Healthy Skepticism Library item: 1377

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Publication type: news

Hallam K.
Some U.S. States Lag in Collecting Medicaid Rebates
Bloomberg 2003 Aug 7

Full text:

Pennsylvania, Iowa, Illinois and at least nine other states have failed to collect what may amount to billions of dollars in Medicaid payments owed by pharmaceutical companies, according to federal auditors. Poor record-keeping by states and foot-dragging by drugmakers has resulted in underpayments, the Inspector General’s office of the U.S. Department of Health and Human Services said. The office plans to complete a probe of records from 49 states and the District of Columbia by the end of 2003. The audits may spur efforts by the states, many of which face deficits, to crack down on companies such as King Pharmaceuticals Inc. King last month estimated it owed Medicaid $46.5 million in rebates on drugs purchased from 1998 to 2002. ``We simply can’t afford to leave any drug rebate money we are entitled to on the table,’‘ Illinois Director of Public Aid Barry Maram said in an e-mailed reply to questions from Bloomberg. ``During these difficult budget times, Governor Rod Blagojevich has made it clear that every agency must maximize opportunities to enhance revenues.’‘ The Standard and Poor’s 500 Pharmaceutical Index rose less than 1 percent as of 10:15 a.m. New York time. Under U.S. law, states that administer the federal health insurance program for the poor are eligible for refunds on purchased drugs if they paid more than the lowest price charged to other customers. States bill companies each quarter based on sales as documented by Medicaid and based on prices the industry submits. The rebate is usually 15 percent for brand-name drugs and 11 percent for generics. Medicaid has collected the rebates since 1991. Disputes Companies can dispute the sales figures for any product and delay payment of the rebates until the matter is resolved. Drugmakers must pay interest if the state wins the dispute. Still, state officials complain that drugmakers have more incentive to delay payments than to resolve them, and disputes can last for years. ``Recent information indicates that large amounts of drug rebates remain uncollected due to disputes by drug manufacturers,’‘ the inspector general’s office said in October in its plan for the audits. The backlog for rebates may amount to several billion dollars, U.S. auditors estimated recently. Drugmakers such as Merck & Co. and Eli Lilly & Co. said they don’t engage in frivolous disputes. Lilly, the maker of Prozac antidepressants, paid states more than $438 million in Medicaid rebates last year, company spokesman Ed Sagebiel said. Lilly has resolved 97 percent of its rebate disputes, he said. ``We have very few disputes, and those we have are resolved quickly,’‘ Sagebiel said. ``We do not dispute arbitrarily.’‘ Full Report The federal government, which pays more than half of Medicaid’s costs, will release a full report once it has completed all the audits. It isn’t investigating Arizona because the state has a unique Medicaid program that relies on private health plans to negotiate discounts. Some states, reeling from their worst budget crises since World War II, are looking to the rebates for help and may start cracking down on drugmakers, analysts said. Illinois’s Blagojevich, a Democrat, talked about the collection woes in his state-of-the-state speech this year. ``You’ve got all these issues coming to a head,’‘ said Andy Bressler, a policy analyst with Banc of America Securities LLC. Drugmakers ``can potentially be in trouble’‘ for gaming reimbursement or rebate policies, he said. A spokesman for the inspector general’s office declined to comment on whether the agency is in contact with companies other than King about unpaid rebates. The House Energy and Commerce Committee is also probing the issue and has sought pricing records from 26 drugmakers and three wholesalers. Pennsylvania U.S. auditors found that Pennsylvania hadn’t kept accurate records of disputed rebate amounts for each manufacturer. The state didn’t determine whether companies owed interest when payments were late and didn’t verify whether interest payments were correct, auditors said in a report. The total amount disputed by drugmakers is about $19 million, they estimated. Pennsylvania, the sixth most populous state, relies on paper and a 25-year old computer system to manage the program. That tends to lengthen disputes because researching records often involves manually looking through files. ``Because of the sheer volume, we have the files in different places sorted by drug company, by calendar quarter, and by year,’‘ said Joseph Concino, supervisor of the pharmacy services for Pennsylvania’s medical assistance program. He said many disputes went unresolved until several years ago when the state hired a pharmacist who also had bookkeeping experience to oversee the efforts. Concino now estimates that 98 percent of rebates have been collected. Iowa In Iowa, Medicaid officials poorly managed the rebate program and ``perpetually understated’‘ what drugmakers owed, government auditors found. As of June 30, 2002, the state hadn’t collected at least $2.1 million in disputed rebates. State officials said that amount, accumulated over a decade, was less than 1 percent of the $280 million the state collected in rebates between 1992 and 2002. The cost of pursuing the unpaid rebates ``may in many instances exceed the rebate amount eventually collected,’‘ they wrote to U.S. auditors. Iowa Department of Human Services Director Kevin Concannon said the federal government could help states out in their efforts to collect these rebates by issuing formal regulations rather than policy guidelines. ``If we had articulated, clear federal regulations we wouldn’t have to spend as much time arm wrestling with drug manufacturers,’‘ Concannon said. ``Our experience has been that prescription drug manufacturers will quibble and argue with you if they can get out of paying rebates.’‘ Concannon said some disputes went on for more than two years when he ran the program for eight years in Maine. Other states criticized by auditors are Arkansas, Kansas, New Mexico, Oregon, Utah and Rhode Island. The only states to get favorable reviews so far are Maryland and Illinois.