Of concern is the switch to a new benchmark — average manufacturer price (AMP) — used to calculate what’s called the federal upper limits (FULs), which is a cost-containing measure that sets the maximum amount a state can reimburse a pharmacy for generic drugs, explained Khani.

Historically, FULs were based on 150% of the lowest published price for the least costly, therapeutically equivalent product found in national compendia plus a reasonable dispensing fee. The lowest published price has generally been the average whole price (AWP) or wholesale acquisition cost (WAC.)

Federal policymakers were concerned that such benchmarks used in setting FULs weren’t accurately reflecting a pharmacy’s true acquisition cost.

AMP, however, has undergone scrutiny by retail pharmacy associations since it first was introduced with the Deficit Reduction Act of 2005. AMP today is supposedly defined by manufacturers’ sales to retail pharmacies and sets FULs for reimbursement of generics at a rate of no less than 175% of average weighted manufacturer price.

The fear is that AMP, which has never been used before to set pharmacy reimbursements for generic drugs, still falls short of reflecting the true acquisition drug and dispensing costs.

Khani called this a “radical change to pharmacy reimbursement.”

“We have concerns about AMP as a benchmark, which was created to determine manufacturer rebates that are paid [to states and the Federal government to offset the overall cost of prescription drugs under the Medicaid program]. So it’s not a benchmark based on sales transactions to pharmacies,” she added. 

Khani said it’s important that both components of the pharmacy cost — drug acquisition and dispensing fee — are addressed in the new reimbursement method.

“If there is a desire to pay pharmacies accurately for the cost of the drug product, it is also critically important pharmacies get paid accurately for the cost of dispensing prescriptions for Medicaid patients.

She noted that the average Medicaid dispensing fee is about $4.50, compared with about $10.50 for the average cost to dispense a regular prescription.

“Let’s make sure we get it right that we are paying pharmacies accurately for product costs and accurately to dispense. And, we are maintaining access for prescription drugs and pharmacy services for Medicaid patients.”

Final comments on the proposed rule and the six draft FUL lists using AMP, which has been calculated without regulatory guidance, are due to Centers for Medicare and Medicaid Services (CMS) today, April 2. However, Khani noted a provision of ACA allows CMS to implement the new policy before rule making is finalized.

Asked how that is possible? Khani said, “We are not sure. That’s why we have been working so aggressively not just at the federal level but also at state level to make sure Medicaid dispensing fee changes are made.”

In its comments to the proposed rule, FMI will encourage CMS to require that states demonstrate, through surveys that reflect state-based data, that their ingredient costs reimbursement and dispensing fees are reflective of pharmacy costs of dispensing.

“CMS should also require states to demonstrate that both their brand-name drug reimbursement as well as MAC (maximum allowable costs) lists for generics are justified based on state-based data, and not permit states to make reductions in these MAC lists without justification to CMS,” said Polley. While the FUL list is the maximum allowable cost that a state can reimburse a pharmacy for generic drugs, states can and do go below the FUL recommendation.

"Moreover, states should be required to demonstrate that their MAC methodology is based on community pharmacies' costs of purchasing prescription drugs, and also include a process by which such values are changed in a timely manner so that they are more transparent to the pharmacy,” Polley said.

Khani said several states are using the average acquisition cost (AAC), obtained from pharmacy invoices, to better calculate pharmacy reimbursements. CMS is also considering collecting and publishing this data as a benchmark, she said.

Only time will tell how this all plays out for retail pharmacy that services low-income Medicaid patients and the generic drug segment. While pricing accuracy, transparency and cost containment, and retail pharmacy access remain goals, it may not be so easy to cut through the many layers of rules and special interests to achieve those goals.

The one sure fact is that generic medication utilization has brought health care costs down, and saved the system $734 billion over a decade (from 1999-2008), according the Generic Pharmaceutical Association.