WASHINGTON -- The nation's big drugmakers have been systematically overcharging the Medicaid health-care program for the poor, reaping billions of dollars in illegal windfalls at the expense of the taxpayers, according to federal officials, members of Congress and a watchdog group.
Drugmakers are required by law to provide Medicaid with the same discounts they offer to managed-care plans and hospital chains, but they have been disguising those prices, Ronald Tenpas, a U.S. associate deputy attorney general, told the House Committee on Oversight and Government Reform this month.
"We are not seeing isolated instances of misconduct, but repeated practices within the industry that have resulted in significant loses to federal health-care programs," he said.
Federal and state governments have had some success in recapturing money from the drugmakers: During the past six years, about $3.9 billion has been recouped in civil damages and criminal penalties stemming from 16 legal settlements involving Medicaid.
The settlements involve some of the biggest names in the industry, including Pfizer, Schering-Plough, GlaxoSmithKline, AstraZeneca and Bayer. Those cases dealt with overcharging the government for cancer, asthma, cholesterol, allergy and seizure medications.
But the scope of the problem could be much bigger: potentially billions of dollars more in pharmaceutical company fraud.
There are 150 pending federal investigations centering on Medi- caid and two other government health-care programs.
Tenpas testified that those cases involve allegations of unlawful pricing and marketing practices related to hundreds of prescription drugs sold to Medicaid, Medicare and the Federal Employees Health Benefits Program.
"It is clear from our experience that drug company violations of the law are causing government health-care programs to pay too much for prescription drugs," Tenpas said.
James Moorman, president of the nonprofit group Taxpayers Against Fraud, said public records show the pending inquiries involve other well-known companies, including Merck, Abbott, Novartis, and Johnson & Johnson. Based on the history of past settlements, he said, the liability in the pending cases could amount to tens of billions of dollars.
The Pharmaceutical Research and Manufacturers of America, the brand-name drug industry's trade group, declined comment on the allegations. Instead, it issued a statement asserting "the growth in spending on prescription medicines is at its lowest level in years."
Mike Moore, a Texas attorney who has represented Schering-Plough in drug-pricing litigation, said the pharmaceutical companies haven't deceived the government on pricing. He said government regulators are aware of price differentials and, for a variety of policy reasons, have made decisions on reimbursement rates that some are now questioning.
Moore said the view offered by the Justice Department, some state attorneys general and members of Congress is "very simplistic and one-sided."
Medicaid, funded by the federal and state governments, provides health care to almost 50 million low-income beneficiaries. In 2005, the Department of Health and Human Services estimated, Medicaid purchased $41 billion worth of drugs, more than four times the $8.9 billion spent in 1994.
A 1990 law passed by Congress requires that drug manufacturers provide the Medicaid program, one of the nation's largest purchasers of drugs, with the same discounts they provide private purchasers.
Rep. Henry A. Waxman, D-Calif., chairman of the House government reform panel, said the evidence shows Medicaid has been "repeatedly overcharged for essential medications" by pharmaceutical companies that have "deliberately crafted business plans to avoid giving Medicaid the proper discounts."
Most of the investigations against the drugmakers have come through the federal False Claims Act, which allows people who have evidence of fraud involving government programs or contracts to bring suit on behalf of the federal government. The Medicaid cases stemmed from complaints by company employees, sales executives and pharmacies.
The cases are filed in federal court under seal, giving the Justice Department an opportunity to investigate the allegations and decide whether to intervene. If there is evidence of fraud, the Justice Department then ordinarily enters into lengthy negotiations with the companies, which can result in a monetary settlement instead of a trial.
Moorman said the 16 Medicaid-related cases settled since 2001 involved schemes in which manufacturers:
· concealed the best or lowest price on brand-name drugs in order to avoid paying higher rebates to Medicaid;
· provided inflated average wholesale prices to national reporting services, which were used by Medicaid and Medicare to establish reimbursement rates; or,
· unlawfully promoted their drugs to physicians and others for unapproved uses, often accompanied by illegal kickbacks.
"We can't afford to have these health programs if people are going to engage in this scale of fraud," Moorman said. "The whole thing is mind-boggling."
Moorman criticized the Justice Department for not being more aggressive in pursuing the pending False Claims Act cases. He said the Bush administration has not committed enough resources and on average is settling only three cases a year.
"If they acted more forcefully, we might get the pharmaceutical companies to have a change in attitude toward Medicaid and Medicare," he said.
Tenpas said the Justice Department takes the issue seriously. He told the congressional committee the administration is moving as quickly as it can to resolve the inquiries and protect the health-care programs from fraud.
