Nostrum to pay up to $50 million for allegedly underpaying Medicaid drug rebates
Nostrum admitted it acquired Nitro OS from another manufacturer and continued to market it based on its preexisting FDA approval.
Photo: Blanchi Costela/Getty Images
Missouri- and New Jersey-based drugmaker Nostrum Laboratories and its founder and CEO, Dr. Nirmal Mulye have agreed to pay a minimum of $3,825,000 – and up to $50 million if certain financial contingencies are met – to resolve allegations that they violated the False Claims Act by knowingly underpaying Medicaid rebates due for Nostrum's drug Nitrofurantoin Oral Suspension (Nitro OS).
The settlement is based on Nostrum's and Mulye's financial condition, according to the Department of Justice.
As part of the settlement, Nostrum admitted it acquired Nitro OS from another manufacturer in December 2015 and continued to market the product based on its preexisting FDA approval.
In January 2018, Nostrum temporarily ceased manufacturing Nitro OS because the amount of lead in the product did not comply with updated 2018 FDA guidance. After modifying quantities of two inactive ingredients to reduce overall lead levels, Nostrum resumed manufacturing and marketing Nitro OS in August 2018.
Nostrum characterized the relaunched version of Nitro OS as a "reformulation," but the drugmaker did not add or subtract any ingredients, and the active ingredients remain unchanged. Nitro OS also remained in the same dosage form and strength as it did prior to 2018.
Nostrum continues to market this version of Nitro OS under the same FDA Approval as the pre-2018 version, and maintains that it is legal to do so because no major changes have been made to the drug, according to the DOJ.
After relaunching Nitro OS in August 2018, Nostrum increased its price from $474.75 to $2,392.32 per bottle, which triggered significantly higher Medicaid Drug Rebate invoices from State Medicaid programs on account of the inflation-based rebate.
Beginning with the fourth quarter of 2018 through the first quarter of 2020 – when Nostrum withdrew from the Medicaid Drug Rebate Program – Nostrum and Mulye did not pay these entire invoiced amounts, despite learning that the larger rebate invoices were tied to the price increase and inflation-based rebate, and being notified by Centers for Medicare and Medicaid Services that it should pay the higher calculated amounts.
Instead, and despite prior communications to FDA that no "major changes" had been made to Nitro OS, Nostrum wrote CMS arguing that, because this version of Nitro OS is actually a "new" drug, Nostrum should not have to pay rebates based upon the prior version's applicable price, the DOJ said.
WHAT'S THE IMPACT?
Under the Medicaid Drug Rebate Program, drug manufacturers are required to pay quarterly rebates to state Medicaid programs in exchange for Medicaid's coverage of the manufacturers' drugs. The statute requires manufacturers to pay inflation-based rebates for drugs, which are designed to insulate the Medicaid program from drug price increases that outpace inflation.
These rebates are calculated by comparing the drug's current price to the drug's price on the date that the "dosage form and strength" of the drug was first marketed, or 1990, whichever is later.
The United States contends that, as a result of Nostrum's actions, it has certain civil claims against Nostrum and Mulye from October 1, 2018 through March 31, 2020 for knowingly failing to pay the required rebate amounts owed for Nitro OS as required by the Rebate Statute and Rebate Agreement, and as invoiced by state Medicaid programs.
THE LARGER TREND
In May, CMS issued a proposed rule to drive down prescription drug costs in Medicaid by increasing price transparency. The rule would allow CMS to have more insight into what the most expensive drugs on the market actually cost to manufacture and distribute.
CMS is not able to mandate that drug manufacturers lower the price of their drugs, but Medicaid, under the new proposal, would have the increased ability to hold drug manufacturers accountable for what Medicaid programs pay for drugs, CMS said.
ON THE RECORD
"The department is committed to ensuring that pharmaceutical manufacturers meet their obligations to taxpayer funded healthcare programs, which support elderly and vulnerable populations," said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department's Civil Division. "As this settlement demonstrates, the department will hold accountable those who knowingly fail to satisfy these obligations."
"The Medicaid program is a valuable safety net, providing health care to some of the most vulnerable Americans," said Acting U.S. Attorney Joshua S. Levy for the District of Massachusetts. "By deliberately failing to pay appropriate rebates to Medicaid, Nostrum used that program to divert resources from those Americans in the hopes of generating profits. This office will not turn a blind eye to such flagrant abuse."
Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com
