AAC drug pricing, dispense fee increase pending before CMS


Thanks to ongoing stakeholder involvement and support, Alabama Medicaid is now on schedule to implement a new pharmacy reimbursement system this summer that not only provides a transparent, timely and accurate pricing method for the state but meets federally-mandated requirements to pay providers based on true estimated acquisition costs.

The Agency filed a State Plan Amendment (SPA) with the Centers for Medicare and Medicaid Services (CMS) in May that would remove Average Wholesale Price (AWP) from the “lower of” reimbursement methodology now in use, and add the invoice-based Average Acquisition Cost (AAC) method for brand and generic drug ingredient costs.

The proposed State Plan change pending before CMS also includes a companion request to increase the Agency’s dispensing fee from $5.40 per prescription to $10.64 per prescription based on an independent Cost of Dispensing (COD) survey. The cost of dispensing modification and the drug pricing changes are also being submitted through state’s Administrative Code process which includes a public comment period. Pending state and federal approvals, the changes are projected to be effective in August 2010.

According to Alabama Medicaid Commissioner Carol Steckel, the decision to move away from AWP pricing is directly related to a recent Alabama Supreme Court decision that reversed three verdicts that said Alabama Medicaid had been overcharged by drug manufacturers. In reversing the lower court verdicts, the Alabama Supreme Court criticized the state for not changing its pricing methodology since taking issue with the pharmaceutical manufacturers’ price reporting methods.

 “As AWP has been found to be inflated in both state and national litigation, our Agency must move away from fraudulent AWP pricing and toward reimbursement logic based on true estimated acquisition costs as mandated in federal guidelines,” she said.

The Agency has contracted with Myers & Stauffer, a nationally recognized accounting firm, to conduct the semi-annual invoice surveys needed to calculate AAC for each drug. Each individual pharmacy will be randomly selected once during a two-year period and required to submit one month’s worth of invoices. Pharmacies may submit invoices by mail, fax, or electronically, or may choose to have their wholesalers coordinate directly with Myers & Stauffer. Continuing with the Agency’s current policy, drug prices will be updated on a weekly basis, and providers may submit specific pricing issues for research 24 hours a day through a web-based submission process.

“Our Agency has been studying ways to improve this system long before the lawsuits were filed in 2005. We have been fortunate to have the active involvement of pharmacy provider associations throughout this process to help us move to more accurate and fair reimbursement process based on the actual cost of dispensing and the actual drug ingredient cost,” said Kelli Littlejohn, Pharm.D., Director of Pharmacy Services for Alabama Medicaid.

In a recent meeting to update all pharmacy provider associations and representatives on the status update of the AAC and COD progress, Dr. Littlejohn reported positive feedback from informal discussions with CMS regarding the proposed changes.

She also announced the Agency is looking forward to beginning work on the third phase of the reimbursement modification, which includes expanding the “Medical Home” concept by incorporating pharmacy providers into “medical neighborhoods.” The “Medical Neighborhood” would allow pharmacies to be reimbursed for professional services while providing patient-centered coordinated care, and to participate in a “shared savings” effort similar to one offered within the Agency’s Patient 1st Program. 

“We very much appreciate the continuing support offered by pharmacy providers throughout this process. While this third phase is very preliminary in concept, the Agency will be coordinating with all pharmacy associations during the development process. We will continue to keep all associations apprised of our progress,” she said, noting that a June meeting is scheduled for initial discussions.