Suppose, just suppose, you were an executive in a pharmaceutical company that had a drug approved in 2000 that cost about $40 a dose. Suppose the drug could treat multiple sclerosis, rheumatoid arthritis, and kidney disease. The drug, that we will call “Acthar,” competed against the steroid prednisone, which can cost less than $3 a dose. Still expensive, we might agree, but with some razzle-dazzle research, slick brochures and persuasive drug reps, we pushed it through to the healthcare marketplace. Titled, Mallinckrodt Pharmaceuticals and the Chronic Disease Fund!
Suppose, in our paneled boardroom, our fellow executives dreamt up a way to take our $40 drug and jack up the price to $39,000 a dose – and get away with it, would you go along with the crowd? Welcome to Mallinckrodt Pharmaceuticals, where no one blinked at the thought of a 97,000% drug price hike.
The Scheme
Under usual circumstances, a pharmaceutical company cannot pay a patient’s co-pay. To do so would be the rough equivalent of a kickback. Everyone in the industry knows it.
If we extend our hypothetical, suppose one of the executives in the board room was to say, how can any patient or any physician for that matter, write a prescription for a $39,000 a dose drug (even if we can get away with it)?
This is where the idea was hatched for the creation of The Chronic Disease Fund, a Mallinckrodt Pharmaceuticals “foundation.” If a patient couldn’t afford $39,000 a dose (who could?) the foundation would pay the co-pay and then 
submit the entire bill to Medicare. In other words, by covering the few bucks here and there in co-pays, the “good guys,” Mallinckrodt Pharmaceuticals, could stick the entire bill to the government.
According to the US District Court for the Eastern District of Pennsylvania, and their lead attorney, William McSwain:
“The scheme allowed the Company to continually raise Acthar’s price yet market it as ‘free’ to patients and doctors, shifting the drug’s ever-increasing cost to Medicare. As a result of its conduct, Mallinckrodt caused the submission of millions of dollars in false Medicare claims for Acthar.”
In other words, Medicare was stuck with the entire bill and Medicare kept getting stuck with each increase in the price of the Acthar drug. It was an illegal kickback in a sense. While the patients and the physicians writing pharmaceutical scripts thought everyone was getting the deal of a lifetime, in essence, it was the taxpayer – you and me – who were ultimately getting robbed.
The Consequences – Mallinckrodt Pharmaceuticals and the Chronic Disease Fund
For now, Mallinckrodt could be looking at fines of about $240 million. The foundation paid the co-pays, that is true, but on average they stuck the taxpayers on average, $23,000 per vial for a drug that was overpriced at $40. About 2,600 patients took advantage of the deal.
Before going further, here’s the biggest “kicker” of all. Acthar was given approval by the FDA in 1952. It wasn’t even developed by Mallinckrodt, the company simply bought the rights and tested it for other conditions. According to news stories, Acthar was originally extracted from the glands of cattle in Chicago-area slaughterhouses as far back as 1940.
How could a company raise the price of a drug 97,000 percent? Because they could. Because they saw an opportunity to raid the piggy-bank of the federal government in the form of Medicare. The need for greed in this scandal permeates every aspect of what they did. Though the company issued the usual “we will vigorously defend ourselves,” routine, how can they defend themselves? They will apply some type of rationalization. They will rationalize R&D costs or marketing, or clinical trials that cite marginal benefits. Unless they cite something extraordinary, their case is weak at best.
It ultimately comes down to ethics. Those in the boardroom knew what they were doing. They were being unethical, and they didn’t care.
