A new study by the Government Accountability Office (GAO) provides major support for community pharmacy in its effort to achieve reform of Medicaid pharmacy reimbursement rates. The study was undertaken at the request of Sen. Charles Grassley (R-Iowa).

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GAO report shows Rx reimbursement rates fall short

January 11th, 2010

WASHINGTON – A new study by the Government Accountability Office (GAO) provides major support for community pharmacy in its effort to achieve reform of Medicaid pharmacy reimbursement rates. The study was undertaken at the request of Sen. Charles Grassley (R-Iowa).

The results of the study support the argument of NACDS and the National Community Pharmacists Association (NCPA) that reimbursement rates mandated by the Deficit Reduction Act of 2005 (DRA) would be less than the cost of the drugs to pharmacies in many cases.

The DRA changed the methodology for calculating federal upper limits (FUL), or the maximum amount of federal matching funds that a state Medicaid program can receive for certain drugs. Under DRA, FULs would be calculated as 250% of the average manufacturer price (AMP) for a drug’s least expensive therapeutically equivalent version.

AMP-based FULs have not been implemented because of a preliminary injunction sought and obtained by NACDS and NCPA in December 2007.

“It is interesting to note that, before GAO could move forward with the development of the report, NACDS and NCPA had to agree to allow CMS to release data to GAO,” points out Steve Anderson, president and chief executive officer of NACDS. “This is due to the terms of the preliminary injunction currently blocking the AMP rule. The report now provides further evidence that remedying the AMP rule is important for pharmacies and for the patients they serve.”

The GAO study examined 83 drugs during the second quarter of 2008 and found that, had the DRA-mandated reimbursement rates been in effect, pharmacies would have had to pay more than they would have been reimbursed for 54 of the drugs. Averaging out the reimbursement on all 83 drugs nationwide, Medicaid reimbursement would have been 17% less than the cost of acquiring the drugs.

Of the 54 drugs with reimbursements below their acquisition costs, 35 had at least one equivalent version for which reimbursement would have been higher than the cost of acquisition.

“To the extent that the lower cost, therapeutically equivalent versions of these drugs are readily available to pharmacies — and that pharmacies choose to acquire them — it may be possible for pharmacies to reduce their costs for many of these drugs to levels below the FUL by increasing their use of lower-priced therapeutic equivalents,” the report states.

To conduct its analysis, GAO obtained monthly AMP figures from the Centers for Medicare and Medicaid Services (CMS) and then identified the drugs with the highest rates of Medicaid utilization and expenditure nationwide. It also secured national average acquisition cost data for therapeutic equivalents from IMS Health.

As GAO acknowledges, the national average cost data from IMS Health did not include rebates and discounts that retail pharmacies might have received from manufacturers or wholesalers if they were not specified in invoice prices. And that is one major factor cited by CMS in its rejection of the report’s findings.

“We are concerned with the use of the undiscounted national average retail pharmacy acquisition cost data that GAO obtained from IMS Health that does not include discounts and rebates, as well as the methodology GAO used in its analyses,” writes Charlene Frizzera, acting administrator of CMS.

“The DRA intended to make accurate pricing data transparent to assure that the federal government and state Medicaid programs are paying appropriately for drugs. We believe that as long as states must rely on drug prices that are not based on verifiable data, reimbursement to pharmacies will continue to be inflated and the cost to the Medicaid program will continue to escalate.”

As NACDS’ Anderson notes, the Medicaid reimbursement debate is bound to continue. “AMP will remain the subject of major advocacy and pivotal developments, such as when the executive branch takes action to implement the [health care reform] legislation,” he says. “We anticipate the need to maintain constant and proactive efforts to fight for pharmacy as the health care reform debate continues and in the months and even years of regulatory and further Congressional action that are likely to result from any enacted legislation.”

And with the Senate and House working to devise a health care reform bill to send to President Obama, the NCPA last week sent a letter House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Harry Reid (D., Nev.) to make recommendations on a final bill, with pharmacy reimbursement a key issue.

NCPA called on lawmakers to reform the Medicaid AMP reimbursement system for generic drugs and adopt, at a minimum, the Senate's FUL of no less than 175% of the weighted average AMP. "Anything less could force many independent community pharmacies, which care for an extraordinarily high number of Medicaid patients, out of the program," the association stated.

In some states, drug chains have put their foot down on the Medicaid reimbursement issue.

Walgreen Co. last summer was set to stop filling Medicaid prescriptions at its Happy Harry's pharmacies in Delaware but was able to reach an agreement with the state, which had planned to reduce reimbursements to pharmacies. And last week, Bartell Drugs said it plans to discontinue filling Medicaid prescriptions at about a quarter of its stores effective February 1 because of recent reductions in compensation from Washington state.