Mallinckrodt to Pay $260 Million to Settle Fraud, Kickback Allegations

Mallinckrodt agreed to pay $260 million to settle lawsuits in which company whistleblowers alleged the drugmaker defrauded Medicaid and used copay charities to pay kickbacks for prescriptions of its drug Acthar Gel.

The settlement was announced Monday and has the approval of the U.S. Bankruptcy Court in Delaware where Mallinckrodt  is reorganizing its business after settling opioid-related liabilities for $1.7 billion. Once valued at $15 billion, Mallinckrodt’s stock (MNKKQ) fell to pennies after it filed for bankruptcy protection in 2020.

Medicaid law requires drugmakers to pay the program rebates to protect it from price hikes that exceed inflation. Although Acthar’s price rose from $40 to $39,000 per vial, over the course of two decades, Mallinckrodt acknowledged in the new settlement that it didn’t account for much of those price hikes in its rebate calculations. State and federal governments originally claimed they were owed $650 million in rebate underpayments. About $235 million of the just-announced settlement relates to the rebate allegations.

The kickback claims settled by Mallinckrodt alleged that the company effectively provided kickbacks to promote Medicare sales of Acthar, by offsetting patient copayments with dollars channeled through a Mallinckrodt-funded copay foundation—allowing the company to market the high-priced drug as “free” to doctors and patients. The federal government has recovered nearly $1 billion in settlements from various drugmakers, since a Barron’s investigation first reported on copay charities in 2013. About $26 million of the latest settlement applies to the copay allegations.

“Mallinckrodt illegally reduced the amounts it paid to state Medicaid programs by improperly calculating the rebates it owed,” said U.S. Attorney Rachael Rollins for the District of Massachusetts, in Monday’s announcement.

“This settlement resolves allegations that Mallinckrodt cheated the Medicaid program, and ultimately taxpayers, out of hundreds of millions of dollars, by exploiting a system that was set up to keep a check on rising drug prices,” said the head of the Federal Bureau of Investigation’s Boston Division, Joseph Bonavolonta in the same press release.

In an emailed statement, a Mallinckrodt spokesperson said: ““We disagree categorically with the government’s characterizations, but are pleased to have these matters behind the company and note that the settlements contain no admissions of wrongdoing.”

The Medicaid rebate litigation started as a 2018 whistleblower suit filed on behalf of the government by James Landolt, who had directed Mallinckrodt’s government price accounting before his resignation in 2017. He will receive 20% of the rebate settlement, under the state and federal False Claims Acts. His attorneys at the Boston-based Whistleblower Law Collaborative had to pursue the case in federal courts in Massachusetts, the District of Columbia, and Delaware.

“A lot of executives at Mallinckrodt were happy to go along and look the other way, but he wasn’t,” Landolt attorney Suzanne Durrell told Barron’s. “You need someone at his level being willing to come forward and take the risk of doing it.”

“Our client is one of the most ethical, even-keeled, level-headed guys I’ve met,” said the Whistleblower Collaborative’s managing member Linda Severin.

“It is easy to feel powerless in these types of situations,” Landolt said, in an announcement by his lawyers. “But individuals have a voice and the power to do something about wrongdoing.”