Congress Not Ready To Forgive and Forget Mylan EpiPen Controversy

Despite Mylan’ $465 million settlement with the Department of Justice for overcharging Medicaid millions of dollars for its product EpiPen, Congress is not ready to let bygones be bygones.  In a display of bipartisanship, Sen. Grassley (R-IA) and Sen. Wyden (D-OR) unveiled a bill (section-by-section summary) entitled “The Right Rebate Act” (RRA) on December 4, 2018 and explicitly cited the EpiPen experience as the chief motivating factor for its creation.  In short, the RAA would punitively address the “knowing” misclassification of drugs payable under the Medicaid program (covered outpatient drugs), in addition to promoting more accountability generally.

Under the current Medicaid Drug Rebate Program (MDRP) rules, manufacturers of innovator products owe a greater rebate percentage (generally 23.1% of the Average Manufacturer Price, or AMP, of the drug per unit) than they do for drugs classified as non-innovators (13% of AMP).  These rebate percentages were increased in 2010 as part of the Affordable Care Act (from 15.1% and 11%, respectively).  Thus, manufacturers have an incentive to treat their drug products as non-innovators rather than innovators in order to reduce rebate liability.  The Trump Administration recognized this much in its FY 2019 Budget Proposal that would seek clarification regarding how to report innovator v. non-innovator drugs.

The RRA, if enacted, would be a big deal for some manufacturers that participate in the MDRP.  This is particularly the case for manufacturers marketing older drugs for which the innovator/non-innovator distinction is more ambivalent. For example, certain drugs approved under a paper NDA prior to the enactment of the Hatch-Waxman Amendments of 1984 may be more appropriately treated as non-innovators. Similarly, CMS has in the past noted that certain parenteral drugs in plastic immediate containers, for which FDA required that an NDA be filed, might be more appropriately treated as non-innovators.

Importantly, the amendments of the RRA would apply after the date of its enactment. For the convenience of our readers, we summarize the RRA’s key provisions below.

Key Provisions

  • “Knowingly” Submits. The RRA would only apply to a manufacturer that “knowingly” misclassifies a covered outpatient drug, such as by knowingly submitting incorrect drug category information.  The RRA cross-references the regulatory definition for “knowingly”, which defines the term as a person acting with the “actual knowledge…in deliberate ignorance…[or] in reckless disregard.”  No proof of specific intent is required.
  • CMP Amount. The RRA caps the CMP amount that may be imposed on a manufacturer at 2 times the amount of the difference between (i) the total amount of rebates that the manufacturer actually paid to all States for the rebate periods during which the drug was misclassified, and (ii) the total amount of rebates that the manufacturer would have paid had the drug been correctly classified. Notably, the RRA does not preclude the application of other CMPs under different authorities, as applicable.  Thus, a manufacturer may be exposed to CMPs derived from multiple authorities.
  • Oversight. The RRA would require the Secretary to retain 25% of the CMPs imposed on manufacturers to reinvest in activities related to the oversight and enforcement of the RRA, including:
    • Improving drug data reporting systems
    • Evaluating and ensuring manufacturer compliance with rebate obligations
    • Oversight and enforcement related to ensuring that manufacturers accurately and fully report drug information, including data related to drug classification
  • Recuperating Rebates. The RRA authorizes the Secretary to recover incorrect rebate payments when a manufacturer knowingly submits inaccurate classification data.  The amount of rebates recoverable by the Secretary are equal to the product of (i) the difference between the per-unit rebate amount paid for the period and the per-unit rebate amount that should have been paid for the period and (ii) the total units of the actually drug paid for under the State plan during the period.
  • Correcting Misclassifications. The RRA authorizes the Secretary to require the appropriate classification of a given covered outpatient drug, regardless of whether the manufacturer knowingly misclassified the product.  The Secretary must notify the manufacturer and the misclassification and give it an opportunity to correct the misclassification in a timely manner.  If the manufacturer fails to correct the misclassification in the time specified by the Secretary, the Secretary may (i) unilaterally correct the misclassification, (ii) suspend the specific drug’s status as a covered outpatient drug, (iii) impose CMPs (in addition to those for “knowingly” misclassifying drugs) for each rebate period during which the drug is misclassified.  CMPs imposed under this specific authority may not exceed the product of the total number of units of each dosage form and strength of such misclassified drug during such a rebate period, and 23.1% of the AMP for the dosage form and strength of such misclassified drug.
  • Annual Reporting. The RRA requires the Secretary to submit an annual report to Congress regarding the number of misclassified covered outpatient drugs, steps taken to reclassify such drugs, actions the Secretary has taken to ensure payment of any rebate amounts due, and a disclosure of expenditures from the 25% of CMPs retained to reinvest in oversight activities. This information shall be made publicly available on a timely basis, although the RRA does not specify how the Secretary must do this.
  • Non-Prescription Drug. The RRA clarifies that the definition of “multiple source drug” under section 1927(k)(7)(A)(i) of the Social Security Act includes “a drug product approved for marketing as a non-prescription drug that is regarded as a covered outpatient drug.”
  • Biologics. The RRA explicitly adds to the definition of a “single source drug” at 1927(k)(7)(A)(iv) a “covered outpatient drug that is a biological product.”
  • Program Exclusion. The RRA authorizes the Secretary to exclude any manufacturer or officer, director, agent, or managing employee of such manufacturer that knowingly misclassifies a covered outpatient drug under an agreement under section 1927, knowingly fails to correct such misclassification, or knowingly provides false information related to drug pricing, drug product information, or data related to drug pricing or drug product information.

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