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Mallinckrodt Responds to Anticipated Questions Related to its Suit Against the U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services (CMS, the Agency)

Updated May 21, 2019

For full details, please read the press release on this matter linked here.

1. What is the significance of the base date AMP to the calculation of a rebate under the Medicaid program?

   The Medicaid program gets among the deepest discounts in the pharmaceutical marketplace. Under federal law, participation in the Medicaid program requires drug manufacturers to provide discounts to the states, in turn, for their guarantee of Medicaid coverage for a drug. 
   One crucial component of the Medicaid rebate calculation is a drug’s base date average manufacturer price or “base date AMP.” To clarify further, the unit rebate amount (URA) for a single source drug consists of two components: the basic rebate and the additional rebate. The basic rebate is the greater of (i) the difference between the drug’s AMP and its best price, as defined by the statute and CMS regulations, or (ii) a statutorily specified minimum rebate percentage of the drug’s AMP. The additional rebate is the amount, if any, by which the drug’s AMP for the relevant quarter exceeds the base date AMP, a baseline measure related to the drug’s price during a statutorily specified window of time as adjusted by an inflation factor. The additional rebate thus requires drug manufacturers to pay greater rebate amounts where price increases outpace the rate of inflation.

2. How is the base date AMP established and under what circumstances is a drug entitled a new or updated base date AMP?

   The Medicaid rebate formula is a complex calculation. One crucial component of that calculation is a drug’s base date average manufacturer price or “base date AMP,” a baseline measure related to the drug’s price during a statutorily specified window of time. Because the base date AMP is used to calculate Medicaid rebates typically for the entire life of the relevant drug product, it is critically important that it be accurate.
   Congress established the process through which a base date AMP is set or changed, including that each covered outpatient drug produced or distributed under an U.S. Food and Drug Association (FDA)-approved “original NDA ” must be treated as a distinct “single source drug ” eligible for its own base date AMP under the Program . Acthar Gel with the IS Indication is produced and distributed under an original NDA approved by the FDA and is therefore a distinct single source drug eligible for its own base date AMP.

3. When did the disagreement with CMS begin?

   CMS authorized the change to Acthar’s base date AMP in 2012 with the change occurring in 2013.  For nearly three years, Acthar’s previous owner and then Mallinckrodt relied on CMS’s written authorization, which approved a base date AMP reset, to determine the appropriate calculation for Acthar Medicaid rebates following the approval of Acthar with the IS indication. CMS first raised an issue regarding the base date AMP in 2016.
   
   Mallinckrodt believes that it engaged in good faith with the Agency.  After more than three years of discussions between the company and CMS, CMS has now given a deadline for Mallinckrodt to revert to Acthar Gel’s base date AMP that was in effect prior to the 2012 change.

4. Why did you ultimately feel filing a lawsuit with CMS was the necessary course of action, as opposed to continuing to engage with them to resolve this situation?

   After more than three years of communications between the company and CMS, CMS chose to reverse the 2012 base date AMP decision.  CMS has stated that further discussions would not be productive.   

   Mallinckrodt was hopeful for productive dialogue with CMS in the hopes of reaching a solution; however, upon exhausting all reasonable efforts to engage, and CMS stating that further discussions would not be helpful, Mallinckrodt determined a lawsuit only possible course of action. Mallinckrodt is seeking judicial intervention because we believe that CMS did not follow the Administrative Procedure Act and other legal requirements.

5. What is the impact to 2019 financial guidance as a result of CMS decision?

   Based on current Acthar Gel Medicaid net sales, should Mallinckrodt ARD LLC be unsuccessful in its efforts to have this latest CMS decision overturned, the company estimates the potential future financial impact to be a reduction in Acthar Gel-related net sales of approximately 10% annually, likely putting previous Acthar Gel 2019 net sales guidance of exceeding $1.0 billion at risk. Further, depending on the Court’s determination, the potential retroactive financial impact could be from $0 to $600 million. Mallinckrodt plans to vigorously defend its position, and believes changing guidance or taking a reserve is inappropriate at this time.

6. What is the general expectation for resolution of this suit filed against CMS?

   Our lawsuit is filed under the Administrative Procedure Act (APA), a federal law that governs agency conduct. These types of cases tend to move more quickly than other types of lawsuits, and we expect to have a resolution at the district court level in the coming months.  While we will make no predictions on the likelihood of success, we have filed this lawsuit because we believe the Agency has acted unlawfully under the APA and inconsistent with basic principles of fair notice and due process.

7. Is Mallinckrodt continuing to offer Acthar Gel through the Medicaid program?

   Mallinckrodt has an active Medicaid rebate agreement for Acthar at present, which ensures eligible patients with coverage have access under the program. 

8. Does the CMS decision apply to products other than Acthar Gel?   Would coverage under other federal healthcare programs, aside from Medicaid, be impacted by the CMS decision?

   No. The Agency’s unlawful and unexplained decision addresses solely Medicaid rebates for Acthar Gel.

9. What impact does the current CMS dispute have on the company’s plans to spin-off its specialty generics business? 

   The Company does not believe that the current CMS dispute would have any effect on the company’s plans later this year to spin-off its specialty generics business.