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The California State Auditor is urging Medi-Cal to take a more aggressive stance in resolving disputes over hundreds of millions in drug rebates that pharmaceutical firms may owe the state.
The matter has been raised in numerous audits throughout the last 10 years, but takes on additional significance as entire programs and major services for the needy are being eliminated in the state budget.
In an updated report [PDF] issued last week, auditor Elaine Howle’s office called on the governor to make sure the Department of Health Care Services works to eliminate a backlog of about $355 million in disputed drug rebates.
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The disputes are over rebates that pharmaceutical firms routinely pay to states that buy their drugs for low-income residents who benefit from the Medicaid program, called Medi-Cal in California.
Marjorie Powell, senior counsel with Pharmaceutical Research and Manufacturers of America, a trade group representing pharmaceutical firms, said disputes arise when firms get bills from the state that seem to overstate the supply of drugs sent to wholesalers.
Powell said a firm may send 1,000 pills to a wholesaler in San Francisco and get a bill from California for 1,500 pills and dispute the amount. She said most pharmaceutical companies track prescriptions to wholesalers but not all the way to the clinic, hospital, pharmacy or patient.
Powell said disputes also can arise over clerical errors or when smaller rural pharmacies lack the technology to properly document which drugs are dispensed.
California has spent more than $1 billion each year on prescription medications for the needy since 2002 and as much as $2.2 billion in 2005, the audit [PDF] shows. For each year, rebates representing about 2 percent of the sales remain in dispute, a dollar amount that has hovered at $23 million to $43 million in recent years.
Prior audits and reviews have found that California has the nation’s largest number of disputed claims, adding up to more than $835 million, according to a 2008 federal audit [PDF]. That sum was far greater than the next-largest disputed sum, about $280 million in New York [PDF]. A 2003 state auditor report [PDF] found that Medi-Cal had authorization to fill staff slots to settle disputes but did not.
The most recent public hearing about the issue was last spring, when the Joint Legislative Audit Committee quizzed Pilar Williams, Medi-Cal's pharmacy benefits chief.
Williams said the disputes are complicated and require a lot of work to resolve. She said her agency had a staff of only 13 to resolve disputes with 400 companies.
In response to the latest audit, Medi-Cal authorities told the auditor that they recently sought resolutions from pharmaceutical firms regarding $26 million in disputed rebates from 1991 to 1996 but have not heard back.
The disputes typically are not resolved at the judicial level, though one federal audit suggested that the state use its hearing mechanism to resolve some disputes.
Also, the latest audit report says:
Health Services’ data indicate it was able to reduce the disputed rebate amount for rebate years 1991 through 2006 from $423 million to the roughly $285 million … a reduction of $138 million. However, Health Services was unable to provide the bureau with a breakdown of how much of the $138 million reduction was attributable to payments received from the manufacturers as opposed to amounts it wrote off.
From now on, Medi-Cal will begin tracking how much of the money in question is collected or written off, the report says.
California Watch first reported on the rebates when writing about state Medi-Cal pharmacy officials’ failure to properly report gifts of travel funded by pharmaceutical-supported nonprofits.
California authorities who oversee millions in state drug spending failed to file reports on trips to conventions that were funded by groups that hold conferences for Medicaid drug authorities. The Medicaid pharmacy administrators groups, which often elect state officials as leaders, charged inflated rates to pharmaceutical firm representatives to cover the costs for state officials.
The California Watch report sparked an investigation by the state Fair Political Practices Commission, which issued warning letters to officials in February. The letters say the violations could result in $5,000 fines but didn't in this case because officials cooperated with FPPC investigators.
The investigation found that one official failed to report travel [PDF] in 2007 and 2008 to conferences in San Antonio and Chicago funded by the American Medicaid Pharmacy Administrators Association. Another, Williams, the Medi-Cal pharmacy benefits chief, failed to report travel [PDF] each year from 2006 through 2009 for trips funded by the Western Pharmacy Administrators and Data Niche Associates.
In a third case, the FPPC found a former Medi-Cal pharmacy official, Kevin Gorospe, failed to report travel [PDF] funded by Pinsonault Associates, a pharmaceutical research and management firm.
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