Medicaid drug reimbursement based on average manufacturer price or average sales price could create "barriers" to wholesalers receiving the payments they typically are paid by manufacturers, Cardinal VP-Professional & Government Relations Connie Woodburn told the National Association of Chain Drug Stores' Pharmacy & Technology Conference Aug. 30 in San Diego.

Prompt pay discounts and generic drug rebates are two payments manufacturers pay wholesalers that, because they are reported to the Centers for Medicare & Medicaid Services for the calculation of both AMP and ASP, could end up being squeezed out under a system based on either price measure.

Wholesalers are normally paid a 2% prompt pay discount for paying manufacturers for product in under 30 days. However, because prompt pay is included in both ASP and AMP, "it artificially displaces the reimbursement to the pharmacy by 2% and provides an incentive to the manufacturer to say, 'You know what, it's hurting our reimbursement, so we can't pay you anymore,'" Woodburn said.

In addition, rather than paying service fees, generic drug manufacturers typically offer wholesalers additional discounts and rebates on their products, which are also included in ASP and AMP calculations.

"We have a situation where if we move to either ASP or AMP...the only way that wholesalers get reimbursed ends up actually taking away from [pharmacy] reimbursement," Woodburn said.

"That is going to make it very difficult for us to negotiate the appropriate fair market value fees that we need to continue to provide services and it's also going to encourage manufacturers to look for alternate ways to dis-intermediate the wholesaler so they can raise their reimbursement," she said.

"We don't want the government to put up barriers to the manufacturers paying us, and that's what they are doing with ASP and AMP," Woodburn declared.

The government's Medicaid Commission recommended in its Sept. 1 report to HHS that states be allowed to reimburse pharmacies for drugs based on AMP, potentially saving Medicaid $4.3 bil. over five years (see ¹ Also see "CMS Drug Pricing Guidance Proposed In Medicaid Commission Report" - Pink Sheet, 5 September, 2005. ). The Bush Administration has proposed reimbursing pharmacies at ASP plus 6% (² Also see "Medicaid Would Pay ASP+6% To Pharmacies Under White House Bill" - Pink Sheet, 15 August, 2005., p. 23).

Another problem with ASP, Woodburn said, is that drug manufacturers have not followed CMS instructions that wholesaler service fees should not be included in the ASP calculation, which is currently reported for Medicare Part B drug reimbursement.

The start of ASP reporting by manufacturers coincided with an ongoing effort by wholesalers to have manufacturers pay for their drug distribution services. CMS said in a December notice that bona fide service fees are exempt from ASP calculation (³ Also see "Wholesaler Service Fees Exempt From ASP Calculation, CMS Says" - Pink Sheet, 13 December, 2004., p. 24).

"Many of the manufacturers are not following the direction of that letter and are including service fees in the ASP calculation," the Cardinal exec said.

"Once again, that means that the pharmacies' reimbursement, or in this case the doctor's reimbursement, is moved down, and we're getting manufacturers saying...'Every time we pay you, it hurts reimbursement, so we're thinking that we might have to go direct'" in shipping drugs to physicians and pharmacists.

Woodburn argued a more appropriate method should be used to calculate reimbursement. "Rather than taking a metric like AMP that has been developed for another purpose like Medicaid rebates and all of a sudden saying that that is now the reimbursement number...you should look at what pharmacy is able to purchase drugs for."

Pharmacy groups have also protested use of ASP or AMP for reimbursement, saying they do not accurately reflect pharmacists' acquisition prices for drugs. NACDS has suggested wholesale acquisition cost as an alternative (⁴ Also see "Increasing Medicaid Rebates 5% Would Save $3 Bil. Over Five Years – CBO" - Pink Sheet, 27 June, 2005., p. 28).

"Drug pricing is so very complicated that when you change one little piece of it, there is a ripple effect that starts that could actually turn out to be a major unintended consequence later down the road. And we're very concerned that that is exactly the case for ASP and AMP," Woodburn warned.

Wholesaler Fees Could Wither Under Medicaid AMP System, Cardinal Says

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