Federal probe finds that just two drugs account for 90% of Medicaid rebate losses

A report from the Office of the Inspector General for the Centers for Medicare & Medicaid Services found that 10 improperly classified drugs cost the federal program $1.3 billion in four years.

After discovering that Mylan had avoided paying Medicaid tens of millions of dollars in rebates by misclassifying its EpiPen, Congress asked the agency to determine how wide-ranging the problem was. It now has its answer. The number of misclassified drugs is small, but the cost to the cash-strapped Medicaid program is big: hundreds of millions of dollars a year, and most of that comes from just a few drugs.   

While only 3% of the 30,000 drugs reviewed were misclassified, the report found that the cost to Medicaid for the 10 potentially misclassified drugs with the highest total reimbursement, ran to $1.3 billion between 2012 and 2016.

And while the report does not name names of drugs or companies, it found that very few drugmakers are the biggest offenders. Four drugmakers were responsible for more than half of the misclassified drugs, meaning they paid rebates of only about 13%, instead of 23.1%. Only two drugs accounted for 90% of the potentially lost rebates.  

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RELATED: Sanofi tip ends in $465M settlement between Mylan and DOJ

The investigation by the HHS inspector general was kicked into gear after Mylan, on a tip from competitor Sanofi, was found in 2016 to have been classifying its EpiPen for anaphylactic shock as a generic instead of an innovator drug.

Mylan tried to quickly get beyond the problem by agreeing to a $465 million settlement with the Justice Department. That was far less than estimates from the inspector general, which said the EpiPen Medicaid misclassification cost taxpayers $1.27 billion from 2006 to 2016. Mylan signed a Corporate Integrity Agreement which did not “contain an admission or finding of wrongdoing,” but reclassified its product to pay the higher rebate going forward.

RELATED: Mylan lowballed Medicaid on EpiPen by $1.27B, far more than its DOJ settlement: HHS

While the latest report lays out the extent of the problem, it found that the Centers for Medicare & Medicaid Services does not have the power to fix it short of kicking drugmakers out of Medicaid altogether, a measure it says would create huge problems for patients. When CMS discovers inconsistencies, it asks drugmakers for more information about the classifications but if they refuse to provide it, CMS has no power to compel them. That needs to be changed, the report from the HHS inspector general says.