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Report Says Health Officials Are Not Getting Best Drug Prices for Medicaid

By Robert Pear

The New York Times -- WASHINGTON

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 GAO 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.