Both the general press and the trade press have delighted in predicting great injury (if not even death) to Mallinckrodt (MNK), maker of a drug called Acthar Gel. The concern relates to Medicaid drug rebates, and a CMS action to impose retroactive drug rebates on the drugmaker that could reach $600M. (The company has many other challenges, but as a CMS alum, my focus relates to the Medicaid rebates.)
Acthar headlines look like a simple Medicaid rebate matter. These boring accounting formulas don’t make the headlines often. So what is about this case that’s catching people’s interest? And is the attention well-deserved?
Acthar Gel is a drug with a long and difficult history. It treats a few different orphan indications, some better received in the medical community than others. What was once a treatment cost of a few hundred dollars some years back is now in the tens of thousands. Nice work if you can get it.
In an era of fighting drug price inflation, Acthar’s price increases seem to make it a poster child of greed. But is the story that simple? Well, no. Even more important, aspects of this case have implications for other drugs, other drugmakers, perhaps even the whole pipeline for future products. It’s possible this case is complicated and… big. It’s worth paying attention.
At first, the story is a simple Medicaid rebate case. Usually, the Medicaid program imposes a 23.1% rebate on brand-name prescription drugs (for generics it’s 13%). Price hikes beyond the rate of inflation are cancelled out with an extra rebate. Hence, when Acthar prices rose to nosebleed levels, the Medicaid rebates would have gone to nosebleed, as well.
One important observation, though. Acthar’s maker had invested in new clinical testing that led to a new approval from FDA and better all-around science. So Acthar asked Medicaid to “re-set” the approved pricing for Acthar based on that investment. Medicaid agreed. That means that in 2012, Medicaid officially approved the price hikes until that point. A game-changer.
The big news came last month. CMS says it erred in resetting the price base back in 2012. It wants to return to the old days before the big price hikes got underway. Worse, it wants to claw back the reference date by many years, in other words recover retroactive rebates MNK says will be about $600M. In other words, no more high prices… plus clawbacks of $600M.
MNK tried to meet with CMS about this sudden $600M about-face, but CMS wouldn’t give them the time of day. In the face of the Agency’s silence, MNK sued CMS.
The issue, in plain English: did CMS have the right to send MNK back to the dark ages of Acthar pricing, and to do it retroactively to the tune of perhaps $600M in back rebates. And for me, the real question: who else should be caring about this case?
The answer is far trickier than the “evil drugmaker” image used in the White House war on drug prices. Trickier, even, than other nosebleed drug inflation cases. Most important, the list of “who should care” might extend as far as everyone in the pharma industry. I’ll try to get to “who should care” in next week’s post. Sorry for the cliffhanger; it’s simply too long and complicated for a single posting.