Los Angeles, California – A class-action lawsuit filed on behalf of numerous Medicare Advantage Organizations (MAOs) accuses pharmaceutical manufacturer Mallinckrodt (MNK) of engaging in a scheme to drastically inflate the price and reduce competition for its drug H.P. Acthar Gel (Acthar), a drug primarily prescribed for infants with epilepsy.
Mallinckrodt previously faced similar allegations brought by the Federal Trade Commission (FTC). Filed earlier this year, the complaint accused the company of violating federal antitrust laws and illegally maintaining a monopoly for Acthar. Mallinckrodt paid $100 million to settle the charges.
Attorneys R. Brent Wisner, Michael L. Baum, Adam M. Foster, and Pedram Esfandiary of the law firm Baum Hedlund Aristei & Goldman filed the class action lawsuit on Oct. 30, 2017, in U.S. District Court for the Central District of California (Case No. 2:17-cv-07928). The law firm of Pendley, Baudin & Coffin is also representing the plaintiffs in this case.
The plaintiffs in the Acthar class action are MSP Recovery Claims (MSP = Medicare Secondary Payer), Series LLC of Delaware; MAO-MSO Recovery II, LLC of Delaware; MSP Recovery LLC of Florida; and MSPA Claims 1 LLC of Florida. The parties are suing on behalf of themselves and other MAOs in dozens of states who were forced to buy Acthar at unlawfully elevated prices as a direct result of the defendants’ alleged anti-competitive conduct.
The defendants are Mallinckrodt ARD Inc. (formerly Questcor Pharmaceuticals Inc.) of California; Mallinckrodt PLC of Ireland; and United BioSource Corporation (UBC) of Delaware. UBC is a subsidiary of a Mallinckrodt distributor.
The Acthar class action lawsuit accuses MNK and UBC of engaging in monopolistic, anti-competitive behavior by purchasing and shelving the only potential competitor to Acthar, which enabled them to raise the drug’s price exponentially.
“If Martin Shkreli points a finger at you for price gouging, you really are in a league of your own,” stated Brent Wisner, an attorney representing the plaintiffs.
The causes of action against MNK and UBC include:
What is Acthar?
Derived from the pituitary glands of slaughtered pigs, Acthar is the only therapeutic adrenocorticotropic hormone (ACTH) product sold in the United States.
ACTH is the standard of care treatment for infantile spasms. These spasms involve dangerous seizures during the first two years of a child’s life. Including the treatment of infantile spasms, Acthar has 19 different “indications,” which means it can be used to treat 19 different ailments. Other common indications for the drug are for Lupus, nephrotic syndrome (a kidney disorder), rheumatoid arthritis, multiple sclerosis, and various dermatological diseases.
What Are Medicare Advantage Organizations (MAOs)?
The plaintiffs, in this case, represent Medicare Advantage Organizations (MAOs), which are private insurance companies that, for all practical and legal purposes, stand in the same shoes as the Centers for Medicare and Medicaid Services (CMS) in providing Medicare benefits.
Traditional Medicare, administered by CMS, consists of Parts A and B of the Medicare Act. Part C is the Medicare Advantage program under which Medicare-eligible persons may elect to have an MAO provide Medicare benefits instead of CMS.
Under the Medicare Advantage program, an MAO administers the provision of Medicare benefits pursuant to a contract with CMS. CMS pays the MAO a fixed fee per enrollee for providing at least the same benefits that an enrollee would receive under traditional Medicare. The MAO must provide the services rendered under Parts A and B. Therefore, all regulations corresponding to Parts A and B apply to MAOs.
Medicare Part D, or the Medicare Prescription Drug Benefit, is used to subsidize the costs of prescription drugs and prescription drug premiums for those on Medicare. Part D is only offered through private companies and CMS does not offer the benefits directly. Generally, MAOs offering Part C benefits include Part D benefits for a fee and then receive reimbursement for the beneficiaries as well.
MAOs exercise control over Pharmacy Benefit Managers (PBM) and any other first-tier and downstream entities. Included in the Medicare Act and Code of Federal Regulations (CFRs) are provisions that set forth the price that Medicare will pay for pharmaceuticals and the requirements that plan sponsors (in this case the class of MAOs) must utilize when contracting with the drug manufacturers.
Medicare’s drug prices are set in conjunction with manufacturers. Accordingly, Medicare and MAOs have directly negotiated prices for Acthar and, due to the defendants’ alleged monopolistic conduct, have over-paid for Acthar. As rightful assignees, the plaintiffs have been overpaying for Acthar, and thus have standing as direct payers via their MAO Assignors.
Factual Allegations in the Acthar Class Action Against Mallinckrodt and United BioSource Corporation
In 2001, Questcor purchased the rights to Acthar for $100,000. Roughly six years later, Questcor allegedly extinguished threats to its monopoly relating to Acthar by vertically integrating its sales and distribution through one exclusive distributor, Curascript. According to the lawsuit, this integration supercharged the defendants’ ability to charge exponentially increasing eye-gouging prices for Acthar.
At the time Questcor purchased Acthar, the average price for a vial of the medication was about $40. In 2007, the price skyrocketed to $23,000 per vial. In 2015, Acthar’s U.S. revenues exceeded $1 billion.
For the Assignor MAOs, Mallinckrodt (which purchased Questcor in 2014) now charges over $34,000 per vial of Acthar, an 85,000 percent increase from the 2001 cost. The Assignor MAOs paid these inflated prices, according to the lawsuit. For patients, purchasing an Acthar vial is typically not a one-time expense—a course of Acthar treatment often requires multiple vials, costing in excess of $100,000
Outside of the U.S., doctors treat patients suffering from the same conditions that Acthar is used to treat with a different drug called Synacthen Depot (Synacthen), which is a synthetic ACTH drug (Acthar is a natural ACTH drug). Novartis AG marketed and sold Synacthen abroad until 2013.
In 2011, Novartis decided to sell the rights to market Synacthen in the U.S. For years, Questcor viewed Synacthen as a significant, potential competitive threat to Acthar. Accordingly, Questcor bid nearly ten times more than what competitors offered to purchase the U.S. rights to Synacthen. The acquisition ensured that Acthar did not have any competition and allowed the company to create a market monopoly in the U.S.
The plaintiffs allege other companies that bid on the rights to Synacthen expected to profitably sell the drug at a price well below Acthar’s price. This demonstrates that Acthar is currently priced at an anti-competitive level. Per the complaint, the lower prices that would prevail in a duopoly market containing Acthar and Synacthen show that MNK is currently positioning Acthar at an anti-competitive price.
According to the plaintiffs, the defendants’ monopolistic actions “have had an adverse effect on plaintiffs who spent far more to purchase Acthar that they otherwise would.”
“The entire market has been altered, as the defendants ensured that there would be no competition, harming the market as a whole by reducing innovation and competition. Domestic release of Synacthen would have instantly created competition for Acthar, resulting in a lower price for the drug. Defendants have no valid business reason for Acthar’s inflated price.”
The plaintiffs in the Acthar class action contend that the defendants violated federal antitrust laws by vertical price fixing and suffered harm by paying inflated anti-competitive prices for Acthar. “The collusion and monopolistic activity between defendants supplied an atmosphere which drove up the costs of Acthar, resulting in Class damages – Class members paid a price for Acthar that was higher than the but-for-price had there been no collusion or monopolistic activity between the defendants,” the complaint states.
The plaintiffs and the class seek disgorgement of the defendants’ ill-gotten gains, treble damages, and any other equitable relief as the Court finds appropriate to redress defendants’ violations of federal law or restore competition.
“Drug companies need to be held accountable for bilking taxpayers through price gouging and anticompetitive conduct,” says John Cleary of MSP Recovery. “We are dedicated to protecting Medicare and Medicaid beneficiaries and righting a wrong that impacts the lives of the most vulnerable in our society.”
‘Pharma Bro’ Martin Shkreli Told FTC About Mallinckrodt in 2014
This is not the first time that Mallinckrodt has been accused of wrongdoing. In 2014, Martin Shkreli, who was recently convicted of securities and wire fraud, told the Federal Trade Commission (FTC) about the MNK’s anti-competitive behavior regarding Acthar.
On Jan. 18, 2017, FTC filed a three-count complaint based on the facts laid out above against the defendants on behalf of the FTC and various State Attorneys General. These counts consisted of Monopolization in Violation of the FTC Act; Monopolization in Violation of the Sherman Act; and various state law claims.
Twelve days after the complaint was filed, the defendants settled with the FTC for $100 million. The FTC also required MNK to divest Synacthen.
“If Martin Shkreli points a finger at you for price gouging, you really are in a league of your own,” stated Brent Wisner, an attorney for the plaintiffs.
About Baum Hedlund Aristei & Goldman
The law firm of Baum Hedlund Aristei & Goldman has litigated thousands of personal injury, wrongful death and class action lawsuits against major pharmaceutical and medical device companies. Our attorneys have prevailed in some of the most highly publicized cases in the country.
Baum Hedlund has successfully secured over $1.5 billion in verdicts and settlements on behalf of our clients. With decades of experience, our firm has developed a reputation for holding Fortune 500 companies accountable, influencing public policy, improving product safety, and raising public awareness.
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