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$928 for a Bag of Salt: How Drugmakers Rip Off Taxpayers

By Jim Edwards

Updated on: November 15, 2010 / 3:25 PM EST / MoneyWatch

UPDATE: How a Sleeping Drug Company Increased Prices 300% Without Anyone Noticing

The most surprising thing about Louisiana's new drug pricing lawsuit is the allegation, buried on page 12, that Baxter International (BAX) sold salt and sugar to Medicaid for $928 a bag. That fact alone tells you all you need to know about why healthcare costs in the U.S. are going up when they could be coming down: The law allows drug companies to rook state Medicaid and federal Medicare programs by preventing the agencies from negotiating drug prices:

Instead, both institutions must take a price based on the "average wholesale price" of a drug. Naturally, drug companies have developed a number of complicated schemes to make sure that the reported AWP is as high as possible while the actual price is made much lower, usually through a series of rebates. Medicaid and Medicare reimburse at the high rate and wholesalers pocket the difference. Drug companies strategize around that difference so that it functions like a kickback to wholesalers.

Baxter was probably selling saline solution and dextrose solution, in intravenous drip bags. They're a little more difficult to produce and package than tabletop salt and sugar, but not much. The AWP of saline (to rehydrate patients) and dextrose (for acute hypoglycemia) is just $1.71 to $2.75 a bag. That's a 41,000 percent markup, Louisiana claims.

UPDATE: Not Dead Yet: Drug Price Manipulation Scams Enter Their Sunset Years

It's also interesting to note that Baxter was one of at least three generic drug makers named as defendants in the suit. (Among the others were Watson (WPI) and Ranbaxy.) Usually it's the large, branded drugmakers who bear the brunt of pricing litigation. This time it's the generic makers, whose products are often sold at pennies per pill. Even the discount sellers can allegedly play this game, it seems.

Louisiana spends $850 million a year on Medicaid. It would cost taxpayers nothing if the law was changed to allow states and the federal government to negotiate more aggressively. It would only lead to savings and lowered public spending on healthcare. Washington, unfortunately, is so broken that there is bipartisan agreement that such a change will never be made, which is why healthcare reform was passed without such a provision.

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Hat tip to Pharmalot.
Image by Flickr user genista, CC.