Tuesday, September 27, 2011

The Pharmacy Reimbursement Hit from AMP-Based FULs

Last Friday in Hello, Transparency: CMS Publishes its First AMP Data, I broke the news about the draft Average Manufacturer Price (AMP) data and associated Federal Upper Limits (FULs).

I’m sorry to report that my initial guess was correct. Based on number-crunching by two top Wall Street analysts, the draft FULs are about 40% below current state maximums for generic drugs. Reimbursement to pharmacies will fall when the AMP-based payment limits are officially launched. The blow will be cushioned by dispensing fees because generic drugs are so cheap anyway.

We still don’t know when CMS will implement the new limits given their rather bizarre data release process. But expect the pharmacy industry to punch back any day now.


As a reminder, the FUL is the federally established maximum amount that a state Medicaid agency can reimburse a pharmacy for dispensing a multiple source drug to a patient covered by Medicaid. States can go lower with a State Maximum Allowable Cost (SMAC), but they can’t pay ingredient costs above the FULs for these multi-source drugs.

Two of the best PBM/wholesaler analysts, Larry Marsh at Barclays Capital and Tom Gallucci at Lazard Capital Markets, each released reports on Monday that dug deeper into the draft FUL data.

Lazard compared the draft FULs of the top 20 prescribed drugs to the current SMAC for the 10 states representing the greatest number of Medicaid prescriptions. These 10 states—New York, Texas, Illinois, California, Ohio, Florida, North Carolina, Wisconsin, Missouri, and Indiana—account for 57% of total Medicaid prescriptions in the U.S.

Lazard found:
  • 72% of the draft FULs are lower than the corresponding SMAC.
  • Reimbursement averages about $0.29 less per pill (41% lower) when the FUL is lower than the latest SMAC. Since the dollar average is skewed by a few outliers, the median reimbursement difference is only $0.06 per pill.
  • Implementation of the draft FULs would reduce pharmacy revenues by about 0.5%.
Barclays compared SMACs with the draft FULs for the generic versions of Zocor, Effexor, Aricept, Vicoprofen, and Zestril. The three states—Florida, Indiana, and Pennsylvania—account for 9% of total Medicaid prescriptions in the U.S. As the table below shows, current ingredient cost reimbursements are about two times the calculated FUL, with the notable exception of Aricept. Click the table to enlarge.

Note that both analyses include ingredient costs but not the Medicaid dispensing fee. Given the low cost of most generic drugs (per the table in Friday’s post), the dispensing fee is often greater than the FUL reimbursement amount. One other analyst (not discussed here) looked at FUL ingredient cost plus dispensing fee. Unsurprisingly, the overall gap in pharmacy reimbursement appeared smaller in that analysis.


The greatest mystery remains: When will the new AMP-based FULs be implemented?

CMS is being very coy about the data release. On CMS' Draft FUL website, CMS states:
“We will accept comments on the draft Affordable Care Act FULs and the methodology used to calculate the FUL. Please submit your comments to FUL@cms.hhs.gov. We will consider all comments received, but we do not plan to respond to individual comments.”
I don't speak bureaucratese, so I asked my friend Chris Cobourn, a government pricing guru at CIS who blogs with his colleagues at The Pharma Compliance Blog.

Chris quipped to me that “CMS is putting us all through a course in Administrative Law!” As he sees it, the data release is neither a proposed rule nor an actual rule-making activity. Thus, CMS is putting the data out for comment, but there is no official comment period and CMS has no obligation to respond to comments in any official manner. Ah, the joys of bureaucracy! Tune into the Pharma Compliance Blog tomorrow for Chris’ take on the draft data.

Meanwhile, expect some major lobbying from pharmacy groups to (1) increase state dispensing fees, and (2) change the FUL formula (again).


  1. Add to that the ??? costs increase of like Mag Chloride Injection... from 25$  to over 1200$

    Jim Cammack RPH