GAO: Reform law sets fairer Medicaid payments for generic drugs

The healthcare reform law’s new Medicaid drug rebate formula will provide more accurate reimbursements to pharmacists, according to a Government Accountability Office (GAO) report released Monday.

Medicaid programs receive federal matching funds for generic drug reimbursements up to a maximum amount — the federal upper limit (FUL). The FULs, designed to contain costs, historically were calculated as 150 percent of the lowest published price for generics.

The industry successfully sued to block implementation of a 2005 law that based the FUL formula on average manufacturer price (AMP) rather than compendia prices, which are typically higher than AMPs. Retail pharmacies argued that the new formula would not provide sufficient reimbursement to cover their costs for acquiring outpatient prescription drugs.

Under the reform law, the Centers for Medicare and Medicaid Services 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 GAO report said the new formula also reduces overpayment for the drugs while still ensuring that pharmacists are reimbursed at fair rates.

“This is a great example of the important improvements made possible through the healthcare reform law,” said House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) in a statement. “The law averted massive payment cuts to pharmacists for generic drugs under Medicaid, and did so in a responsible way for taxpayers.”

Industry also hailed the GAO’s findings.

“GAO’s analysis confirms that the bipartisan provision included in the health reform law regarding Medicaid generic drug reimbursement strikes the right balance,” said National Community Pharmacists Association CEO Kathleen Jaeger. “The policy helps state and federal officials grappling with rising Medicaid costs, while preserving patient access and avoiding the draconian cuts that were previously enacted.”