Mallinckrodt paid ‘kickbacks’ to keep drug price high, and stuck taxpayers with bill, DOJ lawsuit says

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In its complaint, the government demanded a jury trial that would put front and center the actions of the company at the heart of a 97,000% drug price hike. The price of Mallinckrodt’s anti-inflammatory drug Acthar — best known for treating babies with a debilitating seizure disorder — has gone from $40 a vial in 2000 to nearly $39,000 today.

The complaint was filed in the US District Court for the Eastern District of Pennsylvania by US Attorney William McSwain. Mallinckrodt could face fines of nearly $240 million if found liable.

The government alleged Mallinckrodt used a foundation, called the Chronic Disease Fund, as a conduit to pay kickbacks as part of the scheme to maintain the high price of Acthar.

“The scheme allowed the Company to continually raise Acthar’s price yet market it as ‘free’ to patients and doctors, shifting the drug’s ever-increasing cost to Medicare,” the government said in its complaint. “As a result of its conduct, Mallinckrodt caused the submission of millions of dollars in false Medicare claims for Acthar.”

McSwain said Mallinckrodt’s actions undermined the “viability of Medicare Part D, which our nation instituted to help seniors cover prescription drug costs.” Medicare spent about $2.7 billion on Acthar from 2011 to 2017, according to publicly available data.

“Drug companies are not allowed to pay patients’ co-pays. That rule is designed to prevent the very thing Mallinckrodt allegedly did here — outrageously jack up Acthar’s price and leave the government with the entire bill,” McSwain said in a statement.

Assistant Attorney General Jody Hunt, with the Department of Justice’s Civil Division, said in a statement the message is now clear that the government “will hold accountable drug companies that pay illegal kickbacks to facilitate increased drug prices.”

The government declined to say whether it will pursue criminal charges against Mallinckrodt.

Mallinckrodt said it intends to “vigorously defend” itself against the allegations and referred to the issue as a “legacy matter” relating to a foundation with Questcor, the company it acquired in a $5.6 billion deal in 2014.

Medicare spent $2 billion for one drug as the manufacturer paid doctors millions

Mark Casey, Mallinckrodt general counsel, said the company tries to resolve “legacy matters in a reasonable and manageable way.”

“Unfortunately, that has not been possible to date regarding the allegations relating to Questcor’s charitable foundation activities, despite what we believe was lawful and appropriate activity,” Casey said in a written statement.

Also on Wednesday, Mallinckrodt announced a separate potential settlement of $15.4 million with the US Department of Justice. It related to Questcor’s “sales and marketing activities,” Mallinckrodt said. The government said that matter was unrelated to its lawsuit.

“The allegations made by the government in the complaint filed today do not relate to any other settlement,” said Jennifer Crandall, spokeswoman for the US Attorney’s Office of the Eastern District of Pennsylvania.

DOJ: Taxpayers shouldered ‘drug’s ever-increasing cost’

In the DOJ suit, the government alleged Mallinckrodt circumvented the “Congressional design of the Medicare system, which requires a copay, in part, to act as a market constraint against increasing drug prices.”

“Instead, Mallinckrodt left American taxpayers to shoulder the drug’s ever-increasing cost, while the company reaped for itself the resulting profits,” the government said.

Three whistleblowers stepped forward to bring the allegations in two lawsuits filed under the whistleblower provisions of the False Claims Acts, the government said. CNN previously reported on allegations from two whistleblowers; the complaint filed Wednesday named a third whistleblower.

The allegations stem from Acthar-related kickbacks from 2010 through 2014, according to the government. “These three citizens provided essential assistance to the government throughout its investigation,” McSwain said.

The government said Mallinckrodt provided illegal copay subsidies for more than 2,600 Acthar prescriptions at a cost of roughly $23,000 a vial, or about $60 million total. The whistleblower act allows for up three times any amount the government is found to have been defrauded — in this case just under $180 million.

The government can also impose fines of about $11,000 to $22,000 for each false claim. That would amount to another $57 million if the government proves its case.

A higher price for an old drug

This isn’t the first time Mallinckrodt has faced government scrutiny related to Acthar. The pharmaceutical company reached a $100 million settlement in 2017 after the Federal Trade Commission accused the drugmaker of violating antitrust laws to thwart competitors from undercutting Acthar’s exorbitant price. The company settled without admitting wrongdoing.

Acthar is not a new drug and was not developed by Mallinckrodt; it was first made by a division of a Chicago slaughterhouse in the late 1940s. It was given FDA approval in 1952.

The drug is approved for 19 indications, including multiple sclerosis, rheumatoid arthritis and kidney disease. But critics note that the drug was approved for many of those conditions long before the FDA’s more rigorous standards of today and that there are few randomized clinical studies showing its efficacy, especially in adult conditions.

Much of the medical community considers the steroid prednisone, which can cost less than $3, to be equally effective, if not better, for many of the conditions.

Acthar’s price hike — from $40 in 2000 to $39,000 today — puts it among the most dramatic drug price increases in the nation’s history, said Stephen Schondelmeyer, director of the PRIME Institute, a research organization that studies economic and policy issues related to pharmaceuticals.

“If gas [prices] increased from 1993 to 2019 at the rate of H.P. Acthar, gas today would cost $1,300 a gallon,” he told CNN previously.



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