Medicaid Rebate Suit Focuses On FDA Approval Status Of Acthar's New Indication
Executive Summary
US government says Mallinckrodt avoided millions in Medicaid rebates by claiming Acthar’s added indication was approved as a new NDA rather than a supplemental application.
The fight over how much Mallinckrodt PLC must pay in Medicaid drug rebates for Acthar Gel (repository corticotropin injection) intensified as the US government intervened in a False Claims Act suit alleging the company underpaid hundreds of millions of dollars that were owed as a result of large price hikes for the drug.
Mallinckrodt has been battling with the government for several years over Medicaid rebate calculations for Acthar. The company filed suit against the Centers for Medicare & Medicaid Services last year challenging CMS's decision to require Mallinckrodt to change the base date average manufacturer price (AMP) that had been used to calculate Medicaid drug rebates for Acthar since 2013. The company claimed this would have the practical effect of imposing as much as $600m in retroactive rebates and prospective rebate increases of approximately 10% of Acthar Gel net sales annually.
On 3 March, the US Department of Justice filed suit against Mallinckrodt in the US District Court for the District of Massachusetts. It alleges that Questcor Pharmaceuticals Inc. (which Mallinckrodt acquired in 2014) began calculating and paying rebates as if Acthar was a new drug first marketed in 2013, based on the US Food and Drug Administration's approval of a new indication for treatment of infantile spasms in 2010.
The complaint says Mallinckrodt misled CMS by representing that FDA had approved the drug under a new drug application and not disclosing that the approval was not for a new, separate NDA but rather a supplemental new drug application.
Under the Medicaid Drug Rebate Program, drug manufacturers must pay quarterly rebates to state Medicaid programs in exchange for Medicaid's coverage of their drugs. The mandatory rebate includes an inflationary component, whereby a manufacturer must pay a rebate based on the drug's price since 1990 or when it was first marketed, whichever date is later. FDA first approved Acthar in 1952. The suit notes that since then the new drug application has been supplemented more than two dozen times. Acthar's labeling now has nineteen indications, including for the treatment of relapsing multiple sclerosis, lupus and rheumatoid arthritis.
"Given that Questcor has raised Acthar's price by more than $20,000 per unit prior to 2013, the government alleges that Questcor and later Mallinckrodt avoided paying inflationary rebates on any of those pre-2013 increases, and has thus knowingly underpaid hundreds of millions of dollars at the expense of American taxpayers," DOJ said in a release.
The allegations in the complaint, USA ex rel. Landolt v. Mallinckrodt, were originally made in a False Claims Act case filed by a whistleblower. Under the FCA, a private citizen may file suit on behalf of the federal government alleging a company's behavior resulted in the filing of false claims for government payments.
Mallinckrodt said that despite its 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 its suit against CMS in the US District Court for the District of Columbia.
"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 US Attorney in Massachusetts would attempt to do an end-run around that Court's order by pursuing new enforcement litigation," Mallinckrodt said in a statement. "As such, we felt it important to raise the issue with the judge presiding over the CMS dispute in Washington, D.C., which we did earlier today."
Inflationary Rebate Calculation
Questcor acquired Acthar from Aventis Pharmaceuticals Inc. in 2001. The suit says that at the time of the acquisition the drug cost approximately $50 per 5 milliliter vial and now costs nearly $40,000 per vial.
Acthar Gel had net sales of $952.7m in fiscal year 2019, which represented 30.1% of the company's net sales for the year. The sum was a $10.4m decrease from the previous year.
The complaint states that because Questcor had increased the price of Acthar much faster than the rate of inflation during the 2000s, the inflationary rebate it owed for Acthar rose to the maximum total rebate amount, or 100% of Acthar's AMP, in any given quarter. It said that until 2013, Questcor paid this amount, having used Acthar's 1990 base date AMP to calculate the inflationary rebates.
In 2012, Questcor requested that CMS use a later base date AMP. The complaint says that based on Questcor's misleading statements about the 2010 approval of Acthar for infantile spasms, CMS found it eligible for a new base AMP.
In 2016, CMS told Mallinckrodt that it had come to realize that the NDA for the 2010 approval should have the NDA number of a supplemental application. It directed the company to reset Acthar's base date AMP back to 1990.
During a fourth quarter earnings call 25 February, analysts asked Mallinckrodt management about the status of the suit against CMS and Acthar's role within the company.
Executives noted that there was no update on the litigation and they had no insights on when the judge might issue a ruling. Chief Financial Officer Bryan Reasons said the company is continuing to experience payer pressures, particularly focused on the duration and classification of patients as new. He said this puts additional administrative hurdles on moving patients from prescription to reimbursement.
Acthar In Enforcement Crosshairs
The company faces other pressures over Acthar pricing. In August, Mallinckrodt received a subpoena from the US Securities and Exchange Commission for documents related to the company's disclosure of its dispute with CMS concerning the base date average manufacturer price for Acthar.
And in January 2019, it received a letter from the House Committee on Oversight and Reform requesting information related to its pricing strategy for Acthar. It was one of 12 pharmaceutical companies to receive a letter requesting information on drug price increases ahead of a congressional hearing. (Also see "House Oversight Drug Pricing Hearings Will Begin With Expert, Patient Witnesses" - Pink Sheet, 14 Jan, 2019.)
Last year, the company resolved DOJ allegations that it paid kickbacks to doctors to induce them to prescribe Acthar, paying a $15.4m fine. The government is still pursuing litigation over Mallinckrodt's arrangement with a charitable foundation, the Chronic Disease Fund, to pay Medicare patient copays for Acthar. (Also see "Mallinckrodt Settles Portion Of DOJ's Acthar Gel Kickback Claims; Charity Copay Probe Continues " - Pink Sheet, 5 Sep, 2019.)
While Acthar got some attention on the earnings call, the headline news of the day was Mallinckrodt's announcement that it had reached an agreement in principle to resolve opioid litigation, under which it would put its generic unit into Chapter 11 bankruptcy. (Also see "Mallinckrodt's Opioid Resolution Through Generic Unit Bankruptcy May Be 'Test Case'" - Pink Sheet, 25 Feb, 2020.)