States divided over Medicaid AMP rule

June 4, 2007

Some state legislatures move to increase Medicaid dispensing fees in preparation for the implementation of the new Medicaid AMP rule

Although the Centers for Medicare & Medicaid Services has yet to issue the final rule for implementation of average manufacturer price (AMP) for Medicaid reimbursement on generic drugs, a handful of states have already begun to take action to mitigate its expected impact. Kansas and Iowa have passed new budgets with provisions aimed at directing the state's AMP savings back to pharmacies. Other states, including Michigan, Minnesota, Texas, and Vermont, are considering bills to boost dispensing fees.

Those concerns were reinforced by an analysis of the rule's potential impact from the Government Accountability Office, which found the new rule would on average reimburse 36% below the acquisition cost for pharmacists.

Even before the final rule was released, Iowa and Kansas passed state budgets containing special provisions that would direct some of the states' expected AMP savings back to pharmacies. According to Mike Larkin, executive director of the Kansas Pharmacists Association, the provisions direct the state Medicaid agency to adjust dispensing fees as necessary to "maintain total Medicaid reimbursement to pharmacies at current levels."

"This does not mean there are appropriations committed by the state," Larkin explained. Even with these steps on the state level, he cautioned, CMS retains the power to approve or reject the provisions. "I know the state agency here is committed to doing what it can to keep access open for Medicaid patients," he added.

Other states are focused on boosting dispensing fees. A national study commissioned by the Coalition for Community Pharmacy Action (CCPA) found the average cost to dispense an Rx is $10.50. The study also reported that the average dispensing fee paid by government programs such as Medicaid is approximately $4.50.

In Texas, the legislature is currently considering budget bills that include provisions to raise its dispensing fee from its current level ($5.14 plus 1.95% for an inventory management factor) and to redirect AMP savings back to pharmacists. The Texas House is currently considering a $6.33 dispensing fee, compared with $7.50 in the Senate version. The Texas House already rejected a rider that would have increased the dispensing fee to $12.50. "I've never seen anything like this; it threatens patient access and potentially will drive [pharmacies] out of business," lamented Jim Martin, CEO of the Texas Pharmacy Association. "If these cuts go into effect and the state legislature does not take care of the problem, pharmacies will discontinue providing services to patients or be driven out of business."

Still, many in the industry worry that state-level efforts may get caught up in politics and that a national solution is needed. Stephen Schondelmeyer, Pharm.D, Ph.D., professor of pharmaceutical care and health systems and director of the PRIME Institute, University of Minnesota College of Pharmacy, recently worked with the Minnesota legislature as part of a pharmacy payment reform advisory committee. While he was impressed by the knowledge of lawmakers on the issue, he also recognized that the final result depends on politics.

"We're also concerned about New York and California and what they did in their budgets," noted Sewell. "They are already trying to book the savings before the ink is even dry. That's a very dangerous precedent."