Pharmacists are taking advantage of Medicaid (search) pricing rules to reap two and three times their cost for generic medicines, lawmakers said Tuesday.

"Evidence gathered by the committee suggests that Medicaid reimbursement is more generous than that of most private payers," said Rep. Joe Barton, R-Texas, chairman of the House Energy and Commerce Committee (search). The panel's investigation into Medicaid drug prices was the subject of a hearing Tuesday.

Information supplied by five large retail pharmacy chains showed that drug stores paid an average of 22 cents for seven widely prescribed generic medicines, but received 56 cents in reimbursements from Medicaid, the investigation found.

Medicaid, the government health care program for the poor, spent more than $31 billion on prescription drugs in 2003, triple the amount spent 10 years earlier. The program's costs are shared by the federal and state governments.

Barton said pharmacists generally acknowledge that they are paid too much for some drugs. But they argue that the inflated prices are necessary to offset inadequate fees for other services they provide to Medicaid recipients, Barton said.

Another lawmaker, Rep. Ed Markey, D-Mass., said, "We have to address the fact that the current reimbursement system almost begs to be exploited."

The situation is similar to Medicare's reimbursement for cancer drugs administered to patients in doctors offices. For years, the physicians received inflated reimbursements from Medicare to make up for paltry payments for counseling, office expenses and other services given to patients.

Medicare, the health program for older and disabled Americans, is in the process of overhauling that system, although it is facing complaints from doctors and patient advocates that the new payments could limit access to the drugs for some patients.

The discrepancy between costs and reimbursements was just one of several problems that led George Reeb, an assistant inspector general in the Department of Health and Human Services (search), to conclude that "the Medicaid program continues to pay too much for prescription drugs."

In one example, Medicaid could have saved more than $85 million in 2001 if drug payments were uniform across all states, Reeb said.

States also door a poor job managing the rebate payments they receive from drug manufacturers that take part in the Medicaid program, he said.

Medicaid fraud also is costing the program hundreds of millions of dollars, said Taxpayers Against Fraud Education Fund (search), a whistleblowers' group.

Three whistleblower cases against drug makers that were settled between October 2003 and September 2004 netted $800 million, the group said. Two cases involved fraud allegations against Schering-Plough and the other involved Pfizer.