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Executive Summary

The level of participation in the Medicaid program by pharmacy providers in Texas and Washington is unchanged since the states' agencies changed prescription drug reimbursement formulas based on published average wholesale prices (AWP) to formulas based on estimated acquisition costs (EAC), Health Care Financing Administration (HCFA) Region VI maintained in Sept. 18 comments on Medicaid Rx payment reform. "Therefore, we believe provider non-participation [under EAC] may not be as big a problem as projected," asserted Region VI Administrator J. D. Sconce. HCFA Region VI supported "the requirement that alternative methodologies and assurances must be in the approved state plan." Region VI includes Texas, Arkansas, Louisiana, New Mexico and Oklahoma. HCFA Region VI was the agency regional office that in July 1985 instructed its states to reduce their Medicaid Rx drug reimbursement formula from AWP to direct cost or AWP minus a percentage. The directive was withdrawn after pharmacy associations challenged the action in court, claiming HCFA exceeded its statutory authority. The HCFA regional office specifically objected to the option CIP (Competitive Incentive Program). Implementation of the plan would hinder state flexibility by requiring "additional Federal oversight to assure that aggregate limits are not exceeded if States choose a mixture of reimbursement patterns including CIP," the region declared. Retail price in the CIP plan needs to be defined, as "retail price in most cases exceeds AWP," Sconce said. Regarding reimbursement rates under PhIP, HCFA Region VI maintained that "even though the lowest AWP is utilized . . . AWP is highly inflated above what the drug actually costs the pharmacist." The state of Indiana has finally decided that it favors state initiatives over any of HCFA's options. In an Oct. 20 letter to HHS, Indiana Public Welfare Department Administrator Donald Blinzinger urged that proposed MAC/Medicaid reforms be scrapped in favor of programs developed and implemented by individual states. Blinzinger said: "We strongly urge you to withdraw the proposed regulations. It is our belief that the current programs in place in various states are sufficient to meet the drug cost reduction targets established by HCFA. From our standpoint, the most effective programs are those that are developed and managed by the states. The individual states are in the best position to judge what is necessary for their individual programs." The Oct. 20 letter was Blinzinger's third submission to HCFA concerning the proposed reimbursement reform. In previous letters dated Sept. 11 and Sept. 16, the state indicated support for revising the existing MAC procedures ("The Pink Sheet" Oct. 27, p. 9). In his Sept. 16 letter, Blinzinger said that the state favored the revised MAC system over the Competitive Incentive Program (CIP) or the Pharmacist's Incentive Program (PhIP) primarily because of the familiarity of the plan and the ease of implementation.

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