Drug Companies’ Misdeeds Provide Potential Relief for Medicaid Budget

Tuesday, November 12, 2013 at 6:44 PM by

There are a lot of ways in which America’s free market health care system boosts cost to levels far in excess of the costs anywhere else in the world, even though Americans aren’t healthier, and don’t appear to be getting the best health care.  Most of those ways are perfectly legal; others not so much.

Once in a while a health care corporation that is exploiting the opportunities to maximize profit in unethical or illegal ways is called on the carpet and forced to pay restitution for their shady exploits.  There have been two examples of that in the last week or so, and both could help Wisconsin fill a hole in the state’s Medicaid budget.   

Last week the U.S. Department of Justice announced that Johnson and Johnson will pay $2.2 billion to settle a lawsuit related to deceptive marketing and distribution of two antipsychotic drugs, Risperdal and Invega.  The drug company misrepresented what the drugs should be allowed for, and allegedly paid kickbacks to doctors and agencies to make sure their drugs were prescribed for certain off-brand purposes.  According to a Wisconsin Dept. of Justice (DOJ) press release, the settlement will yield about $7.2 million in restitution and recoveries for Wisconsin’s Medicaid program. 

Also last week, the state DOJ announced that it will receive about $14.2 million from settlements with McKesson ($13.9 million) and First DataBank ($277,000) for using fraudulent practices – dating back to 2001 – to artificially boost the average wholesale prices of prescription drugs, thereby getting states to overpay for drugs purchased for the Medicaid program.  You can read more about both settlements in this Journal Sentinel article by Guy Boulton.  

Substantial settlements relating to deceptive and unethical practices aren’t nearly as uncommon as one might think.  In September, the Wisconsin DOJ announced that the state had received about $29.5 million from Pharmacia Corporation, a subsidiary of Pfizer, to partially satisfy a court judgment entered against it.  Pharmacia is just one of 35 drug companies the state sued in 2004, alleging that they committed fraud by inflating their reported drug prices to increase Medicaid payments.  

That litigation continues against more than twenty other drug manufacturers. In addition, during the 2011-13 biennium Wisconsin received several smaller settlements that were lapsed to the General Fund.

The latest settlements are fortuitous because it now appears likely that the share of Wisconsin’s Medicaid spending borne by the federal government will be lower than expected when the budget bill was crafted.  As I explained in a blog post a month ago, the fact that income has increased a little faster in Wisconsin than the national average affects the annual calculation of the federal Medical Assistance percentage (FMAP), and that could open up a $52 million hole in our state’s 2013-15 Medicaid budget.  

The state’s Medicaid financing is further complicated by the fact that the state may need to repay the federal government for some Medicaid funding it received over many years, based on some questionable advice from a consulting company that led DHS to push the limits on how much federal matching funds the state could claim for a psychiatric program for youth. 

Assuming the state doesn’t decide to simply lapse the new drug settlement dollars to the General Fund, they could go a long way toward filling potential holes in the Medicaid budget. 

Jon Peacock

Categories: 2013-15 biennial budget, Blog, HEALTH & HUMAN SERVICES, Medicaid | Comments Off on Drug Companies’ Misdeeds Provide Potential Relief for Medicaid Budget

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