In November, CMS notified states that they would be expected to implement the updates to the formula by July 2014. A coalition of industry stakeholders sent a letter April 9 to HHS Secretary Kathleen Sebelius, asking that there be a one-year transition period, which would push the implementation to sometime in 2015.
They argued that states are not ready to make such a quick transition, especially since adopting the new formula would in some cases require legislative or regulatory changes. They also wanted to give states more time to come up with new dispensing fees, which is what a pharmacy charges for providing professional services such as patient counseling, monitoring drug therapy, providing drug information to physicians, and dispensing the drug to customers. On average, these fee are now $3 to $5 per prescription. They provide a profit margin for pharmacists who contend reimbursement rates may only allow them to break even on Medicaid generics.
“Beneficiary access could be an issue if implemented as is, as many providers could refuse to dispense medications where the reimbursement falls below their cost,” said Sharon Greeson, a consultant with Compliance Implementation Services, a North Carolina-based firm that helps clients with regulatory and standards compliance.
Debate in Washington about how to determine Medicaid generic reimbursements goes back at least a decade. Indeed, in 2004 a House subcommittee held hearings entitled “Medicaid Prescription Drug Reimbursement: Why the Government Pays Too Much.”
“The government pays far too much for many prescription drugs under Medicaid, primarily because most states continue to use a system that is called average wholesale price, or AWP, as the basis for their reimbursement,” Rep. Joe Barton (R-Texas), who was chairing the hearing, said at the time.
The ACA altered the formula for generic drug reimbursement for Medicaid beneficiaries to be based on a drug's average manufacturer price, or AMP, versus AWP. The concept of an AMP for generics dates back to a 1990s federal statute dealing with the rebates manufacturers would pay states for drugs dispensed under Medicaid.
Between 2006 and 2010, Medicaid spending on generic drugs increased about 80%, from $2.5 billion to $4.5 billion, according to the Kaiser Family Foundation. In 2010, generic drug spending represented roughly 18% of total Medicaid drug spending, with 69% of all Medicaid prescriptions being generic.
The CMS had previously attempted to make this change in the Deficit Reduction Act of 2005, but its plan then would have led to reimbursement cuts as high as 60%.
Industry stakeholders, including the National Association of Chain Drug Stores and the National Community Pharmacists Association, were able to get an injunction stopping the change in 2007. In 2010, the ACA reintroduced the concept of basing payment on AMP but it outlined a new formula. The CMS then rescinded its former contested rule and in 2012 introduced a new proposal incorporating the health reform law's language.
The recent letter was signed by the American Pharmacists Association, Food Marketing Institute, Generic Pharmaceutical Association, Healthcare Distribution Management Association, National Alliance of State Pharmacy Associations, National Association of Chain Drug Stores and the National Community Pharmacists Association.