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Rx’s Medicaid stance backed by GAO study

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WASHINGTON — A new study by the Government Accountability Office (GAO) provides support for community pharmacy’s efforts to reform Medicaid reimbursement rates.

The study, requested by Sen. Charles Grassley (R., Iowa), supports the argument of the National Association of Chain Drug Stores and the National Community Pharmacists Association (NCPA) that reimbursement rates mandated by the Deficit Reduction Act of 2005 (DRA) would, in many cases, be less than the what pharmacies pay for the drugs.

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

The use of AMP-based FULs has been stalled since NACDS and NCPA got a preliminary injunction in December 2007 blocking the new rates.

“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 [Centers for Medicare and Medicaid Services] to release data to GAO,” NACDS president and chief executive officer Steve Anderson says. “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 in the second quarter of 2008. It 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. And 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 acquisition cost.

To conduct its analysis, GAO obtained monthly AMP figures from 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.

That is one major factor cited by CMS in its rejection of the GAO 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. “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. “We anticipate the need to maintain constant and proactive efforts to fight for pharmacy as the health care reform debate continues,” he says.


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