- The U.S. Justice Department has sued generic and specialty drugmaker Mallinckrodt for understating the rebates it owed to state Medicaid programs following rapid price increases for the multi-use drug Acthar beginning in 2008.
- Mallinckrodt allegedly deceived the government by paying rebates for the $40,000-a-vial drug using a baseline of 2013, rather than the price in 1990, when the Medicaid rebate program went into effect, according to the lawsuit.
- The claim represents a new legal headache for Mallinckrodt, which has been under pressure for its opioid prescribing and anticompetitive practices related to Acthar.
Acthar was first approved in 1952 for the treatment of rheumatoid arthritis, but its acquisition by Questcor from the former Aventis in 2001 allowed the new owner to test out a strategy of label expansions and steep price rises.
In 2010, Questcor won approval to use the drug, which stimulates hormone secretion, in infantile spasms. A quirk of its approval was that it came under a separate New Drug Application from its original OK, which is how the company was initially able to persuade the Centers for Medicare and Medicaid Services to permit rebates based on its 2013 price.
The Medicaid rebate program limits drug price increases to the rate of inflation as a condition of coverage.
Mallinckrodt bought Questcor in 2014 for $5.6 billion. In 2016, CMS notified Mallinckrodt that it had reviewed its earlier decision and asked the company to revise its rebate formula. An internal analysis estimated that the return to using the 1990 baseline would have caused the cumulative rebates between 2013 and 2016 to rise from $122 million to $380 million, a difference of $258 million.
The company insisted it didn't owe any extra money and continued to rely on the 2013 baseline, despite CMS warnings in 2017 and 2018. Responding to a warning in 2019, the company's general counsel offered to change the rebate going forward, but did not make a retrospective offer.
The Justice Department's claim filed Tuesday is a qui tam, or whistleblower, suit filed under the False Claims Act. The company's director of internal controls, James Landolt, is a plaintiff.
Pointing to a separate case pending in federal court over the appropriate baseline date, Mallinckrodt termed the Justice Department's action "unnecessary, duplicative and wasteful."
"It is incomprehensible why the assistant U.S. attorney in Massachusetts would attempt to do an end-run around that court’s order by pursuing new enforcement litigation," the company said in an emailed statement.
This False Claims Act lawsuit represents a continuation of Mallinckrodt's legal woes. The company has been subject to claims that it misrepresented the risks of prescription opioids, which could be resolved by its $1.6 billion settlement offer. Several years earlier, the company faced antitrust complaints because Questcor had sought to block entry of a competitor, which it also settled.
Thanks to a crash in its share price, which has shed 98% of its value in the past five years, along with the legal exposure, Mallinckrodt has reportedly been considering a potential bankruptcy filing.