Washington Report: Medicaid Sets the Pace for Pharma Pricing - Pharmaceutical Executive


Washington Report: Medicaid Sets the Pace for Pharma Pricing
Forget Medicare price negotiations. Pending changes in Medicaid drug-pricing formulas will put even more pressure on pharmaceutical prices.

Pharmaceutical Executive

But the resulting discrepancy with AMP exclusions raises multiple questions from marketers and payers. One solution from the Bush administration, as proposed in its 2008 budget plan, is to do away with best price altogether and establish a flat Medicaid rebate program. Such a change supposedly would encourage marketers to extend discounts to other purchasers, and CBO estimates that a flat 20 percent rebate would save Medicaid $1.4 billion through 2012. That's a big hit for pharma, and it could attract support on Capitol Hill.

Less for Generics

While pharmacists don't like the AMP revisions, they are most upset about rule changes that would lower Medicaid reimbursement for generic drugs significantly. This involves a big change in calculating the Federal Upper Limit (FUL), which sets an annual aggregate spending cap on CMS payments for multisource drugs. The proposed rule would base FUL on 250 percent of AMP, instead of 150 percent of the lowest published price (usually AWP), and extend FULs to more drugs. These changes would noticeably cut state payments for generic drugs, and the 2008 budget plan would reduce payments even more by recommending an FUL of only 150 percent of AMP.

While CMS anticipates big savings from the new FUL calculation, the policy "will significantly underpay pharmacies and will yield lower rebates," predicts John Coster, vice president of the National Association of Chain Drug Stores (NACDS). It's fine to devise a more accurate drug reimbursement system, he observes, but federal and state officials should recognize that higher margins on drugs currently make up for too-low dispensing fees. While AWP has been accused of really meaning "ain't what's paid," AMP can be translated into "ain't more precise," he quips.

Pharmacists have considerable clout on Capitol Hill and may succeed in modifying the proposed rule. Senate Finance Committee chairman Max Baucus (D-Mont) recently called on CMS to take a hard look at its plan for redefining AMP, noting that "CMS' proposal may cut rates too drastically, particularly for small and rural pharmacies."

More Transparency

Another new policy that draws united opposition from manufacturers, PBMs, and pharmacists is the CMS plan to publicly disclose AMP data, which the agency collects from manufacturers but previously kept confidential. CMS is already providing AMP data to states to help Medicaid officials calculate reimbursement more accurately, but it has delayed broader public disclosure until the regs are final. Manufacturers complain that the data will be constantly out-of-date, that it will be used by other payers for reimbursement purposes, and that the new system should be phased in to allow time for CMS to iron out the kinks.

But Medicare Part D critics claim that such information will shed much-needed light on the whole drug-pricing system. One way to address the Medicare price-negotiating issue, according to Johns Hopkins economist Gerald Anderson, is to compare the lowest price paid for a drug by Part D plans with prices paid by the VA, Medicaid, and Canadian pharmacies. CMS analysts report that drug prices under the Medicaid rebate program are several percentage points below prices negotiated by Part D plans, and more comparative studies could provide a better picture of whether Medicare drug plans really can negotiate best prices.

Another hint at real Part D rates is what seniors in the "doughnut hole" have to pay out-of-pocket for drugs. While doughnut-hole payments reflect plans' contracted prices, they don't include rebates, and disclosure of the differences may raise an outcry.

Anticipated changes in Medicaid reimbursement formulas already are drawing payer interest. A new Colorado generic-drug discount card program, for example, uses AMPs to set a price floor for reimbursement, points out PBM consultant Carrie Gavora. The new Medicaid rule will lead to a "shrinking toward the mean in the out years," she notes, which "ultimately, is not a good thing for consumers."

Jill Wechsler is Pharm Exec's Washington correspondent. She can be reached at


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