Friday, January 14, 2011

CMS Rejects South Carolina's Medicaid Pharmacy Payment Increase

I courted controversy last July in A Victory for Pharmacy Profits in South Carolina by showing that a proposed revision to South Carolina’s Medicaid program would have paid pharmacies far more than other states for no real reason at all. At the time, the NACDS had touted the increase as a "Major Victory for Patients and Pharmacy in South Carolina." The increase was intended to adjust pharmacy reimbursement for the September 2009 Average Wholesale Price (AWP) rollback.

Well, it turns out that the Centers for Medicare & Medicaid Services (CMS) agrees with me because CMS recently rejected the payment increase. In a heretofore unpublished letter from CMS Administrator Dr. Donald Berwick to South Carolina's Department of Health and Human Services, Dr. Berwick wrote that "the State's interpretation of the First DataBank. Inc. settlement is contrary to its intended purpose of correcting the inflated markup of AWP." (More excerpts below.) Oh, snap!

Hat tip to Eric Ward, an intrepid investigative journalist for TheNerve.Org. He obtained the letter through a Freedom of Information Act request and shared it with me. Read his article.

A few more excerpts from the letter for fans of regulatory bureaucratese:
"I am unable to approve this SPA because it does not comply with section 1902(a)(30)(A) of the Social Security Act (the Act), which requires, in part, that States have methods and procedures in place that payment rates are consistent with efficiency, economy, and quality of care."
"As United States District Judge Saris stated in her order approving the settlement, 'AWP has been exposed as a faux inflated price unrelated to actual drug prices ... [and] ... rolling back AWPs or phasing them out as a pricing benchmark is in the public interest.' New England Carpenters Health Benefit Fund v. First DataBank. Inc., (D. Mass. March 17,2009) (order granting final approval of settlement). In addition, the State failed to demonstrate why the increased rate was needed to ensure adequate pharmacy payment given the findings of the Court regarding the AWP inflation in the First DataBank litigation."
Medicaid payment to pharmacies will continue to be in news as the states face a fiscal crunch and scrutinize current benefit management practices (as discussed in another controversial article: How to Stop Medicaid from Overpaying for Drugs.) Stay tuned for more battles.


  1. Adam,

    Thanks for the post. The decision by CMS is certain to be a big disappointment to pharmacists in South Carolina. Still, this decision just reinforces the continuing need to fundamentally reform pharmacy reimbursement in publicly funded programs.

    As I've noted before, some of us in Pharmacy have been advocating this for quite awhile. For a bit of history on this topic see:

    Bottom line: If it is to achieve sustainable "efficiency, economy and quality of care" a publicly funded program must be based on a payment model that is rational, transparent and acceptable to both providers and payers. The experiments with cost-plus models in Alabama and Oregon are a start but I think we can do better. A possible silver lining in the South Carolina decision is that it may provide the opportunity for a fresh approach there, too.

    Thanks for continuing to be the grain of sand in our oyster. The irritation you create helps us make pearls.

  2. Reimbursement doesn't need to be reformed. Reimbursement is the problem. Money changing, paper pushing, and pill counting are not value-add activities that would survive market forces if people paid using their own money.

  3. Mike Rupp-you are an absolute idiot. Be thankful for what you get today because you are getting way too much for your dispensing services. SC is at AWP-10% and I would be embarrassed to pay that if I was the pharmacy director in SC. I would assume there is a budgetary deficit in SC? Simply ridiculous and embarrassing from a taxpayer perspective.

    Even post rollback this equates to AWP-13.6% or an equivalent WAC+8%. SC should be moving to straight WAC or AWP-16 to -16.5%.

  4. Anonymous - I'm reluctant to dignify the marginally coherent ravings of a gutless sniper with a response but . . . where in my post did you discern that I am asking for unreasonably high payment to pharmacies for routine dispensing services? I'm merely advocating a transparent payment model that recognizes legitimate acquisition and dispensing costs. Where I come from we call that "dead net" so I would hope that a modest and mutually acceptable margin would be available, too. In America we call that "profit" and if you don't have it then the taxpayers really do have to pick up the tab - the whole tab.

  5. Mike Rupp-golden rule number one for a pharmacy. NEVER, EVER depend on Medicaid for pharmacy profitability. AWP-10% is already unreasonably high. I don't have to include my name in any post. For Medicaid--the taxpayers already pick up the whole tab. I have seen threats to pull out of Medicaid for years and years when Medicaid pharmacy reimbursement was cut. Guess what--it never happened. Why-there is still plenty of margin on the table. Where do you come from?


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