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Department of Health and Human Services

"Medicaid Pharmacy - Additional Analyses of the Actual Acquisition Cost of Prescription Drug Products," (A-06-02-00041)

September 16, 2002

Complete Text of Report is available in PDF format (2.52 MB). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


Previous OIG reports estimated the discounts below average wholesale price (AWP) commonly available to pharmacy purchasers of brand name drugs and generic drugs. This current review follows up and expands on that work. Our current review found that there is a wide range of discounts from AWP for pharmacy purchases depending on the category of drug that is being purchased. Specifically, we found that pharmacies purchased single source innovator drugs at an estimated discount of 17.2 percent below AWP, all drugs without federal upper limits (FULs) at an estimated discount of 27.2 percent below AWP, multiple source drugs without FULs at an estimated discount of 44.2 percent below AWP, and multiple source drugs with FULs at an estimated discount of 72.1 percent below AWP.

Based on our analysis, if states continue to use a reimbursement system based on AWP, they should consider using a four-tiered reimbursement methodology. This four-tiered system would consist of (1) tier one - a percentage discount off AWP for single source brand name drugs, (2) tier two - a percentage discount off AWP for innovator multiple source drugs without FULs, (3) tier three - a percentage discount off AWP for non-innovator multiple source drugs without FULs, and (4) tier four - the FUL price for FUL multiple source drugs. We recommended that the Centers for Medicare & Medicaid Services (CMS) encourage states to consider adopting a four-tiered payment system in order to bring pharmacy reimbursement more in line with the actual acquisition cost of drug products. We also recommended that CMS share this report with the states. The CMS concurred with our findings and recommendations.