Margin Impact: AWP Rollback on Reimbursement Rates

CHRISTINA VEIDERS

When Deerfield, Ill.-based Walgreens told officials in Washington state that it would no longer be able to fill prescriptions for new Medicaid patients at 121 of its pharmacies because it wasn't being reimbursed enough by the state, the situation may have resulted partly from the settlement of the First DataBank lawsuit that found the publisher inflating Average Wholesale Price data.

As a result of the settlement, as of Sept. 26, 2009, First DataBank agreed to roll back the AWP values from 1.25 to 1.20 times the Wholesale Acquisition Cost (WAC). AWP is the benchmark used by insurance companies to reimburse pharmacies. The rollbacks could theoretically result in lower reimbursements to pharmacies.

In a presentation at Food Marketing Institute's Health & Wellness Conference last month, Jennifer Mauldin, president, Inmar — Revenue Recovery Services, presented data collected from a sampling of its clients, which represent 45 pharmacy chains and 3,700 independent pharmacies, on the impact of the AWP rollback on reimbursement rates. The data examined the impact on gross margins for the three months prior to Sept. 26, 2009, and three months after. Inmar looked at margins' percentage change on Medicaid, commercial and Medicare reimbursement and by brand vs. generic drug reimbursements.

Mauldin said that with the settlement, carriers tried to maintain the commercial formulas that were in place prior to the rollback as best they could until renegotiating contracts. However, others renegotiated contracts up front based on AWP and WAC.

“Pharmacies who were more aggressive clearly did not experience the impact that those who did nothing and accepted their lot. So those who were more aggressive did much better with a little less than a 1% negative change,” she told pharmacists in attendance. However, those that did not act aggressively in renegotiating their contracts saw over a 6.5% negative impact on margins.

Of the three types of health coverage, Medicaid got hit the hardest, Mauldin said.

“We hear so much that states are cash-strapped, so an easy first way of helping to stop the bleeding is let's cut Medicaid reimbursement rates. We didn't realize until we looked at it how big of an impact that is really having.”

With health care reform, Mauldin said hopefully there will be some improvements. “But that comes on the heels of a bunch more volume. The more volume you have and the more patients on Medicaid coming into your stores, the bigger the challenge even if reimbursement rates start inching up.”

Walgreens reportedly said Washington state reimburses it at less than its cost to break even on nearly 95% of brand-name medications it dispenses to Medicaid patients.