Mylan to pay $465 million to settle claims of shortchanging Medicaid

Mylan reached a $465 million settlement on Friday with the US Department of Justice and other government agencies over accusations that it shortchanged Medicaid.

The move comes after a month of controversy over charges that Mylan improperly classified its EpiPen allergy device in reports to the Medicaid Drug Rebate Program. Under this program, companies must accurately report — and pay — a rebate on drugs paid for by the agency.

Mylan, however, had been reporting EpiPen as a generic product for nearly a decade. And this is an important distinction, because classifications are used to determine the size of rebates that companies pay Medicaid. Rebates, which companies pay in exchange for having their products covered, are lower for generics — 13 percent versus 23 percent for a brand-name product.

Earlier this week, the Centers for Medicare & Medicaid Services said Mylan overcharged Medicaid for its EpiPen device for years, even though the company had been told it should have provided bigger rebates. From 2011 to 2015, Medicaid paid $797 million on EpiPen, after rebates and dispensing fees. But an agency official said the federal and state health care program for the poor should have spent less.

CMS had previously indicated that Mylan had been improperly classifying its device, prompting outrage from lawmakers, some of whom demanded investigations into whether CMS was properly overseeing the rebate program and the extent to which Mylan owed the government rebate money. The intensifying anger also unnerved Mylan investors who tried to ballpark the company’s liability.

“Entering into this settlement is the right course of action at this time for the company, its stakeholders, and the Medicaid program,” Mylan Chief Executive Heather Bresch said in a statement in which the company did not admit any wrongdoing. However, Mylan expects to enter into a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services.

This is the latest move the company has made in recent weeks in hopes of quelling rising criticism over its pricing. Mylan initially increased the amount of money on a copay assistance card from $100 to $300, and promised to widen eligibility for patients to receive the device through the assistance program. More recently, the company made plans to sell its own ‘authorized generic’ version for $300, although that failed to quiet some critics.

Investors, however, reacted favorably to the settlement, even though the company lowered its earnings guidance. Mylan stock was up about 10 percent in after-hours trading immediately following the announcement. Sanford Bernstein analyst Ronny Gal said the settlement was “not much” compared with expectations that Mylan may have been on the hook to pay Medicaid much more in back rebates. Mylan will take a $465 million pretax charge for the recently ended third quarter.

In a filing with the US Securities and Exchange Commission, Mylan said EpiPen will be classified as a brand-name product as of next April 1, and the corporate integrity agreement will include details on how rebates should be classified going forward, according to a source at CMS. The SEC Enforcement Division, meanwhile, is investigating Mylan’s dealing with CMS.

In explaining its actions, Mylan had repeatedly pointed to a 1997 letter from the Medicaid Drug Rebate program that was written to Dey Laboratories, which Mylan purchased in 2007, noted that it was “fitting and proper” to classify EpiPen as a “non-innovator,” or generic drug product. But several lawmakers had argued this interpretation was inconsistent with the way Medicare Part D views the product.

An undisclosed portion of the settlement will go to the states, according to a CMS source.