Even though drug company Mylan agreed to pay $465 million to quickly settle a Justice Department investigation into allegations that it deliberately overcharged Medicaid for its EpiPen emergency allergy injector, a new report from the Department of Health and Human Services indicates that taxpayers may have overpaid more than twice that amount over ten years.

Earlier today, the Department of Health and Human Services’ Office of the Inspector General sent Senate Judiciary Chairman Chuck Grassley a letter [PDF], estimating that the actual additional cost for EpiPen from 2006 through 2017 could be as high as $1.27 billion.

A quick lesson in how Medicaid pays for prescription medications: Drug companies whose products 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 (currently 13%).

Last fall, among rising concerns about Medicaid fraud, the Acting Administrator for the Center for Medicare & Medicaid Services (CMS), confirmed that Mylan had indeed mis-classified EpiPen as a NIMS drug and had been paying rebates that were at least ten percentage points smaller than what the company should have paid, since at least 2011.

Mylan did not actually acquire EpiPen until 2007, when it purchased Merck’s generic drug business, so if the OIG’s estimate goes back to 2006, then Mylan may not be responsible for some of that potential $1.27 billion overcharge.

Only two days after CMS confirmed the misclassification of EpiPen, and before it could determine the true amount and extent of Mylan’s overcharging, the drug company revealed the $465 million DOJ settlement in a regulatory filing with the Securities and Exchange Commission. The company also said the settlement allowed Mylan to avoid admitting any liability or wrongdoing.

The settlement, which was never announced publicly by the DOJ and still has not been officially finalized, was heavily criticized on Capitol Hill, and Grassley’s Judiciary Committee asked Mylan to testify about the deal. However, the company declined to appear and explain itself to lawmakers.

“The fact that the EpiPen overpayment is so much more than anyone discussed publicly should worry every taxpayer,” said Grassley in a statement, pointing out that CMS had previously advised Mylan about the improper classification of the drug but that the company did nothing to address this issue. “It looks like Mylan overcharged the taxpayers for years with the knowledge EpiPen was misclassified.”

Grassley says Mylan has been unwilling to cooperate or to voluntarily provide documents requested by Judiciary. The Senator indicates in his statement that a subpoena may be “the only way to get to the bottom of this.”

When reached for comment by Consumerist, a rep for Mylan would only say that the company continues to “work with the government to finalize the settlement as soon as possible.”

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