Don’t say that I didn’t warn you.
Last Friday, the Center for Medicare & Medicaid Services (CMS) chose Myers and Stauffer as the vendor that will survey retail community pharmacies about both consumer prices as well as drug acquisition costs. CMS intends to develop a monthly Average Acquisition Cost (AAC) for covered outpatient drugs. Here’s the official announcement: Survey of Retail Prices: Payment And Utilization Rates, And Performance Rankings
Everyone in the retail drug channel—manufacturers, pharmacies, wholesalers, and Pharmacy benefits Managers (PBMs)—should get ready for an uncomfortable dose of transparency.
I wrote about the initial solicitation for this work last August in CMS Wants Public Transparency to Pharmacy Profits.
At the time, the pharmacy associations were quite blunt in reminding CMS about the first rule of pharmacy acquisition costs: You do not talk about pharmacy acquisition costs. (That's the second rule, too.)
The American Pharmacists Association, the Food Marketing Institute, the National Association of Chain Drug Stores, and the National Community Pharmacists Association sent a joint letter challenging CMS' legal authority to collect acquisition cost data. Read all the gory details in DC Fracas Over CMS Transparency Proposal.
Undeterred, Secretary of Health and Human Services Kathleen Sebelius stated in February that CMS intends to “provide States with a new, more accurate benchmark to base payments.” See HHS Wants States to Control Medicaid Pharmacy Spending.
So far, only two state Medicaid programs—Alabama and Oregon—use AAC data as the basis of reimbursement. California's Medi-Cal program came close, but backed down despite having one of the most generous pharmacy reimbursement levels for generic drugs in the country (according to this Morgan Stanley analysis).
The timeline for the AAC data is unknown, although CMS is clearly trying to head off controversy (and legal action) with this statement:
“CMS intends to include external stakeholders to ensure that the methodology for Part II is implemented appropriately. These stakeholders will include, but are not limited to, representatives from pharmacy associations, wholesalers, and States to assure that there is transparency and input on the AAC determination process.”Fun fact: Myers and Stauffer list 13 Medicaid clients on their web site, including the AAC data for Alabama.
Shameless plug: Cost-Plus Pharmacy Reimbursement (including AAC-based reimbursement) is one of the major trends that I analyze in The 2010-11 Economic Report on Retail and Specialty Pharmacies. If you haven’t already done so, may I humbly suggest that you make a small investment in your own professional development and download it today? The next edition won’t be published until December 2011.
Kudos to CMS and Medicaid for definitively demonstrating
ReplyDeletethat the existing AWP model closely approximates total actual pharmacy cost. The
savings reported for the Alabama and Oregon Medicaid Programs with the shift to
AAC is 5-6%. As it turns out those individuals and entities that suggested
pharmacies were making an inflated reimbursement from Medicaid could not have
been more wrong.
Adam, why is the Hilarious checkbox graphic used? Isn't this a good thing for taxpayer funded programs given the inherent and obvious lack of pricing transparency? Last time I checked nearly every state was facing a huge deficit.
ReplyDeleteAdam, why is the Hilarious checkbox graphic used? Isn't this a good thing for taxpayer funded programs given the inherent and obvious lack of pricing transparency? Last time I checked nearly every state was facing a huge deficit.
ReplyDeleteYes, I am on the record as being in favor of developing better reimbursement metrics. But please don't over-interpret the image. It was just something amusing about surveys that I grabbed from the Internet.
ReplyDeleteTroy McClure?!?
ReplyDeleteI remember you from the educational pharmacy films "Two Minus Three Equals Negative Fun!" and the classic "Meat and You: Partners in Freedom."
Thanks for contributing!