Letter: To Leslie V. Norwalk, Acting Administrator, Centers for Medicare and Medicaid Services

Letter: To Leslie V. Norwalk, Acting Administrator, Centers for Medicare and Medicaid Services

Dear Ms. Norwalk,

On behalf of Medicaid beneficiaries and retail pharmacies in our districts, we are writing to express our deep concern with the Centers for Medicare and Medicaid Services' (CMS) proposed changes in the payment for prescription drugs in the Medicaid program. These proposed changes, announced in December of 2006, would implement provisions of the Deficit Reduction Act of 2005 (DRA).

The current method that manufacturers use to define Average Manufacturer Price (AMP) has never been fully defined by CMS, which has resulted in variations in how these values are calculated. Government studies and reports have documented these inconsistencies, demonstrating significant differences between AMP and the actual prices at which retail pharmacies purchase drugs.

In the proposed rule, CMS defines AMP to address these problems. It was our expectation that this definition would approximate the prices at which retail pharmacies purchase medications from manufacturers and wholesalers. However, the proposed rule is flawed in that it allows manufacturers to include mail order sales and pharmacy benefit manager rebates in the calculation. This change will result in an AMP that does not reflect the prices paid by retail pharmacies.

In addition, the proposed rule released by CMS dictates that the Federal Upper Limit (FUL) for a generic drug will be based on 250% of the product that has the lowest AMP for all the versions of that generic medication. However, a December 22, 2006 Government Accountability Office (GAO) report that analyzed the impact of the new FUL formula found that retail pharmacies will be reimbursed on average 36 percent lower than their costs to purchase generic medications dispensed to Medicaid beneficiaries. This change would clearly fail to cover the pharmacy's costs of purchasing generic medications. In fact, the formula would create a disincentive to dispense generic drugs and would deny the Medicaid program and beneficiaries the savings gained from generic medications.

This proposed payment formula will be devastating to many community retail pharmacies, Medicaid beneficiaries, and the financing of the Medicaid program itself. We respectfully request that you delay the release of any AMP data until a final definition is adopted ensuring that AMP accurately reflects pharmacy acquisition costs.

http://www.house.gov/list/press/ar01_berry/22307CMSDrugPricing.html