EpiPen-maker Mylan reached a $465 million settlement with the Justice Department to "resolve questions that have been raised" about whether the Medicaid program overpaid for the lifesaving allergy injection, the company said in a release Friday afternoon.
In recent weeks, many politicians have called for investigations into whether EpiPen was improperly classified in the Medicaid Drug Rebate program. Under the rebate program, the EpiPen has been classified as a "non-innovator drug," which means the company is required to pay only a 13 percent rebate. In contrast, brand name or drugs with a single source must pay a 23.1 percent rebate and an additional amount if price hikes occurred faster than inflation.
Until 1997, EpiPen was considered a branded product, but since then it has been classified as a non-innovator drug. This raised the question for many over whether the classification was correct and whether the Medicaid rebate programs had been overpaying for the medication. For example, the Minnesota Department of Human Services calculated that if the drug was misclassified, it was at a cost to the state of more than $4 million dollars in 2016 alone, according to Sen. Amy Klobuchar's office.
“I am glad the Department of Justice pursued this so quickly, since the misclassification was an outrage,” Sen. Amy Klobuchar (D--Minn.) said in a statement. “At the same time, 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, the taxpayers need to get their money back, and the process needs to be changed to stop this from happening again.”
The company did not admit wrongdoing in the settlement.
"EpiPen Auto-Injector has been classified with CMS [Centers for Medicare and Medicaid Services] as a non-innovator drug since before Mylan acquired the product in 2007 based on longstanding written guidance from the federal government," the company said in a statement.
Nearly every aspect of Mylan’s business has come under scrutiny in recent weeks – attention drawn by the company’s dramatic price increases on EpiPens, which are used to inject epinephrine to halt an allergic reaction in an emergency. Mylan acquired the product in 2007, and the list price of a two-pack of injectors rose from less than $100 to $608 today.
Last month, Congress lashed in to Mylan’s chief executive, Heather Bresch, at a lengthy hearing focused on the price rises and the company's profit. In addition to concern about the possible misclassification of the EpiPen, questions have also been raised about possible antitrust issues.
The settlement follows the release earlier this week of a letter from the Centers for Medicare and Medicaid Services showing that Medicaid paid $960 million for EpiPens over a five-year period ending in 2015. After rebates, the company paid Medicaid $797 million, which the letter said reflected a rebate of 13 percent -- although the amount is actually closer to 17 percent.
CMS "has, on multiple occasions, provided guidance to the industry and Mylan on the proper classification of drugs and has expressly told Mylan that the product is incorrectly classified," Acting Administrator Andrew Slavitt wrote in an e-mail. The letter did not specify when that guidance was given or what form it took, which led to wide speculation among analysts about how much the company could owe the government.
"This is probably the most major risk people have been focused on, which is now essentially off the table," Ronny Gal, an analyst at Sanford C. Bernstein & Co., said in a video sent out to investors. He predicted the stock would rise.
The company also adjusted its earnings expectations for 2016, down to $4.70 to $4.90 per share, compared with a previous forecast of $4.85 to $5.15.