Whistleblowers are Key to Reining in Prescription Drug Costs

With his State of the Union protest over the high price of insulin, President Joe Biden joins the long line of presidents trying to take a stand against out-of-control drug prices. It is a problem that affects all of us. And for the least fortunate, it is pushing life-saving medications out of reach altogether. Patching this gaping health care hole may be the one government priority with near universal support, especially with COVID-19 still on the prowl and “moonshot” cancer cures hopefully on the horizon.

While figuring out the best way to get there continues to confound us, one simple approach would be to expand and better enforce the Medicaid Drug Rebate Program. On the books since 1990, the program requires drug companies to rebate state Medicaid programs for price increases that outpace inflation, benchmarked to when the drug was first approved (or 1990, if later). It is a clear and common-sense approach to sheltering our most vulnerable from unfettered price increases, particularly when regular market forces cannot get the job done. The problem is the program is not often enforced and does not even apply to Medicare, greatly limiting the impact it might otherwise have in controlling drug prices.

At least on the enforcement front, the government took a step in the right direction recently with its $235 million smackdown of U.K. and St. Louis-based pharma company Mallinckrodt. Mallinckrodt allegedly sidestepped the rebate rule with its Acthar gel used to treat a variety of conditions, including MS and infantile spasms. In 2001, when another drug company Questcor (which Mallinckrodt later acquired) secured the rights to manufacture and sell the drug, it cost only $50 a vial. By 2013, Questcor had increased the price to $28,000 per vial, all during a period when annual inflation was only 2 percent.

According to the government, it was not the rebate program that failed. It was Mallinckrodt cheating the system by pegging rebates not to the drug’s relatively modest 1990 pricing (the drug was approved in 1952), but to its excessive 2013 pricing when the Food and Drug Administration (FDA) approved the drug for additional diseases. Treating the drug as “new” allowed the company to improperly sidestep its massive pre-2013 price increases and shave hundreds of millions of dollars off what it owed in Medicaid rebate payments.

The Mallinckrodt case spotlights what some drug companies might be doing to avoid this Medicaid pricing proscription. It no doubt will send a chill to those contemplating the same kind of gamesmanship. But it will be a mild one at best if an inflation rebate rule is not expanded to Medicare, particularly with the pricing of so many of our most important medicines far outpacing inflation. The Build Back Better Act contains this very type of rebate provision. Unfortunately, we have a long way to go before any of that legislation sees the light of day, if it ever does.

“We need the help of whistleblowers to expose fraud. That was how the government learned of the Mallinckrodt scheme in the first place.”

As for the relatively sparse enforcement in this area, the Mallinckrodt action teaches us another important lesson. We need the help of whistleblowers to expose fraud. That was how the government learned of the Mallinckrodt scheme in the first place. The company’s director of internal controls filed suit under the qui tam provisions of the False Claims Act, which allow private individuals to sue on behalf of the government and potentially share in up to 30 percent of any recovery. The government took it from there, ultimately awarding the whistleblower what will be close to $45 million for the handoff.

But for this inside window into the company’s practices, the government likely never would have learned of Mallinckrodt’s pricing misbehavior. It is a common theme in fraud enforcement and why whistleblowers are routinely responsible for the bulk of the billions of dollars the government recovers under the False Claims Act every year—roughly $50 billion of the $70 billion in recoveries since 1986, to be exact.

Which brings us back to the problem of runaway drug prices. There is certainly room for more legislation to ease this perpetual plague on our health care system. Until we get there, however, expanding and more broadly enforcing the rebate program offers at least one immediate plan of attack—one all the more pressing with so many drug companies working to repurpose existing drugs to find the next great cure. If some of these old drugs are ultimately approved to treat the coronavirus, or cancer, or some other newly emergent disease, the manufacturer may feel an irrepressible pull to charge whatever it can get away with as recompense for creating the life-saving breakthrough and the costs incurred in getting there.

We are well past the time for figuring out how to tackle or at least temper the ever-escalating prices of our prescription drugs. Expanding the inflation rebate to Medicare offers at least one potential safeguard to keep drug pricing in check—so do whistleblowers. The Mallinckrodt action offers a powerful case in point.

With cancer and COVID still very much a threat, both government and whistleblower vigilance are critical to ensuring drug companies play by all the rules, as is having the necessary legislative and regulatory tools to get the job done. Only then can we be sure the drugs we buy are safe and effective and all the life-changing elixirs hopefully just around the bend remain available to everyone.

This article originally appeared in Newsweek. You can view it here.

Written by Max Voldman and Gordon Schnell of Constantine Cannon LLP