By Chip Reid Correspondent
NBC News
updated 12/7/2004 7:33:02 PM ET 2004-12-08T00:33:02

The nation's pharmacists are reaping windfall profits at the expense of Medicaid, the government health care program for the poor. That, according to a congressional investigation unveiled Tuesday.

"It seems to me this is the proverbial $500 toilet seat of Medicaid," says Rep. Greg Walden, R-Ore.

An example — Fluoxetine — the generic version of the popular antidepressant Prozac. Here's how congressional investigators say it works: pharmacists pay 36 cents a capsule, but are reimbursed 98 cents a capsule by Medicaid, nearly three-times the real price.

Under the current system, that Medicaid reimbursement rate is set by the drug manufacturers. Committee investigators say in-house e-mails show drug companies and pharmacists have worked together to keep Medicaid reimbursement rates artificially high.

"The current reimbursement system practically begs to be exploited," says Rep. Ed Markey, D-Mass.

The National Association of Chain Drug Stores responds that Medicaid reimbursements are not excessive, because the payment has to cover a pharmacy's cost of "buying the drug, dispensing the drug, and earning a reasonable return."

But witnesses at Tuesday’s hearing said Medicaid reimbursement can be more than ten-times what pharmacists actually pay for drugs. Government investigators say the loss to Medicaid could be as much as $1.5 billion dollars a year.

Who loses out? The taxpayer.

Some committee members say the problem is the system for Medicaid reimbursement — a system that was created by — you guessed it — Congress.

"If we found an enemy here it is us, the United States Congress, to create a system that has a perverse incentive in it," says Rep. Mike Rogers, R-Mich.

Some representatives of the drug and pharmacy industries called for reform.

"The system is broken and there really needs to be a reimbursement rate set by somebody outside," says Pamela Marrs, the senior vice president and CFO of drug manufacturer Dey, Inc.

But until that happens Medicaid drug reimbursement will remains a fleecing of America with plenty of blame to go around.

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