Misclassification or Fraud?

epipensMylan, the maker of the allergy treatment EpiPen, says that it has reached a $465 million settlement with the Justice Department and other government agencies over questions on whether the company had overcharged Medicaid for the treatment by improperly classifying it as a generic drug.

The federal government said this week that Mylan had been told multiple times that it was wrongly classifying the EpiPen, which led the Medicaid and Medicare programs to overpay for the product. Although it has not been disclosed how much it had overpaid, officials said spending on the EpiPen totaled nearly $1.3 billion from 2011 to 2015. Mylan has been under intense scrutiny since the summer for raising the price of EpiPen to more than $600 for a pack of two from about $100 since it bought the product in 2007. In a statement, Mylan said the settlement did not imply any admission of wrongdoing. It also said the settlement had not been finalized, and that it expected to enter into a corporate integrity agreement with the Office of the Inspector General for the Department of Health and Human Services. “This agreement is another important step in Mylan’s efforts to move forward and bring resolution” to the EpiPen issue, the chief executive, Heather Bresch, said in the statement.

The settlement represented a remarkably fast resolution to an issue that first surfaced over the summer and a handful of United States senators wrote to the Centers for Medicare and Medicaid Services, the agency that oversees the Medicaid program, asking questions about the issue. Whether a drug is classified as a brand-name or a generic makes a big difference. The makers of generic drugs pay rebates to the government of 13 percent of the average manufacturers’ price. But manufacturers of brand-name drugs must offer discounts of about 23 percent off that average price, or the difference between the average price and the best price they have negotiated with any other American payer, whichever gives the bigger discount. In addition, brand-name manufacturers must pay more in rebates if their products’ prices rise faster than inflation, as EpiPen’s did. When the Centers for Medicare and Medicaid Services responded to the senators on this issue, the agency said it “cannot comment on the total amount of rebates owed by Mylan related to this incorrect classification.”

EpiPen’s designation as a generic dates back decades, to before Mylan bought the product. EpiPen contains epinephrine, a drug that is available as a cheap generic, but Mylan has the exclusive right to sell the drug as part of a patented auto-injector. The federal government issued a rule this year requiring all companies with drugs that have been approved under what the Food and Drug Administration calls a new drug application to either reclassify them as brand-name drugs or seek a waiver. Mylan had previously said it would seek such a waiver, but on Friday it said it agreed that the EpiPen would be classified as a branded drug beginning in April of next year.

Mylan will take a $465 million charge in the third quarter to pay for the settlement, the company said. It also lowered its earnings guidance to between $4.70 and $4.90 a share, compared to the previous estimate of $4.85 to $5.15, citing the financial implications of previously announced changes to its patient access programs for the EpiPen. Following a public outcry, Mylan has said it will offer more help to patients with their out-of-pocket costs and expand the number of uninsured patients who can get free EpiPens. It also has announced plans to begin selling a generic version of the EpiPen at a lower list price.

Senator Amy Klobuchar, Democrat of Minnesota and one of the senators who initially raised questions, said she was pleased with the settlement. However, she said in a statement on Friday, “this must be the tip of the iceberg. If other drugs are misclassified, and surely EpiPen isn’t the only one, the public deserves to know it.”

In its letter to senators earlier this week, the Medicaid agency said it was undertaking a “comprehensive review” to see if other companies have also misclassified their drugs. But it said it could not say which manufacturers may have also wrongly identified their drugs as generics. Erik Gordon, a professor at the Ross School of Business at the University of Michigan who studies the drug industry, said Mylan’s swift action was a good idea.

“They are smart to quickly end the uncertainty regarding past Medicaid pricing,” he said, adding, “The government was willing to quickly settle because there are questions about why it allowed Mylan to pay rebates it says it told the company were too low.”