Editorial: Overcharges should not be tolerated

Tuesday, July 6, 2004 | 8:53 a.m.

Twelve years ago Congress amended the voluminous Public Health Service Act to ensure that public hospitals, community health centers and AIDS clinics would receive discounts on drugs prescribed to their uninsured and low-income patients. The discounts were supposed to be applied across the board by the pharmaceutical companies to the thousands of eligible hospitals, health centers and clinics around the country. These agencies were assured they would be receiving the lowest possible prices allowed under the federal amendment. But when federal investigators recently checked on the program, they found that drug companies were routinely overcharging the agencies, costing them millions in taxpayer dollars.

Reporting about the overcharges in a story last week, the New York Times said 31 percent of the transactions examined were flawed. In just one month, the newspaper reported, investigators uncovered $41.1 million in overcharges. Hospitals such as University Medical Center in Las Vegas, which has been losing millions of dollars over the past few years largely because of the growth in uninsured and indigent patients, are affected by these practices by the drug companies. A UMC spokeswoman said the hospital has no way of knowing how much it may have been overcharged, because the prices it pays for drugs are assumed to include the discount, which is subject to federal monitoring.

Now that federal monitors have discovered widespread overcharging, it would seem to naturally follow that there would be reimbursements and penalties. Unfortunately, the amendment did not include such measures. George F. Grob, an assistant deputy inspector general in the Health and Human Resources Department, was quoted in The New York Times as saying, "(the government) does not have the legislative, regulatory or contractual authority to effectively remedy the matter." The newspaper also reported that the Bush administration, even though it accepted the findings and is vowing to monitor the discount program more closely, does not want to ask Congress for the authority to impose fines and penalties on drug companies caught exceeding the price ceilings.

We hold the opposite view. The Public Health Service Act should be amended again, this time to add appropriate penalties for violating the discount program. The reluctance to add penalties is another sad example of the power drug companies wield in Washington.