United States Intervenes in False Claims Act Lawsuit against Drug Maker Mallinckrodt Alleging Company Knowingly Avoided Paying Medicaid Rebates Owed Due to Significant Price Increases

The United States filed a complaint under the False Claims Act against Mallinckrodt ARD LLC, formerly known as Mallinckrodt ARD Inc. and previously Questcor Pharmaceuticals Inc. (collectively, Mallinckrodt), in the U.S. District Court for the District of Massachusetts, the Department of Justice announced today.  The government alleges that Mallinckrodt has violated the False Claims Act by knowingly underpaying Medicaid rebates due as a result of large increases in the price of its drug H.P. Acthar Gel (Acthar). 

“The Medicaid Rebate Statute provides an important check on rising drug prices,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division.  “The Department will not hesitate to hold accountable drug companies that attempt to skirt this important protection at the expense of the Medicaid program, which helps ensure that some of our most vulnerable citizens are able to receive medical care.”

Pursuant to the Medicaid Drug Rebate Program, drug manufacturers must pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the manufacturers’ drugs.  The mandatory rebate includes an inflationary component, which is designed to insulate the Medicaid program from drug price increases that outpace the rate of inflation.  In particular, for drugs sold to Medicaid, a manufacturer must pay a rebate that is based on the drug’s price since 1990 or when it was first marketed, whichever date is later.

The government alleges that although Acthar was first marketed long before 1990, Mallinckrodt and its predecessor, Questcor, began calculating and paying rebates as if Acthar was a new drug first marketed in 2013, based on the Food and Drug Administration’s approval of a new indication for Acthar’s use in 2010.  Given that Questcor had raised Acthar’s price by more than $20,000 per unit prior to 2013, the government alleges that Questcor and later Mallinckrodt avoided paying inflationary rebates on any of those pre-2013 price increases, and has thus knowingly underpaid hundreds of millions of dollars at the expense of American taxpayers.

In failing to pay these rebates, the government alleges that Mallinckrodt knowingly avoided its obligations under the Medicaid Drug Rebate Statute despite repeated government warnings.  The government alleges, for example, that the Centers for Medicare and Medicaid Services (CMS), which administers the Medicaid program at the federal level, warned Mallinckrodt on multiple occasions that it could not ignore Acthar’s pre-2013 price increases when paying Medicaid rebates for the drug. 

“Mallinckrodt raised the price of its drug to an extraordinary level and then allegedly cheated the Medicaid program out of hundreds of millions of dollars,” said U.S. Attorney Andrew Lelling for the District of Massachusetts.  “The government will always target this kind of exploitation of a program designed to provide health care to vulnerable members of our society.”

“The Medicaid Drug Rebate Program requires drug manufacturers to pay additional rebate amounts if they increase prices beyond a certain level,” said Special Agent in Charge Phillip M Coyne, Office of the Inspector General for the U.S Department of Health and Human Services.  “We take very seriously our responsibility to safeguard taxpayers by ensuring all drug manufacturers meet their obligations under the Medicaid Drug Rebate Program, and I appreciate the continued partnership with the Massachusetts U.S Attorney's Office to protect public funds.”

The allegations that are the subject of the government’s complaint were originally alleged in a case 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 has done in this case, which is captioned United States of America et al. ex rel. Landolt v. Mallinckrodt Pharmaceuticals Inc., No. 18-11931-PBS (D. Mass.). 

The government’s pursuit of this matter 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).

This matter is being handled by the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the District of Massachusetts, with assistance from the U.S. Department of Health and Human Services Office of Inspector General. 

The claims asserted by the United States are allegations only and there has been no determination of liability.

The year 2020 marks the 150th anniversary of the Department of Justice.  Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.