May 13, 2010 – State Medicaid programs have been working feverishly since the settlement of a major lawsuit last fall to replace the average wholesale price (AWP) standard used to set pharmacy reimbursement rates.
In a side agreement to the September 2009 settlement, the drug-information publishers First DataBank and Medi-Span agreed to stop publishing AWP-based pharmaceutical prices by September 2011. Thomson-Reuters, a third publisher not involved in the suit, announced in April that it will continue to publish AWPs in its print and electronic drug references.
Many state Medicaid programs have based their pharmacy reimbursement rates at least in part on discounts off the AWPs published by First DataBank and Medi-Span. Many if not all are likely to switch to a markup of wholesale acquisition cost (WAC), at least until a more transparent standard can be adopted.
Acquisition costs for 340B providers, which are based on the much lower average manufacturer price (AMP), will not be affected by the change to a new benchmark. However, 340B pharmacies that “carve out” their Medicaid drugs from the 340B program could see their Medicaid payment margins shrink.
Only two state Medicaid programs currently do not use a discount off AWP to set Medicaid payments for pharmacy providers, preferring to use a markup of WAC instead. Eight other states use a combination of a discount off AWP and a markup of WAC. In 2005, Congress voted to replace AWP with AMP as the benchmark for Medicaid reimbursement for generic drugs, but the switchover has been blocked since 2007 by an injunction in a suit brought by the National Community Pharmacists Association and the National Association of Chain Drug Stores.
“Ain’t What’s Paid”
The search for a replacement for AWP stems from lawsuits by third-party payers against First DataBank and Medi-Span, which were accused of misstating AWPs for the benefit of drug manufacturers. Long before those actions were commenced, however, payers had complained about the lack of transparency in AWP calculations and joked that the abbreviation stood for “ain’t what’s paid.”
In September 2001, the U.S. Government Accounting Office’s leading health care expert told the House Energy and Commerce Subcommittee on Oversight and Investigations that AWP was neither “average” or “wholesale.” Not long before, an investigation by the Justice Department and the National Association of Medicaid Fraud Control Units found that drug manufacturers were reporting inflated AWPs. As a result, the Medicare Modernization Act replaced AWP with an average sales price measurement for Medicare Part B drugs and biologics beginning in 2005.
Faced with a deadline less than two years away, state Medicaid program directors and pharmacy administrators met with representatives from First DataBank last October to begin work on a new uniform pricing standard.
A subcommittee issued a white paper a month later expressing doubts about using either AMP, average sales price, maximum allowable cost, or the best price charged to an insurer as a substitute benchmark. It suggested that average acquisition cost would present the most defensible alternative pricing standard that, if gathered broadly enough by the states, would be “resistant to individual efforts to manipulate it.”
Meanwhile, several states have begun considering legislation that would either authorize studies of or implement a new pharmacy reimbursement standard. For example, a Utah spending bill signed by Gov. Gary Herbert on March 31 directs the state Legislative Fiscal Analyst to report back by October 1, 2010 on a new pharmacy reimbursement mechanism other than AWP.
A similar 2010 Washington State spending bill contains a provision requiring the Medicaid program to work with stakeholders and report back to the legislature by Nov. 1, 2010 on a proposed new benchmark and its potential impact on state expenditures and stakeholders. A Florida Medicaid funding measure, meanwhile, would replace AWP with WAC as the reimbursement standard, beginning March 1, 2011.