Mylan: Brand Prices, Generic Rebates

In the Mylan EpiPen Medicaid rebate settlement, Mylan agreed to pay $465 million to resolve allegations that it reported EpiPen as a generic drug and underpaid Medicaid rebates. The government alleged that the company raised the product’s private-market price while avoiding the larger rebates owed on a brand drug. The alleged shortfall left taxpayers paying more for Medicaid health care. A competing manufacturer, Sanofi-Aventis US LLC, brought the case.

The Justice Department announced the resolution on August 17, 2017. Mylan was the defendant in this pharmaceutical fraud case, which concerned the rebate treatment of EpiPen, an epinephrine auto-injector. As part of the resolution, Mylan entered a five-year corporate integrity agreement with the Department of Health and Human Services’ inspector general that requires an independent review organization to review its Medicaid drug rebate practices every year.

What EpiPen’s Medicaid Classification Changed

EpiPen’s alleged generic classification changed both the basic rebate and the additional rebate for price increases above inflation. That made drug misclassification more valuable than the difference between the basic rates alone.

In the Medicaid Drug Rebate Program, manufacturers report product and pricing information to the Centers for Medicare & Medicaid Services and pay rebates to the states. The agency uses the reported information to calculate a rebate for each unit of a drug, which helps states bill manufacturers. The manufacturer remains responsible for paying the correct amount. A category in a product report therefore affects what Medicaid gets back after paying for prescriptions.

For the period from 2010 through 2016 described in the government’s EpiPen account, most brand drugs carried a basic rebate of at least 23.1% of average manufacturer price. The rebate was larger when the difference between average manufacturer price and Best Price produced a larger amount. The generic basic rate was 13% of average manufacturer price, without that Best Price comparison.

Brand drugs also owed an inflation rebate when average manufacturer price rose faster than the inflation-adjusted baseline. Generic drugs did not yet carry that additional obligation. A manufacturer reporting a brand drug as generic could therefore reduce the ordinary rebate and avoid the extra amount tied to its pricing history. The public program would lose both.

How the Alleged EpiPen Underpayment Worked

The government alleged that Mylan reported EpiPen as generic despite the absence of any therapeutically equivalent drugs. In the Justice Department’s account, Mylan increased EpiPen’s price by approximately 400% over the period while paying Medicaid only the fixed generic rebate rate.

A brand drug in the market, a generic on the rebate report. That was the government’s allegation: Mylan took the price increases while avoiding the inflation rebate meant to make those increases more expensive.

The distinction between a drug’s visible price and its rebate economics also appears in the USC Schaeffer Center’s 2020 study, The Association Between Drug Rebates and List Prices. The study found that estimated rebates and list prices moved together. It estimated rebates from the gap between list and net prices, including concessions to pharmacies, wholesalers and other intermediaries. The study’s finding about drugs without generic equivalents helps explain why the distinction matters:

Mylan EpiPen and Sanofi’s Competitor Whistleblower Award

In the Mylan EpiPen case, Sanofi received a whistleblower award of approximately $38.7 million as its share of the federal recovery. Sanofi-Aventis US LLC was a competing pharmaceutical manufacturer that brought the qui tam case under the False Claims Act.

The role matters as much as the award. A pharmaceutical whistleblower can bring knowledge of the healthcare business from outside the defendant’s workforce. Here, another manufacturer brought the category dispute to the government through a whistleblower case.

A competitor familiar with a product’s approval and reported category can recognize a rebate gap from outside the company.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Earlier Mylan Rebate Case

Mylan Pharmaceuticals and UDL Laboratories had already agreed to a separate $118 million settlement over Medicaid rebate allegations in 2009. The Justice Department’s earlier announcement described innovator drugs manufactured by other companies, sold by the settling companies and reported as non-innovator drugs for rebates.

The business arrangement is the useful detail. A company selling a drug made by someone else still had a rebate obligation affected by that drug’s classification. The government alleged that the wrong category reduced what the companies paid back to Medicaid. Changing hands between manufacture and sale did not make the product’s classification disappear from the rebate calculation.

Ven-A-Care, a corporation, brought that case under the False Claims Act. The recurring issue was a manufacturer-reported category that allegedly left the public program with a smaller rebate.

What the Wider Misclassification Review Found

The Department of Health and Human Services’ inspector general, in its December 2017 review of potential drug misclassifications, identified 885 potentially misclassified drugs associated with 54 manufacturers in its review of 2016 data. For the ten potentially misclassified drugs with the highest reimbursement, it estimated $1.3 billion in potentially lost rebates from 2012 through 2016.

Those ten drugs appeared as noninnovator products in Medicaid’s file and innovator products in FDA data. The report said manufacturers had paid lower basic rebates and no inflation-adjusted rebates on them. The mismatch between the agencies’ files was the starting point.

The review also found a problem with follow-through. The Centers for Medicare & Medicaid Services did not maintain a central database of potential classification errors and their resolutions. When the inspector general asked what had happened to identified problems, the agency could not provide the specific actions it had taken. Detecting a mismatch and getting the rebate corrected were separate jobs, and the second lacked a reliable tracking record.

What Changed After the EpiPen Pricing Period

Generic drugs became subject to an inflation rebate beginning January 1, 2017. The generic category now also carries an additional rebate when average manufacturer price outpaces inflation.

Congress added powers to correct misclassifications and recover unpaid rebates in 2019. The Centers for Medicare & Medicaid Services’ September 2024 final-rule explanation describes how the agency notifies manufacturers, requires corrections and addresses the unpaid amounts.

What a Product or Pricing Insider Can See

Product and pricing records connect the drug’s identity to the rebate the company pays. The product information reported to the Centers for Medicare & Medicaid Services includes the drug’s category, FDA application number and therapeutic-equivalent code. Those fields connect regulatory history to financial treatment.

The next connection is between the reported data, the rebate calculation, state invoices and payment. For a product-data employee, the category decision may be familiar. A government-pricing employee may understand the calculation it changes. For a competitor, the starting point may be knowledge of the product and its approval history.

A separate Acthar complaint against Mallinckrodt illustrates why management’s response belongs beside the calculation. That case concerned an allegedly incorrect base-date average manufacturer price, which reduced the inflation rebate. The whistleblower alleged that, after the agency requested a correction, a finance supervisor ordered the company’s rebate liability calculated:

The alleged instruction explains why a rebate workpaper can matter beyond its total. It can connect the money owed to the people who understood the calculation and decided what the company would do about it.

When Your Product Knowledge Exposes the Rebate Gap

If you know why a drug’s reported category or pricing history does not match the product, talk with our whistleblower experts about the rebate gap. We build your strongest Medicaid rebate whistleblower case with you and bring in pharmaceutical whistleblower lawyers who understand Medicaid product reporting and rebate calculations. From the first comparison through the pursuit of a recovery, we stay beside you and make your knowledge of the business count.