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Price revamp for Medicare?
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May 30, 2000: 4:23 p.m. ET
Under pressure from lawmakers, drug reimbursement plan to be overhauled
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NEW YORK (CNNfn) - Medicare, the federal health program for the elderly, is set to revise its procedure for reimbursing doctors and hospitals, in an attempt to cut overpayments caused by allegedly misleading industry pricing practices.
The Health Care Financing Administration, which runs the Medicare program, told CNNfn on Tuesday it is studying the issue of changing the reimbursement prices, a move that could save taxpayers hundreds of millions of dollars a year.
HFCA said it would alert insurance companies processing Medicare claims that they should use drug prices prepared by government fraud investigators. The contractors usually consult an industry price guide in establishing reimbursement figures.
Government officials allege that some drug companies are reporting artificially bloated average wholesale prices, or AWP, to industry guides that are used to set government-reimbursement levels. But the doctors and other providers actually receive the drugs at significantly discounted prices from the drug companies, allowing them squeeze out extra profits.
 Because only Medicare covers a few drugs - primarily those administered in hospitals or in doctor's offices - most major pharmaceutical companies will not likely be harmed financially by an overhaul of the system, analysts said. Medicare doesn't cover most prescription drugs, but does pay for drugs when patients are hospitalized and for selected other medications.
Analysts noted that U.S. companies with a large footprint in the area of cancer treatment drugs, such as Pharmacia Corp. (PHA: Research, Estimates) or Bristol-Myers Squibb (BMY: Research, Estimates), could potentially be bruised by the pricing shift.
"If you see a 10-to-20 percent (price) cut across the board, obviously that could be damaging to the companies that sell a lot of those products," said Mario Corso, an analyst at ABM AMRO in Boston. "But whether or not that is the tactic that is going to be taken, we don't know at this time."
The pharmaceutical companies are not especially worried about the strategy shift, since there is no clear indication yet what changes will be ordered or when they will occur, industry watchers said.
"The effect is pretty narrow when you are talking about drugs that are reimbursed by Medicare," said Corso.
Still, analysts said the development highlights the ongoing issue of cost in the pharmaceutical industry. For months, the Clinton administration has complained that Medicare pays more for drugs than doctors and private providers, who may enjoy significant discounts.
Congress recently changed the reimbursement amount to 95 percent of the average wholesale price of Medicare-covered drugs, from 100 percent. The Clinton administration has proposed cutting the reimbursement rate to actual cost.
 "It's obviously part of the entire issue of focusing on drug spending and cost and pricing which keeps coming up, but this issue itself is not a major issue," said PaineWebber analyst Jeff Chaffkin.
Earlier this month, Rep. Thomas J. Bliley (R-VA.), chairman of the House Commerce Committee, wrote to Health and Human Services Secretary Donna Shalala to express "concerns over the excessive reimbursements" that the Medicare program is paying for certain covered pharmaceuticals and other related products.
Bliley also sent stern letters inquiring about pricing practices to Dey Laboratories, Glaxo Wellcome, Baxter International, SmithKline Beecham, Warrick Pharmaceuticals, and Aventis Behring LLC.
In each letter, he wrote, "As Chairman of the Committee charged with oversight of certain aspects of the Medicare program, I intend to find out whether the Medicare program and our Nation's senior citizens are being financially gouged for certain drugs. I will not tolerate taxpayers and Medicare beneficiaries being forced to subsidize the efforts of certain drug manufacturers to increase their sales." 
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