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Wednesday, December 14, 2011

Your Medicaid Program Can Save Money Without Hurting Patient Health

Tip of the Month: You Can Cut Medicaid Costs Without Harming Patients - Follow Alabama & Oregon's Lead

Consider using an Average Acquisition Cost (AAC) model for drug
pricing, which uses actual pharmacy invoices in determining average acquisition
costs to pharmacies. This approach enables states to get a better handle on the
"spread" and is more reflective of acquisition and dispensing costs
and also ingredient costs for certain specialty drugs.

Most states still use Average Wholesale Price (AWP) which has been
subject to much gaming by the industry, resulting in many fraud case brought by
state Attorneys General and earning the moniker "Ain't What's Paid."

The Centers for Medicare and Medicaid Services (CMS) is developing
a database of National Average Drug Acquisition Costs and is encouraging states
to adopt an AAC payment methodology based on this resource. CMS plans to
distribute its database at the end of 2011 based on a CMS survey of retail

Alabama, the first state to
receive CMS approval for using AAC, has projected savings of $30.5 million in
the first year, or 6.1 percent of its current fee-for-service drug expenditures
of $500 million. The new method was announced September 22, 2010 and went into
effect March 23, 2011. Oregon expects
to save $1.6 million, or 1 percent of its $160 million fee-for-service Medicaid
drug expenditures. Idaho,
which is in the process of implementing AAC, expects to save $2 million in
state general funds and $4.6 million in federal funds, for a total of $6.6

Medicaid Pharmacy
Reimbursement Reform:
Trends and

Attachment 1 Pembroke
Pharmacy Market Share 2010 E

Attachment 2 updated
State reimbursement

Attachment 3a Kaiser
Medicaid P91

Attachment 3b Kaiser
Medicaid P92

Attachment 4 Takeda

Speakers Mike
Winkelman, Pharmacy Consultant
Nell Geiser,
Change to Win Pharmacy Initiative Coordinator
Mr. Winkelman and Ms. Geiser discuss opportunities for states to
achieve a more transparent and accountable Medicaid pharmacy reimbursement
system that can result in significant savings. As states struggle to cut costs
while maintaining quality healthcare for vulnerable residents, now is the time
for lawmakers and agency officials to advance common-sense reimbursement

Despite positive policy changes related to Federal Upper Limits
and Average Whole Price, many states are still losing out and paying
significantly more than other payors for pharmacy services. The result is that
providers sometimes retain unjustifiable profits, and there is no accurate way
to track that spread. In response, some states have successfully implemented
highly effective MAC lists, and others are testing new ground using Actual
Acquisition Cost, but state officials are still grappling with the question of
how best to ensure Medicaid is paying a fair and transparent price for
prescriptions. The presentation includes recommended guidelines for
reimbursement policy reform and estimates of projected savings if new
benchmarks are implemented.

Want to learn more?
Issue brief from Community Catalyst
Policy paper from Kaiser Family Foundation
Information from Alabama's Medicaid Program
Prescription Policy Choices website
NLARx website