Mylan for years classified EpiPen as a generic medication for the Medicaid Drug Rebate program, citing guidance from federal health regulators.
Under that program, companies pay Medicaid, which is jointly run by federal and state governments to provide health coverage to primarily the poor, a rebate of 13 percent for sales of generic medications through Medicaid.
But after outrage erupted in August over Mylan raising the retail price of EpiPen to more than $600 for a two-pack, the federal Centers for Medicare and Medicaid Services revealed that they had repeatedly told the company that EpiPen should be considered a brand-name product for rebate purposes.
Sellers of brand-name products have to pay a much higher rebate to Medicaid: at least 23.1 percent on every sale.
But brand-name drugs that have had their price raised beyond the rate of inflation are subject to even higher rebates. And because of that inflation adjustment, if drug sellers hike their prices significantly they can end up owing Medicaid an amount that is nearly equal to the actual sales price of the medications.
Mylan has raised the price of EpiPen more than 500 percent in recent years.
An Evercore ISI analysis has found that if Mylan was warned about the misclassification as far back as five years ago, the company might have shortchanged Medicaid more than $700 million in rebates, which is close to what the company made in sales through the program.
Because of that wide difference between what Mylan might have owed and what it will pay, a number of elected officials have criticized the yet-to-be finalized $465 million settlement with the Justice Department.
Sen. Richard Blumenthal, D-Conn., has called on the Justice Department to cancel the deal, as has the attorney general of West Virginia, where Mylan has a manufacturing plant.
Sen. Elizabeth Warren, D-Mass., in a letter to U.S. Attorney General Loretta Lynch, called the settlement "shockingly weak, with no criminal penalty and no deterrent value to prevent drug companies from engaging in abusive schemes to defraud Medicaid and rip off taxpayers."
The Senate Judiciary Committee has scheduled a Nov. 30 to examine the settlement.