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The $465 million settlement that big drugmaker Mylan agreed to pay to pay settle claims it grossly underpaid Medicaid rebates for EpiPen "shortchanges the taxpayers," Sen. Chuck Grassley said Thursday.
"There are serious problems here," said Grassley, R-Iowa, about the finalized settlement related to the anti-allergy device EpiPen announced earlier Thursday, which will split the money between the federal government and state Medicaid programs.
"The Justice Department doesn't say how it arrived at $465 million for a similar time period," the senator said. "Did the Justice Department consider the inspector general estimate? If not, why not?"
Sen. Richard Blumenthal, D-Conn., called the settlement "completely insufficient."
Also Thursday, it came to light that a small company, which has made hundreds of millions of dollars suing drug firms for alleged fraud on the federal government, will get a cut of Mylan's settlement, along with Sanofi, a competitor of Mylan's.
Mylan announced the settlement last October, several months after the company came under blistering public criticism for hiking the price of the auto-injector EpiPen to more than $600 for a two-pack. But it was only Wednesday that the deal with the Justice Department was finalized and signed.
The settlement relates to allegations that Mylan for years had paid the nation's Medicaid system much less in rebates for EpiPen sold through that health-coverage program than it should have.
Mylan claimed that EpiPen should be subject to a much lower rebate rate for generic drugs, as opposed to the higher rate for brand-name products.
Mylan, in the weeks before announcing the settlement in October, had claimed it was entitled to pay the lower rebate rate.
The finalized settlement released Thursday contained no language indicating that Mylan denied it should have been paying the higher rebate rate for years.
Mylan said Thursday that it will, retroactively to April 1, pay the higher rebate rate for EpiPen to Medicaid, the joint federal-state system that provides health coverage to primarily poor people.
A company spokeswoman declined to say what the actual rate will be. But a government source told CNBC that the rate will come close to 100 percent of Mylan's sales of EpiPen through Medicaid.
That sky-high rate reflects that Medicaid's drug rebate program imposes a steeper rebate rate on brand-name drugs whose prices are raised above the rate of inflation.
While the gist of the settlement has been known for 10 months, it was not previously publicly known that Mylan's competitor Sanofi played a major role in the case.
Sanofi, which had previously marketed an EpiPen competitor called Auvi-Q, complained to federal prosecutors in Massachusetts about the rebate underpayments in 2014.
Sanofi then sued Mylan over that issue in late July 2016 in a sealed federal case in Massachusetts, which claimed Mylan violated the False Claims Act by its underpayments to Medicaid.
It is extremely rare for such whistleblower lawsuits, known as "qui tam" actions, to be filed by a health-care company against another health-care company in the hopes of obtaining a bounty or other benefits.
"It's rare, but it's not unheard of," said Patrick Burns, associate director of the Taxpayers Against Fraud Educational Fund. "It doesn't happen enough."
Sanofi, in a statement to CNBC, said that "soon after the launch of Auvi-Q we realized that Mylan was employing anti-competitive behaviors based on, among other commercial practices, its misclassification of EpiPen as a 'non-innovator multiple source drug' to federal and state governments for Medicaid Rebate purposes."
"It was our contention that Mylan's intentional misclassification of EpiPen allowed them to amass hundreds of millions of dollars, which they then used to finance their anti-competitive behavior in the marketplace. We contended that Mylan's efforts to purposefully block Auvi-Q on the commercial side resulted in insurance plans and pharmaceutical benefit managers either not covering Auvi-Q or placing Auvi-Q in unfavorable positions on drug formularies, leading to substantially limited patient access to Auvi-Q," the company said.
Because of its whistleblower complaint against Mylan, "Sanofi will receive $38.7 million as its share of the federal recovery," the U.S. Attorney's Office in Massachusetts said.
Sanofi will also get a share of the money earmarked for the states' Medicaid programs under the settlement.
Although the value of that share was not disclosed, it is likely to bring the whistleblower reward up to nearly $60 million, a source said.
Sanofi, which itself has a history of making payments to settle False Claim Act violations, will split the Mylan money with a company that previously received a multimillion-dollar bounty for blowing the whistle on Sanofi.
In April, Sanofi-Pasteur, the vaccines division of Sanofi, reached a $19.8 million settlement with the Justice Department over claims it overcharged the federal Veterans Affairs Department for drugs.
Sanofi in 2012 signed an agreement with the U.S. Justice Department to pay $109 million to settle allegations it violated the False Claims Act in connection with its marketing of the drug Hyalgan.
Five years before that, Sanofi agreed to pay $190 million to settle allegations by the Justice Department that Aventis, which Sanofi had merged with, caused false claims to be filed with government health programs including Medicare.
In that 2007 settlement, a small company in Key West, Florida, called Ven-A-Care received about $32 million in a whistleblower bounty for flagging the false claims by Aventis.
Ven-A-Care is well known in the whistleblower world for making hundreds of millions of dollars over the years by suing health companies for False Claims Act violations.
Ven-A-Care also was a signatory, along with Sanofi, to the settlement with Mylan.
The settlement notes that Ven-A-Care on Dec. 8, 2016, had filed its own federal qui tam False Claims action against Mylan for EpiPen rebate underpayments. That suit was filed two full months after Mylan announced the settlement with the Justice Department, and more than five months after Sanofi filed the first qui tam claim against Mylan on the EpiPen rebate issue.
The finalized settlement does not say that Ven-A-Care will get any money for its claim.
But a Sanofi spokeswoman said that due to the fact that Ven-A-Care was recognized as a whistleblower along with Sanofi, "the $38,767,136.50 payment as referenced in the Government's Settlement Agreement will accordingly then be allocated between the two parties and their respective attorneys."
Stephen Weiss, a veteran qui tam litigator, said, "It is very interesting in itself" that Ven-A-Care is getting a share of the bounty because the trend in qui tam cases has been that the first party that files a whistleblower's claim gets the reward.
Ven-A-Care did not return a call seeking comment.