By Henry Ehrlich
The New Year has just begun and we already have a new EpiPen story to ring it in. This one is about the $465 million fine that Mylan paid last year to Medicaid, which was discussed in an article published in FiercePharma by Eric Palmer about “misclassification” of drugs purchased through Medicaid.
The economics of drug prices have always been a bit of a mystery to me and this particular article had its own little puzzles so I wrote directly to Mr. Palmer and asked him to explain what it was all about.
He wrote back: “It is simply that all drugmakers pay Medicaid a rebate on their drugs. If the drugs are classified by the FDA as innovator drugs, the rebate is 23.1%. If they are simply generics, copies of someone else’s innovator drugs, they pay 13% of their sales back to Medicaid. The FDA classified EpiPen as an innovator drug but Mylan reported it to Medicaid as a generic, and so paid about 10% less in rebates on the sales than it should have.”
How lucrative is that difference? The fact that Mylan has raised the price steadily for years complicates the discussion, but 23 percent at today’s price of about $600 would mean kicking back about $140 to Medicaid. Thirteen percent means only $78. The most important figure is that $1.27 billion was earned on the differential from 2006-2016, some of it before Mylan acquired Epipen, and only $465 million was recouped in fines. Nice work if you can get it.
For me this begs the question, by what inverted logic is EpiPen classified as innovative? Epinephrine itself is a commodity drug and that autoinjector is still much as it was when the US military paid to create it many years ago. However, Mylan tweaks it now and then to stay a step ahead of the patent office, although as we have noted in these pages before, they don’t fiddle quite enough to make them safe to use or ensure their effectiveness). They also use their marketplace clout to price it like a new drug.
One choice tidbit I learned while looking at this case was that Sanofi–former makers of Auvi-Q–got a $38-million whistleblower payoff from the $465 million for tipping off the Feds that Mylan was playing the misclassification game.
If it’s any reassurance to you as a taxpayer, the larger point of Palmer’s article was that such misclassification is rare. A study by the Inspector General of the US Department of Health and Human Services found that remarkably few drugs were misclassified–3% of the 30,000 analyzed. Only four drug makers were responsible for more than half of misclassifications and just two of the drugs accounted for 90% of lost revenue.
photo by drugcrime-law.com