Glaxo Pricing Under DOJ investigation / GAO Report Says Medicaid Overpays for Drugs

Wed, 9 Mar 2005

Reuters reports that GlaxoSmithKline is under investigation by the Department of Justice concerning Medicaid drug pricing.

The skyrocketing cost of drugs is depleting Medicaid, the nation’s largest health insturance program paid for by taxpayers.

The investigation by the DOJ was probably initiated following a report by the Government Accountability Office – an investigative arm of Congress – revealing that not only are drug manufacturers overcharging Medicaid, but the government agency entrusted with overseeing Medicaid is not enforcing federal law.

In 1990 a law enacted to ensure that Medicaid is billed the “best price” charged to any drug purchaser.

The New York Times reported that government will account for nearly half of all nation’s health care spending by 2014; total health spending will double in decade, to $3.6 trillion, while gross domestic product grows more slowly; says result will be that health spending will constitute 18.7 percent of economy by 2014, up from 15.4 percent last year.”

See: Health Costs Will Keep Rising, U.S. Says, Along With Government Share of Paying Them by ROBERT PEAR , NYT, February 24, 2005 Late Edition – Final , Section A , Page 20 , Column 1

Yesterday’s Times (below) reported that the GAO report said the Medicaid agency provided “minimal oversight” of the program:

“the federal Medicaid agency rarely verified the accuracy of price data reported by drug manufacturers and used to compute the discounts required by law. Even when federal officials detect errors and problems in the data, they do not require drug companies to make corrections, the report said. 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.”

McClellan’s tenure as FDA chief ushered in a laissez faire policy that gave pharmaceutical companies a green light to do whatever it takes to increase profits.

Two industries seem to have the administration’s blessings to put business above public safety: the gun industry and the pharmaceutical industry. The gun lobby has made a mockery of homeland security by securing gun manufacturers an unlimited market – including terrorists who may be planning another attack in the US. Terrorists may obtain the deadliest assault weapons – no questions asked, no clearance required–as long as they have the cash.

Drug manufacturers are not held accountable for creating a health care crisis: the administration has not seen fit to stop pharmaceutical company fraud – such as, concealing adverse drug effects, making false safety claims in public advertisements, and price gouging the taxpayer.

Contact: Vera Hassner Sharav

March 9, 2005
Glaxo: Justice Dept Probes Drug Pricing
Filed at 5:00 a.m. ET

LONDON (Reuters) – GlaxoSmithKline Plc (GSK.L), Europe’s biggest drugmaker, said the U.S. Department of Justice was investigating whether certain of its pricing policies violated Medicaid rules.

The company, which disclosed the probe in a filing with the Securities and Exchange Commission late on Tuesday, said it was cooperating in the investigation by government attorneys.

GSK said it had provided documents and information about so-called nominal pricing arrangements for a number of products.

The attorneys involved in the case are the same ones that are investigating whether a number of companies, including GSK, inflated average wholesale prices of drugs, which are used to determine how much Medicaid pays for products.

Under regulations governing Medicaid — the U.S. government’s health plan for the poor — drugmakers are required to report the lowest price of a medicine.

The Department of Justice is now studying whether some of GSK’s nominal pricing arrangements may have violated civil statutes or laws.

Glaxo shares were trading 0.6 percent higher at 1,277 pence at 4:55 a.m. EST.

Copyright 2005 Reuters Ltd.

THE NEW YORK TIMES March 8, 2005
Report Says Medicaid Overpays for Drugs

WASHINGTON, March 7 – 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.

Copyright 2005 The New York Times Company

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