Medicaid Drug Rebate Program

MEDICAID DRUG REBATE PROGRAM

Mr. GRASSLEY. Mr. President, I am taking this opportunity to talk about the mess we have in the Medicaid Program, a mess that does not properly account for billions of taxpayer dollars. First, allow me to remind everyone about a report released last summer by the Government Accountability Office, GAO. That report on Medicaid Program integrity found that Medicaid's size and diversity made it vulnerable to fraud, waste and abuse. Further, the GAO found that the Centers for Medicare & Medicaid Service, CMS, allocated only $26,000 and only eight employees to work on Medicaid program integrity.

As I said at the time, it does not make sense for CMS to invest so little in Federal oversight when so many Federal taxpayer dollars are at stake. If one considers that Medicaid has surpassed Medicare as the single largest Government health program in the United States, it makes no sense at all. The Congressional Budget Office projects the Federal share of total Medicaid payments for Fiscal Year 2005 at greater than $183 billion. Medicaid's vulnerability to fraud, waste and abuse have also ranked it on the GAO's list of high-risk programs for the past 2 years.

The Medicaid Program continues to pay too much for prescription drugs. CMS estimated that Medicaid expenditures for prescription drugs in Calendar Year 2003 totaled more than $31 billion, triple the $9.4 billion spent in 1994. Each year drug companies pay approximately $6 billion in rebates.

Today, the GAO released a damning report on Medicaid drug spending. Congress established the Medicaid drug rebate program in 1990 to help control spending on drugs. Note that the word choice and intent here was control, not out of control. It should come as no surprise that the GAO's report shows that the drug program has been and continues to be badly mismanaged.

The report--requested by Congressman Waxman and me--identified fundamental problems in the program. The mismanagement has been bipartisan and has spanned multiple administrations. According to the GAO, it is a program virtually without regulation. CMS has been sitting on draft regulations since 1995 a decade ago.

It is also a program virtually without oversight. The GAO found that the Office of Inspector General has issued only four audit reports on drug-company reported prices since the inception of the program. Of course, the OIG says in its defense that its efforts have been hampered by unclear CMS program guidance and a lack of documentation by drug companies.

According to the GAO, even when the OIG has managed to identify problems related to the drug companies' reported prices and methodologies for price reporting, CMS has not done much of anything to resolve them.

The drug rebate program is governed by a contractual agreement between the States and each drug company that wants to participate in Medicaid. One of the things that boggles the mind is that this contract allows drug companies to rely upon reasonable assumptions''

Each drug company may craft its own ``assumptions'' as long as they are consistent with the ``intent'' of the law. Consequently, because drug companies can pick their own methods, they in effect set their own prices and amount of rebates they pay.

According to the GAO, ``CMS does not generally review the methods and underlying assumptions that [drug companies] use to determine [the reported prices], even though these methods and assumptions can have a substantial effect on rebates.''

Furthermore, quoting the GAO again, ``CMS sometimes identifies price reporting errors . . . but does not follow up with [drug companies] to verify that errors have been corrected''.

In sum, the GAO report confirms that neither CMS nor the OIG know the extent to which Medicaid overpays for prescription drugs because the program lacks effective management and oversight. A worse state of affairs is not likely. Drug companies have been profiting for the past years on Medicaid drug pricing. We are dealing with a system that unnecessarily costs taxpayers untold hundreds of millions A not billions of dollars annually. The Medicaid drug rebate program is quite simply a mess--a Medicaid mess.

I urge my colleagues to consider this GAO report and its recommendations.

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