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Waxman Launches Broad Probe to Uncover Drug Price Fraud

By John Reichard, CQ HealthBeat Editor

February 9, 2007 -- Launching a plan to conduct "aggressive" oversight of the pharmaceutical industry, Rep. Henry A. Waxman, D-Calif., said Friday that he is sending letters to the Medicare program and to Medicare prescription drug plans to determine how profitable they are and how much of the savings they negotiate are being passed on to Medicare beneficiaries. Waxman said the findings would help determine whether the Medicare prescription drug program is "wasting taxpayer dollars" and overcharging Medicare beneficiaries.

Witnesses at a House hearing chaired by Waxman said it would be difficult to design a program that is more costly than the Medicare Part D program, which offers the prescription drug benefit. These assertions run counter to those of administration analysts who say that market forces are sharply lowering estimates of the overall cost of the program while keeping monthly premiums relatively low.

The Centers for Medicare and Medicaid Services (CMS), meanwhile, has released new data showing that Medicare drug plans are making wide use of low-cost generics.

Waxman, who chairs the House Committee on Oversight and Government Reform, challenged administration claims that the private plans and pharmacy benefit managers that negotiate on their behalf are able to negotiate low prices.

The "evidence seems to point in the opposite direction," he said. "Analyses by my staff and others suggest that drug prices under the plans are higher than prices in other federal government programs, higher than prices in Canada, and even higher than prices available at Costco and," Waxman said in his opening statement.

The Medicare overhaul law (PL 108-173) prevents public disclosure of the prices that Medicare drug plans pay drug manufacturers for prescription drugs. The prices plans charge beneficiaries for drugs are publicly disclosed, however.

Because the government does not know what prices Part D plans are getting for drug products they cover, it does not know how well market forces are working in the Part D program, said Gerard F. Anderson, a health policy professor at the Johns Hopkins Bloomberg School of Public Health.

"The secretary of [the Department of Health and Human Services] and the Congress should know the prices Part D plans pay for each of the 4,300 drugs on one or more of the Part D formularies in order to determine if the Part D market is working," Anderson said.

Anderson said the price data "is buried somewhere in Baltimore at CMS headquarters," but the CMS actuaries, and analysts from the Congressional Budget Office, the Congressional Research Service (CRS), and the Government Accountability Office have not examined it.

"At the present time, CBO and CRS are not even authorized to review the data," he said.

The HHS secretary should compare the lowest price any Part D plan is getting to prices paid by Medicaid, the Department of Veterans Affairs or Canada, he continued. Legislation (HR 4) recently passed by the House that would give the HHS secretary authority to negotiate prices in Part D would require him or her to know the actual prices plans are obtaining, he said.

"The secretary does not need to negotiate prices for each of the 4,300 drugs," Anderson testified. "Let the market work where the market is working effectively; the secretary should intervene only where there is market failure."

The hearing also dealt with prices paid by Medicaid and the "340B Program" run by the Public Health Service. That program is intended to provide federally funded health clinics access to prescription brand-name and generic drugs at low prices.

"According to whistleblowers who have filed dozens of cases over the last decade, drug manufacturers have deliberately crafted business plans to avoid giving Medicaid proper discounts," Waxman said. Federal auditors also have found that the public health clinics are being overcharged, Waxman said.

Anderson said government programs do not know what prices they are paying for drugs because pricing formulas "are so complicated and/or the data is not being compiled." He urged the government to obtain better value for taxpayer dollars by moving away from paying different prices for the same drugs.

Waxman made it clear he will press the administration to beef up efforts to bring fraud cases against pharmaceutical firms, which have returned billions of dollars already to the U.S. Treasury.

Waxman and a witness from the Department of Justice sparred over whether or not the Bush budget proposal would reduce funding for attorneys to counter fraud in the health care sector. But the witness, Associate Deputy Attorney General Ron Tenpas, acknowledged that the department has a backlog of 150 cases alleging fraud by pharmaceutical firms. Tenpas said that since 1999, federal fraudbusters have collected more than $5.3 billion in criminal fines and civil settlements from drug makers.

HHS spokeswoman Christina Pearson said Friday that "We have a substantial record showing that a competitive marketplace is working for seniors in Part D. Premiums have gone down, the Part D program costs less than originally estimated. Those have gone down but enrollment and beneficiary satisfaction continue to go up as shown by multiple independent surveys. The numbers show that Part D is a very successful program for people with Medicare and taxpayers."

Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America, said Part D is not only saving beneficiaries money but its overall cost is not as great as initially projected.

"America's seniors and disabled are seeing savings on average $1,200 a year, according to CMS, and have the ability to choose from a wide range of plans that fit their individual health needs," he said. "And more than 80 percent of seniors are satisfied with their coverage, according to the Kaiser Family Foundation. Both CMS' Office of the Actuary and the nonpartisan Congressional Budget Office have recently reported that the program will cost 26 percent less than previously expected over the next ten years," he said.

Data released by CMS on Feb. 8 said that generic use is especially high among those in the Medicare drug benefit, with generic drugs accounting for nearly 60 percent of drugs dispensed to people in Medicare drug plans. "The new Medicare data mark the third consecutive quarter of growth in generic utilization among those in the Medicare prescription drug benefit, indicating that beneficiary choice and broad formularies are yielding even greater savings as the program has progressed," CMS said.

The Pharmaceutical Care Management Association, which represents pharmacy benefit management firms, took some credit for the boost. "New data released today by the Centers for Medicare and Medicaid Services showing generic-drug utilization exceeding 60 percent in Medicare Part D underscores the role of pharmacy benefit managers in expanding access to lower cost, clinically proven prescription drugs," the association said.

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