Medicaid was shortchanged $1B due to misclassified drugs: IG

Federal taxpayers may have forfeited at least $1 billion because a slate of drugs were misclassified under Medicaid’s rebate program, the Health and Human Services’ chief watchdog said Wednesday.

HHS’ inspector general said the vast majority of the tens of thousands of drugs covered by the rebate program are classified properly — for example, as a brand-name or generic, or “innovator” drug versus non-innovator.

However, a small percentage of drugs are misclassified. The inspector general said potential errors tied to 10 high-reimbursement drugs allowed manufacturers to pay $1.3 billion less than they otherwise have owed the taxpayer-funded insurance program from 2012 to 2016.

The IG report says the Centers for Medicare and Medicaid Services works with manufacturers to identify and correct classified errors, though it doesn’t track the process or maintain a database of errors and their resolutions.

“Therefore, we had no way to determine which drugs CMS identified as potentially misclassified, or what steps, if any, CMS took to address these potential misclassifications,” the inspector general’s office said.

The inspector general said CMS agreed to follow up with manufacturers pinpointed by their report, improve their reporting systems so they can flag problems sooner and find ways to compel manufacturers to fix errors.

Sen. Charles E. Grassley, Iowa Republican, said CMS should aggressively chase down any forfeited dollars, noting the $1.3 billion detailed in the IG report only applied to 10 out of hundreds of potentially misclassified drugs.

“The report’s findings that 885 drugs were potentially misclassified likely represents many billions more in lost taxpayer dollars,” he said. “That’s not chump change, and it can’t be swept under the rug.”

Though an arcane issue, the misclassification of drugs made a splash in the past year, as the rising cost of EpiPens for allergy sufferers sparked at an outcry.

Mylan, the maker of the life-saving pens, agreed in August to pay $465 million to settle claims it short-changed taxpayers by misclassifying its device as a generic instead of a brand-name product.

The Justice Department said Mylan’s move allowed it to pay smaller rebates to states under Medicaid, the government insurance program for the poor.

Mr. Grassley, pointing to Wednesday’s findings, said the Mylan episode appears to be “just the tip of the iceberg.”

For its part, Mylan did not admit to any wrongdoing as part of the settlement.