Bush Medicaid Rebate Proposal Short-Changes Providers, House Staffer Says

The Bush Administration's proposal to change the prescription drug rebate formula for Medicaid needs to take into account provider costs, House Energy & Commerce Committee General Counsel Chuck Clapton told the American Society of Consultant Pharmacists legislative conference in Washington, D.C. March 25.

The Administration's Medicaid rebate proposal "has some serious problems," Clapton said, "first and foremost because it fails to take into account a lot of the attendant costs" for dispensing prescription drugs.

The Centers for Medicare & Medicaid Services fiscal 2003 budget proposes calculating Medicaid drug rebates based on the difference between the manufacturer's "best price" and AWP, rather than the difference between best price and average manufacturer's price.

Manufacturers could respond by lowering AWPs, which are the basis for provider reimbursement (¹ (Also see "CMS Proposes Medicaid Rebate Increase By Tying Formula To AWP, Not AMP" - Pink Sheet, 11 Feb, 2002.), p. 3).

"If you were to go to a system that would force manufacturers to either rebate back or drop their prices at the average wholesale price down to the price at which they are actually selling the drug, physicians and other providers aren't going to be reimbursed for things like wastage, spillage, spoilage and other attendant costs," Clapton said.

The proposal "also doesn't take into account that there has always been a historical markup between the price at which the physician buys the drug and the average wholesale price."

One approach would be to build an added reimbursement for providers into the formula. However, General Accounting Office Associate Director-Health Financing & Public Health Issues Laura Dummit noted that some inexpensive drugs have expensive attendant costs, which could create a problem when trying to craft a formula.

"If we do a percentage markup from the product cost to also cover the services that are provided with that drug, that doesn't always work either because some very inexpensive products require very intensive services to make sure they're used correctly," Dummit explained.

"Another piece that has be evaluated here [is] that we look not only at the product costs, but what...is that product and in what patient population is it used and how much involvement and intensity is required by the pharmacist," Dummit said.

The Energy & Commerce Committee recognizes that reimbursement based on drug cost could create an incentive for physicians to prescribe higher cost agents, Clapton said. However, he maintained, that approach "is the least worst" proposal.

"One of the inherent flaws is that [it] could create a desire to go with the higher dollar drugs because you're going to receive a greater reimbursement," he acknowledged.

"Whatever we do is going to have some perverse incentive or disincentives, however you want to look at it," he said, noting that physicians will "have a much higher attendant [cost] if you're spilling a $100 drug versus a 25¢ pill or 25¢ drug." CMS "should be able to track if utilization patterns are changing" and try to correct for inappropriate prescribing, Clapton added.

Clapton noted that the committee examined differential reimbursement rates for drugs based on the complexity of administration. However, "as a practical matter, CMS, with its current state of technology conflicting with the billing forms, it would be extremely difficult for them to have different reimbursement points."

The Administration's proposal "has generated a great deal of concern both in Congress, among the drug manufacturer community and also within the provider community," Clapton told ASCP.

The staffer suggested that hearings would be necessary before any bill moves forward.

"Before Congress is going to come forward and do anything on Medicaid I feel confident in saying that a great deal more attention will need to be focused, hearings will need to be held, in order to do some type of analysis as to how we should structure an appropriate reimbursement system that takes into account all the costs that are currently captured in the average wholesale price." The Health and Oversight Subcommittees held hearings on the topic in September (² (Also see "Medicaid Rx Price Data Could Be Used For Medicare Payments - HHS IG" - Pink Sheet, 1 Oct, 2001.), p. 13)