Though the EpiPen emergency allergy treatment has been around for decades, the increased demand for the drug and its soaring price tag have caused Medicaid spending on EpiPen to go from around $66 million in 2011 to $365 million in 2015. All this time, claims Andrew Slavitt, Acting Administrator for the Center for Medicare & Medicaid Services, Mylan’s parent company has been shortchanging Medicaid on rebates.
As we’ve mentioned in previous stories, the Medicaid Drug Rebate Program requires drugmakers to pay back a portion of their Medicaid revenue to the states through rebates.

The size of those rebates is determined by whether the drug is considered an “innovator” medication (often a newer, higher-cost drug with little or no competition) or a “non-innovator multiple source” (NIMS) drug (often an older drug with competition from generics). Since 2010, the rebate rate for a NIMS drug is 13% of the average manufacturer price during the rebate period. Innovator drugs face a significantly higher rebate, of at least 23.1%.

Drug companies are effectively on their honor to properly categorize a drug with the rebate program, though any drugmaker found to have deliberately mis-categorized an innovator drug as NIMS to avoid the higher rebate rate could face significant penalties.

Which brings us to EpiPen. In a letter [PDF] sent yesterday to Sen. Ron Wyden (OR), Acting Administrator Slavitt confirms earlier reports that CMS had recently determined that Mylan had inaccurately categorized EpiPen as a NIMS drug.

In fact, the NIMS categorization goes back two decades, long before Mylan acquired EpiPen as part of its purchase of Merck’s generics business. Toward the end of 1997, the company that then owned EpiPen changed the classification from single-source to multiple-source, even though competition in this market has been few and far between.

“EpiPen is approved under a New Drug Application by the Food and Drug Administration, has patent protection, and has no FDA-approved therapeutic equivalents,” writes Slavitt. “These facts indicate EpiPen does not meet the definition of a multiple source drug, but, in fact, meets the definition of a single source drug or brand drug.”

Between 2011 and 2015, according to the letter, Medicaid has paid a total of $960 million toward EpiPen purchases. Because of the NIMS classification, Mylan has only paid a rebate rate of 13%. Medicaid’s net spending on the drug during those years was around $797 million, but should have been significantly less, claims Slavitt, who claims the CMS has expressly told Mylan that EpiPen is mis-classified. He also notes that CMS has not yet determined how much Mylan should owe because of this alleged error.

“When it comes to CMS’s attention that the manufacturer’s categorization is incorrect, CMS notifies the manufacturer and tries to reach an agreement,” he explains.

Manufacturers caught incorrectly categorizing drugs in the rebate program could be in violation of the False Claims Act for overcharging the government, which comes with potential financial penalties.

West Virginia Attorney General Patrick Morrissey has already announced that his office is actively investigating whether or not EpiPen’s apparent mis-categorization amounts to Medicaid fraud. Last week, several U.S. senators wrote to Attorney General Loretta Lynch calling for the Department of Justice to probe this matter.

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