The Department of Justice filed a lawsuit accusing Mallinckrodt of underpaying hundreds of millions of dollars in Medicaid rebates associated with its Acthar Gel treatment.  Under federal law, drug makers are required to pay quarterly rebates to state Medicaid programs in exchange for coverage of the drugs they produce.  These Medicaid rebates include a clause meant to shield the programs from increased costs that are greater than the rate of inflation, and companies must pay rebates based on 1990 pricing or whenever a medicine was first marketed.  Acthar Gel was first marketed even before 1990, but the feds alleged Mallinckrodt and Questcor Pharmaceuticals, which it bought in 2014, paid rebates based on its 2013 price.In 2001, when Mallinckrodt bought Questcor, the price of Acthar Gel rose to more than $20,000, and federal regulators have alleged that Mallinckrodt knowingly underpaid Medicaid rebates.  Mallinckrodt “avoid(ed) paying hundreds of millions of dollars in rebates that should have insulated Medicaid from Acthar’s meteoric price rise prior to 2013,” the lawsuit stated. “Instead, the taxpayers who fund Medicaid have absorbed the brunt of Acthar’s ever-increasing cost, in contravention of federal law and Congress’s intent in establishing the Medicaid rebate program.”

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In 2012 and again in 2013, the Centers for Medicare and Medicaid Services (CMS) told Questcor Pharmaceuticals that Acthar Gel “met the threshold as a single-source drug for a particular average manufacturer price.”  But in 2016, when Mallinckrodt owned the drug, the agency underwent changes that ignited a dispute over the rebates owed to Medicaid.CMS warned that if the price change was not made mid-2019, Acthar Gel would not be able to continue participating in the rebate program, according to the lawsuit.  CMS also threatened to refer Mallinckrodt to the Department of Justice (DOJ) and/or the Department of Health and Human Services (DHS) Office of Inspector General.  Mallinckrodt said the new requirement increase its Medicaid rebate by nearly ten percent and would result in it paying up to $600 million in retroactive rebates.The DOJ explained that, by 2016, CMS discovered “many key facts” concerning the FDA approval that had not been disclosed and “directed Mallinckrodt to pay the rebates owed since 2013, but the company refused.” The DOJ stated, “Mallinckrodt exhibited continued defiance.”  A whistleblower lawsuit was filed in 2018 by James Landolt, an ex-director of internal controls at Mallinckrodt and the DOJ joined that lawsuit.“The Medicaid Rebate Statute provides an important check on rising drug prices,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “The Department will not hesitate to hold accountable drug companies that attempt to skirt this important protection at the expense of the Medicaid program, which helps ensure that some of our most vulnerable citizens are able to receive medical care.”Mallinkcrodt responded to the allegations in a statement, saying, “The company has previously addressed why the government’s position is wrong both on the law and the facts.  Despite the company’s extensive cooperation, both in document production and staff interviews, the government has filed an unnecessary, duplicative and wasteful lawsuit on the exact same issue pending in a Washington, D.C. federal court: a dispute with the Center for Medicare and Medicaid Services (CMS) regarding the appropriate base date AMP used to calculate Medicaid rebates for Acthar.”The statement continued, “That court previously barred CMS in 2019 from taking enforcement action against Mallinckrodt while this case is now awaiting a decision.  It is incomprehensible why the assistant U.S. Attorney in Massachusetts would attempt to do an end-run around that court’s order by pursuing new enforcement litigation.”

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Justice Department sues Mallinckrodt over ‘hundreds of millions of dollars’ in Medicaid rebatesUnited States Intervenes in False Claims Act Lawsuit against Drug Maker Mallinckrodt Alleging Company Knowingly Avoided Paying Medicaid Rebates Owed Due to Significant Price Increases