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Mylan hit with racketeering suit over big price hikes of EpiPen

Big drugmaker Mylan was slapped Monday with a class-action racketeering lawsuit that claims the company engaged in an illegal scheme to dramatically increase the list price of its EpiPen anti-allergy device over the past decade.

The suit alleges that the "skyrocketing" list price of EpiPen for consumers was the result of Mylan's payments of rebates to pharmacy benefit managers — including CVS Caremark, Express Scripts and Optum Rx — which handle prescription drug benefit programs for insurance plans.

The suit claims violations of consumer protection laws of all U.S. states, as well as a violation of the Racketeer Influenced and Corrupt Organizations Act. If granted class-action status, the suit would cover all consumers.

The suit says Mylan only disclosed that its price increases for EpiPen were due to the rebate payments to the PBMs last summer, after outrage exploded over the fact that a two-pack of the auto-injector devices was selling for more than $600.

A decade earlier, it cost consumers paying list price about $90 for EpiPen, which is used to treat a potentially fatal allergic reaction known as anaphylaxis. Since then Mylan had increased the list price of the device 17 times, the suit said.

The suit, filed in U.S. District Court in Seattle, noted that when EpiPen prices were increasing most dramatically, some other companies tried to introduce competing devices.

But those companies never succeeded in displacing the market dominance of EpiPen because they did not pay the same level of rebates that Mylan was paying the pharmacy benefit managers, the suit said.

"Mylan has tried every trick in the book to avoid taking accountability to the millions of people who are living without the EpiPen they need to prevent a life-threatening allergic reaction," said Steve Berman, managing partner of Hagens Berman, which represents the three named plaintiffs in the suit.

"Despite the fiction that Mylan has tried to sell the public, and sell Congress, the numbers don't lie — Mylan has been the motivating force behind the jaw-dropping 574 percent EpiPen price hike," Berman said. "Mylan is no victim."

A spokeswoman for Mylan had no immediate comment on the lawsuit.

Berman told CNBC that the list price charged for EpiPen has "become a completely phony price," that bears little relationship to the relatively minor cost of producing EpiPen.

Most EpiPen customers have some form of insurance that covers all or part of the cost of their purchase, he said.

But a small fraction of all consumers pay the list price for the device, either because they have no insurance, or because they are buying multiple packs of EpiPens and only one pack is covered by their health plan.

Berman said Mylan and the PBMs did not have true arms-length dealings in negotiating the price of EpiPen paid by the PBMs because both sides had an interest in driving up the price to increase their profits. That, in turn, led to the list price of EpiPen being artificially inflated, Berman said.

"When you scheme to drive up the list price beyond any relationship to cost, that's illegal," Berman said.

Mylan is the only named defendant in the suit. But the suit also claims that CVS Caremark, Express Scripts and Optum Rx participated in the scheme, "sharing the common purpose of inflating the list price of EpiPen, through a pattern of racketeering activity."

The PBMs, the suit alleged, "knowingly made material misstatements to health care payers, plan members, and the general public" about the actual price of EpiPen, the extent to which the published price differed from the actual price, and the extent to which they and Mylan "negotiated the rebates discounting the list price of EpiPen for a purpose other than the PBMs' own enrichment."

Berman said he did not sue the PBMs for "strategic" reasons.

The trade group representing PBMs, the Pharmaceutical Care Management Association, said in a statement to CNBC that: "Mylan has spent the past year blaming Washington, the prescription drug supply chain, and competitors for its unusual pricing practices. It's time for them to look in the mirror and take responsibility for their own actions."