United States Files Lawsuit Against Drug Maker That Jacked Up Drug Prices from $50 to $32,000

PHILADELPHIA – United States Attorney William M. McSwain announced today that the United States filed a complaint under the False Claims Act against Mallinckrodt ARD LLC, formerly known as Questcor Pharmaceuticals, Inc. (“Mallinckrodt”), in the U.S. District Court for the Eastern District of Pennsylvania. The government alleges that Mallinckrodt violated the False Claims Act by using a foundation as a conduit to pay kickbacks in connection with its drug H.P. Acthar Gel (“Acthar”) from 2010 through 2014 in a scheme that was designed to enable Mallinckrodt to raise the price of a vial of Acthar from $50 to $32,000.  Acthar is a drug available to treat certain conditions including acute exacerbations in multiple sclerosis, lupus, and rheumatoid arthritis.

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. 

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 despite increasing Acthar’s price astronomically. Mallinckrodt allegedly paid these illegal subsidies through three funds that it established at the foundation to the exclusion of other drugs. The government alleges that Mallinckrodt was the sole “donor” to these funds and routed Acthar patients there to receive virtually guaranteed copay subsidies to counteract doctor and patient concerns about the drug’s high cost. By doing so, Mallinckrodt marketed Acthar as “free” to patients and caused the submission of millions of dollars in false Acthar claims to Medicare.  The subsidies it routed through these funds drove Acthar prescribing and was a proven method that negated concerns about the cost of the drug, allowing Mallincrkodt to continually raise its price.

From the time of Mallinckrodt’s acquisition of the drug Acthar in 2001, Mallinckrodt raised the price from approximately $50 per vial to over $32,000 per vial by the end of 2014.   

“Drug companies are not allowed to pay patients’ co-pays.  That rule is designed to prevent the very thing Mallinckrodt allegedly did here – outrageously jack up Acthar’s price and leave the government with the entire bill,” said U.S. Attorney McSwain.  “We will not allow drug companies to use so-called charitable patient assistance funds to do what they otherwise are not allowed to do.  That’s an illegal kickback and undermines the viability of Medicare Part D, which our nation instituted to help seniors cover prescription drug costs.”

“Illegal inducements increase the costs paid by the American taxpayer and distort the market forces that otherwise could control those costs,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “This lawsuit and prior enforcement actions make clear that the Department will hold accountable drug companies that pay illegal kickbacks to facilitate increased drug prices.” 

“Medicare rules are designed to protect beneficiaries and taxpayer dollars,” said Maureen R. Dixon, Special Agent in Charge of the Philadelphia Regional Office of the Inspector General, Department of Health and Human Services. “HHS-OIG and the U.S. Attorney's Office will continue to work together to fight health care fraud and investigate allegations of co-pay and kickback violations.”

The allegations in this case were brought in two lawsuits filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private parties to sue on behalf of the government for false claims and to receive a share of any recovery.

“We sincerely thank the relators in this case. Together with their lawyers, these three citizens provided essential assistance to the government throughout its investigation. Without their willingness to shed light on allegations of fraud, preserving government program funds would be far more challenging,” said U.S. Attorney McSwain. 

This matter was investigated by the U.S. Attorney’s Office for the Eastern District of Pennsylvania in conjunction with Civil Division’s Commercial Litigation Branch, and the U.S. Department of Health and Human Services Office of Inspector General. For the U.S. Attorney’s Office, this case is handled by Assistant United States Attorney Colin Cherico and Auditor George Niedzwicki.

The cases are captioned United States of America ex rel. Charles Strunck et al. v. Questor Pharmaceuticals, 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 United States filed a notice of intervention in these two cases on March 6, 2019. 

The claims asserted against defendant are allegations only and there has been no determination of liability.