House Committee probes Medicaid fraud, contacts 26 drug companies, 3 wholesalers

House Committee probes Medicaid fraud, contacts 26 drug companies, 3 wholesalers

WASHINGTON, D.C., June 26, 2003 -- As part of an expanded investigation into Medicaid fraud, House Energy and Commerce Committee Chairman Billy Tauzin (R-LA) and Oversight and Investigations Subcommittee Chairman James Greenwood (R-PA) have sent letters to the following 26 drug companies: Abbott Labs, Alpharma, Apotex, Aventis Pharmaceuticals, Barr Labs, Bristol Myers, Dey, Ethex, Eli Lilly, Indianapolis, Geneva, GlaxoSmithKline, IVAX, Johnson & Johnson, Mylan Pharmaceuticals, Par Pharmaceuticals, Pfizer, Pharmacia, Purdue Pharma, Purepac, Roche, Roxane, Schering-Plough, TEVA, UD Labs, Warrick Pharmaceuticals, and Watson; and similar letters to drug wholesalers AmeriSource-Bergen, Cardinal, and McKesson.

(The following is a copy of the letter sent to Abbott Laboratories Chairman and CEO Miles White. Identical letters were sent to the other companies.)

June 26, 2003
Mr. Miles D. White
Chairman and Chief Executive Officer
Abbott Laboratories
100 Abbott Park Road
Abbott Park, IL 60064-3500

Dear Mr. White,

The Committee on Energy and Commerce is conducting an investigation into pharmaceutical reimbursements and rebates under Medicaid. This inquiry builds upon the earlier work by this Committee on the relationship between the drug pricing practices of certain pharmaceutical companies and reimbursement rates under the Medicare program. In that investigation, the Committee uncovered significant discrepancies between what some pharmaceutical companies charged providers for certain drugs and what Medicare then reimbursed those providers for dispensing those drugs. This price difference resulted in profit incentives for providers to use the drugs of specific companies as well as higher costs to the Medicare system and the patients it serves. For example, we learned that one manufacturer sold a chemotherapy drug to a health care provider for $7.50, when the reported price for Medicare was $740. The taxpayer therefore reimbursed the doctor almost $600 for dispensing the drug and the cancer patient had a $148 co-payment. Such practices are unacceptable in the view of the Committee, which is why we are in the process of moving legislation to address these abuses.

The Committee has similar concerns regarding drug prices in Medicaid, which has a substantially larger pharmaceutical benefit than Medicare. For this Medicaid investigation, we have chosen to review pricing and other aspects relating to certain drugs produced by your company, along with a fairly large group of other drugs and manufacturers, based upon several indicia from a number of sources, including utilization data, drug price/reimbursement spreads, and other relevant information.

In order for this Committee to effectively and efficiently conduct this review, we are requesting that, pursuant to Rules X and XI of the U.S. House of Representatives, you provide the Committee with the following records and information by July 11, 2003. For the purposes of these requests, please observe the following definitions: "subject drugs" means: acyclovir, amikacin sulfate, furosemide, gentamicin sulfate, paclitaxel, tobramycin sulfate, and vancomycin, in all dosages, strengths or volumes, and regardless of any packaging, labeling or identifiers; "purchaser" means any wholesaler, distributor, retailer, provider, doctor, hospital, pharmacy, health maintenance organization, or any other such entity that obtains the subject drugs at any cost, including free of charge; "spread" means the difference between the cost of the drug to the purchaser and the reimbursement amount the purchaser may receive from any State's Medicaid program, including, but not limited to, (1) the difference between the cost or price to the purchaser and the actual or anticipated Medicaid reimbursement or, (2) the difference between the cost or price to the purchaser and any price or cost submitted, or caused to be submitted by the drug's manufacturer, to any State, Federal agency or Medical Economics Red Book, First Data Bank or Medi-Span or any other such entity that gathers and publishes drug cost or pricing data, such as "average wholesale price," or "wholesale acquisition cost"; and "net revenue" means revenue received from the sale of subject drugs after subtracting any discounts, rebates, charge-backs or any other such price concession, paid by you to any purchaser.

Further, for the purposes of responding to these requests, where providing records or information, please separate and distinguish such records or information, to the extent possible, by each applicable National Drug Code ("NDC") and Healthcare Common Procedural Coding System code. Also, for the purposes of responding to these requests, please do not produce any specific patient medical information. Finally, please note that these requests are directed to your company and any and all related corporate entities that may have responsive documents or information, including, but not limited to, any parents, subsidiaries, partnerships, or joint ventures.

1. For the period beginning January 1, 1998, and for each subsequent calendar quarter, and with respect to each of the subject drugs, please provide the following information using the format of the chart below:

a. the total volume of sales, indicating both the number of units and net revenue;
b. the "average wholesale price" (AWP), as reported in Medical Economics Red Book, First Data Bank and/or Medi-Span, and the volume of sales (in both units and net revenue) occurring (i) at or within five percent of AWP, whether higher or lower, (ii) at more than five percent above AWP, and (iii) at more than five percent below AWP;
c. the "average manufacturer price" (AMP), as reported to the Secretary of Health and Human Services, pursuant to the requirements of Social Security Act ("SSA") §1927(b)(3), and the volume of sales (in both units and net revenue) occurring (i) at AMP and up to and including 10 percent above AMP, and at below AMP but less than or equal to 10 percent below AMP (broken out separately), (ii) at greater than 10 percent above AMP but less than or equal to 20 percent above AMP, and at greater than 10 percent below AMP but less than or equal to 20 percent below AMP (broken out separately), (iii) at greater than 20 percent above AMP but less than or equal to 30 percent above AMP, and at greater than 20 percent below AMP but less than or equal to 30 percent below AMP (broken out separately), (iv) at greater than 30 percent above AMP but less than or equal to 40 percent above AMP, and at greater than 30 percent below AMP but less than or equal to 40 percent below AMP (broken out separately), and (v) at greater than 40 percent above AMP but less than or equal to 50 percent above AMP, and at greater than 40 percent below AMP but less than or equal to 50 percent below AMP (broken out separately);
d. the "wholesale acquisition cost" (WAC), as reported by Medical Economics Red Book, First Data Bank and/or Medi-Span or any other such entity that gathers and publishes "wholesale acquisition costs," and the volume of sales (in both units and net revenue) occurring (i) at or within five percent of WAC, whether higher or lower, (ii) at more than five percent above WAC, and (iii) at more than five percent below WAC;
e. the "best price," as reported to the Secretary of Health and Human Services, pursuant to the requirements of SSA §1927(b)(3), and the volume of sales (in both units and net revenue) occurring (i) at or within five percent of the best price, whether higher or lower, (ii) at more than five percent above best price, and (iii) at more than five percent below best price (if applicable);
f. the total volume of sales, in both the number of units and net revenue, exempted from the calculation of the Medicaid best price as "merely nominal in amount," pursuant to the requirements of SSA §1927(c)(1)(C)(ii)(III);
g. the average price of the "nominal" sales, referenced in subsection (f), above; and
h. the total volume of the subject drug, in units, distributed as free goods.

2. For the period beginning January 1, 1998, and for each subsequent calendar quarter, and with respect to each of the subject drugs, please provide the
following information:

a. the total volume of the subject drug, in units and net revenue, distributed under state Medicaid programs;
b. the average per unit rebate issued for the subject drug; and c. the total amount of rebates, in dollars, issued to state Medicaid programs with respect to the subject drug.

3. For the period of January 1, 1998, to the present, please provide all records relating to any perceived or actual failure of any State to seek or achieve full rebates for the subject drugs dispensed under its state Medicaid system.

4. For the period beginning January 1, 1998, to the present, has the distribution, marketing, sales or promotion of any subject drug considered, incorporated, or been based upon, in any way, the spread? If so, please describe the circumstances of such distribution, marketing, sales or promotion, and provide all records relating thereto.

5. For the period beginning January 1, 1998, to the present, please provide all records relating to the spread on the subject drugs.

6. For the period of January 1, 1998, to the present, please provide all records relating to comparisons between the spread of any subject drug and the spread of any generic or therapeutically equivalent product.

7. For the period of January 1, 1998, to the present, please provide all records relating to the distribution, marketing, sales or promotion of any subject drug at prices exempted from the calculation of the Medicaid "best price," pursuant to the requirements of SSA §1927(c)(1)(C)(ii)(III), including, but not limited to, distribution, marketing, sales or promotion of the subject drug at "nominal price" or otherwise as free product, free goods, or at no cost.

8. For the period of January 1, 1998, to the present, please state for each calendar quarter the largest single purchaser, in terms of units, of each of the subject drugs and the following:

a. the total number of units of the subject drug received by that purchaser; and
b. the total net revenue received for the subject drug by your company from that purchaser.

Please also provide the contract or agreement governing your relationship with that purchaser for each relevant quarter.

9. For the period of January 1, 1998, to the present, and for each subject drug, please provide a list of all purchasers who received the subject drug at a price exempted from the calculation of the Medicaid "best price," pursuant to the requirements of SSA §1927(c)(1)(C)(ii)(III), and, for each such purchaser, indicate the volume of the subject drugs received by calendar quarter, in units, and the range of prices at which such purchaser received the subject drug for that quarter.

10. Please state the date of expiration for any patents on the subject drugs.

11. Please describe how you define, interpret and/or calculate "prices that are merely nominal in amount," as set forth in SSA §1927(c)(1)(C)(ii)(III).

12. With respect to each subject drug, please describe how you calculate the prices and/or data reported to Medical Economics Red Book, First Data Bank or Medi-Span or any other such entity that gathers and publishes either "average wholesale prices" or "wholesale acquisition costs."

13. For the period of January 1, 1998, to the present, please provide all records relating to the "average wholesale price" or "wholesale acquisition cost" of any subject drug that was submitted to Medical Economics Red Book, First Data Bank or Medi-Span or any other such entity that gathers and publishes "average wholesale prices" and/or "wholesale acquisition costs."

14. For the period of January 1, 1998, to the present, please provide all records relating to any proposed, considered or implemented change in the "average wholesale price" or "wholesale acquisition cost" of any subject drug.

Please note that, for the purpose of responding to the above requests, the terms "records" and "relating" should be interpreted in accordance with the attachment to this letter. If you have any questions, please contact Mr. Mark Paoletta, Chief Counsel for Oversight and Investigations, at (202) 225-2927.

Sincerely,
W.J. "Billy" Tauzin Chairman
James C. Greenwood Chairman Subcommittee on Oversight and Investigations
cc: The Honorable John D. Dingell, Ranking Member The Honorable Peter Deutsch, Ranking Member Subcommittee on Oversight and Investigations

Posted: June 2003


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