Lawmakers moved Tuesday to eliminate federal payments for Viagra (search) and other drugs that treat impotence, as a federal agency warned states that they could face sanctions if they don't end Medicaid coverage for such drugs for convicted sex offenders.

The Centers for Medicare and Medicaid Services (search) estimated Tuesday that Medicaid spends about $38 million a year on erectile dysfunction drugs, all but $2 million for Viagra.

That's too much for Sen. Charles Grassley (search), R-Iowa, who introduced legislation that would eliminate all federal payments, both Medicaid and Medicare, for these drugs.

Absent a ban, he said, Medicaid and Medicare would spend $2 billion on impotence drugs between 2006 and 2015.

"We live in a world of limited resources, and those dollars could be spent more wisely," said Grassley, chairman of the Senate Finance Committee.

Republican Sens. Trent Lott of Mississippi, Rick Santorum of Pennsylvania and John Ensign of Nevada co-sponsored the bill.

Legislation introduced in the House in early February with 29 co-sponsors would exclude coverage for Viagra under the Medicare prescription drug benefit.

More than 400 convicted sex offenders in New York and Florida were reimbursed for the drugs. The Medicaid agency issued its directive after New York Comptroller Alan Hevesi announced Sunday that from 2000 through March, 198 rapists and other high-risk sex offenders in New York received Medicaid-reimbursed Viagra after their convictions.

Florida moved Tuesday to deny Medicaid payments for Viagra. Gov. Jeb Bush said the state was planning to seek federal approval to make the change, but officials at the state Agency for Health Care Administration announced late Tuesday that it would go forward immediately with the cutoff and will submit a formal amendment to the state's Medicaid plan to federal officials later this year.

In a letter to the states, CMS Director Dennis Smith said states should review their procedures and work with physicians and pharmacists to prevent Medicaid payment for sex offenders' impotence drugs. Providing the drugs to sex offenders could "constitute fraud, abuse or inappropriate use of Medicaid funds," he wrote.

"Failure to perform such a review and implement appropriate controls may result in sanctions," the letter said.

Agency spokesman Gary Karr said sanctions could include withholding federal funds and a warning letter.

"We really don't think there are going to be many states that are going to be slow about finding a way to keep convicted sex offenders from getting erectile dysfunction drugs," Karr said.