The Alabama Medicaid Agency just announced that the Centers for Medicare and Medicaid Services (CMS) has approved a new pharmacy reimbursement program using Actual Acquisition Cost (AAC) instead of published benchmark or Maximum Allowable Cost (MAC) lists. Read the official announcement on the AAC Program Implementation page. The changes will be effective for outpatient pharmacy claims on September 22, 2010.
Fans of transparency will be pleased to know that Alabama will now publish pharmacy acquisition costs for both brand-name and generic drugs (by product name and package size) on this free public website: Alabama AAC List.
My $0.02: The post-Average Wholesale Price (AWP) future just became a little clearer. While alternative list price benchmarks, such as Wholesale Acquisition Cost (WAC), are becoming more common, I expect computed transactional benchmarks to become the norm for pharmaceutical reimbursement. The Alabama Medicaid Agency now officially becomes the leading innovator of alternative benchmarks.
I describe Alabama’s proposal and its potential market impact in Alabama: More Momentum for Cost-Plus. Key questions:
- Will other states follow Alabama's lead? (I hear at least one state is very close.)
- Will private payers adopt Alabama's methodology and/or use the public AAC data?
- What will happen to pharmacy and wholesaler profits?
THE POST-AWP FUTURE
Judge Patti Saris, who has overseen a lot of the litigation related to AWP, is quite clear about her views on AWP as a pharmacy reimbursement benchmark:
“AWP has been exposed as a faux inflated price unrelated to actual drug prices. Reliance on AWP is a trap for unwary and unsophisticated TPP (third-party payors) purchasers and results in consumers paying unwarranted co-payments.” (Order Granting Final Approval of Settlement–March 17, 2009, page 13)I’ve written a lot about AWP over the years. Here are two especially relevant articles to catch you up:
- ASP Lessons for Pharmacy’s AMP Future
- Won’t get FULed again (one of my personal favorite titles!)
The question is a bit misleading because Average Wholesale Price (AWP) will not be going away. Wolters Kluwer Health intends to keep publishing AWP for its Medi-Span customers (per their Pricing Policy Update website). WAC, another list price benchmark, will also remain available in the market.
The search for alternatives will continue, especially given payer perception that reimbursement models based on list prices can provide inappropriately high profits for retail and mail-order pharmacies on certain prescriptions. AAC and cost-plus models seem to be likely alternatives.
WHAT ABOUT CMS’ AAC PLANS?
I broke the news that CMS wants to gather data on the prices paid by pharmacies to drug wholesalers or manufacturers and then post these data on its website. See CMS Wants Public Transparency to Pharmacy Profits.
A group of pharmacy associations—The American Pharmacists Association, the Food Marketing Institute, the National Association of Chain Drug Stores, and the National Community Pharmacists Association—are protesting CMS’ plan to conduct a national survey of pharmacy acquisition cost. An August 6, 2010, letter to CMS from these groups states: “We have identified no legal authority for CMS to collect and distribute pharmacy acquisition cost data.” See DC Fracas Over CMS Transparency Proposal for more details.
As far as I know, the Alabama Medicaid agency has the statutory authority to implement this program. Does it also have sufficient legal resources to defend the inevitable challenge to their AAC program?