Following Nutting’s own formula, pharmacy still overcharged for Medicaid supplies

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Robert F. Bukaty | BDN
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By John Christie, Maine Center for Public Interest Reporting
Posted Nov. 22, 2010, at 2:51 p.m.

AUGUSTA, Maine — In 2001, True’s Pharmacy in Oakland, owned by presumptive Speaker of the House Robert Nutting, bought medical gloves for $4.39 per package. By the time True’s sold them to a Medicaid provider, the price had gone up to $11.11.

That markup — 153 percent — was much more than was allowed by Maine’s Medicaid program, known as MaineCare, which allows only a 40 percent markup.

Nutting contended in state hearings that his use of a different formula to calculate the markup — a formula which put more money in his pocket — was the accepted method.

Although the state ruled its Medicaid formula — not Nutting’s — should have been followed, the state said that even if it allowed Nutting’s formula, True’s still “overcharged MaineCare 100% of the time.”

Such inflated charges — multiplied by thousands of gloves, adult diapers and other supplies — and the failure to keep adequate records led to the state’s finding that Nutting’s pharmacy over-billed the state $1.6 million, of which he failed to pay back $1.2 million after the pharmacy went bankrupt.

Nutting is the presumptive speaker of the house, selected by fellow Republican legislators two weeks ago. His election to the third-most powerful-post in state government will not become official until he is approved by the full Legislature next month.

Republicans and even some Democrats have said the recent news stories about the incident will not harm his chance to become speaker.

The Maine Center for Public Interest Reporting has analyzed state and federal records to draw a precise picture of how True’s came to charge Medicaid so much more for supplies than it was supposed to.

How, for example, did one package of medical gloves leap from costing $4.39 to $11.11?

The investigatory records of the state Department of Human Services, as it was called 10 years ago, show that Nutting’s pharmacy pushed its prices up that high in two steps:

True’s charged the 40 percent markup allowed by Medicaid, but based it on the sales price of the product. Medicaid rules say the markup should be based on the acquisition cost — what it cost the pharmacy to buy the product from the supplier.True’s then added another markup to that first one.

Take the medical gloves, for example.

In 2001, Nutting bought 4,800 packages of medical gloves for $4.39 per package. If he had followed state regulations, he would have sold them to a Medicaid provider, such as a nursing home, for no more than $6.22.

But Nutting told the state he used a different formula — one he had learned in pharmacy school — that is based on the sales price, not the acquisition price, to set the markup. He did that by dividing what he paid for the product by 0.6 — adding markup of more than 60 percent.

If he had used that improper formula, he would have sold the gloves for $7.32 per package.

The state says he sold them for much more. He sold the packages of gloves for $11.11, a markup of $6.72, or 153 percent.

When the state added up all the gloves True’s billed Medicaid for between 1997 and 2001, it concluded that Nutting’s pharmacy had been overpaid by $531,792.73.

Another example of overbilling: disposable underpants.

The state documents that the highest price True’s paid for the product was $35.99 per package. Using the approved markup, the pharmacy should have billed Medicaid $50.39. Using the markup formula True’s claimed was acceptable, it would have charged $59.83. In fact, it billed the state $60.89.

From 1997 to 2001, the state says it paid True’s a total of $511,942 for underpants — $88,002 more than was allowed by the authorized markup.

The state’s research of pricing formulas cited a survey that would appear to partially support one part of Nutting’s markup method.

Of 23 New England pharmacies responding to a poll, 16 used Nutting’s markup formula, six marked up the way the state mandates and one used a different formula altogether. But the survey was not related to Medicaid charges.

A DHS audit of 13 medical suppliers like True’s showed that none used the 0.6 formula that True’s used.

In a study of Medicaid claims filed by True’s between the end of 1999 and May 2001, the state found “True’s overcharged MaineCare (Maine’s Medicaid program) 100% of the time.”

The study added that this was true even if the state calculated those charges based on True’s formula.

In interviews with the Center and the Sun Journal, Nutting said the overbillings were “honest,” “unintentional” and the result of “confusing regulations.”

Correction: An earlier version of this story misstated in two places the original cost of a package of gloves as $4.89, not $4.39. Additionally, the version referred to the pharmacy as Trues, when in fact it was called True’s.

http://bangordailynews.com/2010/11/22/politics/following-nuttings-own-formula-pharmacy-still-overcharged-for-medicaid-supplies/ printed on July 25, 2014