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(CNN) —  

Two whistleblowers at a pharmaceutical company responsible for one of the largest drug price increases in US history said the company bribed doctors and their staffs to increase sales, according to newly unsealed documents in federal court.

The effort, the whistleblowers said in a lawsuit against the company, was part of an intentional “multi-tiered strategy” by Questcor Pharmaceuticals, now Mallinckrodt, to boost sales of H.P. Acthar Gel, cheating the government out of millions of dollars.

The price of the drug, best known for treating a rare infant seizure disorder, has increased almost 97,000%, from $40 a vial in 2000 to nearly $39,000 today.

The Justice Department has now intervened in the case after conducting its own extensive investigation – a sign that the government believes the allegations levied by the whistleblowers are credible. In a statement to CNN, Mallinckrodt did not deny the accusations but said the fault lies primarily with Questcor.

The bombshell allegations lay bare what the whistleblowers say was a culture designed to sell the drug at all costs, from lying to the Food and Drug Administration to offering bribes to doctors.

The price increase, combined with an aggressive sales push in rheumatoid arthritis, multiple sclerosis and other areas, has pushed the drug’s annual sales over $1 billion.

Many of those sales are driven by Medicare reimbursements. A CNN investigation last year found that Medicare spending on Acthar had risen dramatically – more than tenfold over six years – to some $2 billion.

In their lawsuit, the whistleblowers said the drugmaker’s conduct “has cheated the federal government out of millions of dollars that should not have been paid, thereby enriching [the company] and subjecting patients to unapproved, unsafe and potentially ineffective uses of H.P. Acthar Gel.”

“Questcor has attempted to conceal and cover-up its payment of kickbacks and its illegal promotion of H.P. Acthar Gel by making false statements to the FDA and directing employees to conceal evidence by failing to disclose … the full nature and extent of its advertising, promotional and marketing materials and plan.”

Mallinckrodt purchased Questcor in 2014 as part of a $5.6 billion deal. “The illegal practices that Questcor had been engaging in since 2007,” the suit said, “have knowingly been continued since the merger and acquisition of Questcor by Mallinckrodt.”

The whistleblowers’ allegations were unsealed after the Justice Department filed notice on March 6 to intervene in the lawsuit. The Justice Department has 90 days to file its own complaint, according to the March filing.

If found liable, Mallinckrodt could be required to pay up to three times any amount the government is found to have been defrauded, as well as penalties ranging from $11,000 to $22,000 for each false claim, according to the whistleblower statute.

The Justice Department declined comment for this story.

In its statement to CNN, Mallinckrodt said that it was disappointed with the Justice Department’s decision to pursue the case and that it was cooperating with the agency. The drugmaker also sought to distance itself from Acthar’s previous owner, Questcor.

“The allegations pertain principally to legacy Questcor conduct,” Mallinckrodt said.

“Mallinckrodt has cooperated fully with the DOJ in its review of this historical conduct, voluntarily providing documents and information to the government. While we are disappointed the DOJ has elected to proceed with the lawsuit, we have been in advanced settlement talks with the government over the past several months.

“The company believes these sales and marketing claims are likely to be resolved in the near term through ongoing negotiations, and further believes a resolution that is reasonable and manageable for all parties is achievable. As the lawsuit principally concerns allegations of legacy conduct prior to Mallinckrodt’s acquisition of Acthar Gel, we do not envision any impact to how Mallinckrodt conducts business today.”

In its statement, the company referred to the whistleblowers as two former Questcor employees. Yet the suit makes clear that one of the employees stayed on after the 2014 merger and worked for Mallinckrodt, leaving the company in June 2017.

After CNN published this story, Mallinckrodt sent an additional statement: “Mallinckrodt strongly disagrees with the substance of the complaint and the sensational characterization of the allegations.”

Marc Orlow, an attorney representing the two whistleblowers, hailed the government’s decision.

“Our clients are true heroes to stand up to a corrupt corporate culture that cost the taxpayers hundreds of millions of dollars,” he said.

Expert: ‘Bad sign’ for company

The government doesn’t take the decision to intervene in a whistleblower case lightly, said Jennifer Arlen, a professor of law at New York University who specializes in corporate enforcement.

“The government has tended to take over cases that become winners,” said Arlen, who serves as director of NYU’s Program on Corporate Compliance and Enforcement. “Historically, the government’s decision to take this over is a bad sign” for the company being investigated.

The government intervenes in fewer than 25% of whistleblower cases, according to the Justice Department.

But cases alleging health care kickbacks, Arlen said, can be “very challenging because pharmaceutical companies regularly have legitimate consulting and research arrangements with doctors.”

“The government has to show that the intent was to reward doctors for their prescribing behavior,” she said.

What will be interesting, Arlen said, is if the government uses its vast amount of prescribing data by doctors to bolster its case.

“Under the current administration, there does appear to be a real effort to combat various forms of healthcare fraud, and I do know the DOJ is using data analytics to identify doctors who are defrauding the government,” she said. “The data could be used very effectively in a case like this.”

CNN’s investigation last year found that Acthar’s manufacturers had paid doctors millions.

More than 80% of doctors who filed Medicare claims in 2016 for Acthar received money or other perks from the drugmakers, according to the CNN analysis of publicly identified prescribers.

The analysis, which looked at doctors who filed more than 10 Part D claims, found that Mallinckrodt and Questcor paid 288 prescribers more than $6.5 million for consulting, promotional speaking and other Acthar-related services between 2013 and 2016.

$1,000-a-gallon gas

The whistleblowers’ lawsuit had been under seal for seven years in US District Court in the Eastern District of Pennsylvania, since it was originally filed against Questcor in 2012. The suit has been amended to reflect Mallinckrodt’s purchase of Questcor in 2014.

When the government files notice to intervene in a whistleblower case, the complaint becomes unsealed – in this case, the fourth amended complaint, filed June 8, 2017. All other documents related to the case remain sealed.

This isn’t the first time Mallinckrodt has faced government scrutiny related to Acthar. The pharmaceutical company reached a $100 million settlement in 2017 after the Federal Trade Commission accused the drugmaker of violating antitrust laws to thwart competitors from undercutting Acthar’s exorbitant price. The company settled without admitting wrongdoing.

The drug is approved for 19 indications, including multiple sclerosis, rheumatoid arthritis and kidney disease. But critics note that the drug was approved for many of those conditions long before the FDA’s more rigorous standards of today and that there are few randomized clinical studies showing its efficacy, especially in adult conditions.

“Medicare has been spending billions of dollars for Acthar for questionable indications,” said Dr. Dennis Bourdette, chairman of the Department of Neurology at Oregon Health & Science University who has studied the drug’s price and the doctors prescribing it for years.

The whistleblower suit was filed by Charles Strunck, who worked for Questcor as a multiple sclerosis sales specialist from September 2010 to August 2011, and Lisa Pratta, who was an Acthar neurology specialist with Questcor and then Mallinckrodt from September 2010 to June 2017.

According to the suit, Mallinckrodt “intentionally engaged in an illegal scheme to increase its sales and profits by engaging” in array of illegal activity, including:

  • Violating the federal Anti-Kickback Statute by “using valuable incentives, rewards and other forms of remuneration to induce healthcare providers to promote and prescribe” Acthar.
  • “Systematically promoting and marketing H.P. Acthar Gel for unapproved, off label uses.”
  • “Causing hundreds or thousands of false claims for reimbursement of H.P. Acthar Gel to be submitted to, and paid by, federal healthcare programs.”

Sales representatives were compensated royally for increased sales, the suit said, with lucrative monthly bonuses designed to promote a “sell at all cost” mentality. One sales specialist was awarded a $124,000 bonus in the second quarter of 2011, including $75,000 in one month alone; another received a $110,000 bonus in the same quarter, including $80,000 in one month, the suit alleged.

Sales reps were given a daily report “tracking the productivity of all specialists in order to motivate them.”

“This practice continued after the merger with Mallinckrodt,” the suit said.

The suit alleges that Questcor had trouble entering the multiple sclerosis market because there was a cheaper alternative that was considered the standard of care for MS flareups.

“Questcor’s response to this challenge has been to bribe physicians to prescribe and promote H.P. Acthar Gel,” the suit said.

The suit went on to say that many doctors treating MS patients refused to speak with Questcor sales representatives, but the company devised a work-around: “One way in which Questcor has overcome this threshold obstacle is to bribe office staff to arrange such meetings.”

Bourdette, executive director of Oregon Health & Science University’s Multiple Sclerosis Center, found those allegations especially intriguing.

“In the multiple sclerosis field, there are a very small number of physicians who prescribe Acthar, and I’ve never understood why these physicians do that,” he said. “If these accusations are true, it may provide an explanation.”

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The drug’s price has been a source of controversy for more than a decade, since the price shot up overnight in August 2007 from $1,600 to $23,000 a vial. At the time, the drug was primarily marketed for infantile spasms, a debilitating seizure disorder in babies.

Despite protests from the nation’s top epilepsy foundations and neurology groups over the drug’s high cost, Acthar’s price has climbed another $16,000 per vial. Today, it’s listed around $39,000 a vial.

The price hike puts it among the most dramatic drug price increases in the nation’s history, said Stephen Schondelmeyer, director of the PRIME Institute, a research organization that studies economic and policy issues related to pharmaceuticals.

“If gas [prices] increased from 1993 to 2019 at the rate of H.P. Acthar, gas today would cost $1,300 a gallon,” he said.