The Centers for Medicare & Medicaid Services should issue guidance on how drug manufacturers determine pricing, the Medicaid Commission's reform proposal recommends.

"Reforms should be implemented to ensure that manufacturers are appropriately reporting data. Such improvements should include...clear guidance from CMS on manufacturer price determination methods and the definition of" average manufacturer price, the commission's ^FDL-1 report states.

The commission, created by lawmakers through the fiscal 2006 budget resolution, was charged with proposing money-saving reforms for Medicaid; it submitted its report to HHS Secretary Leavitt Sept. 1. The group estimates its proposals would achieve $11 bil. in savings over five years.

The report recommends allowing states to base drug reimbursement to pharmacies on AMP rather than average wholesale price.

The report cites an estimate from the CMS Office of the Actuary that a change to AMP-based payment could achieve savings of $4.3 bil. over five years.

The commission also stipulated that other regulatory changes should be made to support the different payment scheme, including making manufacturer-reported prices easily auditable and implementing new penalties to discourage inaccurate reporting.

The report further suggests that manufacturer-reported prices and rebates be provided to states monthly rather than quarterly, as is currently done.

Reporting changes could counteract several problems with AMP, such as lack of final regulations from CMS, that were recently identified in HHS Inspector General reports (¹ Also see "Medicaid Reimbursement Alternatives Proposed By HHS Inspector General" - Pink Sheet, 4 July, 2005., p. 15).

Converting from an AWP-based to an AMP-based system is also supported by the National Governors Association in its final proposal on Medicaid reform.

In its initial and final recommendations to the commission, NGA also suggested an increase in the minimum rebates manufacturers would pay under Medicaid (² Also see "Governors’ Medicaid Reform Proposal Takes Aim At Pharma Companies" - Pink Sheet, 20 June, 2005., p. 24).

The commission did not recommend an overhaul of the program's rebate structure, but it did suggest extending the drug rebate program to give Medicaid managed care plans access to rebates.

The commission's proposal also recommends that states be given greater flexibility in implementing tiered co-payments for drugs.

States should be able to increase co-pays on non-preferred drugs beyond nominal amounts when a preferred drug is available, the commission said. CMS believes this change would save $2 bil., the report states.

The report clarifies that co-pays should remain nominal for preferred drugs for beneficiaries at or below the federal poverty line. However, it would allow states to have the "ability to develop effective tiered co-pay structures to encourage cost-effective drug utilization where appropriate for all beneficiaries, regardless of income."

"All co-payments for the preferred drug list should become enforceable," the report says. "States should be given broad authority to waive co-payments in cases of true hardship or where failure to take a non-preferred drug might create serious adverse health effects."

The Senate Finance Committee will consider the commission's proposals in its deliberations on the budget reconciliation bill, Chairman Charles Grassley (R-Iowa) said. The budget resolution set Sept. 16 as the deadline for the committee to create its reconciliation package, which must find $10 bil. in savings over the next five years.

One of the committee's tasks will be to choose between AMP and average sales price as a substitute for AWP. The Bush Administration suggested changing pharmacy reimbursement to ASP plus 6% in a legislative proposal submitted to Congress (³ Also see "Medicaid Would Pay ASP+6% To Pharmacies Under White House Bill" - Pink Sheet, 15 August, 2005., p. 23).

Wholesalers and pharmacy groups are opposed to both ASP and AMP-based systems, since either one would result in cutting payments to pharmacies (see ⁴ Also see "Wholesaler Fees Could Wither Under Medicaid AMP System, Cardinal Says" - Pink Sheet, 5 September, 2005.).

The commission will submit a second report by Dec. 31, 2006 on longer-term recommendations to ensure the sustainability of the Medicaid program.

CMS Drug Pricing Guidance Proposed In Medicaid Commission Report

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