Tuesday, August 10, 2010

CMS Wants Public Transparency to Pharmacy Profits

A potentially industry-changing Solicitation by the Centers for Medicare & Medicaid Services (CMS) popped up recently on Federal Business Opportunities. CMS is looking for a vendor to conduct a new Survey of Retail Prices, Payment and Utilization Rates, and Performance Rankings.

As I describe below, this survey will gather data on both retail pharmacy prices as well as the prices paid by pharmacies to wholesalers or manufacturers. Plus, CMS intends to post these data on its website.

Translation: The whole wide world will have transparency to drug prices and costs, potentially at the National Drug Code (NDC) level. Toto, I've a feeling we're not in Alabama anymore.

Think about what the publication of these data could mean:
  • Pharmacies and Pharmacy Benefit Managers (PBMs)—Transparency to average dispensing spreads between ingredient cost reimbursement and acquisition cost
  • Brand-name Drug Manufacturers—Visibility into channel management and fee-for-service discounts
  • Generic Drug Manufacturers—Visibility into sales and discounting strategy
  • Payers and PBMs—Availability of new reimbursement benchmarks to replace Average Wholesale Price (AWP) and Wholesale Acquisition Cost (WAC)
Few “Interested Vendors” have applied, so read on if you want the job.

The key document is Attachment J-1 Statement of Work.doc. (This link will open an MS Word file.)

Here are two brief excerpts that should give you a sense of what CMS is planning. Read J-1 for full details.
Part I Requirements: Retail Community Pharmacy Consumer Prices
The Contractor shall develop a nationwide retail survey methodology for all 50 States and the District of Columbia that will result in the publication of a pricing database for all covered outpatient drugs that is based on actual, monthly market transactions. This survey shall incorporate the collection and calculation of drug prices from all sectors of retail pharmacies that captures and separately maintains a file of consumer drug prices for each of the following:
a. Cash paying customers,
b. Customers with commercial third party insurance,
c. Medicaid customers.
The above price lists are to be published on the CMS website.
Part II Requirements: Retail Community Pharmacy Ingredient Costs
The Contractor shall develop a nationwide retail survey methodology for all 50 States and the District of Columbia that will result in the publication of an ingredient cost file of all covered outpatient drugs purchased by retail community pharmacies.
The Contractor shall compare ingredient costs derived from the survey to existing reference pricing used by States such as wholesale acquisition cost (WAC) and average wholesale price and also to the Part I prices to demonstrate potential savings in detail and summary reports.
Once approved by CMS the Contractor will provide this information in a manner suitable for posting on CMS’s website or forward the monthly survey results to the States designated individual (provided by CMS).
Expect the battle over data disclosure to be fierce. The two retail pharmacy lobbying organizations—NCPA and NACDS—have already sent a letter to CMS with a list of demands and complaints about the new definition of Average Manufacturer Price (AMP) and the posting of price data. Unfortunately, NCPA legal counsel has labeled this letter Top Secret “due to the ongoing litigation involving AMP with the federal government.” Whatever.

I haven’t seen a whisper of this solicitation in the industry media, so let’s call it another Drug Channels exclusive. I’m not a journalist; I just play one on the Internet!

P.S. I wonder what future generations will think of LOLcats?


  1. Nice catch today in your post. I hadn't seen that before. What's the theoretical timeline? Crazy level of disclosure it seems to me.

  2. According to Attachment J-2 Deliverable Schedule, CMS expects data collection and deliverables to start in the first quarter of 2011. However, I'm sure the timetable will change.


  3. Great info as always, Dr. Fein. You have a must read site.

    But I think you meant to say you play a journalist on the Interwebz. LOL!

  4. I didn't have time to read the documents so maybe it's buried in there, but what is their justification for this. They are certainly the biggest buyer, but why make this information public?

    Are they doing this for hospitals? Is government going to do this for other industries? Will this really lower costs? Will it improve outcomes?

    I understand that many people would like to be bullies and get whatever they want from vendors, but shouldn't there be some logical, democratic, and clinical reason for why?

  5. Hi George,

    The first section of Attachment J-1 states:

    "The Deficit Reduction Act of 2005 (DRA) (P.L., 109-171) was enacted on February 8, 2006. Section 6001 of the DRA addresses drug payment under the Medicaid program and establishes the requirement for a monthly national survey of retail community pharmacy prices of covered outpatient drugs, the reporting by the States of payment and utilization rates, and the Secretary to comparatively rank, for the 50 most widely prescribed drugs States drug payment rates compared to the national retail survey prices."

    "The purpose of this project is to contract for the performance of a monthly nationwide survey of retail community pharmacy prescription drug prices and the generation of publicly available pricing databases. These databases will afford State Medicaid agencies a valid array of covered outpatient drug prices from ingredient costs paid by retail community pharmacies to those prices available to the consumer. The State agency can use this information to compare their own pricing methodologies and payments to those derived from this survey."

    As my subsequent posts indicate, the pharmacy industry associations have a very different interpretation of CMS' requirements.


  6. I think that it is okay for the pharmacy companies to open the records of their profits publicly because I think that it can be considered as public interest too.

  7. I hope Myers & Stauffer does a better job for the CMS than it did in Oregon and Alabama