The HHS Office of Inspector General (OIG) will review the Medicaid Drug Rebate Program and its drug classifications following Senator Charles Grassley’s (R-Iowa) request for additional investigation after it was revealed that the EpiPen®’s misclassification led to significant program overpayments. The office has established three new areas of review that it will pursue, and the Inspector General has promised to keep the Senate apprised of the investigation’s progress.
Misclassification. Under the Medicaid Drug Rebate Program, manufacturers pay rebates to HHS in exchange for state Medicaid program drug coverage. Rebates are based on a percentage of the average manufacturer price (AMP) per unit of the drug, and the percentage differs for brand name and generic drugs. In September 2016, the Senate notified HHS that it believed the EpiPen was improperly classified as a generic. In October 2016, CMS Acting Administrator Andy Slavitt noted that the EpiPen was classified as a generic, despite patent protection, approval under a New Drug Application (NDA), and a lack of therapeutic equivalents. This caused Mylan to pay much less in rebates than it would have if the drug were classified as brand name (see Federal EpiPen® spending up 463 percent, Mylan misclassified drug as generic, October 6, 2016). Mylan, already under scrutiny due to the EpiPen’s price hike, settled allegations of fraud related to the misclassification for $465 million. Not everyone was satisfied by this settlement, indicated by Senator Elizabeth Warren’s (D-Mass) request for a full Department of Justice briefing on the issue (see Warren: EpiPen® Medicaid rebate settlement shows ‘crime does pay’, October 24, 2016).
OIG investigation. The OIG will complete three specific reviews of the rebate program. The OIG will assess the accuracy of the data used to classify the drugs, as well as the tools and processes CMS uses to ensure manufacturer compliance. The OIG will also review the FDA’s approval status of drugs covered by Medicaid, how closely CMS reviews approval status, and how the agency prevents inappropriate payments. Finally, the OIG will scrutinize what assumptions manufacturers make when calculating drug prices for the program, as well as CMS’ oversight of these assumptions.
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