View Full Version : Government's New Pricing Methods Put Squeeze On Pharmacies, USA

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09-15-2007, 08:49 AM
First came average sales price (ASP). Then came average manufacturer price (AMP). Gone for the most part is average wholesale price (AWP), a figure published in privately owned compendia and not defined by federal law or regulation.

New alphabet soup. AWPs, as the Office of Inspector General for the Department of Health and Human Services told Congress on various occasions, are usually not based on actual sales prices and "bear little resemblance to the prices incurred by retail pharmacies."

Pharmacies' actual acquisition costs for generic drugs in 1999, for example, averaged 66% below AWPs, according to one of the inspector general's reports on the subject.

The ASP and AMP for a drug product, however, are defined by federal law and regulation and provided to the Centers for Medicare and Medicaid Services (CMS) by the manufacturing firm. A high-ranking officer of the firm certifies that the prices are calculated accurately.

Simply put, ASPs are based on a manufacturer's sales of a particular pharmaceutical dosage form, strength, and package size to all purchasers in a given quarter; AMPs come from the prices paid to a manufacturer by wholesalers for a pharmaceutical distributed to what is called the "retail pharmacy class of trade."

AMP and Medicaid prescriptions. The Deficit Reduction Act of 2005 installed AMP in place of AWP as the payment basis for Medicaid-covered prescription medications.

"This model," said Edward Stemley, director of the ASHP Section of Pharmacy Practice Managers, "will result in significant reductions in revenue for institutions that are greatly dependent on Medicaid reimbursement" because of their payer mix.

Since January 1, Medicaid's maximum payment for multiple-source drugs has been 250% of the AMP for the cheapest therapeutic equivalent. The previous formula was 150% of the lowest AWP.

The inspector general's office reported in June, however, that "the lowest AMPs may not reflect prices generally available in the marketplace" for certain drugs.

Then in July, CMS issued regulations to ensure that manufacturers calculate their AMPs in the same way.

The retail pharmacy class of trade, CMS decided, includes any pharmacy that buys pharmaceuticals from a manufacturer, wholesaler, or other licensed entity and then dispenses the medications to the public, even through the mail.

CMS also decided that a multiple-source drug, for which the agency sets an upper limit for payment, was any drug available as two or more therapeutic equivalents. Previously, there had to be at least three therapeutic equivalents for CMS to set a federal upper limit.

State Medicaid programs in January must start abiding by the federal upper limit amounts calculated from the new regulations.

Charles Sewell, senior vice president for government affairs at the National Community Pharmacists Association, told reporters on July 11 that CMS's new regulations will cause the average net margin at independent pharmacies to drop to zero.

He said those pharmacies' current average net margin is less than 3%.

Douglas E. Miller, chief of pharmacy and a vice president at Grady Health System in Atlanta, said it is too early to know how the new regulations will affect his pharmacy department.

Georgia statutes, he said, already require Grady to bill Medicaid at the health system's actual acquisition cost plus the state-set dispensing fee, which is $4.33. And because of participation in the federal 340B drug-discount program, Grady does not fill prescriptions for Medicaid beneficiaries who are not full-fledged patients of the health system.

But Grady's pharmacy workload could change, he said, if community pharmacies close or refuse to fill Medicaid prescriptions and those Medicaid-eligible persons then go to his emergency room.

By having medical problems assessed in the emergency room of a 340B-participating hospital, a Medicaid beneficiary becomes a patient of the hospital, Miller said. The hospital's outpatient pharmacy must then fill all the prescriptions written from that assessment.

"We're already stretched to the limit with the number of prescriptions that we fill everyday, roughly 6000 prescriptions a day," Miller said.

About 18% of those prescriptions are for Medicaid beneficiaries, he said.

ASHP's Stemley said the Society is concerned that Medicaid beneficiaries in general may have problems obtaining medications if community pharmacies cannot sustain themselves financially under the new AMP regulations.

Poor AMP-based payment rates, he said, will make it more difficult for health systems to continue serving Medicaid and uninsured patients.

ASP and hospital outpatient services. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established ASP as the basis for payments to hospitals for the use of certain pharmaceuticals in providing care to outpatients with Part B coverage.

For 2005-07, the payment rate for those pharmaceuticals was 106% of their ASPs.

CMS has proposed a payment rate of 105% for 2008.

David F. Chen, director of the ASHP Section of Home, Ambulatory, and Chronic Care Practitioners, said the Society is concerned that the rate of ASP plus 6% has not been covering pharmacies' total costs for acquiring the pharmaceuticals, handling them, and managing the clinical aspects of medication use.

Further, he said, as physician offices grapple with the same payment rate, they send some patients to hospitals and health systems for drug administration.

The Medicare Payment Advisory Commission reported in January that most oncology, rheumatology, urology, and infectious disease practices interviewed had a blanket policy for sending all Medicare beneficiaries lacking supplemental insurance or having Medicaid eligibility to hospitals if in need of drug treatment. Those were the patients unable to pay Medicare Part B's 20% copayment or for whom the state-set Medicaid reimbursement inadequately covered the Part B copayment.

ASHP, Chen said, has been "working with members in providing testimony to CMS to advocate for an improvement to the way that hospitals and health systems are reimbursed for the products that are covered under the ASP model."

Ernest R. Anderson Jr., pharmacy director at Lahey Clinic in Burlington, Massachusetts, said that in his most recent check of ASP-based payment rates for the clinic's formulary products, "we were upside down on about a third of the drugs." For those drug products, the acquisition cost exceeded the payment that Lahey would receive from Medicare.

"I can't say that it affects pharmacy per se directly," he said, because of the way the nonprofit institution views revenue and expenses.

"The pain will be felt across the entire institution," Anderson said.

http://www.ashp.org (http://www.ashp.org/)