Pharmacy faces Medicaid cuts in billions of dollars

March 6, 2006

Pharmacies already reeling from the botched implementation of Medicare Part D took another body blow Feb. 1, when Congress narrowly approved federal Medicaid reimbursement cuts of $3.6 billion over the next five years. Just five days later, the Bush Administration's new budget proposed lopping an additional $1.3 billion from Medicaid reimbursement.

Pharmacies already reeling from the botched implementation of Medicare Part D took another body blow Feb. 1, when Congress narrowly approved federal Medicaid reimbursement cuts of $3.6 billion over the next five years. Just five days later, the Bush Administration's new budget proposed lopping an additional $1.3 billion from Medicaid reimbursement.

Pharmacy took the initial hit when, by a vote of 216 to 214, the House of Representatives passed a budget reconciliation bill that included the Medicaid cuts. The House Republican leadership held the vote open until they could muster the votes to adopt the measure that the Senate had already passed in December after Vice President Dick Cheney cast the deciding vote. The $3.6 billion will actually balloon to $6.3 billion when savings to the states are factored into the equation. The savings will come from lower reimbursements to pharmacies for generic drugs.

The other Medicaid shoe dropped when Bush's $2.7 trillion budget for fiscal 2007 was announced on Feb. 6. The proposed budget calls for another $1.3 billion in reimbursement cuts for generic drugs that will swell to $2.5 billion when state savings are added on. The proposed cuts would be spread over 2007 to 2011. The budget must be adopted by Congress.

The 2007 federal budget proposal raises "several concerns for community pharmacy and could mean trouble for pharmacy patients," warned Craig Fuller, president-CEO, National Association of Chain Drug Store (NACDS). "Just as community pharmacy was beginning to face the challenge of implementing the recently passed Medicaid reform proposal that slashes Medicaid reimbursement for pharmacy services, we are now looking at an even lower rate if this budget is passed. This reduction will seriously affect Medicaid patients and the community pharmacies attempting to provide them with the medicines they need."

The Medicaid reductions in the budget bill just passed will come from a federal rejiggering of the reimbursement formula for generic drugs. Federal upper limits (FULs) will be calculated on the basis of average manufacturers price (AMP), even though it was never intended as a reimbursement mechanism, according to John Coster, Ph.D., R.Ph., NACDS VP-policy and programs. The new generic FULs take effect next Jan. 1. To arrive at the FUL, the lowest AMP generic will be multiplied by 250%. The new formula will reduce the average generic payment per script by 25%, down to about $ 4.25, he added.

"There is no uniformity or consistency in AMP, which is not well defined in the law," Coster told Drug Topics. "The Office of HHS Inspector General documented that all drug manufacturers do it differently. Some include nursing homes, mail order, and rebates to PBMs, which should be excluded."

On July 1, the federal government will open a Web site listing the AMPs of single-source and multiple-source drugs. In addition to consumers, state Medicaid programs and private insurers will be able to research prices. "We have more concern downstream in the private sector, which may move to AMP," said Coster, who added, "On top of Part D, pharmacists will be answering questions about why the price is this when the AMP [on the Web site] is that. We're really concerned."

The Medicaid cuts amounting to $6.3 billion are a done deal, but pharmacy organizations are trying to derail the cuts in the proposed Bush budget that must get past a Congress showing signs of some bipartisan unease over slashing popular social programs. NCPA's Roberts called on Congress to reject the "wrong-headed thinking" aimed at driving small business owners out of the market and stranding communities without their healthcare services. "Instead, we ask Congress and the Secretary to work with us to implement a Medicaid payment system that adequately pays pharmacists for their services and enables them to continue to serve patients," he added.