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AMP makes things tougher for Rx.

WASHINGTON -- A new reimbursement formula announced this month by the Centers for Medicare and Medicaid Services (CMS) will cut Medicaid generic drug payments to retail pharmacies, an action that critics charge will reduce health care access to the estimated 50 million Americans enrolled in the federal/state program and will squeeze the financial life-blood out of thousands of smaller pharmacies.

The revision is being carried out as part of the Deficit Reduction Act of 2005 (DRA), which establishes a new federal upper limit (FUL) calculation, i.e., the maximum the federal government will pay states for genetics dispensed through Medicaid.

Such large drug chains as CVS/Caremark Corp., Rite Aid Corp. and Walgreen Co. will also feel repercussions from the revised reimbursement formula, which calculates FUL at 250% of the lowest average manufacturer pace (AMP) in a generic drug class. The old formula was based on a rate of 150% of the average wholesale price (AWP).

The new system is scheduled to become effective October 1 but will not be fully incorporated until January 30, when all of the AMP data is expected to have been compiled.

"This final rule issued by CMS is simply unacceptable for community pharmacy and the Medicaid patients we serve," charges Steven Anderson, president and chief executive officer of NACDS. "There should have been significantly greater improvements in the final rule given that more than 250 members of Congress contacted the agency or the Department of Health and Human Services (DHS), as well as reports of the Government Accountability Office (GAO) and the DHS office of the inspector general (OIG), which warned of dramatic under-reimbursements to community pharmacy as a a result of the rule."

Criticism was just as strong from the National Community Pharmacists Association (NCPA), which represents independent pharmacy. It says that community pharmacies with an average number of Medicaid patients will see their profit plummet from $129,000 a year to $9,000 annually due to the lost revenue caused by the reimbursement cuts.

"CMS disingenuously claims that the GAO report showing pharmacies would be paid 36% below their acquisition cost for generic products using CMS' interpretation of AMP was being overly pessimistic," NCPA executive vice president and CEO Bruce Roberts says. "However, more than 100 members of Congress apparently disagree with that assessment based on letters they have sent to CMS."

NACDS and NCPA are continuing to work with a bipartisan coalition of House and Senate members to enact legislative reforms.

The Association of Community Pharmacists Congressional Network (ACPCN) calls the new regulation cutting reimbursements for generic Medicaid drugs "an assault on neighborhood pharmacies."

ACPCN vice president of government affairs Mike James says the "ill-conceived rule leaves pharmacies in the dark about how under-reimbursed" they will be for generic drugs.

CMS acting administrator Leslie Norwalk defends the revised system.

"This new payment formula allows Medicaid to pay more appropriately for prescription drugs dispensed to Medicaid beneficiaries," she insists.

CMS points out that the DRA changes were prompted after government studies showed that Medicaid payments for generic drugs were significantly higher than the prices that pharmacies paid wholesalers. "Pharmacies, the reports showed, made the most profit on those generic drugs with the highest mark-up, creating an incentive to dispense those drugs," says CMS.

But late in 2006 the GAO released a report concluding that payments to pharmacies would fall 36% below what they pay to purchase the drugs under the new system.

And last month the OIG released an analysis that found reimbursements for 19 of 25 drugs would be less than what pharmacies actually pay. That report also said CMS should provide pharmacies with an opportunity to alert states and the agency if they can demonstrate that they are unable to purchase a drug at or below the new FUL amount.

"The OIG report adds to the evidence that Medicaid cuts are threatening consumer access to medications and pharmacy services as a result of the Medicaid pharmacy reimbursement formula," says NCPA'S Roberts.

Retail pharmacy has also complained that the new formula includes special discounts that manufacturers offer to mail-order pharmacies and other large purchasers but are not presented to drug stores. Consequently, the price of a medicine determined under the new policy falls below what retailers pay to purchase it.

Larry Kocot, senior advisor to the administrator at CMS, says the agency received more than 1,600 comments on the rule. The new regulation is expected to save states and the federal government a combined $8.4 billion over the next five years.

CMS notes that even with the change the agency will spend $140 billion for drugs for Medicaid over the same time period (2007 through 2011).

"This new calculation will allow Medicaid to pay more accurately for the medicines enrollees need," Norwalk says. "It will yield a payment level that will be sufficient to assure widespread availability of drugs for Medicaid patients."

Norwalk maintains that pharmacy revenue for prescription data will decline by less than 1%.

She contends that under the old system prices were "artificially inflated" and notes a government report, which found that FULs set under the previous calculation for all but two of the 25 drugs it reviewed were more than double the average pharmacy acquisition costs.

Still, Norwalk says CMS recognizes "that the new payment calculations could result in some reduction in drug-related payments to pharmacies" and that the agency is encouraging states to evaluate whether other fees they pay pharmacies are adequate to compensate for their dispensing costs.

Because the state fees are matched by federal funds, adjusting them would require CMS approval.

Kocot says the final rule provides for a new definition of dispensing fees, which includes a pharmacy's cost of dispensing a drug as well as such factors as overhead and profit. To adjust dispensing fees, state Medicaid programs must submit state plan amendments for federal approval.

"One goal of the DRA was to encourage states to pay pharmacies more appropriately for the estimated acquisition costs of generic drugs," says CMS. "Prior to the DRA drug prices were considered proprietary information and were used by CMS solely to calculate rebates--even CMS was prohibited by law from disclosing AMPs."
AMP/FULs timeline


October 1, 2007     Regulation becomes effective.

October 1-31, 2007  First monthly AMP reporting period under new

October 30, 2007    Manufacturers report September 2007 AM Ps.

November 30, 2007   FULs published based on new September AMPs;
                    manufacturers report October AMPs.

December 30, 2007   FULs based on September AMPs take effect after a
                    30-day period for states to implement;
                    manufacturers report November AMPs; FULs published
                    based on October AMPs.

October 1-          First quarterly AMP reporting period under new
December 30, 2007   regulation.

January 30, 2008    Manufacturers report October-December 2007 AMPs;
                    manufacturers report December AMPs; October FULs
                    take effect.

Source: Centers for Medicare and Medicaid Services.
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Title Annotation:News; lowest average manufacturer pace; new reimbursement formula to cut Medicaid generic drug paymets to retail pharmacies
Comment:AMP makes things tougher for Rx.(News)(lowest average manufacturer pace)(new reimbursement formula to cut Medicaid generic drug paymets to retail pharmacies)
Publication:Chain Drug Review
Geographic Code:1USA
Date:Jul 23, 2007
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