The lowest possible cost at which retail pharmacies can obtain many generic drugs may be higher than the level of federal Medicaid reimbursement planned under the Deficit Reduction Act, a Government Accountability Office analysis of 2006 data says.

In GAO's review of 77 drugs reimbursed by Medicaid, the average manufacturer price-based federal upper limits "fell below the lowest acquisition cost available to pharmacies" for 43, the agency's report says.

GAO analyzed how retail pharmacy acquisition prices would have compared to AMP-based FULs in 2006 at the request of former House Energy and Commerce Committee Chairman Joe Barton, R-Tex. The request was prompted by concerns that retail pharmacies will lose money under revisions to the methodology for calculating Federal Upper Limits under the 2006 Deficit Reduction Act.

FULs cap federal government reimbursement to pharmacies for dispensing Medicaid prescriptions. Beginning this year, DRA sets FULs at 250 percent of the lowest AMP of a multiple-source drug. CMS' final AMP rule is due by July 1 (¹ Also see "Pfizer Tells Doctors To Consider COX-2 Alternatives; DTC Ads Are Halted" - Pink Sheet, 3 January, 2005., p. 19).

The ² report, released Jan. 22, compares AMP data from CMS to retail pharmacy acquisition cost data from IMS Health for the 77 drugs that comprise the 50 most prescribed and 50 highest expenditure Medicaid outpatient drugs.

In the first quarter of 2006, the average retail acquisition cost exceeded the estimated FUL for 59 of the 77 drugs, resulting in average AMP-based upper limits that were 36 percent below average acquisition cost.

"The percentage difference between the estimated AMP-based FULs and average retail pharmacy acquisition costs was more pronounced for high expenditure drugs than it was for frequently used drugs," the report notes.

GAO further found that the discrepancy between FULs and acquisition costs was durable despite observing significant price fluctuation.

"When we estimated what the AMP-based FULs would have been using several quarters of historical AMP data, these estimated FULs were also, on average, lower than average retail pharmacy acquisition costs from the first quarter of 2006," the report states.

To the extent that the utilization of multiple-source outpatient prescription drugs by retail pharmacies remains similar in 2007 and later to the utilization patterns captured in the sample of drugs, the gap between estimated AMP-based FULs and pharmacy acquisition costs could persist, GAO notes.

In comments to GAO, CMS expressed significant concerns with the agency's study methodology and estimates.

"We do not concur with GAO findings that the AMP-based FUL would be lower than average retail pharmacy acquisition cost. The GAO study fails to credibly document this finding and we believe the release of this report would mislead the public," CMS states.

In addition, CMS criticizes the GAO study for failing to take into consideration changes in market behavior following implementation of DRA provisions.

"CMS expects that the AMP-based FULs implemented as a result of DRA will drive retail pharmacies to fill more Medicaid prescriptions with lower cost versions of multiple-source outpatient prescription drugs - thereby reducing these pharmacies' acquisition costs," GAO states.

However, GAO's finding that FULs fall below the lowest acquisition cost for the majority of products suggests that retail pharmacies will need to undertake substantial steps to continue full participation in the Medicaid program.

GAO recognized that the study does not predict how the market will behave in 2007 as AMP-based FULs take effect. "However, to the extent that cost-containment measures of the AMP-based FULs influence pharmacies to acquire lower cost therapeutically equivalent versions of drugs or negotiate lower prices from manufacturers and wholesalers, the gap between AMP-Based FULs and acquisition costs could be narrowed or offset."

- Brian Marson

Revised Medicaid Rx Payments May Not Equal Pharmacy Costs, GAO Finds

More from Archive

More from Pink Sheet