Drug Makers Overcharged Medi-Cal by Many Millions of Dollars, State Alleges

California’s health program for the needy has paid hundreds of millions of dollars too much for pharmaceutical products because of fraudulent pricing practices by drug manufacturers, the state attorney general’s office alleged Tuesday.

As a result, the California Medical Assistance Program reimbursed pharmacies and doctors up to 10 times more than it should have, said Collin Wong, chief of the attorney general’s Med-Cal fraud bureau.

The program paid $14.55 for individual bags of saline solution or sugar water that cost $1.23.

It paid $55.59 for the antibiotic Vancomycin HCL, which cost $6.29, and $5.92 for 50 milliliters of sodium bicarbonate that cost providers 62 cents.

These examples involve products from Abbott Laboratories Inc., one of two companies that the attorney general sued earlier this year for allegedly defrauding Medi-Cal’s $4-billion drug program.

But Wong said numerous other drug manufacturers are being investigated for allegedly overcharging Med-Cal, and the attorney general is sponsoring legislation to require all drug makers to submit accurate pricing information to the program.

“We want to end what arguably is the single largest cause of Medi-Cal fraud and abuse,” he said.

Lockyer is scheduled to unveil a 10-point plan today for attacking Medi-Cal’s billion-dollar fraud and abuse problem, which has ranged from scams involving a $7,000-a-month AIDS drug and adult diapers to laboratories and dental clinics that have charged for services they did not deliver.

In the last five years, Lockyer’s office has filed 700 criminal cases against Medi-Cal providers and about 50 civil suits.

In January, Locker intervened in a nationwide whistle-blower suit initiated by a Florida pharmacy and filed an action in Los Angeles County Superior Court against Abbott and Wyeth Pharmaceuticals Inc. The case has been consolidated with other state suits and moved to federal court in Boston.

The attorney general is targeting one of the fastest growing segments of Medi-Cal’s $30-billion budget. Prescription drug costs doubled from $1.55 billion in 1997 to $3.11 billion in 2001, and have kept climbing.

The suit alleges that the two drug makers grossly exaggerated the amount of money they were charging retailers, who are reimbursed by Medi-Cal for pharmaceutical products. This practice, the attorney general said, inflated the “spread” or difference between the cost of drugs to retailers and how much Medi-Cal pays them. The alleged motive was that the manufacturers of generic drugs wanted to gain a competitive advantage by winning favor with retailers by maximizing their profits.

Medi-Cal reimbursements are based on the estimated cost of what the retailer had to pay. But the suit alleged that the drug makers knowingly submitted inflated wholesale price figures to a drug price data service used by Medi-Cal and many other states.

“Defendants and their customers have reaped hundreds of millions of dollars in illegal profits at the expense of the state of California and directly contributed to Medi-Cal’s soaring cost of providing prescription drugs,” said the suit.

In a prepared statement, Abbott said the company “has consistently complied with all pricing laws and regulations. Abbott has properly and lawfully provided information to the government and to the independent drug reporting services on which the government relies in setting reimbursement.”

Natalie De Vane, a spokeswoman for Wyeth, said, “We don’t comment on litigation. The company intends to vigorously defend itself.”

Health Department officials said they had known for years that drug makers sometimes overstated wholesale prices.

“That is a significant problem in the Medi-Cal program,” said Stan Rosenstein, deputy director of medical care services.

He said the program pays the average wholesale price of a pharmaceutical product, minus 10%. He likened the wholesale price to the sticker price on a car, saying, “If they make it a high sticker price ... there is lots of profit margin.”

Medi-Cal has tried to reduce drug costs by negotiating contracts and rebates with manufacturers of brand-name drugs. But state auditors have criticized the program for not negotiating contracts with generic drug companies.