N.J. R.Ph.s urge action against Medicaid generic reimbursement rule

October 22, 2007

New Jersey pharmacists gathered recently to draw attention to and protest against what they hold to be a flawed reimbursement program for Medicaid generic prescription drug reimbursement contained in the Deficit Reduction Act (DRA) of 2005.

New Jersey pharmacists gathered recently to draw attention to and protest against what they hold to be a flawed program for Medicaid generic prescription drug reimbursement contained in the Deficit Reduction Act (DRA) of 2005. The group also came out in support of pending legislation—H.R. 3140, the Saving Our Community Pharmacies Act of 2007—from Rep. Frank Pallone (D, N.J.), chairman of the House Energy & Commerce Committee's Subcommittee on Health, which they claim is critically needed to offset the negative fallout of the new rule for independent pharmacies.

John Covello, executive director of government and public affairs, Independent Pharmacy Alliance (IPA), a trade organization that represents 650 independent pharmacies in New Jersey, chaired the event, which was held at Zajac's Pharmacy in New Brunswick, N.J., last month. He was assisted by Stephen Brandt, executive director of the Garden State Pharmacy Owners (GSPO), and Pete Reiss, executive VP of GSPO.

Opting out
"The Centers for Medicare & Medicaid Services has created a reimbursement system [based on AMP—average manufacturer price—in place of AWP—average wholesale price] that will cause many independent pharmacies in New Jersey and across the country to either limit or drop their participation in Medicaid," said Covello. "If a pharmacy has a high percentage of Medicaid patients, it might even go out of business. All of this is happening not because of free market competition but because of misguided government policy." He added that "the real effect of AMP is that it could threaten to stamp out independent pharmacies in urban and community environments all across the nation."

AMP is anything but simple to calculate. It ideally should take into account, for example, the following: bundled offerings, value-added offerings, selective discounts, rebates, and other price incentives. Taken together, these price incentives commoditize the issue of generic pricing by obscuring true line-item pricing and true acquisition cost. Covello indicated that, given the greater size and scale of chain pharmacies relative to independents, it is not surprising that "AMP is simply not an accurate reflection of actual retail acquisition cost, because it includes many sales prices that are not available to independent pharmacies like the place we are gathered at today, Zajac's Pharmacy, in the formula."

Mike Fedida, R.Ph., owner of J&J Pharmacy in Teaneck, N.J., agreed, adding, "No one has clearly defined what the reimbursement will be. We understand the following from reading the literature and from some of the organizations that support us—we are going to be paid 36% less on average on the cost of generic drugs."

Reason for hope
H.R. 3140 is designed to address the shortcomings readily apparent with reimbursement for generics based upon AMP, and would define the benchmark for pharmacy reimbursement to accurately reflect true community pharmacy acquisition costs, by avoiding those price concessions and rebates provided to chain drugstores, but unavailable to community pharmacies. Covello urged Pallone to ensure that his subcommittee votes on H.R. 3140 and afterwards reconciles in committee any differences in a similar bill pending in the Senate, S. 1951, the Fair Medicaid Drug Payment Act of 2007.

Another possible offset to reimbursement shortfalls under AMP involves an increase in dispensing fees for generics, which have remained at $3.65 for Medicaid Rxs, essentially unchanged since the early 1980s. Brandt pointed to studies that indicate current dispensing fees for generic drugs are in the range of $10 dollars per Rx. He said that CMS has the final say in approving increases in dispensing fees for Medicaid drugs and recently rejected an increase in Louisiana.
"Every one of us is only one catastrophic illness or major accident away from the safety net that Medicaid provides for us. The true measure of a great society is how we treat our elderly, our young, and our infirm," said Tom Kelly, R.Ph., owner of Medicine To Go in Forked River and Lakewood. "If we cast aside support for providing care for these patient populations at home and within their community, we are really letting down these patient populations, and, in effect, tearing holes in the safety net that provides pharmaceutical services for the Medicaid population."

THE AUTHOR is a writer based in New Jersey.