'Safety-net' hospitals ask for federal probe of possible EpiPen overcharges

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Will Mylan have to cut another very big check because of the way it's classified its EpiPen for sales to poor people?

A group that represents more than 1,200 "safety-net" hospitals is asking the U.S. Justice Department's fraud section to investigate whether big drugmaker Mylan "improperly" overcharged them for sales of its pricey EpiPen anti-allergy device.

The group 340B Health, in a letter to the Justice Department, said that Mylan's alleged misclassifying of EpiPen as a generic drug instead of as a brand-name product "would likely have resulted in overcharges" to so-called 340B hospitals. Those hospitals serve significant amounts of poor people and residents of rural communities.

The new allegations parallel ones made over the past several months that Mylan shortchanged Medicaid's drug rebate program as a result of how it classified the auto-injector, which delivers a shot of epinephrine in cases of potentially fatal allergic reactions.

Mylan last month agreed with the Justice Department, without admitting wrongdoing, to pay $465 million to settle claims it paid Medicaid less in rebates than it should have been paying as a result of classifying EpiPen as a generic.

Mylan also agreed to pay Medicaid's drug rebate program the higher rebate rate charged brand-name drugs starting next April.

The 340B hospitals aren't entitled to rebates. But those safety-net hospitals are legally entitled — because of the types of patients they have — to front-end discounts on the price of EpiPens sold through those hospitals.

340B Health, in its letter to the Justice Department, said Mylan's misclassification of EpiPen "would have had a similar impact on establishing" the maximum price 340B hospitals have to pay for EpiPen as that classification had on the Medicaid Drug Rebate Program

Randy Barrett, spokesman for 340B Health, told CNBC on Friday that "I don't have any figure on how much 340B hospitals might have been shorted."

"What I can say is we've heard from our members that for each package of EpiPens that they've purchased, it appears they could have been overcharged by upwards to $500/package," Barrett wrote in an email.

"One hospital reported to us that this would amount to an overcharge of more than $100,000 in the last year," Barrett wrote. That particular hospital was a large one, he said.

Both Mylan and the Justice Department declined to comment on the 340B Health letter.

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.