NACDS, NCPA sue federal agencies to block Medicaid reimbursement policy

ALEXANDRIA, Va. The two national organizations representing chain and independent pharmacy have once again joined forces—this time in a high-stakes, last-ditch legal effort to block the imposition of a new and potentially devastating round of cuts in Medicaid prescription reimbursements for generic drugs.

Those cuts are due to take effect Jan. 30, 2008, when the Centers for Medicare and Medicaid Services implements a new payment policy for pharmacies dispensing generics to Medicaid patients. That new reimbursement formula—based on the average manufacturer’s price [AMP] of the generic drug, plus a dispensing fee—will force pharmacies to dispense prescriptions at a loss and could lead to the disruption of service to Medicaid patients and even to the closing of many pharmacies, industry leaders assert.

In response, the National Association of Chain Drug Stores and the National Community Pharmacists Association today filed a lawsuit in the United States District Court for the District of Columbia against the U.S. Department of Health and Human Services and CMS. Together, the groups’ member pharmacies dispensed more than 294 million prescriptions for Medicaid patients in 2006, according to CMS.

The suit—which also names HHS Secretary Michael Leavitt and CMS acting administrator Kerry Weems—seeks to overturn the new reimbursement rule as a violation of laws governing Medicaid payments under the Social Security Act. The suit also asks the court to halt a plan by CMS to publish the “flawed” AMP-based generic drug prices on a public web site.

“We’re asking the court to halt both the AMP website and the reimbursement cuts that are going to be implemented pursuant to this rule,” NACDS president and chief executive officer Steven Anderson explained in a conference call today with reporters.

NACDS general counsel Don Bell said the pharmacy groups would also seek a preliminary injunction to halt implementation of the new rule.

“The AMP rule does not comply with the Social Security Act’s definition of AMP,” which “defines AMP as the prices paid to manufacturers by wholesalers for drugs distributed to retail pharmacies,” noted a statement from NACDS and NCPA. “The AMP rule includes many transactions that have nothing to do with either the prices paid by wholesalers or drugs distributed to retail pharmacies.”

In a joint statement, Anderson and NCPA executive vice president and chief executive officer Bruce Roberts noted, “The cuts to Medicaid pharmacy reimbursement rates which CMS wants to implement in January would force community pharmacies to sell Medicaid-reimbursed generic medicines at one-third below acquisition cost,” they asserted. “Our members cannot do that and be able to purchase, stock, and dispense drugs in the low-income communities where Medicaid sales are a large percentage of the business. If unaddressed, small and independent pharmacies will be forced to close their doors or to drop out of Medicaid and further threaten low-income Americans’ access to quality health care.

“Today, we are announcing legal action, as well as redoubled advocacy for a legislative remedy this year, to fix this problem,” they added. “We are pursuing this two-pronged approach, and while we are hopeful to have a success in court, it is imperative to encourage Congress to work with community pharmacy to find more appropriate, cost-based models for reimbursement under Medicaid.”

In line with that approach, the leaders of the two pharmacy groups sent a letter Nov. 7 to members of the Senate Finance Committee and the House Energy and Commerce Committee, as well as the co-sponsors of legislation to address the AMP payment issue. “This lawsuit was necessary at this time given the impending crisis on January 2008, but legislative action this year remains necessary to sufficiently remedy this problem,” Anderson and Roberts told lawmakers. “Action by Congress is the only long-term solution.”

During the conference call, Anderson, Roberts and other leaders of both pharmacy organizations spoke in urgent tones about the need to halt CMS’ payment plan, and about a longer-term legislative solution in Congress.

“This really has galvanized the pharmacy industry,” said Anderson.

His counterpart at NCPA agreed. “This is an issue that really has galvanized the pharmacy industry to work together,” said Roberts. “It is troubling what’s coming down the pike for pharmacy, and so unacceptable. We cannot let this stand; we’ve got to do everything we can to turn it around. If this goes forward … it will put a lot of pharmacies out of business, and ultimately access for these Medicaid beneficiaries will be jeopardized.”

NACDS general counsel Bell, another conference-call participant, said chain and independent pharmacy groups “are absolutely not alone” in voicing alarm over the pending cuts. “The PBMs, the wholesalers and many other groups submitted comments to CMS regarding these rules, which were very much in line with the comments we filed … and with the arguments we made in our lawsuit,” Bell told reporters.

With generics accounting for 50 to 60 percent of the drugs dispensed in U.S. pharmacies to Medicaid patients, the cost of the new payment formula to many pharmacies could be draconian, indicated Mary Ann Wagner, NACDS senior vice president of policy and pharmacy regulatory affairs.

“This will cost pharmacies $8.4 billion in just the first five years,” added John Rector, NCPA’s chief legal counsel.

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