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COMPETITIVE INCENTIVE PROGRAM (CIP) WOULD INCREASE AVERAGE NET REVENUE TO PHARMACISTS BY OVER 20› PER PRESCRIPTION COMPARED TO MAC, APhA SAYS

Executive Summary

HHS' proposed Competitive Incentive Program (CIP) would result in pharmacy reimbursement of over 20› more per Medicaid Rx dispensed compared to the present MAC system, APhA concluded in a study of the draft program submitted to the Health Care Financing Administration. Although total payments to pharmacies would decrease because of the effect of "generic substitution of less expensive drug products," APhA said its survey showed that pharmacits "would receive an average of 20.2› per prescription in additional net revenues" if the CIP system were implemented. Under CIP, "the Medicaid program could expect to reduce expenditures by over $100 mil. while pharmacies across the United States could increase net revenues by approximately $20 mil.," APhA declared. The CIP evaluation is similar to a study APhA did on the impact of the Pharmacists Incentive Program (PhIP), another HCFA proposal drafted as a possible alternative to MAC. In that study, APhA said that PhIP would increase reimbursement to pharmacists by 12› per prescription for 10 sample drugs, or a weighted mean increase of 7› per prescription when adjusted for market share factors ("The Pink Sheet" Jan. 20, p. 3). The CIP system, APhA said, is based on "total reimbursement for each prescription rather than basing prescription reimbursement on the two pricing decisions of drug product costs and dispensing fees." In accordance with the CIP proposal, pharmacies would be reimbursed according to three parameters: (1) a small mandatory discount from usual and customary prices for all drugs, except -- (2) pharmacists' incentives for generic substitution, and (3) pharmacies would not be allowed to charge more than a specified percentile of what other pharmacies charge for the same product. The analysis used information supplied by 100 retail pharmacies from across the nation which provided dispensing data on 10 drugs, two from each quadrant of the "top 200" drugs plus two from the "top 20" generic drugs. For each of the drugs, pharmacies provided information on the actual net cost, the average whsle. price, and the private-pay prescription price. APhA said it based its analysis on the assumption of federal reimbursement at a 5% discount of usual and customary retail charge with maximum reimbursement level set at the 95th percentile of what others charge for the same products. Commenting on the CIP analysis, APhA declared: "The proposed CIP would breathe fresh air into the Medicaid program by reducing the impact of regulated price-setting while allowing the competitive forces of the free market to stabilize prescription prices at the most equitable levels -- equitable for both Medicaid and pharmacies." However, "operational problems" for CIP were noted by APhA in its report. "First, the pharmacies charging the top 5 percentile of what other pharmacies charge for the same prescription are primarily independent community pharmacies." However, APhA said, "present Estimated Acquisition Cost (EAC) pricing specified in the current Maximum Allowable Cost (MAC) regulation is even more discriminating toward independent community pharmacies than the proposed CIP." Also, the analysis stated, "CIP makes no allowances for those instances when pharmacies are forced into dispensing brandname drugs when three or more generics are available . . . As such, if no provisions are made within CIP to compensate for such situations . . . one would expect that Medicaid patients would not receive complete prescription services." The third CIP inadequacy asserted by APhA is that "the CIP proposal does not now clearly define the terms 'usual prescription charge' or 'usual and customary prescription charge.'"
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