In a report dated July 18, 2011, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) recommended that the Centers for Medicare & Medicaid Services (CMS) develop a national drug pricing benchmark in order to save on Medicaid pharmacy reimbursement costs paid to pharmacies for prescription drugs.  OIG Report: “Replacing Average Wholesale Price: Medicaid Drug Payment Policy,” (OEI-03-11-00060).  According to OIG, the methodology currently used by most states to calculate reimbursement rates, which is based upon Average Wholesale Price (AWP), is “fundamentally flawed,” because it overstates a pharmacy’s true cost by not taking into account discounts, rebates, or other price reductions available to the pharmacy.

In light of this concern and the fact that First DataBank (the private publishing source relied upon by most states under the current reimbursement methodology) will discontinue providing pricing information in September 2011, the OIG surveyed all fifty states and the District of Columbia in January to determine how they intend to change their reimbursement methodologies once First DataBank no longer publishes AWP data.  Of the forty-five states that use AWP-based reimbursement methodologies, twenty indicated that they had not yet made plans as to how they would calculate reimbursement rates after September 2011.  Fifteen states indicated that they had “relatively well-developed plans” to switch to a new methodology.  Ten other will continue using AWP to set reimbursement rates at least in the short term.

Notably, forty-four states said that they would like CMS to develop a national benchmark to set Medicaid reimbursement for prescription drugs, according to the report.  Of these forty-four states, twenty-four specified that they want a benchmark based on pharmacy Average Acquisition Costs (AACs).   As noted in the report, CMS concurs and is contracting with a vendor to develop a survey of retail prices and acquisition cost information.  CMS expects to use these data to develop an estimate of AAC. 

To view the OIG’s report, please click here.