GAO: Federal upper limits 1.4% lower than National Average Drug Acquisition Cost

WASHINGTON — In a report publicly released Thursday by the U.S. Government Accountability Office, the GAO found that the total draft federal upper limits amount based on the new formula under the Patient Protection and Affordable Care Act was about 1.4% lower than the total National Average Drug Acquisition Cost amount in aggregate for 1,035 outpatient drugs subject to the FUL in first quarter 2013. GAO found large differences between the total PPACA-based FUL amount and the total NADAC amount for generic and for branded generic versions — brand-name drugs with other versions that can be substituted for one another — of the drugs subject to the FUL in first quarter 2013.

GAO found that the total PPACA-based FUL amount for the generic versions was 19% higher than the total NADAC amount, but for the branded generic versions was 26% lower. GAO's work indicates that CMS is close to having a formula under which FULs would better reflect pharmacy acquisition costs, but continues to apply FULs that were calculated more than 4 years ago. Additionally, the relationship between PPACA-based FULs and NADACs may be affected by several factors, including rebates and discounts that are not reflected on pharmacy invoices. To determine whether GAO's early results of the relationship between the PPACA-based FULs and the NADACs holds over time will require continued monitoring by CMS, GAO reported.

To develop a national benchmark for retail pharmacy acquisition costs of Medicaid covered outpatient prescription drugs — known as the National Average Drug Acquisition Cost — the Centers for Medicare & Medicaid Services within the Department of Health and Human Services surveys each month randomly selected retail community pharmacies for invoice data on their actual drug acquisition costs. CMS then calculates an average acquisition cost for each drug based on invoice data received from about 500 to 600 pharmacies. CMS officials expressed confidence in their current process, but noted that some limitations may exist, GAO noted. For example, CMS officials stated the extent to which NADACs reflect rebates and discounts is limited because most occur off-invoice or are not tied to a specific drug purchase. CMS has developed and published more than 5,000 NADACs, which CMS has estimated apply to more than 90% of the drug claims reimbursed by Medicaid.