Earlier this month, drugmaker Mylan disclosed a $465 million settlement with the U.S. Department of Justice over allegations that the company had defrauded the Medicaid system by mis-categorizing its high-priced EpiPen allergy treatment. The DOJ has still yet to confirm this settlement or provide any details, and critics of the deal say it looks like Mylan is getting off easy.

Sen. Elizabeth Warren (MA) sent a letter [PDF] to U.S. Attorney General Loretta Lynch on Friday, arguing that if the details provided by Mylan are accurate, then the settlement is “shamefully weak.”

Just to backtrack for those coming in late: Drug companies whose medications are purchased by Medicaid reimburse the program through mandatory rebates. The rate of those rebates is based on whether the drug is an “innovator” medication (often a newer, higher-cost drug with little or no competition) with a rebate rate of at least 23.1%, or a “non-innovator multiple source” (NIMS) drug (often an older drug with competition from generics), with a much lower rebate rate of 13%.

Pharmaceutical companies are on their honor to correctly categorize their various drugs, but there can be legal and financial consequences for a drug that is deliberately mis-categorized as NIMS just to take advantage of the lower rebate rate.

Recently, after lawmakers and state attorneys general began to raise questions about whether Medicaid had overpaid for EpiPen — a drug whose price has skyrocketed by around 600% since being acquired by Mylan in 2007 — Andrew Slavitt, Acting Administrator for the Center for Medicare & Medicaid Services (CMS), confirmed in early October that Mylan had indeed mis-classified EpiPen as a NIMS drug and had been paying rebates that were at least 10% smaller than what the company should have paid, since at least 2011.

Slavitt said CMS had not yet determined the exact amount of rebates and penalties were owed because of this mis-categorization, but since Medicaid has spent nearly $1 billion on EpiPens since 2011, the amount is likely in the hundreds of millions of dollars.

But only two days after Slavitt sent this note about Mylan to lawmakers, the drug company revealed its DOJ settlement in a regulatory filing with the Securities and Exchange Commission. Again, the DOJ has yet to acknowledge the deal, but Mylan claimed in the SEC filing that it is paying the $465 million without admitting liability.

“If these details are correct, they reveal the settlement to be shamefully weak,” says Sen. Warren in her letter to Lynch, “with no criminal penalties and no deterrent value to prevent drug companies from engaging in abusive schemes to defraud Medicaid and rip off taxpayers.”

While a $465 million settlement is a significant amount of money, Warren’s staff calculated that this figure is substantially less than the government overpaid for EpiPens since 2011. Given the cost and rebate rates, the letter argues that Mylan shortchanged Medicaid by $530 million over these years.

Further easing Mylan’s pain in this settlement is that the $465 million will be a pre-tax payment, meaning the company will pay lower taxes as a result.

“This settlement is shockingly soft on this corporate wrongdoer,” writes Warren, who notes that the DOJ has “extensive tools” to hold companies available, like the False Claims Act which would allow the government to seek triple the damages, or possible criminal prosecution under the Health Care Fraud law.

“But it appears that none of these penalties was used against Mylan or its senior executives, despite the fact that the company was ‘expressly told’ of its misclassification by CMS, despite the fact that this was the second time in less than a decade that the company was caught defrauding Medicaid, and despite the fact that the company made hundreds of millions of dollars on the backs of taxpayers.”

Concludes Warren: “Your department’s limp response to Mylan’s deliberate fraud raises a serious question about exactly how you plan to police other companies if you approve settlements that show that crime does pay.”

[via StatNews]

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