For community pharmacists, when Uncle Sam says "AMP," it might as well stand for "Ain't My Price." AMP (average manufacturer price) was developed nearly 20 years ago under OBRA '90 (Omnibus Budget Reconciliation Act of 1990) so that drug makers could calculate the rebates they owed to states for drugs dispensed to Medicaid beneficiaries.
Now the federal government wants to use AMP for an entirely different purpose--as part of the Medicaid reimbursement formula for the generic drugs that community pharmacies pay for and dispense every day. Last December, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to implement provisions of the Deficit Reduction Act, which targets community pharmacies--independent and chain alike--for $8.4 billion in cuts from federal and state Medicaid funds over five years. That $8.4 billion comprises 90% of all the Medicaid cuts called for in the act, even though drug reimbursements account for only 2% of the total Medicaid budget.
The CMS proposed rule dictates the maximum amount in federal payments that state Medicaid programs may receive for generic drugs, a calculation known as the federal upper limit (FUL). For a generic drug--and generics alone are affected by the budget-cutting act--the FUL will be based on 250% of the lowest available AMP for that particular drug. In its definition of AMP, CMS proposes to blend the prices paid by different types of purchasers, each of which may pay a different, and often lower, net price for medications than community pharmacies. So, in addition to community pharmacy sales, manufacturers would be required to include sales to mail-order operations and pharmacy benefit manager rebates in their AMP calculations. By including these different types of purchasers, the AMP and FUL will be driven to a level below the actual acquisition cost of generics for community pharmacies.
From the get-go, we were very uneasy about the use of the AMP for reimbursement, since it was never intended for that purpose. But initially we were hamstrung in making headway with the CMS, since we didn't know what the AMP was for a single drug.
The figures are confidentially reported to the CMS by the manufacturers, who have a vested interest in keeping them as low as possible to keep the amount of rebates they owe the states as low as possible. The CMS wouldn't even give us any AMPs with the manufacturers' names redacted.
But then a government study provided us with ammunition that should have been the evidence needed to help us convince the CMS of its errors. The Government Accountability Office (GAO), the investigative arm of Congress, obtained a number of AMPs. It sampled 77 multisource outpatient generic drugs and found that under the CMS-proposed AMP/FUL formula, the reimbursements would be 36% lower, on average, than a community pharmacy's acquisition cost.
Unfortunately, that evidence wasn't persuasive. The CMS, you see, was given the GAO report conclusions before it issued the proposed regulation we object to. In fact, the CMS raced to release its proposal before the GAO sent the report to Congress. The CMS also challenged the report's findings, naturally.
What the GAO did was to study 27 high-expenditure generics, 27 frequently used ones, and 23 that overlapped both categories--a total of 77. For the high-expenditure drugs, the GAO found that the estimated new FULs were 65% lower, on average, than community pharmacies' actual acquisition costs. For the frequently used drugs, acquisition costs were 15% lower. In the overlap category, acquisition costs were 28% lower.
To say the least, these numbers are staggering. Put another way, the CMS is proposing to pay pharmacies an average of 35 cents for every $1 the pharmacy spends to acquire certain drugs. As we'd been saying for months, based on what we had been told privately by generic manufacturers, we'd be losing money virtually every time we dispensed a generic to a Medicaid patient.
Where is the logic in this? Instead of directly promoting the dispensing of lower-cost generics, the CMS and its definition of AMP is indirectly encouraging use of much higher-cost brand name drugs. With a disincentive like that, use of brand name drugs will inevitably rise.
A failure to increase generic utilization will cost Medicaid $475 million for every 1% of prescriptions filled with a brand that could be filled with a generic. The lowest generic fill rate among states that don't promote generic drug use is 42%; in other states, it can approach 60%. Any budget increases associated with the AMP that actually cover ingredient cost and a realistic dispensing fee that includes overhead and professional services would be offset many times over with increased generic utilization from incentivized community pharmacists, we believe.
Speaking of realistic dispensing fees, the Coalition for Community Pharmacy Action, a government affairs team formed by the National Community Pharmacists Association (NCPA) and the National Association of Chain Drug Stores, recently released independent research supported by the Community Pharmacy Foundation that found that the cost of dispensing a prescription is $10.50 nationally.
The landmark study, conducted by the accounting firm Grant Thornton, reflects data from more than 23,000 community pharmacies nationwide and analyzed more than 800 million prescriptions. It also included state-level information for 46 states. The NCPA and the Coalition have been using the study and lobbying state legislators to convince them that higher dispensing fees promoting generic drug use will save Medicaid money.
In Congress, the NCPA has been working with lawmakers from both political parties to persuade the CMS to adjust the formula before issuing a final rule. At a minimum, acquisition costs must be covered. More than 100 members of Congress have publicly expressed their doubts about the AMP in letters to CMS. Included on that list are five committee chairmen: Sen. Max Baucus (D, Mont), Finance; Rep. John Dingell (D, Mich), Energy and Commerce; Rep. James Oberstar (D, Minn), Transportation and Infrastructure; Rep. Nydia Velazquez (D, NY), Small Business; and Rep. Ike Skelton (D, Mo), Armed Services. Nearly half of the Senate--46 members--have also complained to the CMS.
As a result of low reimbursement rates, many pharmacies may be forced to reduce the number of pharmacists or pharmacy hours or even close their doors forever. Inadequate dispensing fees, compounded by a cut to Medicaid prescription drug reimbursement, threaten patient access and the pharmacist's ability to continue to provide all patients with quality health care.
We are working to change the government's penny-wise and pound-foolish approach. It must be changed, or there will be dire consequences for all of us, patients and pharmacists and alike.
Bruce Roberts, RPh, is executive vice president and CEO of the National Community Pharmacists Association in Alexandria, Virginia.
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