Congressmen call for change in Medicare pricing system

WASHINGTON -- Members of Congress urged an overhaul of the Medicare drug pricing system after the release of an audit showing $1.9 billion in overpayments.

"It's crazy to be wasting hundreds of millions in over-reimbursement for these drugs. We need to tackle the problem this year and change the system," said Rep. Jim Greenwood, chairman of the House Energy and Commerce subcommittee on oversight.

Greenwood, R-Pa., said at a hearing Friday that his panel would come up with a plan for fixing the system in the next two or three weeks.

Rep. Sherrod Brown, D-Ohio, said any proposal must address "some shady dealings between drug companies and doctors in the Medicare program."

Medicare, the federal health care program for the elderly, overpaid $1.9 billion last year for 24 popular prescription drugs, according to a report by the inspector general of the Department of Health and Human Services, which oversees the program.

Medicare reimbursement payments are based on a pricing formula called "Average Wholesale Price." The price is set by drug manufacturers but most purchasers, including government agencies such as the Department of Defense, negotiate a lower price.

"The waste gets bigger every year. The current system is based on make-believe numbers that are too easy to manipulate, it is time for Medicare to get control," Deputy HHS Inspector General George Grob said.

'Perverse incentives'

The HHS report said payments could be cut by establishing a commission to set rates, collecting more accurate pricing information and basing payments on the purchase prices paid by drug stores and physicians.

Another report, by the General Accounting Office, found Medicare reimbursed doctors at least $532 million more than they paid for drugs last year. And the Energy and Commerce Committee's own investigators found some drug companies inflated their prices to increase profits for doctors and pharmacists.

"Patients may not be receiving the most effective treatments because of the perverse incentives of the Medicare reimbursement system," said Energy and Commerce Committee Chairman Billy Tauzin, R-La.

Some physicians argue the higher payments they receive for drugs makes up for the inadequate reimbursement they receive from Medicare for other services.

"The cost of supplies, equipment and nurse time for a chemotherapy infusion significantly exceed the Medicare payment amount. Medicare pays less than one-fourth of the total costs," said Larry Norton, president of the American Society of Clinical Oncology.