Mylan and UDL: Innovator Drugs, Non-Innovator Rebates

In the Mylan UDL 2009 rebate settlement, Mylan Pharmaceuticals and UDL Laboratories agreed to pay $118 million to resolve allegations that they underpaid Medicaid rebates by reporting innovator drugs as non-innovator drugs. The government said the companies sold drugs manufactured by other companies and used the category that carried the smaller rebate. For a pricing insider, the important connection is between the product the business sold and the category it reported to Medicaid.

The Justice Department announced the settlement on October 19, 2009.

Why the Drug Category Changed the Medicaid Rebate

Innovator drugs carried a higher rebate than non-innovator drugs. By signing agreements to participate in the Medicaid Drug Rebate Program, the companies had agreed to pay quarterly rebates on drugs the program paid for. The category helped determine how much money came back.

The government’s allegation of drug misclassification was specific: the companies sold innovator drugs made by other manufacturers, then classified those products as non-innovators for rebate purposes. Medicaid paid for the drugs, but allegedly received less back than the companies owed. Federal and state taxpayers absorbed that shortfall.

Here, the government challenged the category used by the seller for drugs made elsewhere.

The Mylan and UDL Drug Rosters

The announcement’s Mylan list included nifedipine extended-release tablets, flecainide acetate, selegiline HCL and bumetanide.

UDL’s list included those same drugs, as well as ranitidine HCL syrup and sucralfate suspension.

Why Authorized Generics Still Have an Innovator’s Approval

An authorized generic is the brand-name drug sold without the brand name, usually through a distributor. It competes in the generic market while remaining under the brand product’s original Food and Drug Administration approval. The commercial label and the approval history tell different stories about the same medicine.

For Medicaid, innovator multiple-source status follows the drug’s approval under a new drug application. Pricing staff can therefore be dealing with a product sold as a generic whose approval still places it in the innovator category. That is why the product’s history matters to the rebate calculation even when another company sells it.

In the Mylan and UDL case, the government described the disputed products as innovator drugs manufactured by other companies. Its allegation concerned the sellers’ decision to report those drugs in the lower-rebate category. The money turned on what they told Medicaid about the product.

Where the Settlement Money Went

The joint Mylan and UDL payment had three destinations. The Justice Department reported that the federal government received $60,896,476 and the states received $49,824,389. It said another $7,279,135 would go to entities participating in the Public Health Service’s Drug Pricing Program.

The federal and state split reflected Medicaid’s shared funding. The public-health allocation was for entities in the separate system of discounted drug purchases by safety-net providers. Under the 340B pricing formula, average manufacturer price is reduced by the Medicaid unit rebate amount to calculate the ceiling price. A smaller rebate amount can therefore mean a higher ceiling price for the purchaser. That connection explains why a rebate classification case can matter to a hospital’s drug purchasing as well as a state’s Medicaid payments.

The announcement also covered separate settlements with AstraZeneca Pharmaceuticals and Ortho McNeil Pharmaceutical. AstraZeneca paid $2.6 million over alleged rebate underpayments for Albuterol. Ortho McNeil paid $3.4 million over Dermatop. Together with the Mylan and UDL payment, those settlements formed the announcement’s $124 million total.

How Much Money Do Pharmaceutical Whistleblowers Get for Exposing Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The award in this announcement covered the combined settlements, including the separate AstraZeneca and Ortho McNeil matters.

The whistleblower was a company. The Justice Department said it would receive approximately $10.8 million as its share of the day’s recovery.

This case also illustrates a point that matters to people outside a manufacturer’s payroll: a company can bring a whistleblower case. The qui tam case here came from a corporate whistleblower.

A Different Case From Mylan’s EpiPen Settlement

Mylan’s later EpiPen settlement, announced in 2017, concerned allegations that it reported EpiPen as generic despite the absence of a therapeutically equivalent drug. That classification allegedly avoided brand and inflation rebate obligations while Mylan raised private-market prices.

The earlier Mylan and UDL case concerned multiple listed drugs manufactured by other companies. The shared pattern is a reported drug category that allegedly reduced the rebate.

The Larger Pattern in Medicaid Pricing

Public Citizen’s Health Research Group found that overcharging state health care programs, mainly Medicaid, was the most common violation against state governments in the settlements it studied. Its 2010 report, Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010, also found that this category accounted for the largest amount of financial penalties imposed by those governments.

The report grouped unpaid required rebates with other forms of government overcharging, including inflated reported prices. A state’s drug bill depends on money coming back through rebates as well as money going out to pay for medicines. The Mylan and UDL allegations concerned the money that should have come back.

What a Pricing Insider Would Recognize

This case connects the drug, the company selling it, the category reported for Medicaid and the resulting rebate obligation. Someone working in a healthcare company’s product data, government pricing or rebate reconciliation may see how those pieces fit together before anyone outside the business does.

We work with insiders to connect the product history to the reported category and the payment it produced. The useful account is specific: which product, which treatment in the calculation, and what people inside the business knew about that choice. The named drugs in this case show how concrete that conversation can be.

You Know the Drug Behind the Category

If you know why a drug’s reported category produced a smaller Medicaid rebate, speak to one of our whistleblower experts about how that rebate came up short. We bring in pharmaceutical fraud whistleblower lawyers experienced in Medicaid rebates and stay beside you to build your strongest Medicaid rebate whistleblower case around the products and pricing decisions you understand.