The Department of Justice, with the Office of the United States Attorney of the Eastern District of Pennsylvania, recently joined a lawsuit filed by private whistleblowers against Mallinckrodt ARD LLC, a drug manufacturer. The Government’s complaint was filed on June 4, 2019, although the case had initially been filed in 2012.
The case alleges fraud by Mallinckrodt through the funding of a so-called patient assistance charitable foundation. The company’s contributions to the foundation were used to fund patient co-payments under Medicare Part D for the drug Acthar. Acthar is used to treat acute exacerbations in multiple sclerosis, lupus, and rheumatoid arthritis.
Mallinckrodt did not develop Acthar, but from its acquisition of the rights to the drug in 2001 until 2014, Mallinckrodt raised Acthar’s per-vial price from approximately $50 per 5 milliliter vial to over $32,000. The company hiked the price from approximately $2000 per vial to $23,000 per vial in one year alone!
Medicare’s Co-Payment Structure
Although patient assistance seems like a positive, charitable goal, various drug manufacturers have funded co-payments to induce patients to use their expensive drugs rather than less expensive alternative medications. By paying the patient’s co-pay, a drug manufacturer can encourage a patient to not care about the price of the drug, increasing the sale of the manufacturer’s product and potentially increasing the Medicare program costs considerably.
Notably, Medicare co-payments (whether through deductibles or individual drug co-pays) are intended to encourage both physicians and Medicare beneficiaries to be price-sensitive, efficient consumers of federally reimbursed healthcare services and products. Additionally, the manufacturers are encouraged to price their products competitively based on consumer sensitivity to price.
As the United States Attorney for the Eastern District of Pennsylvania described:
“Drug companies are not allowed to pay patients’ co-pays. That rule is designed to prevent the very thing Mallinckrodt allegedly did here – outrageously jack up Acthar’s price and leave the government with the entire bill.”
A patient’s co-pay obligations in Medicare can be substantial for expensive medications. For example, after meeting an annual deductible, the standard Part D benefit requires a 25 percent patient co-pay up to a specified coverage limit. In this case, Mallinckrodt paid co-pays in the range of $1300 – $5500 per script, clearly sizable sums to an individual patient. By eliminating these payments for patients, Mallinckrodt could keep increasing the drug price without “scaring off” its patient base – and put the entire $32,000 payment on Medicare Part D.
As the Complaint alleges,
Mallinckrodt knew that the cost of Acthar would make it difficult to sell because there were cheaper, effective competitor drugs available to treat certain of its approved uses …. Mallinckrodt intended to overcome this difficulty and did so by making the drug “free” to patients by subsidizing their Medicare copayments. By doing so, Mallinckrodt could maintain the high price of Acthar to maximize its own sales revenues, but minimize the risk that the drug’s high price would impede doctors and patients from using it.
Presumably because Mallinckrodt knew that paying co-pay subsidies to Medicare patients was illegal, the company devised an indirect – but still illegal – means to accomplish that goal. Mallinckrodt used a charitable foundation as a conduit to get the patient payments made. Essentially, the company created “patient assistance funds” that the foundation could only use to fund co-payments for Acthar. Mallinckrodt referred patients to this foundation so they could receive the Mallinckrodt-funded subsidies, and then promoted its drugs as cost-free to potential and continuing patients.
Call an Experienced Lawyer to Discuss Possible Fraud
The Government’s intervention in this case is a welcome indication of efforts to control fraud by drug manufacturers, sometimes in creative ways designed to escape detection. If you witness similar conduct or something that just seems “fishy,” you should contact an experienced False Claims Act attorney to see if the conduct is illegal. You can save the government healthcare programs huge sums of money – and potentially be rewarded yourself through the substantial incentives that the Government has provided to encourage people to report suspected fraud.
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