Medicare Compliance & Reimbursement

Fair pay for pharmacies at stake in new legislation.

A new Senate bill could help guard you from next year's planned slashes in what the feds will pay you for generics.

The bill, the Fair Medicaid Drug Payment Act of 2007 (S. 1951), would alter a new federal rule affecting Medicaid drug reimbursements. Set to take effect in January, the rule will cut generic payments to retail pharmacies to below cost.

Evidence: A report earlier this year from the Government Accountability Office (GAO) concluded that the reimbursement rate for pharmacists under the new rule would be on average 36 percent below pharmacists' cost of acquisition, reports John Norton of the National Community Pharmacists Association (NCPA).

The new legislation would help retail pharmacists avoid the most severe Medicaid cuts by insuring pharmacies receive adequate reimbursement for dispensing generic drugs to Medicaid beneficiaries.

"Community pharmacists in Montana and all across the country should not have to choose between Medicaid beneficiaries and going into the red" said bill sponsor Sen. Max Baucus (D-MT) in a prepared statement.

Stave Off Cuts, Save Pharmacies

Background: On July 17, the Centers for Medicare & Medicaid Services published a final Medicaid drug regulation implementing the Deficit Reduction Act (DRA) provision affecting Medicaid payments for generic prescription drugs.

Impact: In addition to cutting drastically what Medicaid pays pharmacists for generic drugs, the DRA provision ultimately could affect what Medicare Part D and other payors reimburse for generics in the future.

"We've even considered dropping our Medicaid patients," admits Cheri Garvin of Leesburg Pharmacy in Leesburg, VA. "But we can't do that. We know these people."

Other pharmacies are faced with that choice or closing, says Norton.

Possible relief: The new Senate bill could spare community pharmacists from such a dilemma. It would alter the definition of a key measure involved in the DRA plan--the average manufacturer price (AMP). Specifically, the new definition would remove mail-order transactions from the AMP calculation. The bill also excludes discounts, rebates, and other price concessions that are not passed on to retail pharmacies, explains NCPA.

Reap Benefits Of A New Approach

The bill proposes calculating Medicaid payment using the weighted average AMP based on utilization. The DRA and its implementing rule base Medicaid payment on the lowest AMP. Bonus: In addition, the bill would restore the definition of "generic drug" to a drug that has three therapeutic alternatives. That contrasts with the DRA definition of a drug that has only two alternatives.

Another plus: The bill would also boost Medicaid payments from 250 percent of the relevant AMP to 300 percent.

Right now, pharmacies are actually in a position where they might have to encourage the use of brand name drugs in the name of survival, explains Norton. "That makes no sense for Medicare or beneficiaries," he says.

Turnaround: The new legislation would promote generics, saving the Medicaid program money and ensuring continued beneficiary access to crucial pharmacy services, says NCPA.

A provision that calls for prior authorization of brand name drugs that have generic alternatives would also help promote generics.

The fight isn't over, but the Senate bill is a step in the right direction, insiders say.

"The Senate bill does solve most of the issues" pharmacies are facing under the current plan for Medicaid payment for generics, says Larri Short, an attorney with Arent Fox in Washington, DC.

Alternative: On July 24, the U.S. House of Representatives introduced a similar bill (H.B. 3140) that would also define the benchmark for Medicaid pharmacy reimbursement.

The House proposal calls for excluding all sales from mail-order facilities, pharmacy benefit manager price concessions, and rebates that were not provided to retail pharmacies. But to keep Medicaid payments reasonable, the House bill requires quarterly national surveys of community pharmacists to determine retail acquisition costs for all multiple-source drugs.

Industry insiders suggest that the Senate bill may help pharmacists in a more efficient manner.

"It gets community pharmacists to the same place" as the House bill, without the survey requirement, says Short.