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ASHP and Other Pharmacy Organizations Tell State Medicaid Directors Not to Create Separate Wholesale Drug-Pricing Plan

ASHP and other national pharmacy organizations have written to all 50 state Medicaid directors expressing concern over changes in the collection and reporting of average wholesale pricing information as a basis for reimbursement for the Medicaid pharmacy program. The letter points out that beneficiaries could end up with less access to medications and, potentially, more hospitalizations. The six pharmacy groups asked state Medicaid directors to set aside this new "Medicaid-only" average wholesale price while a sound alternative is pursued.


May 25, 2000

State Medicaid Director


The undersigned join in this letter to express our profound disagreement with the recent reimbursement changes for intravenous, injectable and inhalant prescription medications that have been implemented by state Medicaid programs relying on the First DataBank drug price reporting service. First, we have important and fundamental concerns regarding adherence to procedural safeguards, including safeguards established by both federal and state laws and regulations. Second, reflecting the very reason these procedural safeguards exist, the abrupt changes in reimbursement at issue have not undergone a meaningful and comprehensive review by the agencies with responsibility for and expertise in protecting patient care. Indeed, there is reason to believe that access to care could be threatened given the deficiencies in coverage for professional services needed to deliver these drugs. There is ground for concern, as well, that inpatient costs to the state Medicaid programs could rise.Moreover, we were not informed of these changes prior to their implementation.

It has been proposed, we understand, that the changes in the Average Wholesale Price (AWP) and resulting reduction in reimbursement do not constitute a change in any statute or regulation, and therefore are not subject to additional legislative, rulemaking or HCFA approval process. We disagree. Most state Medicaid programs pay for prescription drugs on the basis of "Estimated Acquisition Cost" ("EAC"). The EAC is generally determined by applying a percentage reduction factor to the AWP of a legend drug made by a particular manufacturer as published in a data compendium. Compendia are published by various data sources, most notably First DataBank. It is our understanding that government officials have pressed First DataBank to publish a separately published "Medicaid" AWP, even as First DataBank continues to publish the "regular" AWP data. We believe that the industry standard definition of the term AWP is well understood as a single, published benchmark of the price of a given manufacturer’s product in a given compendium. For a compendium to publish two different AWPs is a serious change from the concept of AWP as a single benchmark price for a product.

We are concerned that a benchmark developed solely for the Medicaid program through a methodology distinct from that used to determine the "regular AWP" is at odds with the laws governing reimbursement for pharmaceuticals under state medical assistance programs based on a single published AWP. At a minimum, such a separate "Medicaid AWP" undercuts the principle embodied in the statutes and regulations governing most state medical assistance programs that reimbursement for Medicaid covered services be based on commercial norms in the health care industry. For the states to switch from the "traditional" AWP data set to the new "Medicaid" AWP set is a change in state policy and practice that requires the normal legal and procedural safeguards attendant on such changes.

Moreover, we understand that First DataBank may have been urged to publish this new Medicaid AWP on the basis of pricing information supplied by state fraud control officials, rather than on the basis of First DataBank’s own survey information. This undermines the principle that EAC amounts are to be calculated on the basis of data published by an independent source. The pricing data used by these officials was apparently collected as part of a fraud investigation or other enforcement inquiry, rather than as part of a neutral survey process conducted either by First DataBank itself or by a state agency that has traditionally been vested with programmatic authority for a state Medicaid program.

The undersigned appreciate the questions that have arisen regarding the accuracy and efficacy of historical AWP data as they have been established and published by the compendia. We also applaud efforts to uncover and pursue fraud wherever it occurs affecting the Medicaid program. However, we are deeply concerned that the recent changes constitute a circumvention of applicable federal and state procedures for setting prescription drug reimbursement levels for the Medicaid program. This is especially the case if the publisher of AWP data have been urged to publish as a special "Medicaid AWP" data that have been given to it by law enforcement agents, and not gathered through its normal course of business.

The basis and impact of these AWP changes have not been given a meaningful and comprehensive review by the agencies with the knowledge about and responsibility for patient care under the states’ Medicaid programs. Such a review would need also to take into account the disparity between dispensing fee levels and the cost of serving Medicaid beneficiaries, especially those with conditions requiring complex drug therapies. It would also need to take into account the significant percentage reduction from the AWP that most states use in calculating the EAC used to set reimbursement levels. A careful assessment of the new Medicaid AWP data from First DataBank could demonstrate that the true costs for some pharmacies of providing certain drug therapies could be more than the resulting reimbursement. If beneficiaries end up with reduced access to these medications, not only could their care be impaired, but additional hospitalization costs also could be incurred. A fair process to gauge an appropriate reimbursement methodology that serves the objectives of the Medicaid program and the needs of program beneficiaries must include a review of all elements of the reimbursement equation.

The pharmacists, pharmacies, and other health care providers represented by the undersigned organizations have not dictated either the development of prior AWP information or the new Medicaid-only AWP. Nevertheless, the brunt of the change that has been implemented will fall on these providers and their patients. We are prepared to work together with the state Medicaid agencies and others to accomplish improvements in Medicaid programs and data and refinement in the explicit recognition of professional pharmacy services. We strongly urge, though, that the precipitous new "Medicaid-only" AWP should immediately be put aside on a retroactive basis while a sound alternative course is pursued and carefully evaluated.


D.C. Huffman, PhD
Executive Vice President
American College of Apothecaries

John A. Gans, PharmD
Executive Vice President
American Pharmaceutical Association

Henri R. Manasse Jr., PhD, ScD
Executive Vice President
American Society of Health-System Pharmacists


R. Tim Webster, ScD
Executive Director
American Society of Consultant Pharmacists

Calvin J. Anthony, PD
Executive Vice President
National Community Pharmacists Association

Lorrie Kline Kaplan
Executive Director
National Home Infusion Association