Medicaid reimbursement

July 15, 2012

Recent changes to Medicaid's reimbursement rules raise many confusing questions. Drug Topics' senior legal columnist sets out to clarify some key points

Depending upon the results of sometimes contentious negotiations, some pharmacies could be forced to stop filling Medicaid prescriptions. According to pharmacy leaders, this could mean that some pharmacies, particularly in rural and poorer urban areas, could go out of business.

These new regulations, on the other hand, could result in a more just reimbursement rate and a fair professional pharmacist's fee, in recognition of the time, cost, and expertise involved in filling prescriptions for the patients who constitute an important part of pharmacy's patient base.

In July 1965, President Lyndon B. Johnson signed a law that created the modern Medicaid and Medicare programs.1 These programs grew over the years and their importance to pharmacy practice expanded greatly.

The Kaiser Family Foundation (KFF) reports that the United States spends $234 billion for prescription drugs annually.2 Prescriptions represent 10% of national spending on healthcare - one-third of the amount spent on hospitals and one-half of the cost of physician services. While the amount spent on prescription drugs has increased in the last decade, the "rate of increase in drug spending has declined each year except 2006," when Medicare Part D was implemented.2

In 2009, pharmacies dispensed 3.9 billion prescriptions in the United States.2 Private insurance accounted for approximately 42% of prescription drug spending.2 Government's share was 37%, and out-of-pocket spending by patients was 21% of the total.2 Of the public money spent, approximately 25% was for Medicaid and 60% was for Medicare.2

In most cases, pharmacies do not set prices for third-party prescriptions. In the case of Medicaid, they are set by CMS and the States, based upon government regulations. By and large, the reimbursements are presented to pharmacies on a "take it or leave it" basis.

The old rule withdrawn

In 2006, CMS proposed a regulation that would set a method to determine the Average Manufacturer Price (AMP) and a federal upper limits (FUL) reimbursement rule for multiple source (generic) drugs.

In response to these proposals, the National Association of Chain Drug Stores (NACDS) and the National Community Pharmacists Association (NCPA) filed a lawsuit in the U.S. District Court in Washington, D.C.3 The associations argued that the Social Security Act established definitions and required certain factors be used in calculating pharmacy fees, which they charged that CMS had violated. The suit requested that an injunction be issued, stopping the proposed rule from going into effect as proposed.4

The suit was successful and a preliminary injunction was issued. The proposed rule was eventually withdrawn by CMS in November 2010.4-6

Newest proposed rules for Medicaid pharmacy reimbursement

Another set of changes has now been proposed, establishing the amount pharmacists will be paid for Medicaid prescriptions. Some of these changes came in response, at least in part, to the points raised in the suit over the 2006 rules. These newest changes are being decided now, in a rule-making procedure scheduled to take effect next year.