Secretary Sebelius Outlines Medicaid Pharmacy Options Including National Drug Price Database
At the January NLARx meeting, we heard from Mike Winkelman and Nell Geiser about several options for reducing Medicaid prescription drug prices, including moving to rebates based on aquisition costs rather than the widely used current standard AWP, or Average Wholesale Price. Last week, Health & Human Services Secretary Kathleen Sebelius wrote to the Nation's governors with a variety of Medicaid suggestions, including announcing the development of a national database of data on actual acquisition costs. If done properly, this national database could be a significant help to the states.
As we have pointed out before, an ongoing difficulty for states negotiating and enforcing drug pricing and rebates has been the lack of good information, which has allowed PBMs and drug manufacturers and wholesalers to skirt their "best price" obligations. For example, the Texas Attorney General has settled or won judgments for over $425 million in lawsuits against 13 drug companies for pricing fraud under the current system.
The National Association of Medicaid Directors has written a White Paper on drug pricing and the proposed shift from AWP to WAC. The medicaid directors have also emphasized the critical importance of pricing data that does not depend on self-reported information from the industry, as well as the continued potential for gaming of the system. They state:
"Wholesale Acquisition Cost" prices are currently available for many, but not all drugs. WAC may be susceptible to the same concerns that rendered AWP ineffective: it is a manufacturer-reported value not readily amenable to audit, and there is no reason for confidence that it could not ultimately be inflated well beyond any actual market price. Particularly since it has been defined in federal law as an "undiscounted list price" WAC would require continuous adjustments (markups or markdowns) by states based on acquisition cost surveys." [p.3, Executive Summary]
Secretary Sibelius notes that Alabama expects to save $30 million in one year by changing to a wholesale acquisition cost (WAC) baseline. Other states are starting to follow suit. Legislation, LD 346, was introduced in Maine this week to move to WAC pricing, and other states are expected to follow suit.
Excerpt from Secretary Sebelius' letter to Governors:
"Purchasing Drugs More Efficiently. In 2009, States spent $7 billion to help Medicaid beneficiaries afford prescription drugs. States have broad flexibility to set their pharmacy pricing. We are committed to working with States to ensure they have accurate information about drug costs in order to make prudent purchasing decisions. As recommended by States, the Department is undertaking a first-ever national survey to create a database of actual acquisition costs that States may use as a basis for determining State-specific rates, with results available later this year. Alabama, the first State to adopt use of actual acquisition costs as the benchmark for drug reimbursement, expects to save six percent ($30 million) of its pharmacy costs in the first year of implementation. We will also share additional approaches that States have used to drive down costs, such as relying more on generic drugs, mail order, management relating to over-prescribed high cost drugs, and use of health information technology to encourage appropriate prescribing and avoidance of expensive adverse events."
