Healthy Skepticism Library item: 852

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Publication type: news

Pear R.
Report Says Medicaid Overpays for Drugs
THE NEW YORK TIMES 2005 Mar 8

Full text:

Federal health officials are not enforcing a law that requires drug companies to cut their prices on drugs bought for poor people under Medicaid, Congressional investigators said on Monday.

The investigators, from the Government Accountability Office, said the federal Medicaid agency rarely verified the accuracy of price data reported by drug manufacturers and used to compute the discounts required by law. As a result, they said, Medicaid, the nation’s largest health insurance program, with more than 50 million beneficiaries, often pays too much for prescription drugs.

Even when federal officials detect errors and problems in the data, they do not require drug companies to make corrections, the report said.

The accountability office, an investigative arm of Congress, said the Medicaid agency provided “minimal oversight” of the program.

Moreover, it said, the agency, headed by Dr. Mark B. McClellan, does little to “ensure the accuracy of reported prices” and discounts provided by drug makers.

Medicaid is financed jointly by the federal government and the states. Under a 1990 law, intended to help control costs, Medicaid pays for prescription medicines only if the manufacturer agrees to give certain discounts, in the form of rebates to the states.

In buying brand-name drugs, Medicaid is entitled to the “best price” charged to any buyer, with some exceptions. The accountability office found that manufacturers sometimes concealed the best prices, so they would not have to give the same discounts to Medicaid.

Drug spending has grown rapidly and now accounts for more than 10 percent of all Medicaid spending, about $37 billion of $300 billion this year. Rebates and discounts total at least $6 billion a year.

The G.A.O. said it could not determine the amount of federal overpayments. In general, it said, the federal Medicaid agency has allowed drug companies to use any “reasonable assumptions” they wanted in computing discounts. In the case of one manufacturer, Congressional auditors found that proper accounting would have increased savings to Medicaid by 16 percent.

In recent years, more and more prescription drugs have been bought by middlemen, known as pharmacy benefit managers, on behalf of employer-sponsored health plans and other health insurers. These middlemen, like Medco and Express Scripts, often secure large discounts for their clients.

But the report said the Bush administration had given drug companies no guidance on how to account for such concessions in calculating the discounts for Medicaid.

The federal government may face similar challenges in trying to audit drug spending under the new Medicare drug benefit, which becomes available to the elderly and disabled next year.

In his budget request to Congress last month, President Bush proposed to cut Medicaid payments to pharmacies. Governors of both parties said the president should try to extract savings from drug companies as well as pharmacists.

The accountability office’s report was requested by Senator Charles E. Grassley, Republican of Iowa, and Representative Henry A. Waxman, Democrat of California.

Mr. Grassley, the chairman of the Finance Committee, which has authority over Medicaid, said: “The drug program has been badly mismanaged. The Centers for Medicare and Medicaid Services, which administers the program, has been negligent. For 15 years, drug companies have been profiting from a system that costs taxpayers untold hundreds of millions, if not billions, of dollars annually.”

Drug companies told investigators that they had not received clear guidance from the government on how to define or calculate “best price.”

In a written response to the report, federal Medicaid officials agreed that it would be helpful for them to provide “clear guidance” on how to perform such calculations. But the Bush administration denied that it was providing “inadequate oversight,” and it suggested that the government lacked the resources to verify data used for hundreds of drugs.

Large amounts of money are at stake. In one case, Schering-Plough agreed last year to pay $345 million to the federal government and 50 state Medicaid programs, to resolve civil and criminal charges of fraud in the pricing of Claritin, the popular allergy drug. The government said Schering had concealed its best price, so Medicaid had paid far more than two managed care companies. The government learned of the case through a complaint filed by three former Schering employees.