Medicaid fraud litigation nets isles twelvefold return on investment

Hawaii has collected $84 million over the past five years from drug companies for alleged Medicaid fraud and is among the top states with the highest return on investment for its investigations.

The amount state prosecutors have collected through litigation is 12 times what the state paid to prosecute Medicaid fraud cases from 2006 to 2011, according to a new report by Public Citizen, a Washington, D.C.-based nonprofit consumer advocacy group.

Of 27 states that recovered money from drug manufacturers, Hawaii had the fourth-highest return on investment. The state spent $6.7 million on Medicaid fraud enforcement in the period and recouped $12.50 for every $1 spent, the group said.

"These are states that have pursued these cases completely on their own without the help of the federal government," said Sammy Almashat, health researcher with Public Citizen. "States expended their own resources to try to recover money for their own Medicaid programs. Pursuing and prosecuting pharmaceutical companies for fraud … can be exceedingly cost effective for the states that choose to prosecute. These investigations pay for themselves in the long run."

The Hawaii cases involved overcharging the Medicaid program for drugs for the state’s neediest population, the most common violation, he said.

On a federal level, cases also involved off-label promotion of medications, or illegal marketing activities to increase pharmaceutical sales.

The $84 million Hawaii collected came from two cases. In 2010, Hawaii reached an $82.6 million settlement with a number of different drug companies in one case, and in 2007 a Merck subsidiary paid the state $1.1 million.

"Sometimes these overcharges can be pretty astronomical," Almashat said. "A small state like Hawaii getting an $82 million settlement is pretty significant."

Almashat gave an example, unrelated to Hawaii, of a drug company charging Medicaid about $5,000 for 200 pills that should have sold for $80.

"Pricing fraud has gone on for years over decades or longer … which add up to a lot of money for state taxpayers and the Medicaid program," Almashat said. "State budgets are constantly facing shortfalls and cuts so these settlements really are, in many cases, crucial for state Medicaid programs to continue to provide care for the states’ poor and disabled patients."