CMS Issues Final Rule For Medicaid Prescription Drug Reimbursements

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Medicaid Prescription Drug Reimbursements

CMS on Fridayreleased a final rule that will change the Medicaid prescription drugreimbursement formula for pharmacies from being based on the averagewholesale 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 andscheduled to take effect on Dec. 30, seeks to ensure that Medicaid canobtain prescription drug discounts similar to those obtained by privateentities.

The rule would redefine AMPs for brand-name andgeneric prescription drugs. States use AMPs to calculate Medicaidreimbursement rates for drugs. Under the rule, the federal governmentwould post AMPs on a Web site that consumers could access. In addition,the rule would limit the federal share of the cost of prescriptiondrugs 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).

Asconcessions to pharmacy groups, CMS in the final rule excluded from theformula pharmacy benefit managers, which receive deep discounts, andpharmacies in nursing homes and assisted living facilities. CMS in apress release said the new rule would save states and the federalgovernment $8.4 billion over the next five years (CongressDaily, 7/10).

Pharmacy Response

Groups representing small pharmacies say that in practice, the rulewill decrease the reimbursement rates to less than the actual cost ofacquiring generic drugs for community pharmacies. A GAO report releasedearlier 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, "communitypharmacies are going to close right and left across America." Sewellestimated that pharmacies that rely on Medicaid for over 50% of theirbusiness would have to close early next year because of the rule. Anadditional 6,000 to 7,000 pharmacies eventually would close because ofthe loss of Medicaid revenue, Sewell predicted (CQ HealthBeat, 7/9).

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BruceRoberts, president and CEO of NCPA, said, "If the current policy isfully implemented, community pharmacies will be forced to make theimpossible choice of turning their backs on vulnerable patients bydropping out of the Medicaid program or continuing in a program thatthreatens 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 rightdirection, 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 believeswas taken "to keep Congress in the dark about how severely they willunder-reimburse pharmacists."

CMS Response

CMSin a release said that the new formula is necessary because "Medicaidpayments to pharmacies for generic drugs were much higher than whatpharmacies were actually paying for those drugs." Prices in thecommercial drug pricing guides that formerly were used by states to setreimbursement levels were "artificially inflated, especially forgeneric drugs," according to CMS. CMS said that pharmacies "made themost profit on those generic drugs with the highest mark-up, creatingan incentive to dispense those drugs" (CQ HealthBeat, 7/9).

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

Lawmaker Response

Senate Finance CommitteeChair Max Baucus (D-Mont.) said he is "deeply concerned that this rulewill limit the flow of crucial Medicaid reimbursement dollars intosmall, rural pharmacies," adding that he will "closely review the finalCMS rule and continue to protect access to medications that localpharmacies provide." Baucus said, "All options are on the table forgetting Medicaid beneficiaries and all rural Americans the medicinesthey need."

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

Reprinted with permission from kaisernetwork.org. Youcan view the entire Kaiser DailyHealth Policy Report, search the archives, and sign up for email deliveryat kaisernetwork.org/email. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, afree service of The Henry J. Kaiser Family Foundation.

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