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States face Medicare drug price handicap

Data secrecy by US hinders efforts to get best deals from firms

Some states are paying far higher prices than others for prescription drugs under the Medicaid program, but data that would help them get a better deal are kept confidential by the federal government, a new report says.

The report, by the Office of Inspector General in the Department of Health and Human Services, released Friday, was based on Medicaid prices paid on a sample of 28 different drugs in 2001. It found large variations on both brand-name and generic drugs.

The highest-paying state, New Jersey, paid an average of $200 per prescription more than Michigan, the lowest-paying state. Depending on the drug, price differences between the highest- and lowest-paying states ranged from 12 percent to 4,073 percent. The survey illustrates how, at huge costs to taxpayers, many states are unable to take advantage of a federal law that requires them to get the best prices available from drug manufacturers.

"It's a little bit like airline seat pricing. You never know what you're going to get," said Paul Jeffrey, director of pharmacy for MassHealth, the Massachusetts Medicaid system that has imposed a number of measures to keep prices down.

Massachusetts ranked third-best in the new survey, following Michigan and Texas; Minnesota was fourth. The poorest-performing states in addition to New Jersey were Kentucky, Nevada, and New York. If all states had received the lowest prices found among states, the report said, savings to state and federal governments would have been $86.7 million -- or a 13 percent reduction of the total paid for the sampled drugs.

US Senate Finance Committee chairman Charles Grassley, a Republican from Iowa who has been active on Medicaid pricing issues, said in response to a question from the Globe that the new report "raises alarms that warrant immediate attention and action.

"I can think of 86.7 million reasons why the Centers for Medicare and Medicaid Services should fix this problem," he added. The Centers for Medicare and Medicaid Services is the agency that administers Medicaid.

"Since these drugs were only a small part of the drugs that Medicare pays for, the odds are very high that similar problems are going on across the board," Deputy Inspector General George Grob said in a telephone interview yesterday. "It could be a much, much higher loss to the program, and it is enough to really give people cause for concern."

Although the Office of Inspector General did not make a total estimate, a 13 percent reduction in what states pay for Medicaid prescriptions overall every year would result in a savings of almost $4 billion a year.

The report made this key recommendation: The federal agency that administers Medicaid should share "average manufacturer price data" with states. These prices are reported to the government so Medicaid administrators can calculate rebates due to states. But the information is not passed on to individual states because of "issues associated with average manufacture price data confidentiality," according to the OIG report.

As a result, states must contend with less-accurate figures called "average wholesale prices," which are published annually by drug companies and have been the subjects of lawsuits and large-scale fraud settlements with drug manufacturers. Drug companies, including Bayer Corp. and GlaxoSmithKline, paid tens of millions in fines last year after admitting that they defrauded the government by hiding the true best prices of their drugs.

Mary Kahn, a spokeswoman for the Medicaid administration, would not comment on the inspector general's report. She said federal law prohibits the administration from sharing prices reported by manufacturers. That assertion is not contained in the agency's comments that were included in the inspector general's report.

The report found the largest price differential on generics, at 4,073 percent for generic atenolol, which is used to treat high-blood pressure and heart problems. If all states paid the lowest price found for Depakote, a psychiatric drug manufactured by Abbott Laboratories, the savings would have been $16.2 million. The report found price variations of 70 percent for Depakote, but Abbott said it wasn't a manufacturer issue.

"Abbott prices its products to retailers consistently, state by state," said company spokeswoman Laureen Cassidy.

Fluctuations could also be explained by how hard states pursue federal discounts for patients treated in community health centers, and how extensively they seek payments from other insurance companies that may cover Medicaid patients.

Massachusetts Attorney General Thomas F. Reilly, and officials from 13 other states, have gone to court against drug manufacturers about prices. Massachusetts last year sued 13 generic drug companies, alleging the companies defrauded the state by charging Medicaid prices that were not the "best price" available to other customers. To bolster its case, the state painstakingly pieced together the secret average manufacturer price data reported by the companies to Medicaid administrators.

"It would have been much easier to pursue those claims and bring that case if we had access to the information that the Centers for Medicare and Medicaid Services has," said Nicholas Messuri, chief of Reilly's Medicaid Fraud Control Unit.

Christopher Rowland can be reached at

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