Medicaid switch to AMP carries consequences

March 5, 2007

The National Community Pharmacists Association is warning that implementation of a proposed rule for reimbursement for generic drugs through Medicaid may result in many pharmacies pulling out of the program or going out of business. Citing the results of a recent Government Accountability Office study and its own internal polling of members, Bruce Roberts, NCPA executive VP/CEO, warned that under the new rule patients would face a "serious danger of losing access to lifesaving prescriptions. What we're faced with is not a natural disaster but a public policy disaster."

In December, the Centers for Medicare & Medicaid Services proposed a new rule that would change the Medicaid reimbursement rate for generic drugs. The rule change was mandated by the Deficit Reduction Act of 2005 and instructed CMS to set the federal upper limit (FUL) for generics at 250% of the average manufacturers price (AMP). Currently, reimbursement is tied to average wholesale price figures, but critics have complained that AWP is not transparent.

Since the rule was announced in December, pharmacists have been highly critical of many of its aspects. CMS, for example, suggested that states could increase their dispensing fees in reaction to any reduction in federal payments, but as many pharmacy industry advocates insist, states are unlikely to do so, given their own budget restraints. Another point of contention has been CMS' insistence on including any rebates in the final price determination. As Bruce Semingson, R.Ph., CEO of United Drugs, pointed out in the cooperative's comments, "This clearly benefits manufacturers and disadvantages independent pharmacies because these price reductions are not shared with independents."

GAO researchers looked at a list of 77 of the most commonly prescribed and most expensive generic medications in the Medicaid program, concluding that the reimbursement rate for pharmacists under the new rule would be on average 36% below the cost of acquisition. GAO received previously unavailable AMP data from CMS to reach its conclusions.

Yet it is unclear whether the rule will undergo any changes. The comment period for the rules ended Feb. 20, and it is unclear how soon before the July 1 implementation date the final rule would be published. Still, as Roberts explained to reporters, "We've been working with CMS and Congress and explaining how devastating this rule would be for community pharmacy, and CMS has not given any indication that it will change this rule at all."

When NCPA surveyed its members, it found that 86% reported that the GAO study would impact their decision on whether to participate in their state Medicaid program. For many of these pharmacies, Roberts and Sewell warned, leaving Medicaid might be the first step to bankruptcy or retirement. On average, Medicaid made up more than 20% of the business at the surveyed pharmacies. "If these cuts go in as proposed, pharmacies will go out of business in a matter of weeks," Sewell predicted.