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Mylan accused of 'bilking' taxpayers by failing to pay proper EpiPen rebates

Two members of Congress on Wednesday accused big drugmaker Mylan of "bilking taxpayers out of millions of dollars" by underpaying Medicaid in rebates owed on sales of the lifesaving device, as they vowed to recoup that money.

Sen. Ron Wyden, D-Ore., and Rep. Frank Pallone, Jr., D-N.J., cited a letter from a top federal health official who confirmed that Mylan had been told "on multiple occasions" that the company was misclassifying EpiPens for the purposes of the Medicaid Drug Rebate Program. For the past five years, Medicaid has spent nearly $800 million on EpiPens.

Under the Medicaid rebate program, Mylan, which has hiked EpiPen prices to more than $600 this year, has been paying a 13 percent rebate on the anti-allergy auto-injector's sales to Medicaid because it classifies EpiPen as a generic device.

But it should be paying a brand-name product rate of at least 23.1 percent, as well as an extra rebate because it has hiked the price of the device faster than the rate of inflation, according to the letter from acting Centers for Medicare and Medicaid Services Administrator Andy Slavitt to the Senate Finance Committee ranking member Wyden.

Slavitt said EpiPen has patent protection, has no Food and Drug Administration-approved equivalents, and was approved by that agency under a "new drug application," all of which make it a brand-name drug.

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," Slavitt wrote.

Slavitt's letter said that while CMS notified drugmakers about the correct classification of their products, "it is the manufacturer's responsibility to report accurate product and pricing data to the Medicaid Drug Rebate Program." He added that manufacturers can be fined up to $100,000 per item of false information they submit under the rebate agreement.

Mylan bought EpiPen from Merck in 2007. But Slavitt's letter noted that EpiPen, since the fourth quarter of 1997, has been incorrectly reported by its sellers as a generic drug for the rebate program.

"This incorrect classification has financial consequences for the amount that federal and state governments spend because it reduces the amount of quarterly rebates Mylan owes for EpiPen," Slavitt wrote.

However, he also wrote, "At this time, CMS cannot comment on the total amount of rebates owed by Mylan related to this incorrect classification."

But Slavitt's letter also said that total Medicaid spending on EpiPen from 2011 through 2015 was $960 million. That spending had grown annually from $66 million in 2011 to $365 million last year.

Mylan paid rebates on slightly less than the $960 million amount, which was reduced because of subtractions for so-called dispensing fee — rebates are not assessed on those fees.

"After rebates, net Medicaid spending over this five-year period [on EpiPen] was approximately $797 million, reflecting a rebate of 13 percent," Slavitt wrote.

Noting that the actual rebate should have been at least 10 percentage points higher, Wyden and Pallone said, "Today's letter is more evidence that while Mylan irresponsibly raised the price of EpiPen, they were also bilking taxpayers out of millions of dollars."

"We will ensure taxpayers gets their due," the congressmen said

The company previously said it was relying on guidance from CMS about how it classifies EpiPen for the rebate program. Under that program, drugmakers, in exchange for having their products covered by Medicaid, agree to rebate some of the total sales.

The rebates are split between the federal government and the 50 states, which jointly run their Medicaid programs with the federal government.

In a statement to CNBC, Mylan reiterated that it was following guidance from the federal government on the classification of EpiPens and it referred to a new government rule that intends to clarify ambiguities in Medicaid rebate law. "The new process calls for the submission of an application for non-innovator status to be submitted to CMS on or before April 1, 2017," Mylan said. "It would be premature to comment further on this issue until the CMS process has concluded."

Regarding the CMS letter, "Any changes made to the rebate classification in 1997 pre-dated Mylan's acquisition of the product by almost a decade," the company said. "The longstanding written guidance provided by the federal government is consistent with how the product was classified dates back to the 1997 time frame."