Legislation would change CMS pharmacy rule

Spurred by complaints from the National Community Pharmacists Association (NCPA), the National Association of Chain Drug Stores (NACDS), and other pharmacy interests, some members of Congress are backing legislation to fix what they say is a flawed Center for Medicare & Medicaid Services (CMS) Medicaid pharmacy reimbursement rule for generic drugs.

Reps. Nancy Boyda (D-KS), Jo Ann Emerson (R-MO), and 30 other House Democrats and Republicans have introduced HR 3140, the Saving Our Community Pharmacies Act of 2007, which would make four changes to the CMS Medicaid generic prescription drug pharmacy reimbursement formula. Pharmacy groups have said the CMS plan would force many community pharmacies to either limit the amount of Medicaid services they can provide, drop Medicaid completely, or even go out of business.

Although CMS has delayed implementation of the new formula, pharmacies continue to say it is ill-advised. The formula is based on the average manufacturer price (AMP) from the 2005 Deficit Reduction Act's mandate to find $8.4 billion in Medicaid cuts, with 90% of that total coming from pharmacy reimbursement.

NCPA says that goal was achieved by including several pricing categories that push down the typical drug acquisition costs to dispense drugs well below what community pharmacies actually pay. The association says since Medicaid is intended to meet the health care needs of poor and disabled Americans, half of whom are children, the prospect of community pharmacies struggling to be financially viable creates a slippery slope. When these vulnerable patients' access to prescription drugs is limited, NCPA says, their health will be endangered and expensive visits to emergency departments and doctors' offices will increase.

HR 3140 would:

  • redefine the pharmacy reimbursement benchmark to accurately reflect pharmacy acquisition costs;
  • exclude all sales to mail-order facilities and any pharmacy benefit manager rebates and price concessions that are not available to retail pharmacies;
  • properly define the retail class of trade to only include retail community pharmacies;
  • include provisions to drive generic utilization, which would increase taxpayer and government savings.

NCPA says without HR 3140 becoming law, estimates from the Government Accountability Office and NCPA are that the total net profit for the average community pharmacy would fall by 60% under the CMS rule. Community pharmacies are said to receive 92% of their revenue from prescription drugs, which means these types of losses cannot be made up through other revenue sources.

Critical for continued access

"This bipartisan legislation is critical to maintaining patient access to their trusted community pharmacists who will provide medical advice and fill their prescription drug needs," said NCPA president John Tilley, RPh, a Downey, CA, pharmacy owner. "Without Congress acting in an expeditious fashion, many more communities will see their access to life-saving prescription drugs jeopardized. This doesn't just affect Medicaid patients. A closed pharmacy means all of its patients lose, which is an outcome CMS will have created by not heeding the warnings of Congress, NCPA, and other business and health care organizations who have long understood that the AMP formula would have devastating consequences."

A CMS update on the new rule says the Deficit Reduction Act changes were prompted by a series of 2004 reports by the Government Accountability Office and the HHS Office of the Inspector General (OIG) that indicated that Medicaid payments to pharmacies for generic drugs were much higher than what pharmacies were actually paying for the drugs. Those agencies said states were overpaying for drugs because they were using commercial drug pricing guides as the basis for setting state reimbursement levels.

The new formula establishes a federal upper limit (FUL) calculation, which is the maximum the federal government will pay to states in federal matching funds or federal financial participation for generic drugs dispensed through state Medicaid programs. The new FUL is calculated at 250% of the lowest AMP in a generic drug class. States may pay above or below the FUL for individual drug classes and still receive the full federal financial participation as long as overall payments for generic drugs subject to an FUL are under the annual aggregate cap.

While the law requires CMS to set an FUL, states retain the authority to set their own reimbursement levels and dispensing fees paid to pharmacists. Recognizing that the new FULs could result in some reduction in drug ingredient payments to pharmacies, CMS officials have said they are actively encouraging states to evaluate whether the fees they pay pharmacies are adequate to compensate them for their costs in dispensing prescriptions. It has been reported that Iowa and Kansas have agreed to transfer any savings resulting from the new rule to pharmacy dispensing fees. Also, Texas plans to increase its dispensing fee to at least $7.50, with triggers that could increase the fees to $12.50. The average dispensing fee nationwide is about $4.50.

States may help pharmacies

Morgan Stanley analyst David Veal told investors that the six-month delay announced by CMS will move implementation of the rule much closer to the time that many state legislatures reconvene and "potentially allow[s] lawmakers to boost dispensing fees more immediately to offset the potential reimbursement cuts."

Ammunition for the pharmacies' position came in an HHS Inspector General report that said the new FUL may force states to underpay pharmacy providers for generic medicines they dispense under Medicaid. Pharmacy acquisition costs will exceed the FUL for 19 of the 25 high-expenditure Medicaid drugs studied, the OIG report said. The report also found that for 12 of the 19 drugs studied, the average pharmacy acquisition costs "would have been more than double the reimbursement limit."

"This report confirms the serious concerns raised by community pharmacy, the Government Accountability Office, other Inspector General reports, and the 250 members of Congress who have gone on record in letters to CMS or HHS," said NACDS CEO Steven Anderson. "Rather than reflecting actual pharmacy drug costs, the reimbursement limits currently proposed by CMS would dramatically limit the availability of community pharmacy services to millions of Medicaid beneficiaries."

The OIG report said that the lowest AMP for 109 of the 521 drugs it looked at comes from a drug with very limited distribution (2% or less of Medicaid sales). The report also said 149 of the 521 drugs (29%) have FULs based on the lowest AMP that would be below the amount that they assume most pharmacies could buy at, on average."

The OIG report said when CMS sets a new FUL, it "should take steps to identify when a new federal upper limit amount may not be representative of a drug's acquisition cost to pharmacies." The report also said CMS should give pharmacies the opportunity to alert the states and CMS when they can demonstrate they are not able to purchase a drug at or below the new FUL amount."

At a House Committee on Small Business hearing, committee chair Nydia Velázquez (D-NY) said the CMS rule "will have serious consequences for privately owned pharmacies, as well as the people who depend on these businesses for their medical supplies and prescriptions. It is clear that CMS failed to take into account the domino effect that this new rule will have on small pharmacies and the communities they serve. Once again, it is our nation's small businesses that are being forced to carry the sole burden of a proposal such as this one. This is not right. We will be working to ensure that CMS assesses the impact on small pharmacies, a simple yet critical step that CMS has failed to do."