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Executive Summary

MEDICAID Rx DRUG SAVINGS OF $128 MIL. PER YEAR COULD BE REALIZED if use of average whsle. prices (AWP) as upper reimbursement limits were restricted, a recent report by the HHS Inspector General's Office concluded. The report, urges that states be encouraged to use "drug pricing methods which will more closely approximate the prices pharmacies are generally paying for drugs." It estimates that the annual federal share of such savings would total $72 mil. "We believe that federal savings over the next five years could amount to at least $360 mil.," the report asserted. The Inspector General's report is based on surveys in six states (Arkansas, Massachusetts, North Carolina, Michigan, Colorado, and Oregon) and inquiries regarding reimbursement policies in another 41 states. The HHS office surveyed a total of 3,469 drug purchases of 38 drugs from 108 pharmacies in the six states. While most of the programs used the AWP as the upper reimbursement limit for the sample, the survey found that of the 3,469 drug purchases, only 14 "were made at AWP or greater." The availability of discounts from the AWP was not affected by the size or location of the towns in which the pharmacies operated or by the type of ownership, according to the report. "Purchase discounts were available and were taken by pharmacies in all areas of the selected states, regardless of population, by both chain-owned and independently owned pharmacies," the report said. Prices paid by pharmacies for the drugs averaged 16% below the AWP, the report said. Discounting the effect of instances when the usual and customary fee billed to Medicaid is less than AWP, the Inspector General estimated "that about 11% of the Medicaid drug reimbursement is in excess of dispensing fees in those states using AWP as an upper limit for reimbursement." Using the 11% figure, the Inspector General projected that about $81 mil. of the $735 mil. in Rx drug reimbursements by 27 states using AWP "almost exclusively" were "unnecessary" expenditures. The remaining 20 states relied on AWP "to great extent," but also used other means, such as, maximum allowable cost systems, to limit drug reimbursement. These states "had expenditures of about $590 mil. based on AWP," the report said. However, they "had already avoided sizeable excess payments through the use of cost containment pro-techniques in their EAC [estimated acquisition cost] programs. As a result only about 7.9%, or $47 mil. of their expenditures are estimated as unnecessary."

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