Mylan NV has been overcharging the U.S. for years on its EpiPen allergy shot, a government agency said, as two lawmakers said the company was “bilking” taxpayers and may have made billions by misclassifying the drug under complex Medicaid pricing rules.
In a letter to a U.S. senator Wednesday, the Centers for Medicare and Medicaid Services, or CMS, said Mylan for years overcharged the health program for the poor. Since 1997, EpiPen has been wrongly classified as a generic treatment, which has let Mylan pay lower discounts than the program requires for brand-name drugs. Mylan, which acquired EpiPen in 2007, denies it acted improperly.
The government has, in the past, “expressly told Mylan that the product is incorrectly classified,” CMS said in the letter, which came in response to an inquiry by Congress. “This incorrect classification has financial consequences for the amount that federal and state governments spend because it reduces the amount of quarterly rebates Mylan owes for EpiPen.”
The letter adds to Mylan’s mounting woes over the price of EpiPen, which rose six-fold since 2007 to about $600 for a package of two. Public outcry has sparked inquires from lawmakers and law enforcement officials, and Chief Executive Officer Heather Bresch was harshly criticized by representatives at a Congressional hearing last month.
Mylan’s shares fell 2.1 percent to $37.22 at 10:37 a.m. in New York Thursday. They have slumped 24 percent since Aug. 19, before the furor over EpiPen’s price took off, and are trading at their lowest levels since 2013.
|‘Bilking taxpayers’
Two lawmakers, Senator Ron Wyden, an Oregon Democrat, and Representative Frank Pallone, a Democrat for New Jersey, had called for an investigation of Mylan’s adherence to the Medicaid rules.
“Today’s letter is more evidence that while Mylan irresponsibly raised the price of EpiPen, they were also bilking taxpayers out of millions of dollars,” Wyden and Pallone said in a statement responding to the letter. “We will ensure taxpayers get their due.”
Nina Devlin, a Mylan spokeswoman, said in an e-mail that EpiPen’s classification as non-innovator “is consistent with longstanding written guidance from the federal government.”
Hundreds of millions of dollars in sales are at the center of the Medicaid dispute. From 2011 to 2015, the joint state-federal program for the poor spent about $797 million on EpiPens, CMS said in its letter. That included rebates of about 13 percent, while the U.S. should have been getting a larger discount of at least 23.1 percent, according to the letter.
|‘Premature to judge’
“It is a bit premature to judge if Mylan is guilty here,” Ronny Gal, an analyst at Sanford C. Bernstein & Co. who rates the stock the equivalent of a buy, said in a note to clients. “The company is in the hot seat and it is a bit convenient that CMS decides after 19 years that Mylan has been wrong all along.”
While the agency didn’t say exactly how much Mylan had overcharged, the amount could be substantial. Companies are required to give Medicaid back any price increases they take on brand drugs above the rate of inflation, in addition to the standard discount. Because Mylan’s price increases have far exceeded inflation in recent years, if EpiPen were reclassified as a brand-name drug, it might have to discount most of the price to Medicaid.
|1997 classification
The EpiPen has been classified as a non-innovator drug since 1997, before Mylan acquired the product, company spokeswoman Devlin said.
“Mylan simply continued to classify the product the same way it had been classified before Mylan acquired the product,” Devlin said in her e-mail.
As public outrage over EpiPen’s price exploded in late August, Mylan responded by creating a saving card that would cover up to $300 of out-of-pocket costs for patients who need EpiPen. Under the law, though, the savings card cannot be used by patients in federal programs like Medicaid.
Mylan, which is run from Canonsburg, Pennsylvania, but has a legal address in the Netherlands, also said in late August that it would introduce a generic version of EpiPen that it would sell for $300 for a two-pack. It has not yet introduced the generic, which it now says will be out by the end of the year.
Last month, three senators asked the Department of Justice to consider investigating whether Mylan violated the law when it classified EpiPen under Medicaid. In a Sept. 28 letter to Attorney General Loretta Lynch, Senator Richard Blumenthal, a Connecticut Democrat, Senator Charles Grassley, a Republican from Iowa, and Senator Amy Klobuchar, a Democrat from Minnesota suggested that the company “may have knowingly misclassified EpiPens.”
The Department of Justice said in a statement that it has various criminal and civil remedies that it may pursue against a company that defrauds federal health care programs such as Medicaid, including the civil False Claims Act, which imposes treble damages and penalties on any person who knowingly submits false claims for federal funds. Nicole A. Navas, a DOJ spokeswoman, declined to comment specifically about Mylan.
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