[Congressional Record Volume 151, Number 25 (Monday, March 7, 2005)]
[Senate]
[Page S2145]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      MEDICAID DRUG REBATE PROGRAM

  Mr. GRASSLEY. Mr. President, I am taking this opportunity to talk 
about the mess we have in the Medicaid Program, a mess that does not 
properly account for billions of taxpayer dollars. First, allow me to 
remind everyone about a report released last summer by the Government 
Accountability Office, GAO. That report on Medicaid Program integrity 
found that Medicaid's size and diversity made it vulnerable to fraud, 
waste and abuse. Further, the GAO found that the Centers for Medicare & 
Medicaid Service, CMS, allocated only $26,000 and only eight employees 
to work on Medicaid program integrity.
  As I said at the time, it does not make sense for CMS to invest so 
little in Federal oversight when so many Federal taxpayer dollars are 
at stake. If one considers that Medicaid has surpassed Medicare as the 
single largest Government health program in the United States, it makes 
no sense at all. The Congressional Budget Office projects the Federal 
share of total Medicaid payments for Fiscal Year 2005 at greater than 
$183 billion. Medicaid's vulnerability to fraud, waste and abuse have 
also ranked it on the GAO's list of high-risk programs for the past 2 
years.
  The Medicaid Program continues to pay too much for prescription 
drugs. CMS estimated that Medicaid expenditures for prescription drugs 
in Calendar Year 2003 totaled more than $31 billion, triple the $9.4 
billion spent in 1994. Each year drug companies pay approximately $6 
billion in rebates.
  Today, the GAO released a damning report on Medicaid drug spending. 
Congress established the Medicaid drug rebate program in 1990 to help 
control spending on drugs. Note that the word choice and intent here 
was control, not out of control. It should come as no surprise that the 
GAO's report shows that the drug program has been and continues to be 
badly mismanaged.
  The report--requested by Congressman Waxman and me--identified 
fundamental problems in the program. The mismanagement has been 
bipartisan and has spanned multiple administrations. According to the 
GAO, it is a program virtually without regulation. CMS has been sitting 
on draft regulations since 1995 a decade ago.
  It is also a program virtually without oversight. The GAO found that 
the Office of Inspector General has issued only four audit reports on 
drug-company reported prices since the inception of the program. Of 
course, the OIG says in its defense that its efforts have been hampered 
by unclear CMS program guidance and a lack of documentation by drug 
companies.
  According to the GAO, even when the OIG has managed to identify 
problems related to the drug companies' reported prices and 
methodologies for price reporting, CMS has not done much of anything to 
resolve them.
  The drug rebate program is governed by a contractual agreement 
between the States and each drug company that wants to participate in 
Medicaid. One of the things that boggles the mind is that this contract 
allows drug companies to rely upon reasonable assumptions''
  Each drug company may craft its own ``assumptions'' as long as they 
are consistent with the ``intent'' of the law. Consequently, because 
drug companies can pick their own methods, they in effect set their own 
prices and amount of rebates they pay.
  According to the GAO, ``CMS does not generally review the methods and 
underlying assumptions that [drug companies] use to determine [the 
reported prices], even though these methods and assumptions can have a 
substantial effect on rebates.''
  Furthermore, quoting the GAO again, ``CMS sometimes identifies price 
reporting errors . . . but does not follow up with [drug companies] to 
verify that errors have been corrected''.
  In sum, the GAO report confirms that neither CMS nor the OIG know the 
extent to which Medicaid overpays for prescription drugs because the 
program lacks effective management and oversight. A worse state of 
affairs is not likely. Drug companies have been profiting for the past 
years on Medicaid drug pricing. We are dealing with a system that 
unnecessarily costs taxpayers untold hundreds of millions A not 
billions of dollars annually. The Medicaid drug rebate program is quite 
simply a mess--a Medicaid mess.
  I urge my colleagues to consider this GAO report and its 
recommendations.

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