The EpiPen emergency allergy treatment was pushed into the spotlight last year over concerns about its skyrocketing price and the lack of any real competition for a product that had been around for decades. A new federal lawsuit alleges that Mylan — the company that acquired EpiPen ten years ago — raised its prices in order to provide bigger kickbacks to the companies that help determine which drugs your insurer will and won’t cover.
In the world of prescription drugs, a pharmacy benefit manager (PBM) plays the role of middle-man, negotiating prices with drug makers for insurance providers. Additionally, PBMs often decide whether and how to include a drug in a provider’s formulary (its list of medications it will cover). If a particular drug is excluded from a formulary, patients may have to pay full sticker price.
In addition to the fees they collect for doing their job, PBMs can also make money based on what’s known as “spread pricing,” referring to the difference between what the insurer pays and the actual price paid to the drug company by the PBM.
For example, a PBM could negotiate a price of $20/pill on behalf of an insurer. At the same time, that PBM might be getting a $10/pill rebate from the drugmaker. That money is the PBM’s to keep. What’s more, the insurance provider often doesn’t know if this spread exists or how big it might be, so they might think they scored a good deal at $20, but have no idea that the actual price was half that. A 2004 study on spread pricing found one example where an insurer was paying more than $200 above the price its PBM paid.
The plaintiffs in this EpiPen case say that drugmakers sometimes keep list prices on certain products overly high so that they can negotiate huge discounts with the insurer while also paying significant rebates to the PBM.
In fact, when Mylan CEO Heather Bresch testified before Congress last summer, she claimed that the company often only received $274 of the $608 list price for a twin-pack of EpiPens, and blamed much of that difference on rebates paid to PBMs.
A subsequent analysis by Argus Health appears to shed even more light on this. According to this report — cited in the lawsuit — between 2014 and 2016, the price for EpiPen shot up by nearly 60%, from $378 to $600. However, the price to PBMs only went up 6%, from $294 to $311, during this same three-year period:
While Bresch painted Mylan as a victim of a “broken” system with “no transparency,” the plaintiffs in this lawsuit see things quite differently.
“Mylan participated in and benefitted both from the high list price scheme and from paying high rebates or kickbacks to PBMs to ensure EpiPen’s market dominance,” reads the lawsuit. “In fact, from at least 2008 until 2011, when Mylan stopped reporting this information, EpiPen had a 95% market share in auto-injectors.”
The plaintiffs argue that EpiPen’s steepest price hikes came not because of increased production costs, but as a way to ward off the threat of competition.
They point to the example of Adrenaclick, a lower-cost option for people at risk of anaphylaxis, which — despite a sticker price that was only one-third that of EpiPen — failed to gain any traction because, according to the plaintiffs, PBMs would not include it in their formularies.
The lawsuit also cites Auvi-Q, another epinephrine auto-injector that the plaintiffs claim had difficulty winning over PBMs.
The makers of Auvi-Q, notes the complaint, “attempted to match Mylan’s list prices but, every time it did, Mylan matched the increase, and, as a result, Auvi-Q fought for months to get the favorable formulary position that EpiPen had.” Auvi-Q was pulled from the market in 2015 after a recall, but is slated to return this year.
“If Mylan had been truly concerned about the patients who were victims of how it gamed the system, it could have refused to play the game, and competed based on the merits of its product,” argues the lawsuit. “Even if it did not lower the list price for EpiPen, Mylan could have exposed this scheme to federal or state agencies, or to the public at large.”
What’s the Harm?
The lawsuit contends that the increasingly large rebates paid by Mylan to PBMs resulted in lower-cost drugs being kept off the market, and higher prices for people who need to have epinephrine around in case of an emergency.
“Mylan’s list price inflation has saddled individuals living with food allergies with crushing out-of-pocket expenses,” reads the complaint, pointing to a study in the Journal of the American Medical Association which found that, in the seven years after Mylan’s acquisition of EpiPen, the out-of-pocket cost for an EpiPen Patient jumped from $33.80 to $75.50. “Mylan’s list price has become an artificial and phony price established and driven up as part of a kickback scheme from Mylan to the PBMs.”
The plaintiffs are alleging violations of more than 50 state-level consumer protection laws. They also claim Mylan violated the federal racketeering (RICO) statute, which was created to target organized crime.
According to the lawsuit, Mylan and the PBMs “created and maintained systematic links for a common purpose: to secure an exclusive, or at least favorable, formulary position for EpiPen… and to raise the list price for the purpose of providing PBMs larger rebates. In other words, the enterprise set prices with the purpose of providing PBMs with a kickback.”
Mylan and the PBMs — who are not named as defendants — allegedly misrepresented to the public that its list price for EpiPen was a fair indication of the costs associated with producing the drug. At the same time, claim the plaintiffs, Mylan concealed the size and nature of the rebates it paid to PBMs.
“For Mylan to profit from the scheme, the PBMs needed to convince health care payers and plan sponsors to select their formulary, on which EpiPen was given favorable treatment,” says the lawsuit. “And the PBMs did so through misrepresentations: they told clients, potential clients, and investors that they secured significant discounts. However, these discounts were only significant because the list prices were artificially inflated. The discounts were fictitious. They were the result of a deliberate scheme to create large rebates without lowering real prices.”
Mylan has not yet replied to our request for comment on this story. The company elected not to provide a statement when FiercePharma inquired about the lawsuit.
This is just the latest EpiPen-related legal problem for Mylan. Last summer, the Centers for Mediare & Medicaid Services confirmed that EpiPen had been misclassified as for years, meaning the government overpaid by hundreds of millions of dollars for EpiPens acquired through Medicaid.
Mylan quickly reached a $465 million settlement with the DOJ before there was even an adequate accounting of how much taxpayers had overpaid for EpiPens. The deal was met with criticism by some lawmakers who felt it was rushed and “shamefully weak.”