United States: The Four Things That Surprised Us In The EpiPen False Claims Settlement

Last Updated: September 5 2017
Article by Ellyn Sternfield and Rodney L. Whitlock

On August 17, 2017, the U.S. Department of Justice (DOJ) announced that it had reached a $465 million false claims settlement with Mylan, the manufacturer of EpiPen, over the company's alleged underpayment of Medicaid Drug Rebates for EpiPen. The settlement amount and terms were generally announced by Mylan in October 2016 – but back then DOJ refused to confirm the settlement.

Back in October 2016, we theorized that the announced "settlement" was likely a handshake deal, not yet reduced to writing and not signed off on by the necessary parties.  It's not surprising that it would take ten months to finalize a health care false claims settlement.  In Ellyn's government days, she worked cases that took years, not months, to get from handshake deal to announced settlement.

And in reviewing the EpiPen settlement and related unsealed documents, there were things we expected to see in the settlement; admittedly we are grizzled veterans when it comes to false claims settlements.  But there were some things about this settlement that raised our eyebrows. So we will (briefly) recap how we got here and the settlement terms, and discuss the four things that surprised us about this settlement.

How We Got Here

In the summer of 2016, there was much public angst about the steep increases in the price of EpiPen, the lack of competition for the product, and the classification of the drug by government programs.

CMS administers the Medicaid Drug Rebate Program.  Under that Program, manufacturers pay higher Medicaid rebate percentages on branded drugs, as opposed to generic drugs. Branded drugs are also subject to a rebate "inflation penalty" when price increases outpace inflation; generic drugs are exempt from the inflation penalty.  But when it comes to EpiPen, in 1997 CMS issued a letter to the then-manufacturer, Dey, stating that while the "pen" was an innovator product, since the "epi" part was epinephrine, a generic drug, the manufacturer could classify the product as a generic, thereby subjecting it to lower Medicaid rebates and no inflation penalty.

But, for FDA purposes, EpiPen was in essence a brand drug, with limited competitor products.  Had EpiPen also been classified as a brand drug for Medicaid Drug Rebate purposes, it was theorized that its manufacturer would have been responsible for hundreds of millions of dollars in additional Medicaid Drug Rebates, going back to 1997.   Many politicians were outraged and demanded government action against Mylan.

In the ensuing months, more was learned about what CMS knew about the EpiPen classification. It turns out that the Office of Inspector General for the U.S. Department of Health and Human Services had raised questions about the EpiPen classification as part of a July 2009 report on the Accuracy of Drug Categorizations for Medicaid Rebates.  In that report, HHS-OIG stated that the classification of a number of un-specified named drugs that were considered brand for FDA purposes but generic for Medicaid Drug Rebate purposes, was costing the government millions of dollars in Medicaid rebates. Even before making the report public, HHS-OIG provided CMS with detailed information on the particular drugs at issue, including those in EpiPen.  As we wrote in early June 2017, Senator Grassley has spent months trying to get CMS to cough-up information about what it did after getting that information from HHS-OIG in 2009.

The Settlement

The "Covered Conduct" resolved by the false claims settlement alleges that from July 2010 through March 2017, Mylan had an obligation under its Medicaid Drug Rebate agreement with CMS to submit accurate pricing information to CMS; that the pricing information submitted for EpiPen was allegedly inaccurate because it incorrectly classified EpiPen as generic; and, as a result the company underpaid Medicaid Drug Rebates.  The Covered Conduct also alleges that the incorrect classification and resulting price reports caused an incorrect calculation of the ceiling price under the 340B Drug Discount program, thereby causing 340B covered entities to overpay for the product.  We will get back to this point later.

In the settlement documents, the company did not admit to the allegations and there is no specific finding of liability.  While DOJ has been insisting on some form of admissions in false claims settlements for the past 18 months, frankly given the issues in this case we were not surprised that there was no admission in this settlement.

The company will pay a total of $465 million to settle the allegations.   The settlement is allocated:

  • $231,764,000 to the federal government
  • $213,936,000 to the states electing to participate in the settlement
  • $19,300,000 to 340B covered entities

The company also had to enter a Corporate Integrity Agreement with HHS-OIG.  There are two relator entities that will share in the recovery with the federal government, as well as in the recovery of states that have qui tam statutes.

What Surprised Us

  1. Two Qui Tam Relators.

We were surprised to learn that there were not one but two recently filed qui tams where relator-entities brought forth information that moved the case forward.  The fact that the relators were part of the settlement meant that each relator had information that the government did not previously know.

The first relator was Sanofi which filed a qui tam Complaint in August 2016.  According to that now-unsealed complaint, Sanofi learned from its customers that the EpiPen classification and Medicaid rebate percentages were being used in EpiPen marketing and also being leveraged to get EpiPen on Medicaid formularies.  Sanofi first disclosed information on these practices to the government at an in-person meeting in October 2014.

The second relator is a familiar name to false claims practitioners:  Ven-A-Care, which first brought the landmark AWP false claims actions almost twenty years ago.  According to its now-unsealed complaint, Ven-A-Care filed a new qui tam in January 2017, spurred by the media reports and political controversy over the EpiPen classification.  Ven-A-Care asserted that in a prior qui tam filed in 2002, it had in fact raised questions about EpiPen classification for Medicaid Drug Rebate purposes, but that part of the case was not pursued because of the 1997 CMS letter.  Ven-A-Care alleged that by 2009, the chemical makeup of EpiPen had been modified to such an extent that the 1997 CMS letter no longer applied to the product.

  1. Inclusion of 340B.

We were surprised by the inclusion of 340B covered entities in the settlement.  The essence of a false claims case is harm/damages to government-funded programs.  While the 340B Drug Discount program was established by federal law and is a government-administered program, the covered entities that purchase 340B drugs are, for the most part, not government programs.  To be fair, a small percentage of 340B covered entities are government-funded/run health care providers, but most 340B covered entities are private hospitals or clinics.  Yet the terms of the settlement do not limit the portion of the settlement allocated to 340B to government-funded/run covered entities, and it appears that privately-run covered entities may share in the settlement proceeds.  In the past, the government has protested mightily any attempt to include losses by non-government entities in false claims recoveries. 340B entities have been included in some Medicaid best price settlements in the past up until July 2012.  Since then the Department of Justice has not included 340B in a number of subsequent cases. Hence the raising of our eyebrows upon seeing that covered entities will be recipients of settlement funds.

Also surprising is the methodology for distributing the portion of the settlement allocated to 340B.  From the language in the settlement, it appears the company will calculate pro rata settlements for 340B covered entities and provide DOJ a report on the calculation methodology and result.  Thereafter, the company will issue checks to covered entities from the settlement fund.  If a covered entity does not cash the check, that portion of the settlement will revert to the federal government.

  1. Covered Conduct Date Range.

Given the history of this case, the dates of the conduct alleged and released by the settlement is somewhat surprising:  January 2010 through March 2017 – meaning the allegations resolved through the settlement all post-date the HHS-OIG Report by a year. They also post-date the Ven-A-Care allegations on application of the 1997 CMS letter. It may be as simple as one or more parties being adamant that there was no cause to vary from the general six year statute of limitations applicable to false claims cases. But the date range of the Covered Conduct is sure to be a subject of criticism.

  1. States Opting Out.

We were not surprised that a team from the National Association of Medicaid Fraud Control Units was part of the government team that negotiated this settlement.  And we were not surprised that there is an opt-out provision for the states:  if a state chooses not to sign a settlement agreement, the state's allocated portion of the settlement shall revert to the company.  What was surprising was that only a few state Attorneys General made a simultaneous announcement of a state settlement.

Generally, when a federal settlement of this size involving Medicaid damages is announced, and the settlement is the result of coordinated negotiation with the states, press releases are also coordinated. Put another way, we thought we would see many states announcing the settlement at the same time the DOJ announcement came out. To be fair, in conjunction with the federal settlement announcement, we saw several state Attorneys General announce they had, or intended to, join the settlement. This includes Ohio, which will receive $19.6 million from the settlement; North Carolina who will receive $21.4 million; and New York who will receive $38.5 million.  But a lot of other state Attorneys General were silent, while politicians in their state were not.  For example, Senators Blumenthal and Grassley have both already gone on record criticizing the adequacy of the settlement.

State Attorneys General may be weighing whether to join the settlement, or pursue these allegations on their own, either using their own attorneys or retained private counsel to litigate the claims.  And state-pursued litigation on EpiPen raises another issue.  We noted in our June post that CMS' failure to act on the HHS-OIG information in 2009 complicated false claims litigation, given the government knowledge of the impact of the EpiPen classification.  But the 2009 HHS-OIG Report that was publicly disseminated did not specify the drugs at issue; HHS-OIG shared that information privately with CMS.  But did anybody tell the states?  And if not, can the states be said to constructively have knowledge of information never provided?

What's Next?

Senator Grassley has not let go of the issue of CMS' role in the situation.  In his press release on the false claims settlement, he noted:

Another problem is why CMS and Mylan did nothing about the misclassification until a lawsuit forced them to act.   CMS provided records to the Judiciary Committee that show CMS had concerns about how EpiPen was misclassified years ago, yet Mylan failed to correct the classification, and CMS failed to require the company to fix the problem.

It presents an interesting political quandary: will Senator Grassley go after CMS under this Administration and, if so, how will this Administration defend previous CMS action in this case?

We will have to wait to see if Senator Grassley will follow up with hearings on this issue.  We will also watch with interest to see whether there is fallout from the inclusion of the 340B covered entities in this settlement.  And we will watch with interest to see how many states opt out of the federal settlement to pursue their own litigation and if so how that litigation is pursed.

In other words, we do not expect the recently announced settlement to end the EpiPen controversy.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Ellyn Sternfield
Rodney L. Whitlock
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions