A new White House proposal to revamp Medicaid's drug rebate formula is drawing applause from the nation's pharmacists, who have long argued the current equation — though largely delayed by a court ruling — would underpay them for generic drugs.
The new proposal, issued Friday by the Centers for Medicare and Medicaid Services (CMS), would eliminate certain provisions defining both the "average manufacturers price" and the "federal upper limit" under Medicaid's drug rebate program.
The move — largely done in recognition of related provisions in the new health reform law — marks "a victory for patient care as it is delivered in America’s pharmacies every day," according to leaders of the National Association of Chain Drug Stores (NACDS) and the National Community Pharmacists Association (NCPA), who issued a joint statement Friday.
"The end result is not an increase in reimbursement to pharmacy," the groups said, "but rather the lessening of cuts that previously would have involved pharmacies selling most generic drugs at a loss, thereby threatening their long-term ability to provide patient care."
Friday's proposal follows a long tug of war between Congress, CMS and the pharmacy lobby over how Medicaid drug rebates should be determined.
The 2005 Deficit Reduction Act (DRA) required CMS to set Medicaid's federal upper limits (FULs) — which represent the maximum amount the program will pay for drugs — at 250 percent of the average manufacturers price (AMP) of the cheapest version of therapeutically equivalent drugs. But in 2007, after CMS finalized its rules for implementing the provision, the retail pharmacists (both NACDS and NCPA) sued. The groups were wary that the new formula would undervalue the true cost of many generics to pharmacists, forcing them either to take a loss or not offer those drugs at all.
Several government reports backed those concerns. Post-DRA surveys conducted by both the Government Accountability Office (GAO) and the Health and Human Services Department found that AMP-based FULs would have set generic rates for many drugs at levels far below what pharmacies were paying for them.
In December of 2007, a federal judge sided with the pharmacists, issuing a court injunction preventing CMS from implementing many of the changes.
The issue has major cost implications for Medicaid, because pharmacies losing money on generic prescriptions would have every incentive to switch to more expensive branded drugs, resulting in higher costs for taxpayers.
In response, Democrats included language in their health reform law designed to better approximate the true cost of generics to pharmacists.
Under the law, CMS will determine FULs based on no less than 175 percent of the weighted AMP — which will be calculated according to utilization — rather than using an AMP based on the cheapest version of the drug. The weighted AMP is designed to be a more accurate gauge of the cost to retail pharmacies — not least because it excludes mail-order pharmacies.