As part of an effort to revamp its Medicaid program, the state of New York this year plans to evaluate average acquisition cost (AAC) as a benchmark for pharmacy reimbursement.

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N.Y. to assess AAC as Rx reimbursement benchmark

January 25th, 2012

SOUTH SAN FRANCISCO – As part of an effort to revamp its Medicaid program, the state of New York this year plans to evaluate average acquisition cost (AAC) as a benchmark for pharmacy reimbursement.

Drug information provider First Databank said Tuesday that it's participating with the state in a project that will result in a survey of prescription drug AACs at Medicaid provider pharmacies. Plans call for the survey to start in early to mid-2012.

AAC reimbursement is one of the proposals being examined by the New York Medicaid Redesign Team, which Gov. Andrew Cuomo created last January to explore ways to cut costs and improve quality and efficiency in Medicaid. New York authorized the use of AAC as a reimbursement benchmark for Medicaid in legislation enacted last April.

The team is authorized to gather the necessary information to assess drug acquisition costs from Medicaid provider pharmacies. According to First Databank, acquisition cost is defined as "the invoice price to the pharmacy of a prescription drug dispensed to a Medicaid recipient, minus the amount of all discounts and other cost reductions attributable to such dispensed drug."

First Databank said the survey aims to gauge pharmacies' average cost of dispensing (COD) so that both components of pharmacy reimbursement — ingredient cost and dispensing cost — can be based on "true and current" market data, rather than an average wholesale price (AWP) or wholesale acquisition cost (WAC) reported by manufacturers and a COD not derived from current costs.

New York state will administer the survey and be assisted by First Databank and accounting firm Ernst & Young. According to First Databank, Ernst & Young will develop the survey instrument, statistical sampling methodology and calculation algorithms to identify AACs and COD, and the state will electronically collect the information from providers and transmit de-identified raw data to First Databank, which then will apply the  algorithms to the data to arrive at the AACs. First Databank then will publish the AACs to the state.

"We appreciate the opportunity to assist the state of New York in its movement to a rational and evidence-based benchmark for drug reimbursement," First Databank president and chief executive officer Gregory Dorn said in a statement. "Our decision to discontinue publication of an average wholesale price type in September of 2011 was based on our belief that it was unsustainable as a point of reference. We welcome the effort by the state of New York to determine actual acquisition costs and believe it is a significant step on the path to a better market standard."

As budget-crunched states and the Centers for Medicare & Medicaid Services (CMS) look to pare Medicaid costs, pharmacy trade groups such as the National Association of Chain Drug Stores and the National Community Pharmacists Association have welcomed efforts to move toward AAC as a basis for Medicaid pharmacy reimbursement, citing shortcomings with using average manufacturer price (AMP) as a benchmark.

However, the two industry groups have stressed the need for accurate pharmacy reimbursement to ensure that retail pharmacies aren't reimbursed below the cost to acquire and dispense prescription drugs to Medicaid patients.

"As CMS and the states continue to work in this area, we urge all policymakers to be mindful that there are multiple components of pharmacy reimbursement: reimbursement for the drug product, reimbursement for the cost to dispense and payment for professional services such as MTM [medication therapy management]," NACDS and NCPA stated last February in a joint letter to all governors and state Medicaid directors.

"While both Alabama and Oregon currently utilize AAC as a benchmark for product reimbursement, it is important to note that both states conducted comprehensive cost-of-dispensing studies and adjusted state dispensing fees so that they were also reflective of pharmacies' costs," NACDS and NCPA noted in their letter, which came in response to a letter sent to all governors by U.S. Health and Human Services Secretary Kathleen Sebelius to flag potential areas for Medicaid savings.

Besides the evaluation of AAC as a benchmark, the New York Medicaid Redesign Team proposal to rein in pharmacy reimbursement and dispensing fees includes the following suggested changes: decrease the reimbursement level for branded drugs from AWP less 16.25% to AWP less 17%; decrease the dispensing fees paid for generic drugs from $4.50 to $3.50; and eliminate the HIV specialty pharmacy designation and associated higher drug reimbursement.

"This proposal will position NYS Medicaid fee-for service pharmacy reimbursement levels on par with the most competitive rates in the commercial sector and other state Medicaid programs," the New York team's proposal read. "It will also ensure consistency of reimbursement rates for all pharmacies." 

The team projected that the proposal could save the state $30.2 million in its 2011-12 fiscal year and then $15.1 million annually through the 2014-15 fiscal year.