After years of defrauding the U.S. government and taxpayers, Mylan, the maker of EpiPen, last week resolved allegations that it profited at the expense of Medicaid.

On August 17, Mylan and its subsidiaries agreed to pay $465 million to resolve claims they violated the False Claims Act (“FCA”) for knowingly misclassifying its lifesaving EpiPen product as a generic drug to avoid paying rebates owed to the U.S. government.  In a press release, the Department of Justice (“DOJ”) stated, “this settlement demonstrates the DOJ’s unwavering commitment to hold pharmaceutical companies accountable for schemes to overbill Medicaid, a taxpayer-funded program whose purpose is to help the poor and disabled.”

The settlement was first announced in October 2016, amidst fierce public criticism of Mylan’s triple-digit price hikes for the EpiPen, but the settlement agreement, and the fact that Sanofi was the whistleblower, was just released last week.  It is rare for one health care company to blow the fraud whistle on another health care company.

Sanofi’s Qui Tam Suit

Inquiries into Mylan’s misconduct started when rival Sanofi-Aventis US LLC (“Sanofi”) filed a qui tam lawsuit against Mylan under seal in 2016, in the District of Massachusetts, under the whistleblower provisions of the FCA.  The government then intervened in the case.

Sanofi, which had been selling a competing product to Mylan’s EpiPen, alleged that Mylan knowingly misclassified EpiPen as a generic drug, or “non-innovator” product, even though it was marketed and priced as a brand-name product.  Under the Medicaid program, manufacturers must pay higher rebates for brand-name drugs, i.e. drugs only available through a single source.  To avoid price gouging, Medicaid receives a 23 percent discount on brand-name drugs but only a 13 percent discount on generics.  The intentional misclassification of the EpiPen as a generic allowed Mylan to underpay hundreds of millions of dollars in rebates to Medicaid sold through its health coverage program from 2010 to 2016.  During that timeframe, the company increased the price of the EpiPen by 400% but paid the lesser rebate for generic drugs.

Mylan’s $465 Million Settlement

Mylan’s August 17 settlement agreement with DOJ and the Office of the Inspector General of Health and Human Services (“OIG-HHS”) resolves Sanofi and the government’s allegations that Mylan knowingly skirted its rebate obligations under the FCA.

Without admitting any wrongdoing, effective retroactive to April 1, 2017 Mylan reclassified EpiPen as a brand-name product for rebate purposes and Mylan entered into a corporate integrity agreement.  The company’s five year corporate integrity agreement with OIG-HHS requires that Mylan fulfill numerous obligations, including: (1) retain an independent review organization to assess annually whether Mylan is complying with the Medicaid program, and (2) hold executives and board members individually accountable for the company’s compliance with the corporate integrity agreement and federal health care programs.

As the whistleblower, Sanofi was awarded $38.7 million as its share of the federal recovery for alerting the government about Mylan’s misconduct.  Sanofi also stands to recover some money state Medicaid programs will receive under the settlement.

Public Outcry – Mylan’s Settlement “Shortchanges” Taxpayers

Both Republican and Democratic Senators have issued statements showing disapproval with Mylan’s settlement with DOJ. Senator Chuck Grassley (R-IA) spoke out against the settlement, calling it a “disappointment.”  Senator Grassley continued, “the government’s own watchdog said the taxpayers may have overpaid for EpiPen by as much as $1.27 billion over 10 years.  Did the Justice Department consider the inspector general estimate?  If not, why not?”  Senator Richard Blumenthal (D-CT) also issued a fiery response, saying, “quite simply, the Department of Justice is letting this deceptive pharmaceutical behemoth off the hook.  Absolving Mylan from a finding of wrongdoing has cleared the way for the company to pocket the money it embezzled from an American public in desperate need of lifesaving and affordable medications.”

Mylan is not completely off the hook, at least to other private actions – it still faces Sanofi’s separate antitrust suit in New Jersey federal court.  There, Sanofi alleges that Mylan, to preserve its monopoly over EpiPen-like injectors, offered large rebates to insurers that did not cover competing products.