Medicaid pays too much for prescription drugs, OIG testifies

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States can expect to take a closer look at the cost of prescription drugs after the Office of Inspector General said this week that Medicaid continues to overpay pharmacies for the drugs.

Earlier this week, the OIG testified it examined how much five large retail pharmacy chains pay for seven widely prescribed generic drugs. It found that the stores paid an average of 22 cents for the drugs while Medicaid reimbursements averaged 56 cents. Testimony came before the House Energy & Commerce Committee's Subcommittee on Oversight & Investigations.

The OIG said the Centers for Medicare & Medicaid Services estimated that 2003 Medicaid expenditures for prescription drugs more than tripled to more than $31 billion in 2003, compared with $9.4 billion in 1994.

States use the average wholesale price (AWP) to estimate pharmacies' costs, but the OIG found that these prices have little resemblance to the prices incurred by retail pharmacies to purchase drugs. 

The OIG also found that a delay in placing new generic drugs on the federal drug formulary in a timely manner was partly to blame for an additional $167 million in Medicaid costs between 2001 and 2003.