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April 7, 2004

CONTACT: Jerry Flanagan - 415-633-1320

New Analysis of 46 States and D.C. Shows California Far Below Average in Collecting Drug Rebates

"Collectinator" Failed To Collect Up To $1.3 Billion Dollars Owed By Pharmaceutical Companies – Worst in U.S.

A new analysis of 46 recent federal audits of state prescription drug rebate programs found that California scored far below average in tracking and collecting legally required MediCal rebates from pharmaceutical companies, according to the Foundation for Taxpayer and Consumer Rights (FTCR). A recent federal audit found that California has failed to collect up to $1.3 billion in rebates owed to the state by pharmaceutical companies.

Donna Arduin, Director of the California Department of Finance, did not identify the $1.3 billion debt in her recent audit of the state budget. However, Governor Schwarzenegger has called for $800 million in cuts to state health care programs for children, the poor and disabled. Schwarzenegger has received more than $290,000 in reported campaign contributions from pharmaceutical and biotech companies.

"California needs Governor Schwarzenegger to be the collectinator and demand that pharmaceutical companies pay their bills to the state," said Jerry Flanagan, of the Foundation for Taxpayer and Consumer Rights (FTCR). "California gets a 'D-' for tracking and collecting rebates from pharmaceutical companies. The governor must demonstrate the leadership he promised voters by personally calling on pharmaceutical companies to pay the state what they owe."

Prescription drug manufacturers are required to provide rebates to states as a result of a1990 federal law established to allow MediCal -- which provides health care and prescription drugs to low-income and disabled residents -- to receive bulk discounts equal to its position as a high-volume purchaser.

According to the FTCR analysis:

** California did not have policies and procedures in place to resolve long-standing rebate disputes with manufacturers. As of June 20, 2002, the State Agency had $1.34 billion in uncollected rebates. $337 million of those outstanding rebates accrued between March 31, 1991 and December 30, 2001.

** Of the 46 audited states, 17 states, including California, did not have adequate accountability and controls over the state rebate programs.

** Of the 17 states that were not in compliance with federal Medicaid accounting guidelines, only 6 states, including California, disagreed with the audit recommendations.

The FTCR state-by-state analysis is available at:

The federal audit of the California MediCal program, conducted by the Office of the Inspector General in the U.S. Department of Health & Human Services, found that state regulators had failed to keep an adequate record of rebates owed to the state, and did not "actively work to resolve the backlog of…drug rebate disputes."

The Office of Inspector General audit found California in violation of federal guidelines that require "Effective control over and accountability for all funds." Specifically, California did not maintain a "general ledger accounts receivable control account" to track uncollected rebate balances as required. Generally Accepted Accounting Principles (GAAP) require the use of a general ledger.

Since the federal audit was published in December, state regulators have argued that the under collected amount is much lower than reported but have not provided any documentation. In December, the California Department of Health Services ("DHS") -- which oversees the state MediCal program -- claimed that the under-collected amount was approximately $818 million. Then, in a February Senate Budget Subcommittee on Health, representatives of DHS argued that since the federal audit was published some of the outstanding rebates had been collected, but provided no documentation. DHS added that of the $300 million rebate deficit that it claims is remaining, the state is predicted to recover only 10%, or $30 million.

"The state system was found to have an inadequate accounting system. How can we trust their numbers now? We need an open public review of the state MediCal program to ensure that every penny owed to California is collected," said Jerry Flanagan. "It is clearly in the interest of state bureaucrats to make this issue go away."

Prescription drug rebates are owed to the state MediCal program by national and international pharmaceutical companies. Governor Schwarzenegger has received substantial contributions from pharmaceutical and biotech companies including: Genentech $41,200 Amgen $21,200; GlaxoSmithKline $21,200; Novartis $21,200; Pfizer $100,000; Bristol-Meyers Squibb $25,000; Robert Wood Johnson IV (Johnson & Johnson) $25,000; Gilead Sciences Inc. $10,000; Allergan $30,000.

The Office of Inspector General audit of the California MediCal program is available at
Other federal audits may be viewed at:


The Foundation for Taxpayer and Consumer Rights is a non-profit and non-partisan consumer advocacy organization. For more information visit us on the web at: