HHS Office of Inspector General Report Finds Drug Makers Overcharge Public Hospitals, Clinics
Pharmaceutical companies have "repeatedly overcharged" medical clinics and public hospitals for low-income patients' medications, sometimes making them pay "more than the maximum prices allowed by federal law" under a discount program established in 1992 through the Public Health Service Act, investigators from the HHS Office of Inspector General said Tuesday, the New York Times reports. Investigators said that in one month, the overcharges totaled $41.1 million, raising the cost of prescription drugs to clinics and public hospitals by 18%, to $269 million from $227.9 million. HHS OIG found that in 31% of examined transactions, the prices charged by drug manufacturers exceeded maximum limits. Investigators also said that 36 of the 37 health care providers they examined paid more than the maximum price established by Congress.
Under the discount program, a minimum discount of approximately 15% off the manufacturer's price for brand name prescriptions is available to state university hospitals; private not-for-profit hospitals with state and local government contracts; some school-based health programs; family planning clinics; and clinics for homeless people, migrant farm workers and people with sexually transmitted diseases, hemophilia or tuberculosis. Additional discounts are available for medications if their price has risen faster than inflation. On average, the prices are 20% to 25% less than hospitals can obtain through other programs, the Times reports. More than 10,500 agencies participate in the program to serve more than 10 million people. Participating entities last year spent more than $3.4 billion on prescription drugs for outpatients.
The inspector general recommended that the Public Health Service develop a legislative proposal that establishes civil penalties and fines for pharmaceutical companies that overcharge program participants. The report said, "In effect, no penalties exist for manufacturers that violate the terms of the Public Health Service Act." George Grob, an assistant deputy inspector general, said that if the government finds evidence of overcharging, "it does not have the legislative, regulatory or contractual authority to effectively remedy the situation." The Bush administration said that it "concurs with the overall findings of the report" and will try to monitor prices more closely but does not plan to ask Congress for authority to impose penalties on drug manufacturers. Elizabeth James Duke, administrator of the Health Resources and Services Administration, which administers the program, said that her agency does "not support the development of a specific legislative proposal at this time." She added that HRSA "prefers to continue exploring its options." However, the inspector general said that the agency had "no protocol to ensure that entities" like hospitals and medical clinics "receive the appropriate discount." The report also said that the agency does not audit manufacturers to monitor whether they have been overcharged. Sen. Jeff Bingaman (D-N.M.) said that he is in the process of developing legislation to ensure that hospitals and clinics receive the discounts required under the program.
William von Oehsen, general counsel for the Public Hospital Pharmacy Coalition, which represents the program's hospitals, said, "[F]or the first time, we have independent corroboration that our suspicions [of being overcharged] were correct." David Hammond, a lawyer who represents drug manufacturers, said, "The report does not identify the root cause of the overpricing." According to the Times, Hammond said that the report indicates that pharmaceutical firms were responsible for the overcharges, but he said that wholesalers and other players could have contributed to the price increases. Court Rosen, a spokesperson for the Pharmaceutical Research and Manufacturers of America, said that he could not comment on his members' pricing policies (Pear, New York Times, 6/30).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.