States Sue Mallinckrodt Over Underpaid Medicaid Drug Rebates

A coalition of 28 states and territories recently sued Mallinckrodt ARD LLC over accusations that the pharmaceutical company violated the False Claims Act and knowingly underpaid Medicaid drug rebates as a result of large increases in the price of one of its drugs.

According to Wisconsin Attorney General Josh Kaul and the Wisconsin Department of Health Services (DHS), the states filed the complaint against Mallinckrodt for allegedly calculating rebates as if Acthar was a new drug first marketed in 2013, when it was marketed long before 1990.

The calculations were based on FDA’s approval of a new indication for Acthar’s use in 2010.

"This case alleges significant financial harm to Wisconsin’s and other states’ Medicaid programs through the underpayment of required rebates,” said Kaul. “We must protect Wisconsin’s Medicaid program from any big drug company that attempts to profit by manipulating the system.”

The government alleges that after Mallinckrodt’s predecessor, Questcor, raised Acthar’s price by more than $20,000 per unit prior to 2013, the company avoided paying inflationary rebates on any of those price increases before 2013.

Additionally, the government believes that the company knowingly underpaid hundreds of millions of dollars at the expense of taxpayers, despite receiving government warning.

Specifically, the lawsuit reads:

Mallinckrodt failed to report and return hundreds of millions of dollars in overpayments it possessed due to underpaying its obligations under the Medicaid Drug Rebate Program (MDRP) for Acthar Gel since 2013. Mallinckrodt has knowingly underpaid rebates owed from sales of Acthar under the MDRP—with the goal of retaining enormous profits—and as a result, illegally withheld hundreds of millions of dollars from the Medicaid program.

The allegations that are the subject of the government’s complaint were originally alleged in a case filed under the whistleblower provision of the False Claims Act, which permits private parties to sue for fraud on behalf of the US and individual states, the press release stated.

Along with Kaul, the attorneys general from Alaska, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia, Washington, Wisconsin, the District of Columbia, and Puerto Rico joined the lawsuit. 

Recently, the US District for the District of Columbia upheld CMS’ decision over Medicaid drug rebates for the company’s controversial Acthar Gel.

The announcement was in regards to Mallinckrodt’s lawsuit against HHS and CMS surrounding the company’s calculation of Medicaid drug rebates for Acthar Gel. 

The court supported CMS’ decision to change Medicaid rebate calculations for Acthar Gel resulting in full retroactive payments.

Mallinckrodt will pay nearly $650 million for the period from January 1, 2013, to present, which will be a non-GAAP adjustment in the first-quarter results, the announcement highlighted. 

The biopharmaceutical company also expects the annualized prospective change to the Medicaid rebate calculation to decrease Acthar Gel sales by $90 million to $100 million.