House Subcommittee Calls for Reforms to Medicaid Prescription Drug Reimbursement System

Medicaid is "excessively overpaying pharmacists" for prescription drugs, according to a government study presented Tuesday at a hearing of the House Energy and Commerce Committee's Subcommittee on Oversight and Investigations, CongressDaily reports (Heil, CongressDaily, 12/7).

An investigation by HHS' Office of the Inspector General examined the prices that five large retail pharmacy chains pay for seven widely prescribed generic drugs. The study found that the drug stores paid an average of 22 cents for the drugs, for which Medicaid reimbursements averaged 56 cents (Sherman, AP/Boston Globe, 12/8).

Medicaid reimbursement for prescription drugs is based on the average wholesale price of drugs reported to states. The report found that the difference between the AWP and pharmacists' costs for generic drugs was about 72.1%. According to the report, other problems in Medicaid include the delay in placing new generic drugs on the federal drug formulary in a timely manner, a situation that contributed to $167 million in additional costs between 2001 and 2003 (Adams, CQ Today, 12/7). In addition, the report found that states inadequately manage their rebate payments from drug makers.

At the hearing, the whistleblowers' group Taxpayers Against Fraud Education Fund also testified that fraud costs Medicaid "hundreds of millions of dollars," the AP/Birmingham News reports (Sherman, AP/Birmingham News, 12/7). Medicaid spending on prescription drugs has tripled over the past 10 years, reaching $31 billion in 2003 (AP/Boston Globe, 12/8).

"The system is broken, and it needs to be fixed," committee Chair Joe Barton (R-Texas) said (CQ Today, 12/7). He added, "The federal government could save hundreds of millions of dollars per year if states would bring drug reimbursements more in line with what it actually costs pharmacies and other health care providers to purchase these drugs."

Rep. Greg Walden (R-Ore.) called AWP "the proverbial $500 toilet seat of Medicaid" (CongressDaily, 12/7). Rep. Ed Markey (D-Mass.) said, "We have to address the fact that the current reimbursement system almost begs to be exploited" (AP/Boston Globe, 12/7).

Citing the decision to stop using AWPs in determining reimbursement for cancer drugs administered in physician offices under the new Medicare law, some committee Republicans indicated a "similar tweaking" could be in order for Medicaid, CongressDaily reports.

However, some committee Democrats said that rising drug costs also are part of the problem and "argued the government should be allowed to negotiate for lower drug prices," according to CongressDaily. "If we do not address the rising cost of prescription drugs, it will drain the Medicaid system," Markey said (CongressDaily, 12/7).

According to CQ Today, lawmakers in both parties support lifting a federal rule that prevents states from gathering information about what pharmacies actually pay for drugs (CQ Today, 12/7). Barton said he hoped Congress could overhaul the Medicaid drug reimbursement system in 2005. CongressDaily reports that agreement on reform could be "elusive" (CongressDaily, 12/7).

Pharmacists say that the higher reimbursements they receive for some drugs are necessary to offset inadequate fees they receive for other services they provide to Medicaid beneficiaries (AP/Boston Globe, 12/8). According to CQ Today, pharmacists are "fighting curbs" on reimbursements "unless they are compensated with increases in other payments."

Frank Segrave, an executive in Wal-Mart's pharmacy division, said the company "is very concerned that (changes) could harm retail pharmacies" (CQ Today, 12/7).

NBC's "Nightly News" on Tuesday reported on Medicaid's overpaying for prescription drugs. The segment includes comments from Reps. Markey, Mike Rogers (R-Mich.) and Greg Walden (R-Ore.) and DEY CFO Pamela Marrs (Reid, "Nightly News," NBC, 12/7). The complete segment is available online in Windows Media.

In addition, PBS' "Nightly Business Report" on Tuesday reported on the hearing on Medicaid reimbursements. The segment includes comments from Markey; Marrs; David Marshall, director of generic drugs for CVS; and Walden (Woods, "Nightly Business Report," PBS, 12/7). The complete transcript of the segment is available online.