Department of Health and Human Services

Office of Inspector General -- AUDIT

"Medicaid Pharmacy - Actual Acquisition Cost of Generic Prescription Drug Products," (A-06-01-00053)

March 14, 2002

Complete Text of Report is available in PDF format (1.01 MB). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This final report points out that significant savings could be realized on generic 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 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 217 pharmacies in 8 States estimated that pharmacy actual acquisition cost nationwide for generic drugs averaged 65.93 percent below AWP. For the 200 generic drugs with the greatest amount of Medicaid reimbursement in 1999 we calculated that as much as $470 million could have been saved if reimbursement had been based on a 65.93 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 & Medicaid Services (CMS) require the States to bring pharmacy reimbursement for generic drugs more in line with the actual acquisition cost of such drugs. The CMS concurred and plans to share our final report with the States, strongly encourage States to review their estimates of acquisition costs, and follow-up to ensure that their actions take our findings into account.