Committee Correspondence

The House Committee on Energy and Commerce

W.J. "Billy" Tauzin, Chairman

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Investigation into Pharmaceutical Reimbursements and Rebates under Medicaid

January 14, 2004

Mr. Wayne Harris
Chairman & CEO
Eckerd Corp.
P.O. Box 4689
Clearwater, FL 34618

Dear Mr. Harris:

The Committee on Energy and Commerce is conducting an investigation into pharmaceutical reimbursements and rebates under Medicaid. This inquiry builds upon the earlier work by this Committee on the relationship between the drug pricing practices of certain pharmaceutical companies and reimbursement rates under the Medicare program. In that investigation, the Committee uncovered significant discrepancies between what some pharmaceutical companies charged providers for certain drugs and what Medicare then reimbursed those providers for dispensing those drugs. This price difference resulted in profit incentives for providers to use the drugs of specific companies as well as higher costs to the Medicare system and the patients it serves. For example, we learned that one manufacturer sold a chemotherapy drug to a health care provider for $7.50, when the reported price for Medicare was $740. The taxpayer therefore reimbursed the doctor almost $600 for dispensing the drug, and the cancer patient had a $148 co-payment. Such practices are unacceptable in the view of the Committee, which is why we took steps in the recently enacted Medicare law to end this abusive system.

The Committee is now focusing on a similar problem affecting drug prices under Medicaid. Accordingly, in June 2003, we sent letters to a group of entities engaged in the manufacturing and distribution of drugs reimbursed under Medicaid seeking detailed information about matters related to price, sales and marketing. As part of this inquiry, the Committee now seeks information from five of the largest national pharmacy chains.

In order for this Committee to effectively and efficiently conduct this review, we are requesting, pursuant to Rules X and XI of the U.S. House of Representatives, that  Eckerd Corp. ("Eckerd") provide the Committee with the following records and information by February 13, 2004. For the purposes of these requests, please observe the following definitions: "subject drugs" means all drugs listed in Attachment I (identified by drug name, manufacturer, and specific NDC codes); "spread" means the difference between the cost of the drug and the reimbursement amount received from any State's Medicaid program, including, but not limited to, (1) the difference between the cost or price and actual or anticipated Medicaid reimbursement, or (2) the difference between the cost or price and any price or cost submitted, or caused to be submitted by the drug's manufacturer, to any State, Federal agency or Medical Economics Red Book, First Data Bank or Medi-Span, or any other such entity that gathers and publishes drug cost or pricing data, such as "average wholesale price" ("AWP") or "wholesale acquisition cost" ("WAC"); "invoice price" means the price at which Eckerd purchased the subject drug from the manufacturer, wholesaler, or other entity, adjusted for any identifiable rebates, discounts, or charge-backs (regardless of whether such rebates, discounts, or charge-backs were made during or after the fiscal year in which the initial sale occurred); "fiscal year _____" means July 1 of the specified year through June 30 of the following year (e.g., "fiscal year 2000" means July 1, 2000 through June 30, 2001); "average retail price" means the average of all proceeds received from sales of the subject drug, excluding Medicare and Medicaid reimbursements and/or co-payments; and "Medicaid reimbursement" means the amount paid by Medicaid for the subject drug, exclusive of any dispensing fees.

For the purposes of responding to these requests, please do not produce any specific patient medical information. Moreover, please note that these requests are directed to Eckerd and any and all related corporate entities that may have responsive documents or information, including, but not limited to, any parents, subsidiaries, partnerships, or joint ventures.

1. For fiscal years 2000, 2001, and 2002, please provide the following information (both electronically and in hard copy) on an annual basis for each of the subject drugs Eckerd bought and/or sold, using the format of the chart below:
   1. total sales (units and dollars);
   2. average invoice price;
   3. lowest invoice price;
   4. number of units of the subject drug purchased at the lowest invoice price;
   5. identify manufacturer, wholesaler, or other entity from whom you purchased at the lowest invoice price;
   6. average retail price;
   7. total Medicaid reimbursements (units and dollars);
   8. average Medicaid reimbursement; and
   9. identify the States with five (5) highest and five (5) lowest average Medicaid reimbursements, respectively, and include the average Medicaid reimbursement amount for each.

2. During the period July 1, 2000, to the present, has Eckerd considered or discussed the spread of subject drugs when conducting negotiations or making business decisions concerning which drugs to purchase, carry, or sell? If so, please describe such circumstances.
3. For the period July 1, 2000, to the present, please provide all records relating to your purchase (final or negotiated), utilization, distribution, marketing, sale, or promotion of any subject drug based upon the concept of "spread," including, but not limited to, records that specifically mention the term "spread"; explicit comparisons of purchase price(s) to actual or potential Medicaid reimbursement; or references to Medicaid reimbursement (AWP and/or WAC) as a factor in business decisions.

Please note that, for the purpose of responding to the above requests, the terms "records" and "relating" should be interpreted in accordance with Attachment II to this letter. If you have any questions, please contact Andrew L. Snowdon, Oversight and Investigations Counsel, at (202) 226-2424.

Sincerely,

W.J. "Billy" Tauzin
Chairman 


James C. Greenwood
Chairman
Subcommittee on Oversight
and Investigations

cc: The Honorable John D. Dingell, Ranking Member
The Honorable Peter Deutsch, Ranking Member
Subcommittee on Oversight and Investigations

Attachments

ATTACHMENT I

LIST OF SUBJECT DRUGS SUBJECT DRUG MANUFACTURER NDC CODES

ATTACHMENT II

1. The term "records" is to be construed in the broadest sense and shall mean any written or graphic material, however produced or reproduced, of any kind or description, consisting of the original and any non-identical copy (whether different from the original because of notes made on or attached to such copy or otherwise) and drafts and both sides thereof, whether printed or recorded electronically or magnetically or stored in any type of data bank, including, but not limited to, the following: correspondence, memoranda, records, summaries of personal conversations or interviews, minutes or records of meetings or conferences, opinions or reports of consultants, projections, statistical statements, drafts, contracts, agreements, purchase orders, invoices, confirmations, telegraphs, telexes, agendas, books, notes, pamphlets, periodicals, reports, studies, evaluations, opinions, logs, diaries, desk calendars, appointment books, tape recordings, video recordings, e-mails, voice mails, computer tapes, or other computer stored matter, magnetic tapes, microfilm, microfiche, punch cards, all other records kept by electronic, photographic, or mechanical means, charts, photographs, notebooks, drawings, plans, inter-office communications, intra-office and intra-departmental communications, transcripts, checks and canceled checks, bank statements, ledgers, books, records or statements of accounts, and papers and things similar to any of the foregoing, however denominated.

2. The terms "relating," "relate," or "regarding" as to any given subject means anything that constitutes, contains, embodies, identifies, deals with, or is in any manner whatsoever pertinent to that subject, including but not limited to records concerning the preparation of other records.

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