Friday, April 25, 2008

The AMP Saga Goes On and On and On

There are some new developments for Average Manufacturer Price (AMP), although the situation has now devolved into a somewhat arcane legal battle. Unless there is a legislative fix (unlikely), then I expect that CMS will punt this issue to the next administration in 2009.


As a reminder, the Deficit Reduction Act of 2005 required the Center for Medicaid and Medicare Services (CMS) to set the Federal Upper Limit (FUL) on payment for generic drugs at AMP plus 250 percent. The FUL is currently computed using the Average Wholesale Price (AWP) list prices, although some states opt to establish reimbursement limits below FUL at maximum allowable cost (MAC).

The change to AMP was advocated in September 2005 by the Bipartisan Commission on Medicaid Reform and the National Governor’s Association. This change was made in part because pharmacies were earning extraordinary profits from dispensing generic drugs in the Medicaid program.

In 2002, filling a script for a generic less than 5 years old gave a pharmacy $32 in “spread” – the difference between Medicaid reimbursement and acquisition cost. Filling a branded script yielded a comparatively skimpy $14 spread. (Source: Medicaid’s Reimbursements to Pharmacies for Prescription Drugs, a December 2004 CBO report that always generates hate mail from my pharmacist readers.) Private insurers, in the form of Medicare Part D plans, have done a better job at equalizing the dollar margins for brands and generics. (See Pharmacy Profits & Part D.)

CMS issued its Final Rule for implementing the AMP provisions of the DRA in July 2007. NACDS and NCPA, the two leading pharmacy trade associations, filed suit against CMS. To my surprise, they got an injunction that prevented CMS from adopting the AMP-based pharmacy reimbursement formula and publishing AMP data on the Internet. If you believe the over-heated rhetoric, then this legal delay saved up to 12,000 pharmacies from financial ruin.


More recently, NACDS and NCPA have opposed CMS’ subsequent clarification of “multiple source drugs” (a.k.a. generics) based on two technical legal objections. Yesterday, the two organizations were granted permission to file an amended complaint that challenges this new multiple source drug rule. The wheels of justice can grind slowly, so I don’t expect a resolution anytime soon.

Legislative action continues via pleas to pass The Fair Medicaid Drug Payment Act of 2007 (S.1951 and H.R. 3700). Neither bill has progressed very far. Senator Baucus, who sponsored S.1951, seems preoccupied with delaying the Medicare physician fee cut for 18 months. Perhaps Congress will feel generous since they voted on Thursday to delay seven new Medicaid regulations.

Just in case, NACDS sent a letter to Congress that asks for joint passage of the AMP bills along with unrelated bills about e-prescribing in Medicare. I presume the unstated motivation is to link the purported savings from e-prescribing to the extra costs of the Medicaid AMP increase.


So, we are not very close to resolution, which is perhaps a small net benefit to pharmacies. I’ll occasionally check in on our old friend AMP but will primarily turn my attention to other topics until some big news breaks.


  1. It is quite understandable that the industry is doing all it can to block the disclosure and use by CMS of AMP. What is overlooked are the flawed mechanisms CMS demands for AMP reporting by manufacturers. As an example the AMP prices must be reduced to reflect the value of any returned goods and shipping shortages.

    NACDS et al would be wise to look carefully at the CMS rules for AMP reporting.

  2. Can someone tell me how this will impact Brand Adjudication?
    Wouldn't single source and brand items make up for lost profits on the generic side?

  3. Adam,

    You actually use a CBO paper to justify retail pharmacy's "conspiracy" to make unbelievable profits. Gee... pharmacy makes Microsoft look like an upstart. Why don't you just find a friendly "independent" pharmacy and ask to review their financials.... It might
    surprise you. Oh no the truth!!!!!

    I know this doesn't fit your criteria for a response- but if you want to see my financials, your are welcome-- but you have to do it in person. I would welcome the exchange

  4. Bruce (?),

    Thank you for taking the time to comment.

    Just to be clear, I am not claiming any type of conspiracy. I am simply pointing out that the objective data showed pharmacies making disproportionate profits from generics in Medicaid. At least two bipartisan groups recommended that AWP should no longer be the basis for the FUL.

    I'm not sure what the profits of Microsoft or any large public company from another industry -- Google, Pfizer, Disney, General Motors, GE, etc. -- have to do with retail pharmacy reimbursements.

    If you are in the Philadelphia/South Jersey area, then perhaps I can visit. Send me a private email with the details.


  5. Adam,

    What about the low levels of gross margins on the brand side?? I would be happy if we received a reimbursement that is stricitly a gross margin fee that applies the same fee to both brands and generics. How would that be? By the way I bet that the PBM's would not go for that with their own in-houe mail order pharmacies. Aren't profits and gross margins two different discussions and definitions???

  6. "Dr." Fein,
    Once again your bias toward the parties that write your paychecks shines through. I have yet to see you criticize, comment, support or say anything about the profits & business practices of your "clients", the drug manufacturers and PBM's.

    However, in the interests of this "discussion", my opinion as a pharmacy owner in a rural area is as follows:

    1. Manufacturers and PBM's provide a service that is wanted?/needed and should be allowed to make a "fair" profit.
    2. Pharmacies provide a service that is wanted & needed and should be allowed to make a "fair" profit.
    3. CMS needs to take a closer look at the MFR and PBM with the same magnifying glass that has been put to pharmacy.
    4. I don't mind taking a REASONABLE cut in Medicaid reimbursement as long as those claims will be paid within 15 days from date of dispensing to patient(as it stands now Illinois Medicaid is 90 to 120 days behind in reimbursement). This type of delay justifies keeping the reimbursement higher to offset interest payments on my loans to stay in business.
    5. If the AMP is implemented as presented, my doors will close the same day.