the HHS-OIG cover letter, Senator Grassley did not include in his release any specifics of the CMS communications, or a link to the documentation provided by CMS.  So we don’t know when this communication took place.  And Senator Grassley, while continuing to castigate the purported $465 million settlement from Mylan as inadequate, does criticize the federal government for “letting Mylan off the hook” and its failure “to use all available tools to hold Mylan accountable.”

To date, nothing has emanated publicly from CMS mandating that EpiPen, or other similarly-situated drugs classified as generic for Medicaid Drug Rebate purposes but brand for other purposes, be reclassified.    If CMS, the federal government entity charged with overseeing the Medicaid Drug Rebate Program, in fact has and continues through today to let Mylan “off the hook” for its classification of EpiPen as generic, based on CMS’ actions it is hard to see how Mylan’s classification of EpiPen as generic was or is “material” to CMS.

And if the classification of EpiPen as generic was not material to CMS, why should Mylan be responsible for settling any estimated underpayment of Medicaid Drug Rebates for EpiPen, let alone any false claims penalties?