Abbott slashes many drug prices

Home Health Columnist / Guide · Jun 18, 2001

A drug kit used by home health workers to clear clogged IVs was $127 but now is $2.39, according to a price list obtained from the Illinois Department of Public Aid, which administers the Medicaid program.

Writers still don't get it that the "home health workers" are RN's.

Shame on Abbott for excessive pricing. Hope they get fined big time, with fine going to indigent drug assistance programs or state senior citizens programs like PA's PACE program. Karen

Reductions come as U.S. probes drug companies

By Bruce Japsen and Andrew Zajac

Tribune staff reporters

June 14, 2001

Abbott Laboratories has quietly lowered prices on dozens of drugs and medical treatments amid multiple state and federal investigations alleging that U.S. drug companies lied to the government about the wholesale prices of certain pharmaceuticals.

New government documents show that many Abbott prices have been slashed to a fraction of their list price of less than two months ago.

The reductions on Abbott drugs paid for by the Illinois Department of Public Aid mean an immediate savings of about $2.5 million annually to taxpayers, state officials said.

Applied to Medicaid programs across the country, savings from the new prices likely would amount to many times that figure, according to analysts and Medicaid officials.

Abbott's recent price adjustments bolster assertions by state and federal investigators that public health insurance programs have been grossly overpaying for many products. Prosecutors and congressional probes suggest that overpayments--resulting because government programs in essence pay whatever drug companies ask--exceed $1 billion annually.

Many of the cuts are enormous, affecting everything from intravenous solutions to painkillers to heart medicine. For example, Abbott's wholesale price for a 20 milliliter vial of the cardiac drug Dobutamine is now $9.26--just one-sixth of the $54.11 listed just weeks ago.

A drug kit used by home health workers to clear clogged IVs was $127 but now is $2.39, according to a price list obtained from the Illinois Department of Public Aid, which administers the Medicaid program.

However, prices on dozens of other drugs remained the same or were lowered only modestly.

Looking into pricing

North Chicago-based Abbott is one of more than 20 drug companies under U.S. Justice Department scrutiny amid allegations that they inflated prices paid by Medicare, the federal health insurance program for the elderly, and Medicaid, the state-federal health insurance program for the poor. Abbott also acknowledges separate investigations of pricing practices in five states, including Illinois.

In addition, TAP Pharmaceutical Products Inc. which is 50 percent owned by Abbott, is under a separate federal investigation of its methods used to market Lupron, a leading prostate cancer treatment. Neither TAP nor Abbott has been charged, but four urologists have pleaded guilty or agreed to plead guilty in the case. Lake Forest-based TAP has been negotiating a settlement that could top $800 million, which would be a record for a pharmaceutical company.

Abbott is the first major drugmaker involved in the pricing investigations known to have notified Medicaid of reductions in so-called average wholesale prices or AWPs, which are amounts used as a basis for reimbursements by government and private insurers. The company may be trying to lower its liability in any potential settlements, say sources close to the probes.

The price cuts also have implications for the private sector, because many large employers that provide a prescription drug benefit to workers and retirees base their payments on the same price list supplied to the government programs.

Abbott wouldn't respond to questions about whether the price cuts were made in response to government investigations. Spokeswoman Christy Beckmann characterized the changes as routine. "In all of our businesses, Abbott periodically and routinely evaluates pricing based on a number of factors, including competitor pricing, operation costs, etc.," she said.

Pressure on Abbott

But a member of a national task force scrutinizing drug company pricing in the U.S. said Abbott is bending to regulatory pressure.

"I attribute it to doing the right thing in the enforcement atmosphere they're in," said David Waterbury, chief of Medicaid fraud investigation for the State of Washington and a leader of an inquiry by the National Association of Medicaid Fraud Control Units.

It's not clear if other drug firms will follow Abbott's lead.

At least one other company, a U.S. unit of German-based Bayer AG, has agreed to pay $14 million to resolve allegations that it lied about the wholesale prices of certain drugs, including treatments for AIDS. Bayer's settlement requires the company to give state regulators more accurate price information and cooperate with the investigations, the company said in September.

"I don't think it's a surprise to see some reduction in prices being charged to the Medicaid program, but to this degree--it surprises me," said Sarah Ross, an analyst who follows Abbott and other medical product companies for Edward Jones in St. Louis. "I think other drug companies are going to be taking a close look at their prices. But to this magnitude, I wouldn't count on it."

Abbott said that the company did not set the prices used by Medicaid and Medicare programs to reimburse providers for its products.

"The AWP is not set by Abbott for any of its products, nor does Abbott establish the formula for calculating AWP," Beckmann said.

Abbott reports its published list prices to reporting services like health information firm First DataBank Inc., and "they calculate AWP," she said.

But First DataBank Executive Vice President and Chief Operating Officer Jim Wilson said the company has "nothing to do with setting the prices.

"We simply collect the information from drug companies and wholesalers and pass it along" to governments and other insurers, Wilson said.

Inflated costs

Illinois Medicaid Director Matt Powers said many public and private insurers, particularly state Medicaid programs, use the information reported from First DataBank to reimburse providers.

Pharmacists, doctors and hospitals buy the drugs at a discount. They, in turn, get to keep the spread between the prices they pay and government reimbursement, which is pegged to the AWP. Federal investigators say drugmakers inflate their prices to win providers' favor and keep market share.

In Illinois, providers are generally paid 90 percent of AWP; other states reimburse at 85 to 95 percent of AWP.

It's not clear how much the cuts could cost Abbott, but the short-term bottom line is not the company's only concern.

"Drug companies' biggest issue now is the world of public opinion, and they have come up against some real challenges that, in some cases, they could have handled better," Edward Jones' Ross said. "They are trying to regain the confidence of the public."