ALEXANDRIA, Va. — It’s a battle that raged for more than three years. But in mid-December, the retail pharmacy industry was able to declare a clear, unequivocal victory.
We’re talking, of course, about the struggle to head off what would have been a devastating change in the way Medicaid pays community pharmacies to dispense generic drugs to low-income patients. On Dec. 14, the chain and independent pharmacy lobbies announced they had reached a landmark agreement with the Centers for Medicare and Medicaid Services that effectively ends the threat.
In short, the National Association of Chain Drug Stores and the National Community Pharmacists Association refer to the proposed changes as AMP, which stands for average manufacturer price. CMS had proposed AMP as a new method for calculating the market price of generics as a new basis for establishing the federal upper limit of reimbursements to pharmacies for dispensing those generics to Medicaid patients.
CMS unveiled the new reimbursement guidelines as a way to cut Medicaid costs in line with the Deficit Reduction Act of 2006. But pharmacy leaders have long argued that it’s a flawed approach to cost-saving by the government. AMP doesn’t reflect the true acquisition cost of the generic for retail pharmacies, they argued, since it takes into account the lower costs paid by other types of purchasing entities, such as hospitals and institutions. What’s more, the feds’ definition of a multiple-source drug itself was flawed, pharmacy advocates asserted.
Together with the low rate of markups CMS was proposing for generic Medicaid payments, the new AMP rule drastically would have cut pharmacy reimbursements and made it all but impossible to dispense medicines to low-income patients without incurring a loss, pharmacy leaders have long argued. To head off the change, NACDS and NCPA filed a suit in federal district court in 2007 to halt the new AMP guidelines from taking effect.
The resulting court-imposed injunction has kept AMP from taking effect, and it has saved chain and independent pharmacies an estimated total of $5.5 million a day ever since. Now that CMS finally agreed to withdraw its reimbursement plan and go back to the drawing board, NACDS and NCPA, along with their members, are breathing a sigh of relief. The fact that they’ve also agreed to drop the suit signals the end of a long — and ultimately victorious — battle for respect, and a decent return on their business.