The Department of Justice on Tuesday announced it has intervened in a whistleblower lawsuit against Mallinckrodt over allegations the drug maker knowingly underpaid Medicaid rebates it owed due to significant price increases to its drug Acthar.

The case, United States ex rel. Landolt v. Mallinckrodt Pharmaceuticals, was filed in the U.S. District Court for the District of Massachusetts under the whistleblower provisions of the False Claims Act (FCA), which allow private parties to sue on behalf of the government for the submission of false claims for government funds and to receive a share of any recovery. The FCA also permits the government to intervene in such lawsuits, as it has done in this case.

Under the Medicaid Drug Rebate Program, drugmakers must pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the manufacturers’ drugs. The mandatory rebate includes an inflationary component designed to insulate the Medicaid program from drug price increases that outpace the rate of inflation. For drugs sold to Medicaid, manufacturers must pay a rebate based on the drug’s price since 1990 or when it was first marketed, whichever is later.

In its complaint, the government alleges that, although Acthar was first marketed prior to 1990, Mallinckrodt and its predecessor, Questcor Pharmaceuticals, began calculating and paying rebates as if Acthar was a new drug first marketed in 2013, based on the Federal Drug Administration’s approval of a new indication for Acthar’s use in 2010. Given that Questcor had raised Acthar’s price by more than $20,000 per unit prior to 2013, the government alleges Questcor (and later, Mallinckrodt) avoided paying inflationary rebates on any of those pre-2013 price increases.

In failing to pay these rebates, the government alleges Mallinckrodt knowingly avoided its obligations under the Medicaid Drug Rebate Statute, despite repeated government warnings.

The matter is being handled by the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the District of Massachusetts, with assistance from the Department of Health and Human Services Office of Inspector General.