Government tells states they'll pay $700 million less in clawbacks in 2006

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States could pay the government roughly $700 million less than anticipated this year in clawback payments, Michael Leavitt, secretary of the Department of Health and Human Services, said. This disclosure has already prompted some states to reconsider filing a lawsuit over the payments.

Greater use of generic drugs and competition among Medicare drug plans could lead to the reduction, the secretary said. States pay the government what is known as a clawback payment in exchange for the government's assumption of drug coverage for their dual eligible residents. They pay the government as much as 90% of the estimated amount they would have spent on Medicaid coverage for medications for dual eligibles. As part of the new drug benefit, Medicare has taken over Medicaid's coverage of dual eligible drug costs.

In light of Leavitt's disclosure, California officials are re-evaluating their decision to file a lawsuit challenging the clawback provision. Kentucky, New Jersey, Missouri and Texas were also planning to file suit charging that the government is over billing them for the clawback payments.

Just last week, the Centers for Medicare & Medicaid Services said that the Medicare drug benefit would cost $7.6 billion less this year than previously thought.