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Grassley, Wyden bringing hammer down on pharma for Medicaid misclassifications

In a sign that Sen. Chuck Grassley, R-Iowa, is gearing up to wield his gavel against the drug industry as the next chairman of the Senate Finance Committee, he teamed up with the panel's current ranking member, Ron Wyden, D-Ore., to go after biopharmaceutical companies that misclassify their medicines under the Medicaid program, the government's insurance program for low-income Americans.

The two senators introduced a new bill on Dec. 4 that would give the secretary of Health and Human Services — a position currently held by former Eli Lilly and Co. executive Alex Azar — the power to reclassify medicines in the Medicaid drug rebate program, impose civil monetary penalties and recover incorrect rebate payments.

It would also create oversight mechanisms, such as a requirement that HHS provide reports to Congress about how its new authorities have been used and the actions taken to reclassify drugs.

The senators said the bill would prevent another "fiasco" like the one involving Mylan NV's emergency anaphylaxis medicine EpiPen, which the company misclassified as a generic drug rather than a brand-name medicine under the Medicaid drug rebate program.

Last year, Mylan agreed to pay $465 million to settle charges the company had incorrectly classified EpiPen.

The U.S. Department of Justice said the company had "knowingly" misclassified the drug, resulting in the drugmaker underpaying rebates to Medicaid and overcharging states for the critical life-saving medicine.

Grassley, who currently heads the Senate Judiciary Committee, opened an investigation of his own into the matter in 2016.

The Mylan situation triggered a broader probe by the Office of Inspector General for Health and Human Services about Medicaid misclassifications — an investigation that revealed the government may have overpaid the drugmaker by as much as $1.27 billion over a decade for EpiPen.

The HHS inspector general also found that additional drugs could be misclassified.

Congress created the Medicaid drug rebate program nearly 30 years ago as a way to leverage the large volume of medicines the government purchases on behalf of low-income beneficiaries to obtain price concessions from biopharmaceutical companies.

Under the program, participating drugmakers that want their products covered by the federal government must offer states a price that includes a minimum rebate or, if lower, the best price the manufacturers provide to private-sector purchasers, such as hospitals.

"Misclassification of prescription drugs hurts millions of Americans whose lives depend on those medications, such as EpiPen, but can't afford them due to unnecessarily exorbitant pricing," Grassley said in a Dec. 4 statement. "This legislation is a significant step forward to fixing the problems in our healthcare system that have allowed pharmaceutical manufacturers to price gouge taxpayers and consumers for too long."

The bipartisan bill, dubbed the Right Rebate Act, will "crack down on big pharma's games and help prevent them from taking advantage of Medicaid, a program meant to protect the most vulnerable," Wyden said.

"While families struggle to afford medicines like EpiPen, drugmakers are busy manipulating the system to squeeze taxpayers even more," he added.

Grassley and Wyden are aiming to get the legislation moved through the Senate and the House by the end of the year — a tall order for an already packed schedule on Capitol Hill, which includes funding the government before it shuts down.

Wyden was optimistic and said such a bill could "set the tone for the important work that lies ahead to lower prescription drug prices for families across the country."

New powers

Under the bill, HHS could impose civil monetary penalties as high as twice the amount of the difference between the total rebates a drug manufacturer paid in all U.S. states over the period a medicines was misclassified and the total amount of rebates the company would have been required to pay.

Those penalties could come on top of any others applied for knowingly misclassifying a drug under the law.

HHS would be permitted to retain 25% of the money recouped to set up a fund intended for improving drug data reporting systems, evaluating and ensuring manufacturer compliance with rebate obligations and boosting oversight and enforcement to ensure companies are accurately and fully reporting information related to classification.

The legislation also would provide U.S. states the ability to recover incorrect rebate payments.

If HHS determines a biopharmaceutical company has misclassified a drug covered by Medicaid, the agency will notify the manufacturer and require a correction within a timely manner.

If the company fails to correct the misclassification, HHS will have the authority to do it and to suspend the misclassified drug.

The legislation also calls for HHS to provide an annual report to Congress, which will be made public, about any drugs that have been identified as misclassified, along with the actions taken to correct the problem.

A new sheriff in town

Grassley revealed last month he intended to move from leading the Senate Judiciary Committee to taking the helm at Finance — a chairmanship he held twice before in the previous decade.

Cowen & Co. analyst Rick Weissenstein said a speech Grassley made last week on the Senate floor gave drugmakers little to worry about, given the legislation the Iowa senator said he planned to pursue in the next Congress were mostly old ideas. Weissenstein said he did not see the new Grassley-Wyden bill as a harbinger of more cooperation that would lead to significant reductions in drug pricing.

But policy experts warned that the days of going easy on biopharmaceutical manufacturers by the Senate Finance Committee — currently led by drug industry-friendly Sen. Orrin Hatch, R-Utah — will be over under Grassley.

The Republican senator has a long history of investigating drug prices and has teamed up with Wyden on other probes, including in 2015 when they went after Gilead Sciences Inc. for pricing its hepatitis C drugs Harvoni and Sovaldi at $1,125 and $1,000 per pill, respectively — costs the lawmakers said were too high for Americans and the government's healthcare programs to bear.