Filling the need for trusted information on national health issues

Paying for Prescribed Drugs in Medicaid: Current Policy and Upcoming Changes

Executive Summary
  1. “Medicaid Program; Covered Outpatient Drugs; Proposed Rule.” 72 Federal Register 22 (2 February 2012).  pp. 5317-5367.

    ← Return to text

Background
  1. This figure includes rebates.  See Urban Institute estimates based on data from Medicaid Financial Management Reports (HCFA/CMS Form 64). Published in Young K, Garfield R, Clemans-Cope L, Lawton E, and Holahan J. Enrollment-Driven Expenditure Growth: Medicaid Spending during the Economic Downturn, FY 2007-2011. Washington DC: Kaiser Family Foundation.  April 2013.  Available at https://www.kff.org/medicaid/report/enrollment-driven-expenditure-growth-medicaid-spending-during/.   Note that more recent data is available, but because managed care organizations now currently handle much of Medicaid prescription drug services, publicly available data on prescription drug spending (i.e. fee-for-service prescription drug spending) only reflects a fraction of actual prescription drug spending.

    ← Return to text

  2. Smith V, Kramer S, and Rudowitz R.  Managing Medicaid Pharmacy Benefits: Current Issues and Options. Washington DC: Kaiser Family Foundation.  September 2011.  Available at https://www.kff.org/medicaid/report/managing-medicaid-pharmacy-benefits-current-issues-and-options/.

    ← Return to text

  3. Young, Garfield, Clemans-Cope, Lawton, and Holahan, 2013.

    ← Return to text

  4. For each covered drug that Medicaid programs pay for today, manufacturers must pay a rebate that at a minimum is equal to roughly 23 percent of the AMP for single-source drugs and 13 percent of the AMP for multiple source non-originator (generic) drugs.  Actual rebates paid for single-source drugs often exceed the minimum due to provisions in federal law that increase the rebates to account for price increases that exceed inflation, or to ensure that Medicaid gets the best price available to any private payer, including hospitals, nursing homes, and insurance plans. Most states also have supplemental rebate agreements with drug manufacturers.

    ← Return to text

  5. For a thorough background on issues pertaining to Medicaid pharmacy benefits, see Smith, Kramer, and Rudowitz, 2011.

    ← Return to text

Current Reimbursement Policy
  1. Multiple-source drugs are products available from two or more manufacturers; most are generic versions of older brand name drugs and the originator brand name drugs themselves. Most widely used multiple-source drugs have a federal upper limit (FUL) or a state maximum allowable cost (state MAC) that caps reimbursement below the estimated acquisition cost (EAC).

    ← Return to text

  2. 42 CFR 447.512(b); note that the EAC is applied as an aggregate limit on payments, and need not apply to each prescription. Separate EAC certifications are required for single source and multiple-source drugs.

    ← Return to text

  3. Section 1847A(c)(6)(B) of the Social Security Act defines WAC as the “manufacturer’s list pricefor the drug or biological to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates or reductions in price […] as reported in wholesale price guides or other publications of drug or biological pricing data.”

    ← Return to text

  4. U.S. Department of Health and Human Services - Office of Inspector General. Analyzing Changes to Medicaid Federal Upper Limit Amounts. October 2012.  Available at http://oig.hhs.gov/oei/reports/oei-03-11-00650.pdf.

    ← Return to text

  5. Neither the total drug spending nor the spending on FUL drugs includes rebates.

    ← Return to text

  6. U.S. Department of Health and Human Services - Office of Inspector General. Comparison of Medicaid Federal Upper Limit Amounts to Average Manufacturer Prices. June 2005. Available at https://oig.hhs.gov/oei/reports/oei-03-05-00110.pdf.

    ← Return to text

  7. The “average” used to compute the FUL is a utilization-weighted average of the AMPs reported by each manufacturer of the drug. See Section 1927(k)(1) of the Social Security Act, as amended by §2503 of the Affordable Care Act, P.L. 111-148.

    ← Return to text

  8. Draft Affordable Care Act Federal Upper Limit, March 2013. Available at http://www.medicaid.gov/ Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Federal-Upper-Limits.html.

    ← Return to text

  9. U.S. Department of Health and Human Services – Office of Inspector General. Medicaid Drug Pricing in State Maximum Allowable Cost Programs. 2013. Available at http://oig.hhs.gov/oei/reports/oei-03-11-00640.pdf.

    ← Return to text

  10. Centers for Medicare and Medicaid Services. Medicaid Prescription Reimbursement Information by State - Quarter Ending December 2013. [revised 01/31/2014; cited 4/9/2014]; Available at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Downloads/Revised-Reimbursement-chart-.pdf.

    ← Return to text

  11. Claxton G, Rae M, Panchal N, Damico A, Bostick N, Kenward K, and Whitmore H. Employer Health Benefits: 2012 Annual Survey. Washington DC: Kaiser Family Foundation and Health Research & Educational Trust. September 2012. Available at https://www.kff.org/private-insurance/report/employer-health-benefits-2012-annual-survey/.

    ← Return to text

  12. Pharmaceutical Benefit Management Institute. 2012-2013 Prescription Drug Benefit Cost and Plan Design Report. 2012.

    ← Return to text

  13. CVS/Caremark. Insights. 2012.

    ← Return to text

  14. Express Scripts. 2012 Drug Trend Report. March 2013. Available at http://www.drugtrendreport.com/.

    ← Return to text

  15. Grant Thornton LLP. An Independent Comparative Analysis of U.S. Prescription Dispensing Costs. 2007.

    ← Return to text

  16. Health Information Designs. Cost of Dispensing Prescription Drugs in Alabama. 2010. Available at http://medicaid.alabama.gov/documents/4.0_Programs/4.5_Pharmacy_Services/4.5.1_AAC/4.5.1_COD_FINAL_Report_1.06.10.pdf

    ← Return to text

  17. Myers and Stauffer LC. Survey of Dispensing Costs of Pharmaceuticals in the State of Oregon. 2010.

    ← Return to text

  18. Centers for Medicare and Medicaid Services. Medicaid Prescription Reimbursement Information by State - Quarter Ending December 2013. [revised 01/31/2014; cited 4/9/2014]; Available at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Downloads/Revised-Reimbursement-chart-.pdf.

    ← Return to text

  19. “Long-term drug maintenance” is dispensing 90-day supplies of preferred maintenance medications, as specified by the Alabama Medicaid Agency.

    ← Return to text

  20. Medicaid and Children’s Health Insurance Programs: Essential Health Benefits in Alternative Benefit Plans, Eligibility Notices, Fair Hearing and Appeal Processes, and Premiums and Cost-sharing; Exchanges: Eligibility and Enrollment; Final Rule. 78 Federal Register 135 (15 July 2013) , pp. 42160-42322.

    ← Return to text

  21. Rudowitz R and Snyder L. Premiums and Cost-Sharing in Medicaid. Washington DC: Kaiser Family Foundation. February 2013. Available at https://www.kff.org/medicaid/issue-brief/premiums-and-cost-sharing-in-medicaid/.

    ← Return to text

  22. Goldman D, Joyce G, Zheng Y. Prescription Drug Cost-sharing – Associations with Medication and Medical Utilization and Spending and Health. JAMA 2007;298(1):61-9.

    ← Return to text

  23. Dor A, Lage MJ, Tarrants M, Castelli-Halley J. Cost-sharing, Benefit Design and Adherence: the Case of Multiple Sclerosis. Adv Health Econ Health Serv Res 2010;22:175-93.

    ← Return to text

  24. Davidoff A, Lopert R, Stuart B, Shaffer T et al. Simulated Value-Based Insurance Design Applied to Statin Use by Medicare Beneficiaries with Diabetes. Value in Health 2012;15(3):404-11.

    ← Return to text

  25. Bae SJ, Paltiel AD, Fuhlbrigge AL, Weiss ST, Kuntz KM. Modeling the Potential Impact of a Prescription Drug Copayment Increase on the Adult Asthmatic Medicaid Population. Value in Health 2008;11(1):110-8.

    ← Return to text

  26. Gaynor M, Li J, Vogt WB. Is Drug Coverage a Free Lunch? Cross-Price Elasticities and the Design of Prescription Drug Benefits. No. w12758. National Bureau of Economic Research. 2006.

    ← Return to text

  27. Goldman, D P, Joyce GF, Karaca-Mandic P. Varying Pharmacy Benefits With Clinical Status: The Case of Cholesterol-Lowering Therapy-Page 2. Am J Man Care 2006;12:21-8.

    ← Return to text

Changes in Reimbursement Policy
  1. The Health Care Financing Administration became CMS in 2001.

    ← Return to text

  2. Pracht EE, Moore WJ. Interest Groups and State Medicaid Drug Programs. Journal of Health Politics, Policy and Law. 2003;28(1):9-39.

    ← Return to text

  3. U.S. Department of Health and Human Services - Office of Inspector General. Medicaid Pharmacy: Actual Acquisition Cost of Prescription Drug Products for Brand Name Drugs. 1997. Available at https://oig.hhs.gov/oas/reports/region6/69600030.pdf.

    ← Return to text

  4. U.S. Department of Health and Human Services - Office of Inspector General. Medicaid Pharmacy: Actual Acquisition Cost of Brand Name Prescription Drug Products. 2001. Available at http://oig.hhs.gov/oas/reports/region6/60000023.pdf.

    ← Return to text

  5. U.S. Department of Health and Human Services - Office of Inspector General. Medicaid Pharmacy: Additional Analyses of the Actual Acquisition Cost of Prescription Drug Products. 2002. Available at http://oig.hhs.gov/oas/reports/region6/60200041.pdf.

    ← Return to text

  6. U.S. Department of Health and Human Services - Office of Inspector General. Medicaid Pharmacy: Actual Acquisition Cost of Generic Prescription Drug Products. 2002. Available at https://oig.hhs.gov/oas/reports/region6/60100053.pdf.

    ← Return to text

  7. Centers for Medicare and Medicaid Services. Medicaid Prescription Reimbursement Information by State - Quarter Ending December 2010. Available at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/State-Prescription-Drug-Resources.html.

    ← Return to text

  8. U.S. Department of Health and Human Services - Office of Inspector General. Medicaid Drug Price Comparisons: Average Manufacturer Price to Published Prices. 2005. Available at http://oig.hhs.gov/oei/reports/oei-05-05-00240.pdf.

    ← Return to text

  9. Medicaid Program; Covered Outpatient Drugs, CMS–2345–P (2012).

    ← Return to text

  10. Office of Management and Budget, Office of Information and Regulatory Affairs. RIN 0938-AQ41. Available at http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201310&RIN=0938-AQ41

    ← Return to text

  11. U.S. Department of Health and Human Services - Office of Inspector General, Replacing Average Wholesale Price: Medicaid Drug Payment Policy (OEI-03-11-00060). July 2011. Available at http://oig.hhs.gov/oei/reports/oei-03-11-00060.pdf.

    ← Return to text

  12. Due to funding issues, as of July 2013, CMS suspended the portion of this survey focusing on consumer purchase prices, which provided estimated National Average Retail Prices (NARP) for selected outpatient drugs based on actual transaction prices.

    ← Return to text

  13. CMS posts draft and final NADAC data, along with methods and answers to questions, on the agency’s website: http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Benefits/Prescription-Drugs/Survey-of-Retail-Prices.html

    ← Return to text

  14. Morgan K. NADAC or PAC; Examining Options for a Better Drug Price Standard. Elsevier. 2012. Available at http://www.goldstandard.com/2012/04/nadac-or-pac-examining-options-for-a-better-drug-price-standard. 

    ← Return to text

Comparing Pricing Under Different Measures
  1. The NDC is a unique code that identifies each drug according to its labeler, strength, dosage form, package form, and package size.

    ← Return to text

Policy Implications
  1. Department of Health and Human Services. Fiscal Year 2015 Budget in Brief: Strengthening Health and Opportunity for All American.  Available at http://www.hhs.gov/budget/fy2015/fy-2015-budget-in-brief.pdf.

    ← Return to text

  2. Smith, Kramer, and Rudowitz, 2011.

    ← Return to text

  3. Smith, Kramer, and Rudowitz, 2011.

    ← Return to text

  4. “Medicaid Program; Covered Outpatient Drugs; Proposed Rule.” 72 Federal Register 22 (2 February 2012).  pp. 5317-5367.

    ← Return to text

Appendix
  1. U.S. Department of Health and Human Services – Office of Inspector General. Medicaid Drug Price Comparisons: Average Manufacturer Price to Published Prices. 2005. Available at http://oig.hhs.gov/oei/reports/oei-05-05-00240.pdf.

    ← Return to text

  2. U.S. Department of Health and Human Services – Office of Inspector General. Review of Drug Costs to Pharmacies and Their Relation to Benchmark Prices.  2011. Available at http://oig.hhs.gov/oas/reports/region6/61100002.pdf.

    ← Return to text

  3. U.S. Government Accountability Office. CMS Should Implement Revised Federal Upper Limits and Monitor Their Relationship to Retail Pharmacy Acquisition Costs. 2013. Available at http://www.gao.gov/assets/660/659833.pdf.

    ← Return to text

  4. U.S. Government Accountability Office. Medicaid Outpatient Prescription Drugs: Second Quarter 2008 Federal Upper Limits for Reimbursement Compared with Average Retail Pharmacy Acquisition Costs. 2009. Available at http://www.gao.gov/assets/100/96490.pdf.

    ← Return to text

  5. U.S. Government Accountability Office. Medicaid Outpatient Prescription Drugs: Estimated Changes to Federal Upper Limits Using the Formula under the Patient Protection and Affordable Care Act. 2010. Available at http://www.gao.gov/assets/100/97232.pdf.

    ← Return to text

  6. U.S. Department of Health and Human Services – Office of Inspector General. Analyzing Changes to Medicaid Federal Upper Limit Amounts. 2012. Available at http://oig.hhs.gov/oei/reports/oei-03-11-00650.asp.

    ← Return to text

  7. Fein AJ. The Pharmacy Reimbursement Hit from AMP-Based FULs. Drug Channels. September 27, 2011.

    ← Return to text

  8. Fein AJ. Generic Drug Prices are Rising, According to Latest AMP Data. Drug Channels. December 13, 2011.

    ← Return to text

  9. U.S. Department of Health and Human Services – Office of Inspector General. Examining Fluctuations in Average Manufacturer Prices. 2007. Available at http://oig.hhs.gov/oei/reports/oei-03-06-00350.pdf.

    ← Return to text

  10. U.S. Department of Health and Human Services – Office of Inspector General. Outlier Average Manufacturer Prices in the Federal Upper Limit Program. 2009. Available at http://www.healthlawyers.org/News/Health%20Lawyers%20Weekly/Documents/01%2022%2010/oei-03-07-00740.pdf.

    ← Return to text

  11. U.S. Department of Health and Human Services – Office of Inspector General. Drug Manufacturers' Noncompliance with Average Manufacturer Price Reporting Requirements. 2010. Available at http://oig.hhs.gov/oei/reports/oei-03-09-00060.pdf.

    ← Return to text

  12. U.S. Department of Health and Human Services – Office of Inspector General. Medicaid Drug Pricing in State Maximum Allowable Cost Programs. 2013. Available at http://oig.hhs.gov/oei/reports/oei-03-11-00640.pdf.

    ← Return to text