Attempt to lower Medicaid's drug bill backfires, may drive up health costs


WASHINGTON -- Congress recently passed a law requiring drug companies to give Medicaid the same deep discounts they give other big customers. But instead of reducing Medicaid drug prices, many companies are now raising the prices those other big customers must pay.

For two decades, Medicaid, the federal-state health program for the poor, has paid more for prescription drugs than other large purchasers, such as government and private health groups, which have negotiated discounts of 25 percent to 60 percent or more off wholesale prices.

Until last year, the government did not demand such discounts because federal Medicare officials did not focus much on the cost of drugs and drug companies argued that their prices were justified.

Under the law, which was passed despite objections from the drug industry and took effect Jan. 1, drug makers must offer state Medicaid programs the lowest price available to any purchaser in the market.

Now companies are raising prices to some of those other purchasers, including the Department of Veterans Affairs, prepaid health plans, hospitals, family-planning clinics and community health centers.

Health-care experts say these added costs soon may trickle down to consumers in the form of higher medical costs and, ultimately, higher insurance premiums.

In October, the Congressional Budget Office estimated that the Medicaid discounts would save $1.9 billion for the federal government and $1.4 billion for the states over five years. Assuming that such savings could be achieved, Congress substantially expanded Medicaid benefits for pregnant women, children and frail elderly people.

Supporters of the 1990 legislation are furious. The chief sponsor, Sen. David Pryor, D-Ark., chairman of the Special Committee on Aging, said the price increases appeared to be "an attempt to circumvent the new Medicaid law," shift costs and nullify the savings envisioned by Congress.

Representative Ron Wyden, D-Ore., acknowledged that the price increases were legal but said: "This is a very foolish move by drug companies. It will be seen as a transparent attempt to get around the intent of Congress."

Du Pont Merck Pharmaceutical Co., a joint venture of E. I. du Pont deNemours & Co. and Merck & Co. Inc., recently sent letters to customers announcing that it had discontinued discounts for hospitals on large bottles of five drugs for outpatient use: Coumadin, Ethmozine, Percocet, Percodan and Sinemet.

The letters said discounts would still be allowed on tablets sold in single-dose packs for hospital patients.

Hospital pharmacists say Du Pont employees told them the requirement for Medicaid discounts was a factor in the new prices.

But Joseph F. Boudreau, director of sales operations for the company, denied the move away from large-volume discounts was a result of the Medicaid law. The change merely reflected the company's new preference for "a one-price policy," he said.

Officials of Kaiser Permanente, the nation's biggest health maintenance organization with 6.5 million members, say that drug companies are suddenly trying to renegotiate multiyear contracts and raise prices.

Daniel D. Danzig, a spokesman for Kaiser, said the moves were "clearly related to the new law." He said Kaiser, which spends $500 million a year on drugs, feared the increase in drug prices would force up premiums for its members.

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