Grassley Says Pharmaceutical Fraud in Medicaid ‘Must Be Addressed’

Senate Finance Committee Chair Chuck Grassley (R-Iowa) on Wednesday, the second day of the committee's two-day hearing on Medicaid, said there is "evidence of systemic, industrywide problems" regarding the drug industry's price manipulation for Medicaid and Medicare, Reuters reports (Rovner, Reuters, 6/29). Grassley said that Department of Justice and state attorneys general recovered nearly $2.5 billion from pharmaceutical companies related to Medicaid and Medicare fraud (CQ HealthBeat, 6/29).

Patrick O'Connell, head of the Medicaid Fraud Section of the Texas attorney general's office, said his office focused on fraud committed by drug companies because "whistleblowers brought us cases which showed significant fraud in amounts which dwarfed the cases against other providers."

Beatrice Manning, who brought a federal whistleblower case against Schering-Plough for price manipulation of the allergy drug Claritin, said the company had devised "an intricate scheme to cheat Medicaid out of hundreds of millions, if not billions of dollars" (Rovner, CongressDaily, 6/30).

DOJ attorney Timothy Coleman said "pharmaceutical pricing schemes perpetrated against state Medicaid programs" in terms of dollar amount are the most significant kind of Medicaid fraud. Coleman added that the current practice of basing Medicaid payments on average wholesale price is "problematic and subject to manipulation."

Grassley "sought assurances" from Marjorie Powell of the Pharmaceutical Research and Manufacturers of America that the lobby was not funding a campaign to change the False Claims Act, which is used by federal officials to recover money in fraud cases from various industries.

Powell said she was unaware of such an effort, but she added that penalty provisions included in the act that exclude a drug company from participating in Medicaid might be inappropriate because they could interfere with beneficiaries' treatment. Grassley said to Powell that the hospital industry had attempted to weaken the False Claims Act, and he "advised PhRMA to make sure it doesn't follow a similar course," CQ HealthBeat reports. Grassley said pharmaceutical companies should educate employees about whistleblower-protection provisions in the act (CQ HealthBeat, 6/29).

Testimony at the hearing also focused on tightening restrictions for elderly patients who shift assets to family members in order to gain eligibility for Medicaid-funded nursing home care. Grassley called such practices "legal shenanigans," and he estimated that tightening rules could save between $1 billion and $2 billion over five years. A 1% reduction in Medicaid spending for long-term care would save $2.9 billion over five years, the Los Angeles Times reports.

Julie Stone-Axelrad, a social policy analyst for the Congressional Research Service, identified more than half a dozen methods that could be used to protect a family's wealth, despite current laws that attempt to penalize families who shift assets to qualify for Medicaid. Stone-Axelrad said, "An industry of elder lawyers specializing in Medicaid has sprung up across the nation." The Bush administration has proposed making the transfers more difficult to carry out.

The National Governors Association has endorsed President Bush's proposal, though the "governors favor a carrot-and-stick approach that would not solely rely on increased penalties," according to the Times. The governors would use untapped home equity, currently excluded from Medicaid calculations, to help pay for nursing home care. The governors also favor more widespread use of long-term care insurance.

Ruth Pundt, a 71-year-old nursing home resident, in testimony said, "As a taxpayer, I believe people with assets should not be able to use loopholes to preserve their assets and shift the burden of paying for their care to others."

Judith Feder, dean of the Georgetown Public Policy Institute, said, "Solutions that focus only on making Medicaid 'meaner' ... do our nation a disservice," adding, "The nation lacks a policy that assures people access to quality long-term care, when they need it, without risk of impoverishment" (Alonso-Zaldivar, Los Angeles Times, 6/30).