Friday, February 12, 2016

Medicaid Drug Reimbursement Changes—The Move Toward Cost-Based Reimbursement

Today’s guest post comes from George Kitchens, president of Artia Solutions, on behalf of Elsevier.

George provides another view on the Average Manufacturer Price (AMP) final rule from the Centers for Medicare & Medicaid Services (CMS). He describes different cost-based price estimation approaches and proposes Predictive Acquisition Cost (PAC) as an alternative way to calculate a pharmacy’s drug acquisition cost.

Click here to download Elsevier's free case study that describes how Oklahoma’s state Medicaid program used PAC to reduce generic price spending while maintaining a satisfied pharmacy network.

Medicaid Drug Reimbursement Changes—The Move Toward Cost-Based Reimbursement
By George Kitchens, RPh.

The Centers for Medicare and Medicaid Services (CMS) issued its “Covered Outpatient Drugs” final rule on January 21, 2016. This rule addresses key areas of Medicaid drug reimbursement and rebate programs. The final rule assists states and the federal government in managing drug costs and creates an incentive to use generic drugs because pharmacy costs for these drugs will be updated on a regular basis. The rule ensures that reforms established under the Affordable Care Act (ACA) will be effectively implemented by providing detail on how reimbursements and rebates are calculated, while ensuring affordability and accessibility of prescription drugs.

The final rule updates the Federal Upper Limits (FUL) formula for payment of certain drugs and provides a regulatory definition for Average Manufacturer Price (AMP)—the data that drug manufacturers report to enable calculations of federal rebates.

The rule creates an exception to the FUL calculation which allows the use of a higher multiplier (more than 175 percent of lowest published price) to calculate the FUL based on certain generic drugs. According to CMS, this change will help offset the volatility of rising drug prices and create an incentive for pharmacies to use generic drugs, as reimbursements will be based on the actual cost of the drug. Fee-for-service state Medicaid programs will update drug costs on a regular basis, thereby ensuring fair reimbursement.

It is important to note that ACA-FUL uses AMP data which is reported monthly and quarterly after the fact. By the time CMS aggregates AMP data and publishes new ACA-FULs, they are based on data that is 3 or 4 months old. This delay can have a significant impact, such as when new generics enter the market and it takes several months to calculate the ACA-FUL.

The rule also establishes a drug’s AAC (Average Acquisition Cost) as the basis for determining cost-based reimbursement, so payments are based on a more accurate estimate of current prices in the market. Moreover, the term professional dispensing fee has been defined to ensure that the dispensing fee paid to pharmacists includes both professional service fees sufficient to support pharmacy operations and the cost to dispense to a Medicaid patient.

The final rule was published February 1, 2016 and will become effective April 1, 2016.

For over 50 years, AWP (Average Wholesale Price) has been the accepted benchmark for determining prescription reimbursement. During that time, AWP has been widely criticized based on evidence that AWP was higher than pharmacies’ actual cost of acquiring drugs from a wholesaler or manufacturer. This trend resulted in federal investigations and lawsuits over the use of AWP.

In 2010, Alabama Medicaid developed a survey-based method to collect prescription acquisition cost information from retail pharmacies. Alabama Medicaid used these data to establish a median cost (and set the dispensing fee at the median point).

CMS used the Alabama model to create the National Average Drug Acquisition Cost (NADAC) by collecting data from a national sample of pharmacies. NADAC is available for Medicaid agencies to use as a metric to determine cost-based reimbursement when a plan to use the metric is submitted to CMS for approval.

Adam Fein noted a concern about the accuracy of the NADAC data. In Government Boldly Launches a Deeply-Flawed Survey of Pharmacy Acquisition Costs,  he explains that NADAC does not include discounts in off-invoice quarterly rebates for generic drugs. Under this method, drug wholesalers could raise invoice prices while simultaneously increasing off-invoice rebates.

There is an alternative method to estimate acquisition cost and achieve cost-based reimbursement. Predictive Acquisition Cost (PAC) is a drug pricing benchmark that provides a fair and balanced approach for analyzing SMAC (State Maximum Allowable Cost) pricing and mirrors a price that closely matches a drug’s acquisition cost.

Relying on the power of predictive analytics, PAC uses a variety of inputs, including all existing price types and MAC benchmarks, published price lists, drug dispensation, survey-based acquisition costs, supply and demand measures, and pricing behavioral metrics to establish an acceptable acquisition price range. While no single input factor alone provides enough information to accurately estimate acquisition cost, collectively these factors triangulate into an accurate estimation.

Read the case study to gain insight into how Oklahoma Medicaid uses PAC to achieve cost-based reimbursement. The case study highlights the impact a cost-based approach can have on the bottom line while improving network relationships. Download the case study now.

The move toward cost-based reimbursement is an important step in the federal government’s effort to address rising prescription drug prices. Managing reimbursements through a cost-based method has relevance and impact throughout the drug supply chain. Cost-based methodologies are being adopted by stakeholders to ensure fair and transparent reimbursements, achieve Rx savings, and improve network relationships.

For more information, contact George Kitchens or Loretta Lombardo

Submitted on behalf of Elsevier—the Drug Price Leader

The content of Sponsored Posts does not necessarily reflect the views of Pembroke Consulting, Inc., Drug Channels, or any of its employees.

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