A US Congressional committee is investigating claims of “waste, fraud and abuse in pharmaceutical pricing,” which allege that some drug manufacturers are profiteering from public health programmes.

“If even half of the allegations involving the pharmaceutical industry are true, billions of federal dollars that should be buying needed care are instead adding to drug company profits,” said Democratic Representative Henry Waxman, chairman of the House Committee on Oversight and Government Reform, which has just held a hearing on the issue.

The hearing was told that drugmakers have been defrauding:

- Medicaid: “according to whistleblowers who have filed dozens of cases over the last decade, drug manufacturers have deliberately crafted business plans to avoid giving Medicaid the proper discounts,” said Rep Waxman:

- the Public Health Service’s 340B programme, which the Government Accountability Office (GAO) and the Department of Health and Human Services’ (HHS) Office of Inspector General (OIG) believe is being overcharged for drugs; and

- the Medicare Part D prescription drug programme, in which drug prices are reported to be higher than those in other federal programs or Canada, “and even higher than prices available at Costco and Drugstore.com,” said Rep Waxman.

“This Committee will have an aggressive oversight agenda when it comes to pharmaceutical manufacturers and other companies that engage in wasteful, fraudulent or abusive tactics that affect federal health care programmes,” he warned.

Patrick O’Connell, chief of Texas’ Civil Medicaid Fraud Section told the hearing that, since the Section was set up in 1999 in response to growing claims of fraud and abuse, it has investigated and pursued claims against doctors, dentists, hospitals and other providers, but, overwhelmingly, against drug manufacturers. This was not deliberate; he said; “the fact is that whistleblowers brought us cases which showed significant fraud in amounts which dwarfed the cases against other providers.”

Besides pricing fraud, said Mr O’Connell, officials believe drugmakers are also defrauding Medicaid through: rebate fraud; reports of false Average Wholesale Price (AWP) or wholesale cost; reporting of Average Manufacturer Price (AMP)/best price; bundling fraud – the selling of a number of drugs by a manufacturer with the provision of a discount, provided the purchase is of all the drugs in the transaction; nominal pricing fraud; off-label marketing fraud; and misrepresentation of safety and effectiveness.

Inaccurate prices and potential for abuse

John Dicken, director of health care at the GAO, said the agency had found oversight inadequacies, inaccurate prices, a lack of price transparency and the potential for abuse in the three programmes, and he called for moves to ensure the accuracy of prices reported and charged. “The Committee may also wish to consider the extent to which federal agencies will effectively monitor for and detect abuses in the reporting of drug price information that affect these three federal programmes,” he added.

Most government programmes have two common problems, said Gerard Anderson of Johns Hopkins University. Some do not know the prices they actually pay for drugs, and each programme pays a different price for most drugs, with the Medicare Part D plans appearing to pay much higher prices for certain types of drugs than other programs. “The problems are that the formulas are so complicated, and/or the data is not being compiled,” he added.

Currently, it appears that, out of all government programmes, the lowest drug prices are being paid by the Military and the Veterans Administration, and the Secretaries of both programs negotiate for drug prices, said Prof Anderson. “I believe Congress should consider greater consolidation of government drug pricing,” he told the hearing.

Ronald Tenpas, associate deputy attorney general at the US Department of Justice, said that drug company violations of the law are not isolated incidences of misconduct, but repeated practices. He discussed the Department’s investigations into such cases, many of which had been initiated under the ‘qui tam’ provision of the False Claims Act, which allows whistleblowers government to bring suit on behalf of the federal government.

The most active area for the Department in recent years has arisen from alleged violations of the Food, Drug and Cosmetic Act, including off-label marketing and unlawful promotional activities, said Mr Tenpas.

Lewis Morris, chief counsel to the Inspector General at the DHHS, said that, in the past, cases involving illegal kickbacks paid by drugmakers to physicians had tended to focus on the companies, and this “may have created the misimpression by some physicians that they can demand kickbacks from drug companies with impunity.” However, he added, the OIG is now targeting recipients and he hoped this would promote them to think twice.

There are no simple solutions to fraud and abuse, said Mr Morris.: “Those intent on gaming federal health care programmes are adept at modifying their schemes in response to changes in the reimbursement systems and government enforcement tactics,” he warned.

Whistleblower cases have brought three types of fraud against Medicaid – best price, AWP and off-label marketing fraud - into view, said James Moorman, chief executive of Taxpayers Against Fraud. The potential liability of these cases is likely to be around $60 billion, but there is a serious danger that the Justice Department will be unable to resolve most of them in a timely and satisfactory manner, due to a lack of resources and top-level leadership, he warned.

Without change, cases can be expected to “limp along with some more settlements, but at some point the effort will fail and there will be no reform of the massive fraud drug practices weighing down Medicaid and other health care programs,” he told the panel.

Meantime, Rep Waxman has also written to the chief executives of 12 Medicare insurers asking for detailed Part D prescription drug pricing information to be sent to the Committee by March 2.

- Just ahead of the hearing, the CMS reported that new data shows that generic drug use is increasing, and is especially high among those in the new Medicare drug benefit, with generics accounting for nearly 60% (59.6%) of the drugs dispensed to people in Medicare Prescription Drug Plans (PDPs) and Medicare Advantage (MA) plans through the third quarter of 2006.

CMS Acting Administrator Leslie Norwalk said the increased use of generics was “great news,” and added: “we will continue to promote generics where they are available as an important strategy to keep the new drug benefit affordable over the long term.”