Editor’s Corner: Mylan settlement erodes DOJ’s emphasis on corporate accountability

headshot of Evan Sweeney

Less than a year ago, Deputy Attorney General Sally Q. Yates stood in front lawyers and bankers at a conference devoted to money-laundering enforcement and talked about the Department of Justice's new policy on individual accountability during corporate integrity investigations.

It was the first time that Yates had spoken at length about a memo she wrote to U.S. Attorneys two months earlier that outlined the DOJ's retooled approach to white-collar crime investigations. The memo--now commonly referred to as the “Yates memo”--had just been codified in the United States Attorney’s Manual (USAM), a move that carried significant weight, Yates told the crowd last November.

“We don’t revise the USAM all that often and, when we do, it’s for something important,” she said. “We change the USAM when we want to make clear that a particular policy is at the heart of what all Department of Justice attorneys do and when we want to make sure that certain principles are embedded in the culture of our institution. We also make these revisions as a way of telling the world about our priorities and our values, so that others know what to expect when the Justice Department comes knocking.”

Earlier this month, the DOJ went knocking on the door of Mylan, a company that has emerged as a household name thanks to its massive price hike of EpiPens. And rather than a bold, authoritative rap, the DOJ tapped sheepishly on the door and peered apologetically through the windows.

Several weeks ago, I wrote that despite the bluster from legislators and the blowback from the general public, federal authorities were virtually helpless to do much about Mylan’s escalating price hikes. However, a new avenue for accountability emerged once Minnesota Sen. Amy Klobuchar (D-Minn.) discovered Mylan’s misclassification of EpiPens within the Medicaid Drug Rebate Program led to $4.3 million in overpayments.

Instead, less than two weeks after Klobuchar and two other senators asked the DOJ to investigate Mylan’s seemingly deliberate drug classification missteps, it appears the feds have agreed to a $465 million settlement with the drug company, an agreement that includes no admission of wrongdoing.

If you think that’s a high price to pay, consider the fact that EpiPens alone netted the company $1 billion for each of the last two years. Or that, according to a letter from Centers for Medicare & Medicaid Acting Administrator Andrew Slavitt, on “multiple occasions” the federal authorities “expressly told Mylan that the product is incorrectly classified.”

Or the fact that over the past five years, Medicaid spent approximately $797 million on EpiPens, including the 13 percent rebate offered for generic drugs, while keeping in mind that EpiPens have been misclassified as a generic drug since 1997. Or, like most settlements, that the agreement is a pre-tax charge, meaning Mylan will be able to use at least a portion of it as a corporate tax deduction. (By the way, the morning after Mylan announced the settlement, the company's stock rose 10 percent.)

Mylan’s settlement, negotiated faster than the autumn leaves could finish turning, upends the core message of the Yates memo. It’s an issue that’s not lost on the senators who initially pushed the feds to thoroughly investigate the drugmaker’s practices. Sen. Elizabeth Warren (D-Mass.) called the settlement “shamefully weak,” noting that based on her staff’s calculations, the settlement came in $65 million lower than the amount Mylan actually made as a result of the misclassification. Sen. Richard Blumenthal (D-Conn.) told Bloomberg that gap could be even larger, called the settlement a “sweetheart agreement,” and urged the DOJ to reject the offer and launch a criminal investigation.

"It sends a pretty clear message that even a strongly worded memo hasn’t changed a longstanding power dynamic."

Even more concerning, we don’t know where this practice ends. Could Mylan be doing the same thing with other drugs? Maybe. If CMS failed to prevent Mylan from misclassifying EpiPens despite repeated warnings, are other companies misclassifying medications? Without a detailed investigation, we’ll never know.

On a broader level, the entire process flies directly in the face of Yates memo and the DOJ’s reinvigorated emphasis on corporate and individual accountability, reinforced less than a year ago by Yates herself.

“This change acknowledges that our mission in civil corporate cases is not just to recover money,” Yates said last year. “It is also to redress and deter misconduct. And, while hefty corporate fines can be a necessary part of achieving these goals, our job is not complete if we fail to focus on the individuals who committed the wrongful acts in the first place.”

I had hoped that Yates was speaking specifically to drugmakers that have routinely washed their hands of corporate corruption and shielded their executives of wrongdoing simply by pulling out their checkbook. To be fair, this is the latest chapter in a saga that is far from over--after all, states can opt out of the settlement and bring their own lawsuits, and there are several other ongoing state and congressional investigations. But at first glance, it appears the DOJ hasn’t altered its lenient approach toward pharmaceutical companies at all, even amid fairly damning evidence.

Accepting the terms of Mylan’s settlement offer--with no admission of wrongdoing and without even the fleeting notion of an investigation--would be a visible pockmark on the DOJ’s new policy. More importantly, it sends a pretty clear message that even a strongly worded memo hasn’t changed a longstanding power dynamic. - Evan @HealthPayer