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AG Derek Schmidt recovers $1.28 million for Kansas taxpayers in settlement over alleged underpayment of Medicaid drug rebates with Mallinckrodt

Release Date: Jun 17, 2022

TOPEKA – (June 17, 2022) – Kansas Attorney General Derek Schmidt today announced a settlement with pharmaceutical company Mallinckrodt ARD, LLC to resolve a lawsuit alleging Medicaid fraud involving the underpayment of Medicaid drug rebates. The settlement will recover $1.28 million for Kansas taxpayers.

“We continue to work diligently to protect taxpayers and hold accountable those who illegally obtain public funds,” Schmidt said.

Schmidt said the settlement was reached involving all 50 states, the District of Columbia and the federal government. The lawsuit asserted Mallinckrodt violated the Federal False Claims Act and the Kansas False Claims Act, through the submission of false claims to the Kansas Medicaid program. Payments will be made to Kansas over a period of seven years.

The settlement resolves allegations that from January 1, 2013, through June 30, 2020, Mallinckrodt knowingly underpaid Medicaid rebates due for its drug H.P. Acthar Gel (Acthar). Under the Medicaid Drug Rebate Program, when a manufacturer increases the price of a drug faster than the rate of inflation, it must pay the Medicaid program a per-unit rebate of the difference between the drug’s current price and the price of the drug if its price had gone up at the general rate of inflation since 1990 or the year the drug first came to market, whichever is later.

However, the state and federal governments claimed that Mallinckrodt and its predecessor Questcor began paying rebates for Acthar in 2013 as if Acthar were a “new drug” just approved by the U.S. Food and Drug Administration (FDA), rather than a drug that was first introduced to market in 1952. Allegedly, this practice meant the companies ignored all pre-2013 price increases when calculating and paying Medicaid rebates for Acthar from 2013 until 2020. In particular, the state and federal governments asserted that Acthar’s price had already risen to over $28,000 per vial by 2013; therefore, ignoring all pre-2013 price increases for Medicaid rebate purposes significantly lowered Medicaid rebate payments for Acthar. Under the settlement agreement, Mallinckrodt admitted that Acthar was not a new drug as of 2013 but rather was approved by the FDA and marketed prior to 1990. Mallinckrodt agreed to correct Acthar’s base date AMP and that it will not change the date in the future.

Kansas was represented during the settlement negotiations by the Medicaid Fraud and Abuse Division of Schmidt’s office. This settlement results from a whistleblower lawsuit originally filed in the U.S. District Court for the District of Massachusetts. The federal government, 26 states, the District of Columbia, and Puerto Rico intervened in the civil action in 2020. The settlement, which is based on Mallinckrodt’s financial condition, required final approval of the U.S. Bankruptcy Court for the District of Delaware, which approved the settlement on March 2, 2022.

Under Schmidt's leadership, since 2011 the attorney general’s office has recovered more than $1 billion for Kansas consumers and taxpayers, far more than any prior administration.

The following statement about the Kansas Medicaid Fraud Control Unit is required by the federal government: The Medicaid Fraud and Abuse Division in the Attorney General’s Office receives 75 percent of its funding from the U.S. Department of Health and Human Services under a grant award totaling $2,064,120 for Federal fiscal year (FFY) 2022. The remaining 25 percent, totaling $688,036 for FFY 2022, is funded by the Office of the Kansas Attorney General from moneys recovered in litigation.

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News releases issued prior to 2011 are available through an archive hosted by the Kansas State Library.