Rx DRUG COSTS: Companies Inflate Prices to Bilk Medicare
The House Commerce Committee has uncovered documents which show that some pharmaceutical companies " deliberately manipulate" prices to overcharge Medicare and Medicaid when they market drugs to health care providers -- a practice that may cost government programs and patients $1 billion a year, investigators said Tuesday (Appleby, USA Today, 9/27). During an 18-month investigation, the committee seized hundreds of internal company memos, letters and emails detailing the firms' strategies "to manipulate their publicly announced prices" to boost Medicare and Medicaid reimbursements to doctors, a practice called "return on investment," "return to practice" or simply "profit," according to the documents. Committee investigators found that more than a dozen drug firms publicly report inflated prices for at least 50 products -- mostly AIDS and cancer drugs -- and then sell them to health care providers at "deep discounts," allowing doctors to bank "hefty profits." Investigators worry that the practice promotes the "prospect of big reimbursements" and may lead some doctors to "overprescribe certain drugs" (Cloud/McGinley, Wall Street Journal, 9/27). In a letter to HCFA, House Commerce Committee Chair Thomas Bliley (R-Va.) warned that the marketing practice had "frightening implications for public health" (USA Today, 9/27). He also expressed his "outrage" in a letter to the Pharmaceutical Research and Manufacturers of America, the industry's chief lobbying group, urging PhRMA to "tell [its] member companies that the abusive pricing practices ... must be terminated immediately." A PhRMA spokesperson said the group has not finished reviewing the letter, while the American Society of Clinical Oncology, a group representing cancer doctors, declined to comment.
Responding to the committee's charges, drug companies argued that the government has "long known" that announced prices for drugs - - the average wholesale price -- represents a "sticker price" and not the actual cost to health care providers. According to pharmaceutical firms, the government has relied on average wholesale prices to set Medicare and Medicaid reimbursement rates for many years and "can't honestly claim to have been bilked." Glaxo Wellcome PLC spokesperson Rick Sluder said, "The government sets the rules, and we fully comply with them" (Wall Street Journal, 9/27). "We take these [pricing] actions -- all entirely legal in light of the flawed reimbursement system -- to remain competitive," he added (USA Today, 9/27). Drug companies also maintain that independent price-collection services set the prices, not the industry. House investigators, however, argue that company documents illustrate how drug manufacturers can "raise or lower [average wholesale prices] with ease." Meanwhile, doctors also justified the inflated reimbursements, claiming that government programs do not adequately cover the costs of chemotherapy and other treatments for their patients.
The Zofran Incident
In one 1995 case documented by the Wall Street Journal, Glaxo raised the price of its blockbuster antinausea drug Zofran to combat a "competitive threat" from rival SmithKline Beecham's new product Kytril. The wholesale price of Zofran ballooned to $233 for a 40-milligram vial, up from $207 in 1993, while the actual sale price to doctors dropped to $161. According to Sluder, "To remain competitive, we may make entirely legal moves to implement a pricing strategy to make sure we're not disadvantaged on price compared to competition." In another case, 15 units of Pharmacia Corp.'s cancer drug Blemocyin sold for $140, based on a June wholesale catalog, but the company announced the price at $309.98 (Wall Street Journal, 9/27).