About Medicaid

It's been more than four decades since President Lyndon B. Johnson in 1965 signed the law creating Medicare and Medicaid programs under Title XIX of the Social Security Act.  Today Medicaid provides health care services for low-income individuals and families (children, parents and the disabled) who meet certain federal and state criteria.  The largest source of medical and health services for persons with limited income, Medicaid is administered by the States.  In 2003, an estimated 41.9 million persons were covered by the program for whom more than $278 billion in federal and state dollars were spent, according to the federal Government.

The federal Centers for Medicare and Medicaid Services ("CMS") monitors the States' performance and establishes program requirements for, among other things, funding and eligibility.  States are not required to participate in Medicaid but 49 of the States and the District of Columbia now have Medicaid programs.

Medicaid doesn't reimburse or advance health care payments to its recipients but sends payments directly to their health care providers.  Each State sets eligibility requirements for its program, and determines whether copayments are needed for some services.  The rules for counting income and resources for Medicaid eligibility vary from state to state and group to group with special rules for those in nursing homes and disabled children living at home.

The bulk of Medicaid fraud is committed by providers who, it is estimated, have been responsible for literally hundreds of billions of dollars in fraud since the program began.

Pharmaceutical manufacturer fraud includes, but is not limited to, these four areas:

Best Price Fraud

Manufacturers seeking to sell prescription drugs to Medicaid must agree to provide rebates to the States and Federal Government, which vary depending whether the drug is brand name or generic.  The manufacturers must report to the CMS their Average Manufacturing Price ("AMP") and the "Best Price" at which they have sold the drug to any private purchaser, other than HMOs.  CMS, in turn, calculates the difference between the Best Price and what the States paid for the drug, and calculates the rebate the manufacturer owes the States.  The Merck settlement related to Zocor® and Vioxx® that is detailed in this Web site involved Best Price scheme allegations and is the second largest Medicaid drug fraud civil settlement in U.S. history.

Kickbacks

Many drug manufacturers make illegal payments to doctors to unduly influence their prescription decisions.  Although the companies may try to disguise these payments as "honoraria," tutorials, preceptorships, grants, research payments, or consulting fees, the payments actually are a "pay-to-play" arrangement, with the largest amounts going to the heaviest prescribers. The Merck settlement detailed in this Web site involved allegations of such kickbacks.

Average Wholesale Price

In an Average Wholesale Price ("AWP") scheme, pharmaceutical manufacturers report grossly inflated manufacturing costs to the States which, in turn, use those figures to reimburse doctors or institutional providers for drugs they give to Medicaid patients.  The provider keeps the difference between what the State pays the providers and the much lower charges the providers actually pay for the drug.  This scheme helps to ensure that providers use a particular drug because of the increased profit margin.  The term of art for this scheme is "Marketing the Spread."

Off-Label Marketing

Medicaid covers FDA-approved prescription drugs when prescribed by a physician as medically necessary.  Although physicians are able to prescribe drugs for "off-label" use (non-FDA approved uses), the manufacturers may not lawfully market such use to physicians.

Among Medicaid fraud schemes not involving pharmaceutical manufacturing are:

• Billing for services not provided
• Ordering/taking unnecessary medical tests
• Billing for more complex or time-consuming treatment than actually occurred, called "upcoding"
• Adding additional family members to the bill for an office visit for only one family member
• Allowing unlicensed individuals to perform services that physicians or other licensed professionals should perform, yet billing as if the service were provided by the licensed professional
• Duplicate billing when providers bill Medicaid and private insurance or the recipient
• Requiring a Medicaid recipient to make more office visits than medically necessary
• Fee-splitting or accepting payment from another provider, including Medicaid reimbursement sharing
• Paying for patient referrals