Medicaid relief gathers steam

WASHINGTON —Amid a rising chorus of pharmacy leaders protesting budget cuts and new federal reimbursement rules for prescriptions dispensed under Medicaid, a key leader in the U.S. Senate introduced legislation early this month to reverse what pharmacy leaders say are some of the most damaging policies imposed under government cost-cutting efforts.

Sen. Max Baucus, D-Mont., who chairs the U.S. Senate Committee on Finance, unveiled legislation Aug. 2 that won immediate endorsement from the National Association of Chain Drug Stores. Baucus’ bill, called the Fair Medicaid Drug Payment Act of 2007, would alter several elements of the Deficit Reduction Act of 2005, which imposes a series of budget cuts on federal healthcare programs that pharmacy leaders predict will cost U.S. pharmacies a total of $8.3 billion over the next five years.

“This legislation would repair several damaging policies set by the…DRA and its misapplication by the Centers for Medicare and Medicaid Services, which imposed deep payment cuts on pharmacists,” NACDS stated.

NACDS president and chief executive officer Steve Anderson quickly endorsed Baucus’ initiative. “The introduction of this bill with strong tripartisan support is a critical step in ensuring that much-needed relief is provided to low-income Americans and neighborhood pharmacies across the nation, ” Anderson said.

The Baucus bill would redefine the average manufacturer price provision of CMS’ new Medicaid pharmacy payment plan, replacing the new prescription payment guidelines for multi-source drugs with a new pricing benchmark for generics, based on their average acquisition costs. It also would set federal upper limits on Medicaid drug payments only when there are three or more equivalent drug products on the market.

A number of prominent senators joined Baucus as co-sponsors of the measure, including Democrats Ken Salazar of Colorado and Blanche Lincoln of Arkansas; Republicans Trent Lott and Thad Cochran of Mississippi, Pat Roberts of Kansas and Gordon Smith of Oregon; and Joe Lieberman, who switched parties to become an Independent in his last race for election in Connecticut. “The fact that these six senators, all from different regions of the country, have joined forces on this bill demonstrates the urgency of turning back the unprecedented level of cuts facing community pharmacies and the low-income Americans they serve,” Anderson said. “This new legislation would promote the use of generics, saving the Medicaid program money and ensuring continued beneficiary access to crucial pharmacy services.”

Baucus’ move came two weeks after pharmacy voiced alarm over the new Medicaid policies at a hearing of the House Committee on Small Business. Representatives of NACDS, the National Community Pharmacists Association and the Food Marketing Institute warned lawmakers that the new prescription reimbursement guidelines for Medicaid seriously would hamper the ability of many pharmacies to participate in the Medicaid dispensing program.

Among those testifying was Tony Civello, president and chief executive officer of Kerr Drug. Civello, who capped a two-year term as NACDS chairman in April, called the new CMS payment model “simply unacceptable for community pharmacy and the Medicaid patients they serve,” and said the rule was so flawed that only new legislation could stave off a potentially disastrous situation for many pharmacy operators.

“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,” Civello told House panel members.

CMS’ new model marks a major change in the way the Medicaid program will pay retail pharmacies for dispensing multi-source or generic medications to patients enrolled in the program. In its effort to interpret the cost-saving provisions of the DRA, CMS replaced the old standard for determining generic reimbursement rates, which was based on the average wholesale price of the product, to the new AMP model.

Civello testified that the new model contradicts the DRA because it includes drug prices paid by a broad swath of the pharmaceutical market, rather than just the rates paid by wholesalers for drugs distributed to retail pharmacies. It also requires drug makers to include all transactions in the AMP calculation except for sales and rebates that can be documented as being excluded under the new rule.

Civello predicted that payments for generics under the new guidelines would plummet 30 percent, “a level that will simply be unsustainable for many pharmacies serving low-income communities.”

Also testifying were Charles Sewell, senior vice president of government affairs for NCPA, and Ed Hagan, director of pharmacy for Associated Food Stores and a representative of FMI’s pharmacy department. Sewell painted a stark picture for committee members. “In 2006…1,152 independent pharmacies were sold or permanently closed,” he said. “This net loss of three independents per day is directly attributable to Medicare Part D, chiefly from payment delays, lower reimbursements and patients being unfairly steered into mail order and away from their community pharmacy.”

Sewell cited the concerns many pharmacy retailers have with the AMP-based pricing formula for generics, saying it includes mail-order pharmacies and other pricing categories not available to community drug stores. “Mail-order pharmacies purchase directly from the manufacturer, often at discounts not available to independent retail pharmacies,” he asserted. “These sales deflate AMP, making it further unrepresentative of retail pharmacy acquisition cost.”

Citing a recent study from the accounting firm Grandt Thornton, Sewell noted, “Retail pharmacy’s cost-to-dispense averages $10.50 nationwide…[but] the dispensing fee paid under state Medicaid programs is far lower at an average of $4.50.

Speaking on behalf of supermarket pharmacies, Hagan told panel members that the CMS payment formula also would force FMI member pharmacies to operate at a loss. “This new rule could result in the failure of some of our small business members,” Hagan said. “Pharmacies will find it increasingly difficult to serve Medicaid patients.”