New York’s Department of Financial Services is going after Mallinckrodt plc for insurance fraud over the opioid epidemic, Gov. Andrew Cuomo announced Tuesday.
DFS started administrative proceedings against the company and its subsidiaries, Mallinckrodt LLC and SpecGX LLC, charging that the company misrepresented how safe and efficient its opioid drugs were to enrich the company. Those practices, the department said, contributed not only to unnecessary prescriptions but to addiction and abuse by consumers, as well as an increase in insurance costs for New York residents.
The move, Cuomo said, was part of an ongoing investigation by the department into companies and organizations that created the opioid crisis and kept it going for so long. In September, Cuomo announced the department would be looking into the opioid industry to recoup an estimated $2 billion in insurance overpayments New York residents had to pay because of the opioid crisis.
“The worst frauds are those that go beyond individual harm to institutionalized, systemic fraud – and the opioid scheme is no exception,” Governor Cuomo said. “The opioid manufacturers knew how addictive and dangerous their products were and they used it as a business model for their own financial gain at the cost of thousands of human lives and billions of dollars. The damage they have caused by creating and perpetuating the opioid epidemic that is devastating our state and nation has been immeasurable, and we are taking action to ensure these big pharmaceutical companies are held responsible for their fraudulent practices.”
According to the court documents, Mallinckrodt produced 39 percent of the opioid pills that flooded the New York market from 2006 to 2014. From 2009 to 2019, the company supplied approximately 5,000,000 New Yorker commercial health insurance policyholders with over one billion pills.
“From 2007 to 2014, for example, private insurance claims related to opioid dependence diagnoses rose more than 3000% nationally, and nearly 500% in New York State. It is estimated that, just in the past 10 years, commercial health insurance companies in the State of New York (and ultimately the consumers who pay insurance premiums) have paid $1.8 billion in additional claims as a direct result of the opioid crisis,” the complaint states.
The department said that Mallinckrodt misrepresented the safety and efficacy its opioid products in an attempt to sway healthcare professionals and patients to use the products; again and again, overstated how beneficial using the drugs on a long-term basis was safe while failing to disclose the risk of addiction; and did this all while knowing that the misinformation would result in insurance claims over medically unnecessary opioid prescriptions.
These actions, the department said, violated two New York Insurance Laws The first, Section 403, prohibits fraudulent insurance acts and carries a penalty of up to $5,000, plus the amount of the fraudulent claim for each violation. The second, Section 408, prohibits intentional fraud or misrepresentation and also carries a penalty of up to $5,000 per violation. DFS contends that each fraudulent prescription is a separate violation, but did not say how many fraudulent prescriptions it felt Mallinckrodt was responsible.
The DFS hearing over the administrative action will be held at DFS’s offices in New York City on Aug. 24, 2020.