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Executive Summary

MEDICAID PHARMACY REIMBURSEMENTS ARE 19% HIGHER THAN DRUG COSTS on average in a sample of nine pharmacies, a March 18 Government Accounting Office study finds. Dispensing costs and Medicaid reimbursement of dispensing fees are excluded from the margin calculation. The GAO study was mandated under the Omnibus Budget Reconciliation Act of 1990 to investigate the extent to which pharmacies buying drugs at a discount to average wholesale price pass their savings on to Medicaid. The study included data from nine hospital outpatient and nursing home pharmacies in Maryland and Illinois and looked at the 50 most-prescribed drugs for which each pharmacy received Medicaid reimbursement. The two states were selected, the report says, because "each uses one of two basic formulas used by states to reimburse pharmacies' drug purchase costs and both states have relatively high expenditures for outpatient drug prescriptions." The report concludes that "although total Medicaid reimbursements exceeded the pharmacies' total drug purchase costs for the drugs we reviewed, whether this represents unreasonable benefits for the pharmacies is not clear." Neither the Health Care Financing Administration nor the states "have determined what would be an appropriate margin between reimbursements and costs," GAO said. "Further," the report continued, "representatives of all nine pharmacies contended that because of insufficient dispensing fees they used the excess reimbursement to cover the drugs' dispensing costs." The report also says that "HCFA and state Medicaid officials agreed that pharmacies must often use excess Medicaid reimbursement to cover their dispensing costs." Due to a lack of current data on dispensing costs, GAO said, HCFA and state Medicaid officials "did not know what dispensing fees should be." From 1976 to 1987 HCFA required states to conduct surveys periodically to determine pharmacists' dispensing costs, but in 1987 the requirement was rescinded when it became clear that due to fiscal constraints most states were not conducting the surveys. The GAO report concludes that "the extent to which reimbursements in excess of drug purchase costs represent a potential source for Medicaid savings in the two states studied" is not clear. The Senate Special Committee on Aging said March 26 that the study contains "too small a sample to be conclusive" and that further studies would be necessary to know if the results GAO found could be extrapolated to all pharmacies. Of particular concern to the committee is the possibility that "all providers are not being treated equally by Medicaid" because some, such as community pharmacies, are unable to obtain the same discounted drug prices that are available to larger buyers, the committee said. The difference between Medicaid reimbursement payments and drug acquisition costs in the four Maryland pharmacies surveyed ranged from 11% to 34%, while margins in the five Illinois pharmacies ranged from 10% to 23%. All of the pharmacies paid an average of 26% below AWP for the drugs reviewed in the study; hospital outpatient pharmacies paid an average of 30% less than AWP, while nursing home pharmacies paid an average of 21% less than AWP. Eight of the nine pharmacies were members of group purchasing organizations.

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