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Attorney General James recovers $26.8 million from drug manufacturer Mallinckrodt for Medicaid fraud

New York Attorney General Letitia James today announced that her office recovered $26.8 million from drug manufacturer, Mallinckrodt PLC, and its U.S. subsidiary Mallinckrodt ARD, LLC (Mallinckrodt), for cheating Medicaid requirements that help offset rising drug prices. For years, Mallinckrodt underpaid rebates to federal and state Medicaid programs for its drug, H.P. Acthar Gel (Acthar), which treats numerous conditions, including multiple sclerosis. The company failed to pay millions in required rebates that protect Medicaid programs from price surges. This agreement resolves claims against the company on behalf of all 50 states, Washington D.C., Puerto Rico, and the federal government.

“Mallinckrodt ran its business on deception at the expense of everyday New Yorkers,” said Attorney General James. “Low-income communities depend on Medicaid programs to access affordable, lifesaving healthcare and when companies cheat Medicaid programs, they hurt New Yorkers. Mallinckrodt is paying the price for years of defrauding Medicaid programs in every state out of millions of dollars. Skirting the law for corporate gain is illegal, and we are determined to protect New Yorkers from companies that cheat the system.”

In 2020, the federal government and 26 states, Puerto Rico, and the District of Columbia, filed complaints-in-intervention against Mallinckrodt after a whistleblower filed a lawsuit against the company for cheating Medicaid programs. In the multistate complaint-in-intervention, New York alleged that Mallinckrodt defrauded the state’s Medicaid program and violated the New York State False Claims Act.

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Under the Medicaid Drug Rebate Program, the Medicaid program is protected from certain drug price increases because manufacturers are required to repay those increases in the form of rebates. When a manufacturer increases the price of a drug faster than the rate of inflation, it must pay the Medicaid program a per-unit rebate of the difference between the drug’s current price and the price of the drug if its price had gone up at the general rate of inflation since 1990, or the year the drug first came to market, whichever is later.

The governments alleged in their complaints that starting in 2013, Mallinckrodt and its predecessor, Questcor, misrepresented Acthar’s approval history with the U.S. Food and Drug Administration (FDA). In 2013, Mallinckrodt began to pay Medicaid rebates for Acthar as if the drug had just been approved rather than as a drug that was first introduced to the market in 1952. In particular, Mallinckrodt took advantage of the FDA’s assignment of an administrative tracking number to Acthar when that drug was submitted to the FDA for approval of an efficacy supplement in 2006 to suggest to the federal government that Acthar was a new drug with a new FDA number. Mallinckrodt’s practice meant it ignored all pre-2013 price increases when calculating and paying Medicaid rebates for Acthar from 2013 until 2020, when Mallinckrodt revised its Medicaid reporting to pay the correct rebate. Acthar’s price had already risen to more than $23,269 per vial from $1,650 per vial in August 2007. By ignoring all pre-2013 price increases for Acthar, Mallinckrodt significantly lowered its Medicaid rebate obligations.

Today’s agreement resolves allegations that from January 2013 through June 2020, Mallinckrodt knowingly failed to report and return hundreds of millions of dollars in overpayments it received from the Medicaid Program for Acthar because it knowingly underpaid rebates owed to the program.

Under the agreement, Mallinckrodt admitted that Acthar was not a new drug as of 2013, but rather was approved by FDA in 1952, and represented that it revised its reporting to the Centers for Medicare & Medicaid Services accordingly. Mallinckrodt agreed to refrain from changing the relevant date giving rise to its rebate obligation for Acthar in the future.

As part of the settlement, New York will receive $16.1 million in restitution and the federal government will receive $10.7 million for New York’s Medicaid Program. The Medicaid Fraud Control Unit (MFCU) receives 75 percent of its funding from the U.S. Department of Health and Human Services under a grant award totaling $59,918,216 for the fiscal year (FY) 2022. The remaining 25 percent, totaling $14,979,552 for FY 2022 is funded by New York state. Through its recoveries in law enforcement actions, MFCU regularly returns more to the state than it receives in state funding.

The settlement, which is based on Mallinckrodt’s bankruptcy proceedings, required final approval of the U.S. Bankruptcy Court for the District of Delaware, which approved the settlement on March 2, 2022. Mallinckrodt made its first settlement payment today.

A team from the National Association of Medicaid Fraud Control Units participated in the litigation and conducted settlement negotiations on behalf of the states. The team included representatives from the offices of the attorneys general for New York, California, Florida, Massachusetts, Michigan, Nevada, Texas, and Wisconsin.

Principal Auditor-Investigator Meghan Collins and Special Assistant Attorney General Ting Ting Tam of MFCU’s Civil Enforcement Division were on the national team, with assistance from MFCU Civil Enforcement Division Deputy Chief Diana Elkind. MFCU’s Civil Enforcement Division is led by its Chief Alee Scott and Chief Auditor Stacey Millis. MFCU is led by Director Amy Held and Assistant Deputy Attorney General Paul J. Mahoney, and is a part of the Division of Criminal Justice. The Division of Criminal Justice is led by Chief Deputy Attorney General José Maldonado and overseen by First Deputy Attorney General Jennifer Levy.