Pharmacy News

Medicaid Pharmacy Reimbursement Changes Coming Soon

Kate Traynor

BETHESDA, MD 11 Mar 2016—The Centers for Medicare and Medicaid Services (CMS) late this month plans to publish a long-awaited official revision to the maximum allowable reimbursement amount for multiple-source outpatient drugs covered by state Medicaid programs.

The revised amounts, known as federal upper limits (FULs), will become effective April 1 to coincide with provisions in the Covered Outpatient Drugs final rule, which was published in the February 1 Federal Register.

FULs were most recently updated in September of 2009, according to CMS. Starting in April, the agency plans to update the FULs monthly. State Medicaid plans will have up to 30 days to implement each set of new FULs.

"The goal for the pharmacy program is to ensure that Medicaid patients have access to quality pharmacy services at a good price," said John Coster, director of pharmacy for CMS's Center for Medicaid and Children's Health Insurance Program Services.

John M. Coster

Coster indicated during a February 11 webinar that the agency wants to make sure pharmacies aren't reimbursed less than what they pay for medications dispensed to Medicaid patients.

By statute, CMS sets FULs at no less than 175% of the most recently reported monthly average manufacturer price for each Medicaid-covered multiple-source drug product, adjusted for utilization.

But Coster said CMS's initial proposal for calculating FULs resulted in "a significant number of drugs" whose FUL was less than pharmacies were paying for the medications.

To remedy that problem, CMS stated in the final rule that the agency will replace the FUL with the National Average Drug Acquisition Cost (NADAC) value during any month when that figure exceeds the FUL.

The NADAC is calculated each month from invoice prices, obtained by survey, for medications that were purchased by community pharmacies.

Coster said CMS also adjusts the NADAC in response to reports of sudden spikes in drug prices. He recommended that pharmacies contact the NADAC help desk to report such occurrences.

Pharmacies can contact the NADAC help desk by phone at 855-457-5264 or by email at

Coster said the help desk staff "can take a look at the issue and determine whether or not it's a broad issue or whether it's an issue of your buying practices."

Coster said state Medicaid plans have flexibility to implement the new reimbursement model, as long as the state's plan is based on pharmacies' true drug acquisition costs.

For example, he said, states can simply adopt the NADAC, or they can survey their own pharmacies to determine their average acquisition costs.

Most states currently calculate reimbursement for Medicaid-covered outpatient drugs using the average wholesale price (AWP) minus a percentage or the wholesale acquisition cost (WAC) plus a percentage. CMS has long expressed frustration that AWP and WAC don't accurately reflect actual acquisition costs for prescription medications.

Coster said state Medicaid programs can continue to reimburse pharmacies using AWC- or WAC-based formulas. But he said the programs will have to adjust their calculations to demonstrate that the figures accurately reflect what pharmacies actually pay to acquire medications.

And, as they do now, Medicaid programs must also pay pharmacies a dispensing fee—officially known in the final rule as a professional dispensing fee—that accounts for pharmacists' professional services and costs associated with providing medications to patients.

"For many years, pharmacies in many states have been overpaid for drugs and underpaid for dispensing," Coster said.

As with AMPs, Coster said, states have flexibility in setting their professional dispensing fees, including whether to use state or national data to calculate rates.

Coster said CMS expects state Medicaid plans to provide "credible data" that demonstrates how their reimbursement plan accurately accounts for dispensing costs.

"We know, at the end of the day, approximately how much it costs to dispense a prescription in a state. And we'll be looking for state plan amendments that meet those targets," Coster said.

Coster said any change a state makes to its reimbursement rate for drugs must simultaneously consider the dispensing component of the equation.

"We don't expect that states will come in and slash one part of the reimbursement rate and that we'll be able to approve that state plan amendment. States must consider the totality of reimbursement to pharmacies when they are looking at changes in either the ingredient cost or professional dispensing fee," he said.

Seven states—Alabama, Colorado, Idaho, Iowa, Louisiana, Massachusetts, and Oregon already use actual acquisition costs to reimburse pharmacies for Medicaid outpatient drugs. Alaska, Delaware, and Nevada use the NADAC as the basis for reimbursement of drug costs.

Coster said these 10 states serve as models for how other state Medicaid programs should change their reimbursement practices to comply with the final rule.

State Medicaid agencies have until June 30, 2017, to submit their amended plans to CMS. The revised plans must go into effect by April 1, 2017.


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