Medicare Compliance & Reimbursement

Report says newer generics, AWPs are inflating drug costs.

Judging by the tone of a recent hearing, U.S. representatives are set to take a hard look at how the government decides on Medicaid drug payments.

During "Medicaid Prescription Drugs: Examining Options for Payment Reform," held in Washington in late June, several reps decried the paradox plaguing the Medicaid drug payment system, which is supposed to be a tool for keeping prescription prices down. Despite the system's ostensible intentions, however, representatives claimed that it is serving a polar opposite purpose.

"Generic drugs are supposed to promote competition and lower costs, but under Medicaid's rules, this system has been turned on its head," said Rep. Nathan Deal (R-GA), chairman of the House Energy and Commerce Subcommittee on Health.
 
Blind AWP Purchasing Causes Concern

Deal claimed one of the biggest problems with the current system is the practice of paying for drugs based on average wholesale prices, which are reported by the manufacturer. AWP is not governed by law or regulation, resulting in some gaudy (and embarrassing) government spending gaffes.

For example, it was revealed at the hearing that in 2004, the Oversight and Investigations Subcommittee found Medicaid once paid $5,336 for a prescription
that only cost the pharmacist $88.

The reps also broached a report from the Congressional Budget Office that found that between 1997 and 2002, the average mark-up on generic drugs increased by nearly 79 percent for each prescription.

Another concern with the system involves the use of newer generic drugs instead of more traditional ones. The largest single factor contributing to the rapid increase in mark-ups on prescription drugs under Medicaid was the use of newer generic drugs, according to the CBO.

Deal Gains House Support

During the hearing, several representatives came out decrying AWP and supporting Deal's push to promote smarter prescription spending.

"This is one of the worst examples of government gone awry that I've ever seen. If we can't do better than this, we should have our heads examined," Rep. Barbara Cubin (R-WY) said of the AWP.

Rep. Michael Bilirakis (R-FL), vice chairman of the House Energy and Commerce Committee, added: "It is clear to me that the use of AWP-based reimbursement as a payment benchmark under Medicaid is fatally flawed."