Home Health Business Quarterly

Are Medicare and Medicaid victims of pricing fraud?

OIG says average wholesale prices were inflated

Investigations by the Office of Inspector General, the Department of Justice (DOJ), and state groups coordinated by the National Association of Medicaid Fraud Control Units found Medicare and Medicaid have been overpaying for certain prescription drug products because average wholesale prices (AWPs) were inflated.

The DOJ says AWPs published by First DataBank, a San Bruno, CA, company that provides the information to state Medicaid programs, don’t reflect actual acquisition costs in the marketplace and called the discrepancies a deliberate attempt to defraud Medicare and Medicaid. Medicare program officials are evaluating whether the revised Medicaid AWPs could be adopted for Medicare reimbursement as well.

State fraud control units recalculated Medicaid AWPs based on a survey of wholesale prices, and many Medicaid programs implemented the new prices on May 1, 2000. Medicaid programs were told they are legally obligated to "reimburse providers true acquisition costs."

"With the imposition of reductions ranging from 30% to 90%, it is difficult to discern anything sound or sustainable about this policy," says Lorrie Kline Kaplan, executive director of the National Home Infusion Association (NHIA), joined in its protest by five pharmacist organizations. "Everyone in the provider community should take this as an earsplitting wake-up call," she advises. "We can no longer afford to let our public officials remain ignorant about the significant level of services we are providing, the cost savings these services are delivering to payers, and the outstanding patient outcomes that we are achieving."

On Dec. 18, 2000, President Clinton signed the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (H.R. 5661), which restores more than $35 billion in Medicare spending over five years to health care providers affected by the Balanced Budget Act of 1997. The bill also placed a moratorium on arbitrary use of lower drug pricing for Medicare-covered infusion, injectable, and inhalation therapies, and authorized the General Accounting Office to study the need to reimburse for home infusion services.

The Act states, "Effective for drugs and biologicals furnished on or after Jan. 1, 2001, the Secretary may not directly or indirectly decrease the rates of reimbursement (in effect as of such date) for drugs and biologicals under the current Medicare payment methodology" until the secretary has reviewed a report submitted by the comptroller general no later than September 2001.

The report is to identify average prices that physicians and other suppliers pay for drugs and biologicals, quantify the difference between these prices and the reimbursement amount, and determine if the payment adequately compensates physicians, providers, and suppliers for costs incurred.

The legislation would prevent Medicare from implementing the lower reimbursements. The NHIA says the effort to re-establish AWPs for pharmaceuticals will reduce Medicare and Medicaid reimbursements and increase the programs’ average costs since patients will be forced into more expensive inpatient settings.

"NHIA will continue to closely monitor these developments and work with members, state and federal officials, and consumer and provider groups to put a stop to this ill-conceived initiative — at least long enough to study its impact," an association spokesperson says.