Misclassified drugs cost Medicaid $1.3B

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Pharmaceutical manufacturers paid $1.3 billion less to Medicaid by receiving rebates on misclassified generic drugs, according to a report from the HHS’s Office of the Inspector General (OIG).

Some $1.17 billion of that figure was associated with just two drugs, though the report doesn’t name them. OIG said “vast majority [98 percent] of the approximately 30,000 drugs in the Medicaid rebate program were classified appropriately," but 885 drugs weren’t, with another 600 drugs either missing information from the Food and Drug Administration (FDA) or OIG being unable to determine their classification.

The report followed a $465 million settlement paid by Mylan Pharmaceuticals over misclassification of EpiPen as a generic—all while Medicare and Medicaid spending on the device increased by 463 percent. Mylan didn’t admit any wrongdoing in the settlement.

The OIG report recommended changes begin with CMS following up with manufacturers on potentially misclassified drugs.

“However, CMS does not have the explicit legal authority to require manufacturers to change their classification data,” the report said. “CMS did report that it identified potential errors in classification data, but does not maintain a database of these identified potential errors. Therefore, we were unable to determine which drugs CMS identified as potentially misclassified, and whether these potential misclassifications were addressed.”

Extra engagement with drug manufacturers may not always be enough, the report said, so CMS could consider terminating those manufacturers which don’t correct misclassifications from the Medicaid rebate program.

Sen. Chuck Grassley, R-Iowa, said CMS should try to recoup some of the money manufacturers kept from Medicaid due to the misclassifications.

“The report indicates that 97 percent of drugs were classified correctly, but three percent of hundreds of billions of dollars in rebates is still billions of lost taxpayer dollars. That’s not chump change, and it can’t be swept under the rug,” he said in a statement.