PHILADELPHIA – United States Attorney Jennifer Arbittier Williams announced that pharmaceutical company Mallinckrodt ARD LLC (previously Questcor Pharmaceuticals, Inc., “Questcor,” and collectively “Mallinckrodt”), has agreed to pay $260 million as part of a global settlement to resolve separate allegations that Mallinckrodt violated the False Claims Act by knowingly: 1) using a foundation as a conduit to pay illegal copay subsidies in violation of the Anti-Kickback Statute; and 2) underpaying Medicaid rebates due to the large price increases of its drug H.P. Acthar Gel (“Acthar”). The government filed separate complaints detailing these allegations in 2019 and 2020, respectively. The settlement, which is based on Mallinckrodt’s financial condition, required final approval of the U.S. Bankruptcy Court for the District of Delaware, which approved the settlement on March 2, 2022.
The U.S. Attorney’s Office for the Eastern District of Pennsylvania filed a complaint alleging kickbacks involving Medicare Part D copays in August 2019. When a Medicare beneficiary obtains a prescription drug covered by Medicare, the beneficiary may be required to make a partial payment, which may take the form of a copayment, coinsurance, or a deductible (collectively “copays”). Congress included copay requirements in the Medicare program, in part, to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. The Federal Anti-Kickback Statute prohibits a pharmaceutical company from offering or paying, directly or indirectly, any remuneration—which includes money or any other thing of value—to induce Medicare patients to purchase the company’s drugs. This prohibition extends to the payment of patients’ copay obligations.
In its complaint, the government alleges that Mallinckrodt used a foundation as a conduit to pay illegal kickbacks in the form of copay subsidies for Acthar so it could market the drug as “free” to doctors and patients while increasing its price. Mallinckrodt allegedly paid these illegal subsidies through three funds that Mallinckrodt established through a foundation in order to induce Medicare-reimbursed purchases of Acthar at its ever-increasing price. Mallinckrodt used the subsidies to counteract doctor and patient concerns about the drug’s high cost and to market the drug as “free.”
“When pharmaceutical companies manipulate Medicare Part D by covering patient copays, the whole structure of the Part D program is undermined,” said United States Attorney Jennifer Arbittier Williams. “Our Office is committed to maintain the financial integrity of taxpayer-funded programs like Medicare, and therefore we will continue to pursue fraud actions like this so that Medicare Part D and other federal healthcare programs remain viable for those who rely on the benefits.”
“The Medicare Part D Program provides vital prescription drug services to Medicare beneficiaries,” said Maureen R. Dixon, Special Agent in Charge of the Philadelphia Regional Office for the Department of Health and Human Services, Office of Inspector General. “HHS-OIG will continue to work with the U.S. Attorney’s Office to ensure the integrity of the Medicare Trust Fund.”
The District of Massachusetts filed a complaint alleging fraud against the Medicaid Rebate Program in early 2020. Pursuant to the Medicaid Drug Rebate Program, drug manufacturers are required to pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the manufacturers’ drugs. The government alleges that Mallinckrodt knowingly underpaid rebates due for Acthar from 2013 until 2020. According to the Complaint, Mallinckrodt and its predecessor Questcor began paying rebates for Acthar in 2013 as if Acthar was a “new drug” first marketed in 2013, rather than a drug that had been approved since 1952. Allegedly, this practice meant the companies ignored all pre-2013 price increases when calculating and paying Medicaid rebates for Acthar from 2013 until 2020. In particular, the government alleged that Acthar’s price had already risen to over $28,000 per vial by 2013, and therefore ignoring all pre-2013 price increases for Medicaid rebate purposes significantly lowered Medicaid rebate payments for Acthar. Under the settlement agreement, Mallinckrodt admits and agrees that there is only one Acthar, that FDA approved Acthar in 1952, and that Acthar was first produced, distributed, and marketed prior to 1990.
The global settlement provides for Mallinckrodt’s payment of approximately $234.7 million to resolve the Medicaid Claims and approximately $26.3 million to resolve the Kickback claims. In October 2020, Mallinckrodt filed for bankruptcy protections and this settlement with the government has been approved for payment by the United States Bankruptcy Court for the District of Delaware.
The government’s allegations were originally alleged in cases filed under the whistleblower, or qui tam, provision of the False Claims Act. The act permits private parties to sue for fraud on behalf of the United States and to share in any recovery. The act also permits the government to intervene in such actions, as the government did in these case, which are captioned: United States of America et al. ex rel. Landolt v. Mallinckrodt Pharmaceuticals Inc., No. 18-11931-PBS (D. Mass.); United States of America ex rel. Strunck et al. v. Mallinckrodt ARD, Inc., No. 12-CV-0175 (E.D. Pa.), and United States of America ex rel. Clark v. Questor Pharmaceuticals, Inc., No. 13-CV-1776 (E.D. Pa.). The whistleblowers in the E.D. Pa. qui tam will receive approximately $4.9 million from the recovery. “We sincerely thank the relators in this case. Together with their lawyers, these citizens provided invaluable assistance to the government throughout this case. Without the willingness of relators to shed light on allegations of fraud, preserving government program funds would be far more challenging. Their efforts played a vital role in the resolution of these cases,” said U.S. Attorney Williams.
The government’s pursuit of these matters illustrates the government’s emphasis on combating healthcare fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement can be reported to the Department of Health and Human Services, at 800‑HHS‑TIPS (800-447-8477).
The settlement agreement in the Eastern District of Pennsylvania is being handled by Assistant U.S. Attorneys Colin Cherico, Paul Koob and Matthew Howatt and auditor George Niedzwicki with assistance from the U.S. Department of Health and Human Services Office of Inspector General. In 2019, under a separate agreement stemming from the same qui tam filing in the Eastern District of Pennsylvania, Mallinckrodt agreed to pay $15.4 million to resolve claims that Questcor paid illegal kickbacks to doctors, in the form of lavish dinners and entertainment, to induce prescriptions of Acthar from 2009 through 2013.
The claims asserted by the United States are allegations only and there has been no determination of liability.