CMS issues final rule for Medicaid prescription drug reimbursements

Jul 11 2007

CMS on Friday released a final rule that will change the Medicaid prescription drug reimbursement formula for pharmacies from being based on the average wholesale price to being based on the average manufacturer price, CongressDaily reports (Edney, CongressDaily, 7/10).

The rule, mandated by the Deficit Reduction Act of 2005 and scheduled to take effect on Dec. 30, seeks to ensure that Medicaid can obtain prescription drug discounts similar to those obtained by private entities.

The rule would redefine AMPs for brand-name and generic prescription drugs. States use AMPs to calculate Medicaid reimbursement rates for drugs. Under the rule, the federal government would post AMPs on a Web site that consumers could access. In addition, the rule would limit the federal share of the cost of prescription drugs when at least three generic alternatives are available (Kaiser Daily Health Policy Report, 6/28).

The rule was issued after reports published in 2004 by the Government Accountability Office and the HHS Office of Inspector General found that states were using artificially inflated commercial drug pricing guides to set drug reimbursement levels (Reichard, CQ HealthBeat, 7/9).

As concessions to pharmacy groups, CMS in the final rule excluded from the formula pharmacy benefit managers, which receive deep discounts, and pharmacies in nursing homes and assisted living facilities. CMS in a press release said the new rule would save states and the federal government $8.4 billion over the next five years (CongressDaily, 7/10).

Pharmacy Response

Groups representing small pharmacies say that in practice, the rule will decrease the reimbursement rates to less than the actual cost of acquiring generic drugs for community pharmacies. A GAO report released earlier this year found that reimbursement levels would average 36% less than the average retail pharmacy acquisition costs.

CMS "failed to address what GAO said," according to Charlie Sewell, a lobbyist with the National Community Pharmacists Association. The average community pharmacy gets 23% of its revenue from Medicaid, according to Sewell, who added that as a result of the rule, "community pharmacies are going to close right and left across America." Sewell estimated that pharmacies that rely on Medicaid for over 50% of their business would have to close early next year because of the rule. An additional 6,000 to 7,000 pharmacies eventually would close because of the loss of Medicaid revenue, Sewell predicted (CQ HealthBeat, 7/9).

Bruce Roberts, president and CEO of NCPA, said, "If the current policy is fully implemented, community pharmacies will be forced to make the impossible choice of turning their backs on vulnerable patients by dropping out of the Medicaid program or continuing in a program that threatens to bankrupt their businesses."

Steven Anderson, president and CEO of the National Association of Chain Drug Stores, said, "CMS took a few actions that, while headed in the right direction, are not nearly sufficient to remedy the legitimate concerns" of community pharmacies (CongressDaily, 7/10).

Crystal Wright, spokesperson for the Association of Community Pharmacists Congressional Network, said CMS was too vague in defining AMPs, an action her group believes was taken "to keep Congress in the dark about how severely they will under-reimburse pharmacists."

CMS Response

CMS in a release said that the new formula is necessary because "Medicaid payments to pharmacies for generic drugs were much higher than what pharmacies were actually paying for those drugs." Prices in the commercial drug pricing guides that formerly were used by states to set reimbursement levels were "artificially inflated, especially for generic drugs," according to CMS. CMS said that pharmacies "made the most profit on those generic drugs with the highest mark-up, creating an incentive to dispense those drugs" (CQ HealthBeat, 7/9).

Acting CMS Administrator Leslie Norwalk said, "This new payment formula allows Medicaid to pay more appropriately for prescription drugs dispensed to Medicaid beneficiaries." CMS projects $8.4 billion in savings over the next five years as a result of the new rule (CongressDaily, 7/9).

Lawmaker Response

Senate Finance Committee Chair Max Baucus (D-Mont.) said he is "deeply concerned that this rule will limit the flow of crucial Medicaid reimbursement dollars into small, rural pharmacies," adding that he will "closely review the final CMS rule and continue to protect access to medications that local pharmacies provide." Baucus said, "All options are on the table for getting Medicaid beneficiaries and all rural Americans the medicines they need."

Pharmacy groups are working with lawmakers on legislation to substitute the AMP with the retail pharmacy acquisition cost. The groups are "vying to attach the proposal to any major health care legislation likely to make it out of Congress this year," according to CongressDaily (CongressDaily, 7/10).