Industry looks to Congress, states for Medicaid relief

Unable to stop the new Medicaid average manufacturer’s price-based payment stampede unleashed last month by the Centers for Medicare & Medicaid Services, the retail pharmacy industry has turned for relief to Congress and the states. But despite vocal and even passionate support from pharmacy’s friends on Capitol Hill, community pharmacy still is being called on to shoulder $8.4 billion in Medicaid funding cuts over the next five years, and chances for any legislative rescue from Congress this year remain murky at best.

CMS’ new payment guidelines for generic drugs dispensed under Medicaid are due to take full effect Jan. 30, 2008. In the months-long comment period leading up to release of the final regulations, pharmacy leaders unleashed a torrent of feedback and raised plenty of alarm bells about the potential impact the new rules could have on their already anemic operating margins.

Most of those comments went unheeded. Although CMS’ final guidelines did reflect in small part the industry’s concerns, the final payment model resembles in large part the proposals issued many months earlier. As such, they met with dismay from pharmacy leaders when unveiled July 2.

“This is not fair. It’s penalizing pharmacy,” said Brian Casswell, an independent pharmacy owner in Baxter Springs, Kan. “If we can’t find a way to participate, we’re going to have to close our doors.”

The new reimbursement model reduces the upper limit for what the federal government will pay states in matching funds for generic drugs dispensed to Medicaid patients. The regulations also redefine the price of those drugs, based on what CMS determines is the average manufacturer’s price they command in a broadly defined marketplace.

Both the National Association of Chain Drug Stores and the National Community Pharmacists Association assert the new reimbursement model will force pharmacies to dispense generics to Medicaid patients for significantly less than the cost of those drugs. The result, they contend, will be a loss of local pharmacy services and access for low-income patients in many rural and inner-city areas, as pharmacies either drop out of the Medicaid program or close their doors after operating at a loss.

NCPA called the new AMP-based payment model a calamity. The new rules, pharmacy groups contend, also will eliminate incentives for dispensing generic drugs by basing reimbursements on a broadly defined definition of AMP that includes prices paid by mail-order pharmacies, pharmacy benefit managers and other non-retail entities that generally pay less for prescription drugs.

“The regulatory process has failed to reach an outcome that is fair and reasonable for community pharmacies. It places a severe economic burden on many smaller pharmacies, both chain-operated and independent,” former NACDS chairman Tony Civello testified before members of a House of Representatives committee last month. “We believe that Congress needs to act now to provide a legislative fix that reduces the economic burden on community pharmacies, thereby preserving the broad access to pharmacy services that Medicaid beneficiaries currently enjoy.”

NACDS president and chief executive officer Steven Anderson also called for new legislation to head off the new reimbursement plan. “In the end, congressional action is absolutely necessary to make possible the current level of vital pharmacy services available in low-income communities, including rural and inner-city areas,” he said.

NACDS and NCPA are far from alone in their bitter opposition to the Medicaid reimbursement guidelines. John Motley III, senior vice president of government and public affairs for the Food Marketing Institute, also gave voice to the concerns of supermarket pharmacy operators. “AMP is a flawed model because it calculates Medicaid generic drug reimbursements by including discounts that retailers don’t receive,” Motley said. “By doing this, it ensures that retail pharmacies will be paid less than it costs them to purchase these medications.”

Ironically, CMS acting administrator Leslie Norwalk acknowledged the potential loss in revenue the new rules could spell for community pharmacies, although she and other Bush administration policy advocates insist the impact will amount to “less than 1 percent” of pharmacy revenues. Norwalk also pointed out, in what pharmacy advocates may argue is a clear case of passing the buck, that many states are picking up some of the slack by increasing their own reimbursement rates for Medicaid prescriptions to pharmacies within their state borders.

Indeed, a growing number of states have responded to pharmacy’s concerns about being forced out of Medicaid by money-losing dispensing rates. But the industry’s best hope for legislative relief on the federal level now is a new bill, authored by Reps. Nancy Boyda, D-Kan., and Jo Ann Emerson, R-Mo., and introduced last month in the House.

The bill, known as the Patient Access to Medicaid Generic Prescription Drugs Act of 2007, would replace CMS’ AMP-based formula with a new Medicaid payment model for pharmacies, based on what the bill’s authors called “RAC,” or retail acquisition cost.

“RAC makes much more sense because it’s based on costs at the retail level, instead of the manufacturer level,” Emerson explained.