United States: Five Things To Know About The Mylan EpiPen "Settlement" – What It Is And What It Isn't

Last Updated: October 17 2016
Article by Ellyn Sternfield and Rodney L. Whitlock

Our eyebrows were raised by Mylan's October 7, 2016 announcement that it had reached a $465 million "settlement" with the United States Department of Justice (DOJ) and "other government agencies" over its Medicaid Drug Rebate obligations for EpiPen.  The timing of the announcement was especially eyebrow-raising:  close to 5 pm on a Friday afternoon at the start of a long holiday weekend (Columbus Day), which effectively forestalled any government comment on the announcement.

Let's recap how we got here. Over the last few months, multiple state and federal government entities, including Congress, had raised concerns about the EpiPen's classification for the purpose of Medicaid Drug Rebates.  Manufacturers pay lower Medicaid rebate percentages on generic drugs than on brand name or innovator drugs.  Manufacturers also face a Medicaid Drug Rebate "inflation penalty" when price increases for brand name/innovator drugs outpace inflation; generic drugs are exempt from the inflation penalty.   But the "Epi" part of EpiPen was the generic drug epinephrine; it was the "Pen" part, the distribution unit, which was patented and unique.  More than 18 years ago, CMS said that it was reasonable to base EpiPen Medicaid Drug rebates on the "Epi" part, as a generic product.  Thus Mylan paid Medicaid drug rebates on EpiPen at the generic rate and faced no inflation penalty.   But earlier this year, after media reports focused on dramatic price increases for EpiPen and the lack of competitor products, questions have been raised as to whether Mylan knew, or should have known, that it needed to revisit the EpiPen classification and pay the higher higher brand/innovator Medicaid Drug Rebate rates, and face the inflation penalty, for EpiPen.

Mylan's announcement states that the $465 million settlement provides "resolution of all potential rebate liability claims by federal and state governments as to whether the product should have been classified as an innovator drug for CMS purposes and subject to a higher rebate formula."   But in the days following the Columbus Day holiday, details on the specifics of the settlement have not been forthcoming from Mylan or the government.

So as a result of the Mylan announcement, what do we know and what do we not know about the purported settlement?  Here are our top five takeaways from Mylan's announcement.

1.     We think, but cannot be sure, that Mylan's announcement likely represents the outline of a Civil False Claims Settlement based on Mylan's alleged underpayment of EpiPen Medicaid Drug Rebate. Put another way, this is likely a handshake deal; we do know that actual settlement agreements have been executed.

2.     According to Mylan, the terms of the settlement "do not provide for any finding of wrongdoing on the part of Mylan or any of its affiliated entities or personnel." But many Civil False Claims settlements are accompanied by a criminal settlement, which would include findings and an admission of some wrongdoing.   We don't know whether, in the absence of a full investigation, DOJ has really agreed to provide a criminal release for Mylan as part of this settlement. Moreover, we don't know whether, in the absence of full investigation, DOJ has really agreed that as part of the corporate settlement, it will dodge the requirements of the Yates memo, and also provide a criminal and civil release for all Mylan personnel, including executives and managers.

3.     A corollary takeaway involves HHS-OIG. The Mylan announcement indicates the company "expects to enter" a Corporate Integrity Agreement with HHS-OIG, meaning one has yet to be negotiated. But that is not the only HHS-OIG role in any settlement of this matter. We know that HHS-OIG specifically reserves its right to consider corporate and individual officer/manager exclusion for corporate False Claims settlements, and recently updated some of its governing policies on such exclusions. We also know that DOJ cannot settle or waive exclusion issues for HHS-OIG. We don't know what, if any, position HHS-OIG has taken on the settlement.

4.     The deal reached on Medicaid Drug Rebates is with US DOJ and "other government agencies" to resolve all potential rebate liability claims by federal and state governments. We do know that in fact, Medicaid Drug Rebates are paid to State Medicaid Agencies; while the amount of rebates the states get to retain will vary from state to state, on average it is close to 50% and closer to 55% if a settlement on Medicaid Drug Rebates is based on false claims liability. We also know that DOJ does not have the authority to settle states' individual drug rebate claims against Mylan, which means any potential "global" settlement with the states raises a variety of issues, including:

  • We know that Medicaid Drug Rebate settlement terms for each individual state will have to be agreed to by each individual participating state's Attorney General and in many states, also by the State Medicaid Agency.
  • In States that are heavily Medicaid managed care, we don't know whether data was obtained to confirm the extent to which Medicaid Drug Rebates were paid for EpiPens covered through Medicaid managed care, as required by the ACA, and whether applicable state law/process even addresses the state's authority to release managed care contractors' claims regarding Medicaid drug rebates. Meaning as a practical matter, we don't know whether theoretically Mylan could still be facing claims from individual Medicaid managed care plans.
  • We do know that many states negotiate supplemental Medicaid Drug Rebate agreements with drug manufacturers. We don't know whether the data used to reach the $465 million settlement figure did in fact include alleged underpayment of any supplemental Medicaid Drug Rebates.
  • We know that certain state Attorneys General historically opt out of so-called "global" settlements involving Medicaid drug price reporting or rebates with pharmaceutical manufacturers. Instead, these states deputize private attorneys to act as "special" assistant Attorneys General to pursue individual state cases on behalf of the Attorney General's office, often on a contingency fee basis. According to the New York Times, while the practice is controversial it is also lucrative for those involved. Given the money at issue, in all likelihood multiple Attorneys General are already being lobbied to forgo the federal settlement to instead pursue an individual state action against Mylan with the counsel of their choice. We don't know the number of individual states that have actually committed to the "global" settlement outline; we do know that there is nothing DOJ or Mylan can do to prevent a state opting out of the federal settlement to pursue its own Medicaid Drug Rebate case against Mylan.

5.     We know that the announced settlement will only address issues involving Medicaid Drug Rebates; it will not address or release any non-Medicaid based violation of law. So even if the announced settlement is finalized, we know that the settlement will not resolve a myriad of government investigations that still may be pursued against Mylan, including:

  • Congressional investigations led by Senate Judiciary Committee Chairman Grassley, Senate Finance Committee Ranking Member Wyden, and the bipartisan House Oversight and Government Reform Committee. We know that Congressional scrutiny will not be limited to Mylan's conduct, but include how CMS classified EpiPen, and other similar products, for Medicaid Drug Rebate and how DOJ approached the Mylan settlement. We also know that Congress will be extremely skeptical of any hint that that DOJ let Mylan get off lightly.
  • State or Federal allegations of anti-competitive activity. Aside from any pay-to-delay concerns, we know that multiple states, including NY and WV, have confirmed investigations into whether Mylan's contracts with school districts, which limited schools' ability to use competitors' products, violated the respective state antitrust laws. And we know that Senators Blumenthal and Klobuchar have asked the FTC to institute a similar, federal investigation.
  • State Consumer Protection Violations. We know that at least two state Attorneys General, in Minnesota and West Virginia, are actively investigating whether Mylan's price increases for EpiPen violated respective state consumer protection laws. We also know that several class actions alleging violations of state consumer protection laws are also purportedly in the works, including one based on pricing and one based on the packaging of EpiPen.

So one week out, we know that Mylan's announcement of a settlement does not mean the company has succeeded in evading government inquiries into its pricing and marketing of EpiPen. And we know that even if the settlement with DOJ is finalized on the terms outlined by Mylan, the settlement will not allow Mylan to avoid producing discovery on its marketing, sales and pricing practices for EpiPen, be it to DOJ, HHS-OIG, the FTC, a state attorney general, or Congress.  And we know that along with many of you, we will continue to follow this saga with interest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ellyn Sternfield
Rodney L. Whitlock
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