Medicaid Drug Payment Scrutiny Picking up Steam (2)

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Victoria Pelham Washington Reporter Brian Broderick Washington Editor

By Victoria Pelham

Medicaid’s system for purchasing drugs for coverage is in the cross-hairs as momentum grows to contain spending.

Congressional leaders with the Senate Finance and House Energy & Commerce committees are calling for more details on oversight of the drug rebate program, especially how the prescriptions are classified as either a brand-name innovator or a generic drug. A host of lawmakers across both sides of the aisle are “troubled” by possible overcharging and gaps in how officials monitor the program, they told CMS Administrator Seema Verma in a letter.

Sens. Orrin Hatch (R-Utah) and Ron Wyden (D-Ore.), among others, want to know more about the guardrails in place to prevent inappropriate determinations—and if more are needed.

“We are deeply concerned about these potentially longstanding weaknesses in the agency’s oversight of the accuracy of drug classifications” in the drug rebate program, the lawmakers wrote. “Further steps appear to be needed to protect taxpayer dollars and strengthen the Medicaid program.”

A recent Department of Health and Human Services inspector general report found the safety-net health insurance program may have missed out on $1.3 billion because of the misclassification of 10 medicines. Meanwhile, Medicaid directors and managed care plans, as well as a congressional advisory group, have been working to find ways to overhaul the pricing structure, warning of its growing cost to the $550 billion safety net. The program spent about $29 billion on prescription drugs in 2015, an increase of 14 percent over the previous year, according to the Medicaid and CHIP Payment and Access Commission.

The drug industry contends that Medicaid programs already have significant leeway and tools to keep spending down, including the rebates. And prescription drugs only make up 3.5 percent of the spending, according to the Pharmaceutical Research and Manufacturers of America, the industry’s lobbying wing.

PhRMA is “still reviewing” the congressional letter and watchdog report, spokeswoman Juliet Johnson told Bloomberg Law. But the lobby does “strongly believe Medicaid rebates are an effective way to keep costs down for states, providing them with an average 63 percent discount on brand name drugs.”

Calculating Coverage

The congressional letter to the Medicaid agency doesn’t mention a specific company, but in 2017 Mylan NV reached a $465 million final settlement of a U.S. case that claimed the drugmaker defrauded taxpayers by misclassifying its allergy-shot EpiPen product as a generic drug.

The settlement, announced last August, resolves claims that Mylan misclassified EpiPen to avoid paying rebates owed to the government. Mylan’s revenue was $11.9 billion in fiscal 2016, according to Bloomberg Government.

Lawmakers are asking which types of drugs, such as cancer or diabetes medicines, were put in the wrong category. They also want the Medicaid agency to commit to a deadline for reviewing those drugs and to “take appropriate action,” including strengthening Centers for Medicare & Medicaid Services oversight of the process for determining the drug type.

Medicaid advisers are also eyeing suggestions to Congress to bolster HHS controls over prescription drug classification such as financial penalties and the ability to reclassify inaccurate drugmaker determinations. The CMS can’t currently mandate changes to drugmakers’ reporting on the classifications, according to the HHS OIG.

Under the current system, drugmakers discount the medicines for Medicaid by nearly 50 percent, depending on the type of drug, according to MACPAC. Those who make both an authorized generic and a brand name are required to merge the two average costs. The advisers voted earlier in March to recommend scrapping that calculation, noting that it means a manufacturer can lower the rebate amount by blending the prices.

Brand rebates are set to 23.1 percent of an average manufacturer price or more if a drugmaker gave a better price to another payer, while the discounts only have to be 13.1 percent off the average price for generic medicines.

Medicaid managed care plans “support efforts to ensure pharmaceutical companies are complying with requirements to submit accurate data,” Jeff Myers, president and CEO of Medicaid Health Plans of America, told Bloomberg Law in a statement.

Trump Administration Steps

The CMS “takes seriously its responsibility to oversee” the drug rebates and reviews every covered drug’s classification each quarter “to keep manufacturers honest,” an agency spokesperson told Bloomberg Law in a statement.

“We are continuing to do as much as current statutory authority allows to protect the integrity of the Medicaid program,” the CMS said.

That includes recent regulatory steps to “clarify” reporting requirements and to tell drug companies when the information they’re providing is wrong.

The White House in its proposed fiscal 2019 budget called for health officials to clarify the Medicaid definition of brand and over-the-counter drugs “to ensure appropriate” rebates. The Trump administration projects that the move would save $319 million over the next decade.

Steps toward changing the Medicaid drug discount system could also have repercussions for other pushes to change Medicaid’s pricing structure for its drug benefit.

MHPA, for example, is calling for an overhaul of the drug rebate program but has yet to release the full proposal. The group represents 165 health plans including key insurers such as such as Aetna, Centene, UnitedHealthcare, and WellCare. Together the plans cover 28 million beneficiaries.

To contact the reporter on this story: Victoria Pelham in Washington at

To contact the editor responsible for this story: Brian Broderick at

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