[Congressional Record Volume 148, Number 98 (Thursday, July 18, 2002)]
[Extensions of Remarks]
[Page E1302]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       INTRODUCTION OF THE MEDICARE MARKET ACQUISITION DRUG PRICE

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                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                        Thursday, July 18, 2002

  Mr. STARK. Mr. Speaker, I rise today to introduce the Medicare Market 
Acquisition Drug Price Act of 2002. This bill would correct a long-
standing and well-documented problem with the way Medicare pays for the 
few outpatient prescription drugs it covers today. This bill would save 
taxpayers billions of dollars, without compromising Medicare 
beneficiaries' access to cancer treatment or other services. Congress 
should enact this bill immediately.
  This problem must be resolved--this year--whether or not we succeed 
in creating a new Medicare prescription drug benefit. Due to 
pharmaceutical industry efforts, this problem was not addressed in the 
prescription drug legislation recently introduced and passed by the 
House Republican leadership. Despite their neglect of the issue, I 
believe there is bi-partisan consensus that Medicare should not 
continue to pay exorbitant prices for prescription drugs. I urge my 
colleagues to join me in supporting this bill.
  Medicare currently pays for only a limited number of outpatient 
drugs, generally ones that a patient cannot self-administer, such as 
chemotherapy drugs. Medicare spends over $5 billion every year on these 
drugs. Under current rules, Medicare vastly over-pays for these drugs, 
because it bases payments on the artificially high ``average wholesale 
price'' (AWP) reported by the drug's manufacturer--regardless of the 
actual price a provider pays for the drug. There is abundant evidence 
that drug manufacturers have boosted their own drug sales and increased 
their profits, at great taxpayer expense, by manipulating the AWP of 
their drugs. Simply put, drug manufacturers report inflated prices, 
sell providers the drugs for much less, and then encourage providers to 
bill Medicare for the maximum allowable amount--95 percent of the 
inflated AWP reported by the manufacturer.
  This bill offers a straightforward solution to this problem. It would 
require Medicare payments to be based on the actual market prices at 
which manufacturers sell their drugs. This price, called the average 
acquisition price, would be verifiable. The Secretary would have the 
authority to audit drug companies' reports. Drug companies would be 
subject to steep fines for deliberately filing false or incomplete 
information.
  Mr. Speaker, the current Medicare AWP rules are a sham and must be 
changed. Consider the following:
  The General Accounting Office has described the AWP as ``neither 
`average' nor `wholesale;' it is simply a number assigned by the 
product's manufacturer.'' The GAO found that Medicare's payments for 
physician-administered outpatient drugs were at least $532 million 
higher than providers' potential acquisition costs in 2000. Similarly, 
the GAO found that Medicare paid at least $483 million more for 
supplier-billed drugs than suppliers' potential acquisition costs in 
2000. Some drugs were available at prices averaging just 15 percent of 
the manufacturer's reported AWP, while Medicare continued to pay 95 
percent of AWP.
  The Office of the Inspector General at the Department of Health and 
Human Services found that Medicare could save $761 million per year by 
paying the actual wholesale prices available to physicians and 
suppliers for just 24 of the outpatient drugs currently covered by 
Medicare.
  Numerous states, consumer groups, and private health plans have sued 
drug manufacturers for fraudulently inflating Medicare drug prices.
  These suits follow on the heels of a record Medicare and Medicaid 
fraud settlement by TAP Pharmaceutical Products. In October 2001, TAP 
pleaded guilty to a charge of conspiracy to violate federal law. TAP 
agreed to pay $875 million--the largest criminal fine ever levied by 
the government for health care fraud--to settle the suit, in which the 
government alleged the company artificially inflated the AWP of the 
company's prostate cancer drug Lupron.
  Drug manufacturers have resisted efforts to investigate this problem. 
For example, last summer the GAO continued its investigation into AWP 
on Congress' behalf and requested drug price information from many 
manufacturers. One pharmaceutical company, Pfizer, refused to comply 
with GAO's request until this January, when GAO subpoenaed the 
company's CEO, Henry McKinnell.
  Mr. Speaker, the problem is well known. The solution is 
straightforward. Both the GAO and the OIG have recommended that we 
revise Medicare's drug payment policies to reflect actual market 
prices, accounting for rebates and other discounts available from 
manufacturers. That is exactly what this bill does.
  Manufacturers would be required to report the actual average market 
acquisition prices for their drugs as a condition for Medicare coverage 
of those drugs. Each manufacturer would have to certify the accuracy of 
its reports and the Secretary of HHS would be empowered to audit price 
information to verify the accuracy of the reports. Drug manufacturers 
would be subject to unlimited civil monetary penalties for filing false 
reports and would be subject to a penalty of $100,000 for each day they 
fail to provide timely information.
  The bill is also carefully crafted to ensure that the reimbursement 
revisions will not adversely impact Medicare beneficiaries' access to 
care. First, to ensure these drugs are available in areas of the 
country where providers must purchase covered drugs at prices above the 
average, the actual reimbursement level to providers would be set 5 
percent above the average acquisition price. Second, Medicare would pay 
dispensing fees to reflect differences in the costs of dispensing 
different drugs and biologics. Third, the bill would ensure continued 
access to cancer treatment. Oncologists have argued that inflated AWP 
reimbursements are necessary to compensate for the administration of 
cancer medicines. This bill would correct this anomaly by revising 
Medicare payments for oncology services to appropriately account for 
these indirect costs, in accordance with GAO recommendations.
  Mr. Speaker, I sincerely hope that Congress will act to provide a 
meaningful Medicare prescription drug benefit this year. On top of the 
many other serious concerns I have with the drug benefit passed by the 
Republican leadership, I am deeply disappointed that it did not address 
the abuses of the current AWP system. We must not shirk our 
responsibility to ensure that Medicare properly pays for the limited 
outpatient prescription drugs it already covers. There is no need for 
taxpayers to continue to fill pharmaceutical companies' coffers with 
the ill-gotten gains of the current AWP system. I hope all of my 
colleagues will join me in passing this important legislation.

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