The Department of Health and Human Services Office of Inspector General (OIG) has estimated that taxpayers may have overpaid drug-maker Mylan N.V. for its EpiPen emergency allergy device by as much as $1.27 billion from 2006 through 2016––far more than the $465 million that the company had agreed to pay in settlement negotiations with the Obama administration’s Justice Department. The analysis was released by Senator Chuck Grassley (R-Iowa), chairman of the Senate Judiciary Committee.
In a letter to Josh Flynn-Brown, investigative counsel for the Judiciary Committee, the OIG explained that the classification of a drug is a key factor in determining the amount of rebates that a manufacturer owes under the Medicaid Drug Rebate Program (MDRP). Generally, manufacturers owe higher rebate amounts for brand-name drugs than for generic drugs. The basic rebate amount for a generic drug is based on a percentage (currently 13%) of its average manufacturer price (AMP). The basic rebate amount for a brand-name drug, on the other hand, is based on the greater of two figures: a fixed percentage (currently 23.1%) of the drug’s AMP or the difference between the drug’s AMP and best price. Whichever formula yields the higher value determines the brand-name drug’s basic rebate amount. Drug manufacturers report AMPs and, for brand-name drugs, best prices to the Centers for Medicare and Medicaid Services.
According to the OIG, Mylan has historically classified the EpiPen as a generic for purposes of the MDRP. Therefore, the rebates that Mylan paid for the EpiPen were based on a percentage of the AMP. In contrast, if Mylan had classified the EpiPen as a brand-name product, the company should have calculated its rebates based on the greater of a higher percentage of the AMP or the difference between the AMP and best price. In addition, if the EpiPen had been classified as a brand-name product, Mylan would have been required to pay inflation-related rebate amounts for the EpiPen if its price increased faster than the rate of inflation.
Based on these factors, the OIG determined the estimated rebate differential to be $1.27 billion for 2006 through 2016.
“Mylan and the Obama administration reportedly were close to settling the overpayment for much less than $1.27 billion,” Grassley said in a statement. “Taxpayers have a right to know what happened here and to be repaid whatever they are owed.”