OIG Tells Mallinckrodt Drug "Giveaway" to Hospitals Likely Not Legal

November 21, 2018

A pharmaceutical company proactively reached out to the Office of the Inspector General (OIG) of HHS to find out if giving a costly drug for a rare condition—free of charge, in the hope of eventually getting the drug covered by payors—to hospitals would violate federal kickback law, and was told it probably would.

A pharmaceutical company proactively reached out to the Office of the Inspector General (OIG) of HHS to find out if giving a costly drug for a rare condition—free of charge, in the hope of eventually getting the drug covered by payers—to hospitals would violate federal kickback law, and was told it probably would.

The news was contained in an advisory opinion issued Friday by the OIG, and while the company, drug or condition is not named in the report, the drug in question is H.P. Acthar Gel. The advisory opinion gives an inside look at how one company sought to influence use of a once-inexpensive drug first created in the 1950s.

Acthar is used for pediatric patients with infantile spasm (IS), also known as West syndrome. Acthar, or adrenocorticotropic hormone, was approved by the FDA in 1952. But like some forms of epinephrine and naloxone, it is known for seeing huge price increases.

Mallinckrodt Pharmaceuticals sought the opinion of the OIG voluntarily at some point after its purchase of Questcor Pharmaceuticals in 2014 and a related FTC fine that Mallinckrodt paid in 2017.

Questcor bought the rights to the drug for $100,000 in 2001. Because the drug was approved in 1952, it was not required by the FDA to show efficacy for over a dozen new uses it began marketing the drug for—while at the same time, it was raising the price.

According to the OIG report and other published accounts, the cost of 1 vial of the drug in 2001 was approximately $40. In 2007, Questcor raised the list price nearly 1300%, from $1650 to over $23,000 per vial.

The current list price as $38,892 per vial. But it is not separately reimbursable in a hospital inpatient setting.

Acthar is now approved for 19 different conditions, but Mallinckrodt sought the opinion only as it relates to IS, which affects 2000 to 2500 children a year and can potentially cause permanent development delays and physical disability.

Under the proposal, the company would stock the drug at participating hospitals on a consignment basis, at no cost to the hospital or any payer.

If a physician wanted to prescribe Acthar, the physician would submit a referral to a specialty pharmacy handling costly drugs and begin therapy with a free vial, which typically lasts for 3 to 5 days of treatment. The specialty pharmacy would conduct a benefits investigation and send additional vials for home use. Another vial could be used at the hospital if more was needed before discharge. If no insurance coverage was available for the drug, the company proposed that the patient would keep getting the drug for free or until the therapy was complete.

The OIG, which said it had not approved an arrangement like this before, was negative on the idea. It found that the plan could represent a “seeding” arrangement, would only induce the company to keep its prices high for all indications, and would not save any money for federal health programs.

“We conclude that the Proposed Arrangement could potentially generate prohibited remuneration under the anti-kickback and that the Office of Inspector General (“OIG”) could potentially impose administrative sanctions,” said the opinion, which is legally binding on both the company and the OIG.

“Given that the Drug has been used to treat the Syndrome for decades, it is likely that the substantial price increases for the Drug that are described above factor into hospitals’ reluctance to stock it,” the report noted.

While OIG had in the past approved arrangements for pharmaceutical firms to give away medicine, they were all under very different, specific circumstances, the report said. All of the other cases involved outpatient cases. One was for financially needy Medicare Part D enrollees outside of the Part D benefit. Another involved free samples that complied with the Prescription Drug Marketing Act of 1987.

In addition, in an email to the The American Journal of Managed Care® (AJMC®), a spokeswoman for the OIG said that “different facts could have yielded a different outcome, even for patients in an inpatient setting.” As one example, the OIG said it approved a case where a manufacturer continued giving its drug for free for the remainder of the coverage year. This could be possibly be achieved in this instance without the requirement that hospitals stocked the drug on a consignment basis, the OIG indicated.

In issuing its opinion, the OIG noted the history of drastic price increases for Acthar and the subsequent increase in net sales for the drug, even as the population of patients with the syndrome remained constant. The report said that Mallinckrodt had considered reducing the price for hospitals when used for the syndrome but concluded it could not do so without a reduction “without a devastating impact on Best Price.”

In a statement emailed to AJMC®, a company spokeswoman said they do not disclose best price. Under Medicaid “best price” rule, drug manufacturers must extend the lowest price for a drug they negotiate with any other buyer to all states in the Medicaid program. The rule is not indication specific, the report noted.

A frequent drug pricing critic said what the company was proposing isn’t that new.

“We’ve certainly seen in the past companies use the argument that they have inflated drug prices in order to do a Robin Hood initiative to cover their expenses of charity drug distribution,” said Martin Makary, MD, MPH. “While it is likely that the motives are altruistic, we certainly have seen in the past with naloxone and other medications the liberal and sometimes free distribution of a drug is used as a justification for a massively inflated price.”

Mallinckrodt said in the email that some infants with IS are sometimes kept waiting for days in the hospital before they can begin treatment, and so it had been “working to launch an Acthar Starter Program for Infantile Spasms,” the company said.

“The starter vial would be at no cost to the hospital, patient, or payer. This includes patients covered by a federal health care program, such as Medicaid. We designed a ‘starter program’ similar to others used in the industry and sought feedback from the OIG to ensure we would meet the appropriate guidelines.”

“We are disappointed with the opinion rendered by the Office of Inspector General’s Advisory Committee and are evaluating appropriate next steps,” the company said.

In 2017, Mallinckrodt agreed to pay $100 million to the Federal Trade Commission for another issue regarding Questcor and Acthar. The FTC said that while benefitting from an existing monopoly for Acthar, Questcor illegally acquired the rights to develop a competing drug, Synacthen Depot. The acquisition preserved Questcor’s Acthar monopoly and kept competitors out of the market.

The OIG said it could only make its determination based on the facts contained in the materials sent by Mallinckrodt to review in connection with the specific request. “Any definitive conclusion regarding the existence of an anti-kickback violation requires a determination of the parties’ intent, which determination is beyond the scope of the advisory opinion process,” the report said.

The OIG report said in 2015, the drug has the highest total annual Medicaid spending per user and the second highest price per unit among drugs that CMS examined that met certain criteria. It was also the second highest cost drug in the “Total Spending Per Prescription Fill” category.

If the plan was approved, “the receipt of the free vial would be contingent on future purchases of the Drug for patients with insurance coverage for the Drug,” the report noted.

Net sales for the Acthar reached $1.195 billion last year, the OIG said. In 2006 net sales were $12.1 million.