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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Medicaid Pharmacy - Actual Acquisition Cost of Brand Name Prescription Drug Products," (A-06-00-00023)

August 10, 2001


Complete Text of Report is available in PDF format (557 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.

EXECUTIVE SUMMARY:

This final report points out that significant savings could be realized on prescription drugs reimbursed by States under the Medicaid program.  Most States use average wholesale price (AWP) minus a percentage discount as a basis for reimbursing pharmacies for brand name drug prescriptions.  This discount averaged about 10.31 percent nationally in 1999. We believe it is not a sufficient discount to ensure that reasonable prices are paid for drugs. Our review of pricing information from 216 pharmacies in 8 States estimated that pharmacy actual acquisition cost nationwide averaged 21.84 percent below AWP in 1999. For the 200 brand name drugs with the greatest amount of Medicaid reimbursement in 1999 we calculated that as much as $1.08 billion could have been saved if reimbursement had been based on a 21.84 percent average discount from AWP. Our review was limited to ingredient acquisition costs and did not address other areas such as the cost of dispensing the drugs. Generally, States pay retail pharmacies for their dispensing action separately from the reimbursement for the prescription drug. We recommended that the Centers for Medicare and Medicaid Services (CMS) require the States to bring pharmacy drug reimbursement more in line with the actual acquisition cost of brand name drugs. The CMS agreed that an accurate acquisition cost should be used to determine drug reimbursement and will encourage States to review their estimates of acquisition costs in light of our findings.