December 25, 2006
The federal government is investigating the pricing policies of drug middleman companies that furnish prescriptions to nursing homes. One such provider is Omnicare, a nationwide nursing home drug distributor and a company with $5 billion in annual revenue. According to the federal investigation of Omnicare, the company instructed its pharmacies to switch Medicaid patients from Zantac tablets to Zantac capsules in order to gain more revenue. The federal government (administrator of Medicaid) announced that it would cut reimbursements for the Zantac tablets in order to get patients to switch to generic forms of the tablet that had recently become available. Making the switch to capsules meant another $67.67 more per month per prescription for Omnicare.
In November 2006, Omnicare settled with 42 states over overcharging charges for $49.5 million. It also settled with Michigan for $52.5 million on separate pricing charges.
Omnicare is also facing substantial market pressures because the federal government’s new prescription program allows private benefit insurers to handle the prescriptions. As a result, Omnicare is involved in a federal court dispute with UnitedHealthGroup over its rights in the nursing home market.
Omnicare indicates that it focuses on the patient’s well-being, and sometimes that means generics, and sometimes not. The middleman companies are authorized by federal law to go into nursing homes and review patients’ prescriptions to guard against abuse of the system by the nursing homes.
However, Omnicare and others are the beneficiaries of rebate programs that allow them returns from the pharmaceutical companies when they reach certain levels of prescriptions sold through the nursing home programs. While there will be changes in 2007, currently, middlemen are not required to disclose the rebates to recipients and nursing homes.
In addition, Omnicare’s CEO earned salary and other benefits of $17 million in 2005 and holds $110 million in stock options in the company. Omnicare’s profit margins are at 12%, a figure considerably higher than the 3-5% margins for other middleman companies.
Records in the case reveal that on May 19, 2000, Omnicare sent out a memo marked “URGENT” that indicated it would lose money on each prescription of Zantac one the fed cap on reimbursement went into place. The memo added that there was “no specific prohibition” on switching the patients from one form of the drug to another under either the program or by doctors. However, physicians did not approve most of the switches, something the regulators indicate was necessary. A lawyer for Omnicare responded that the company was simply making “sound business decisions” so that “efficient and high-quality services” could continue.[1]
Is Omnicare interpreting the law? Is the conduct of switching legal? Ethical?
[1] Sarah Lueck, “In Nursing Homes, A Drug Middleman Finds Big Profits,” Wall Street Journal, Dec. 23, 2006, pp. A1, A7.