'There's other s--- in the vial': Bombshell lawsuit claims no one knows exactly what's in a drug that's cost the US government over $1 billion

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  • Mallinckrodt Pharmaceuticals’ blockbuster drug Acthar has been one of the biggest drug-related expenses for the government’s Medicare program. In 2015 alone Medicare spent $US500 million on it.
  • The drug is primarily indicated to treat infantile spasms. Medicare is a program for the elderly.
  • One whistleblower claims that Mallinckrodt has engaged in an elaborate scheme to push the drug on payers, and hide the fact that no one at the company actually knows what’s in it.
  • What’s more, says the whistleblower, Mallinckrodt couldn’t have done it without the help of the biggest pharmacy benefit manager in the country.
  • Mallinckrodt said in a statement: “The company vehemently disagrees with the allegations made in the complaint and intends to vigorously defend itself in this matter.”

What if I told you that the government has been shelling out hundreds of millions for a drug for years and no one knows exactly what’s in it?

A new lawsuit from a former employee at Mallinckrodt Pharmaceuticals claims exactly that. The drug in question is called Acthar. It costs about $US40,000 and is mainly used to treat infantile spasms.

Somehow, though, the drug has become one of the biggest drug-related expenditures for Medicare, a government health insurance program for old people. In 2015, Medicare spent $US500 million on the drug. The company claims that the drug can be used in 18 other issues, and since Acthar is so old its approval was grandfathered in.

How exactly it came to be such a big spend for the government, though, has been the subject of a ton of inquiry on Wall Street. Short sellers like Kynikos Associates’ Jim Chanos and Citron Research’s Andrew Left have both bashed Mallinckrodt – Left once challenged the company to test Acthar publicly.

And yet, the price of the drug keeps climbing, government sales continue, and doctors continue to prescribe the drug. Now, former Mallinckrodt Associate Director Rasvinder Dhaliwal, in a whistleblower lawsuit, claims that is all because of an elaborate scheme perpetrated by Mallinckrodt and Accredo Pharmacy, a mail order pharmacy owned by Express Scripts.

Medicare spending on HP ActharBusiness Insider

The problem with payers

Dhaliwal joined the company in 2014 and was eventually pushed out in 2018. During that period she alleges that senior executives at the firm didn’t know what was actually in Acthar.

From the lawsuit (emphasis added):

On October 10, 2014, during a call with Director Niewoehner, he conceded to Ms. Dhaliwal that Acthar is not highly purified ACTH 1-39 as represented to the public.

Director Niewoehner, stated: “So it’s not only ACTH 1-39, there’s these other small ACTH 1-14, ACTH 1-17, ACTH 1-9 all these other smaller fragments of ACTH which we believe helps give Acthar its potency and physiological effects… For your own knowledge, there’s other shit in the vial.”

Dhaliwal’s claim is that Mallinckrodt could not answer payers’ questions about the drug’s efficacy and composition, and it would not share data confirming its efficacy for the 18 – “off-label” – uses that it encourages doctors to prescribe the drug for.

More from the suit about how little executives knew about the drug (emphasis added):

Executive Director Foster also stated at the September 4th Meeting that if the FDA knew that no one at the Company had information pertaining to the actual ingredients for the drug, the agency could open up the label for review and request that information, indicating that if that were to happen Mallinckrodt Pharmaceuticals would be shut down.

Further, Executive Director Foster stated at the September 4th Meeting that when Questcor sold the Company to Mallinckrodt, they were provided with the ingredients/recipe in a file that is locked up and can’t even be open, due to all of the protections in the file. Executive Director Foster also stated that David Medeiros was the only person who had this information, and was the one that provided the file in this manner. According to Executive Director Foster, if the FDA questioned Mallinckrodt about this information, they would not have an answer, as they would not be able to open the file.

Supervisors at the company allegedly instructed Dhaliwal to “to misrepresent the actual clinical data concerning Acthar in order to alleviate the reimbursement hurdle by government payors to improperly increase Acthar sales, essentially causing the submission of false or fraudulent claims for payment or approval.”

Mallinckrodt said in a statement: “The company vehemently disagrees with the allegations made in the complaint and intends to vigorously defend itself in this matter.”

Dhaliwal’s supervisors tried to get her to tell payers that Mallinckrodt didn’t have the clinical data, and to use a doctor on Mallinckrodt’s payroll to craft a statement in support of the drug instead.

“I’ve used this tactic successfully at Allergan and I believe we should implement it at Questcor,” said one executive, according to the suit. “This is a strategy to help us overcome the ‘lack of data’ issue/challenge we are experiencing with payers, especially with Medicare and increase our reimbursement rates.” Mallinckrodt acquired Questcor in 2014.

We should note here that Allergan ended up paying a $US600 million fine for promoting Botox for off-label uses. It’s something Dhaliwal tried to bring to the attention of her supervisors, and they were not interested.

Distribution

According to Dhaliwal, Mallinckrodt did not do this alone. Acthar is sold almost exclusively through Accredo Pharmacy, a specialty mail-order pharmacy owned by Express Scripts, the country’s largest pharmacy benefit manager.

Dhaliwal claims that Accredo found ways for patients to get around paying their co-pays (illegal for Medicare patients) and that she got complaints that Accredo was stealing client data from other pharmacies. We should note here that Express Scripts is currently being sued by a handful of small pharmacies that accuse it of “stealing” customer information and prescription data with the goal of luring those customers over to Express Scripts’ mail-order pharmacy business. The plaintiffs say it has generated “billions of dollars in illegal profits” by doing this.

According to company emails, Accredo was in charge of projecting Acthar sales.

From the lawsuit:

While reviewing various reports for Acthar with Analyst Terhardt, Ms. Dhaliwal inquired how the Company determined “projected vials” for Acthar.

In response, Analyst Terhardt, stated, “so projected vials, we make projections based on information we have about paid referrals. Again, as far as I know we do not have information on all accounts, but on those who go through, if I remember correctly, Accredo, we have this information. So, based on treatment algorithm or diagnosis and patient type there is a formula and David [Okimoto] is still working on this how to make it more accurate, so we project vials because we know that one referral in a, for a certain therapeutic area or disease can generate vials in let’s say current month or prospective month.”

Express Scripts didn’t immediately respond to Business Insider’s request for comment. The company has bashed Acthar’s efficacy to investors, but it hasn’t stopped selling the drug entirely though it’s unclear how much Accredo/Express Scripts could make off of selling Acthar.

Doctors have also bashed the drug. A study conducted by Oregon Health and Science University School of Medicine and Oregon State published in the Journal of American Medicine bolsters Dhaliwal’s allegation that the company uses paid doctors as cover for its like of data.

The study found that a surge in government spending – ultimately a tenfold increase – on the drug was driven in part by a relatively small group of doctors who were prescribing it heavily (both with more prescriptions per person and with a spike in people being treated with it). And, the study notes, this can’t just be explained away by the fact that it may be used on more “severely ill” patients.

“I was shocked for my profession,” said Dr. Dennis Bourdette, one of the authors and a professor and chair of neurology at OHSU, told Business Insider following the publication of the findings in JAMA. There’s an accompanying – and scathing – editorial, written by Saate Shakil, a doctor at the University of California at San Francisco School of Medicine.

“I hold physicians to a higher standard,” Bourdette said, noting that some alternatives to Acthar cost 1/50th of the drug’s price. “It’s a mystery to me why someone would be prescribing the drug.”

If what Dhaliwal claims is accurate, then we’ve solved a big part of the mystery. Acthar, made of who knows what that does very little, is sold thanks to an elaborate scheme masterminded by individuals at Mallinckrodt, Accredo/Express Scripts, and a few greedy doctors.

Brutal, if true.

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