The Honorable David M. Walker
Comptroller General
U.S. General Accounting Office
441 G Street, N.W.
Washington, D.C. 20548
Dear Comptroller General Walker:

The Committee on Energy and Commerce is conducting an extensive investigation into pharmaceutical reimbursements and rebates under Medicaid. As you know, the joint Federal-State Medicaid program accounts for a large and fast-growing share of federal and state budgets. Total Medicaid expenditures were almost $258 billion in fiscal year 2002 and ranked as the third largest mandatory spending program in the federal budget. Among States, outlays for Medicaid ranked second only to elementary and secondary education. Medicaid spending has escalated in recent years and payments for prescription drugs have contributed significantly to this growth. Medicaid drug expenditures grew at an average annual rate of over 18 percent between 1997 and 2000, more than twice the rate of overall Medicaid spending growth.

The Committee's present investigation into Medicaid, which builds upon earlier work on drug pricing practices in the Medicare program, examines means by which States can constrain the growth in drug spending without affecting enrollees' access to quality prescription drugs. In this regard, the Committee asks the GAO the following:

1. Evaluate current Medicaid pharmaceutical reimbursement approaches by the States, using five to seven states that represent a range across the spectrum from the most generous to most stringent. Also, estimate financial savings available to Medicaid if reimbursements were based upon a "market-oriented" price figure rather than the current methodologies used to calculate reimbursements, which employ figures such as Average Wholesale Price and Wholesale Acquisition Cost. For the purposes of this inquiry, consider as a proxy for this "market-oriented" price either Average Manufacturers Price (AMP) or any other instructive pricing model.

2. Assess the extent to which an accurate review can be made of AMP data used for Medicaid purposes by those entities with appropriate access to such information under current law and regulation, and recommend appropriate changes, if any, that would enable such entities to verify accurately AMP reporting while maintaining the confidentiality of the data.

3. Determine whether States are obtaining all available drug rebates to which they are entitled under the Medicaid Drug Rebate Program (particularly for certain physician administered drugs) and, if not, estimate the amount States are not recovering.

4. Determine whether the state drug reimbursement methodologies under Medicaid encourage providers to utilize certain drugs preferentially over other therapeutically equivalent drugs.

We appreciate your prompt attention to this request. If you have any questions, please have your staff contact Andrew L. Snowdon, Majority Counsel, Committee on Energy and Commerce at (202) 226-2424.

Sincerely,

James C. Greenwood, Chairman
Subcommittee on Oversight & Investigations