Review of Drug Costs to Medicaid Pharmacies and Their Relation to Benchmark Prices

States historically have based reimbursement for the costs to acquire Medicaid prescription drug ingredients on the average wholesale price (AWP). States generally use reimbursement methodologies based either solely on the AWP or the AWP in combination with another benchmark price, such as the wholesale acquisition cost (WAC). For multiple-source drugs that meet certain criteria, reimbursement is limited, in the aggregate, to Federal upper limit (FUL) amounts established by CMS. As part of the Medicaid drug rebate program, manufacturers report the average manufacturer price (AMP) of drug ingredients based on actual sales transactions. A primary publisher of AWPs announced that it would discontinue publishing them by September 26, 2011. We performed this review to provide information that States can use as they consider changes to their reimbursement methodologies.

Our review found that the AWP, WAC, and AMP had consistent relationships with invoice prices for single-source drugs, but none of the benchmarks had consistent relationships with invoice prices for multiple-source drugs without FULs. Although it was based on actual sales transactions, the AMP was the least consistent benchmark. States may be able to better approximate the invoice prices of drugs by developing different reimbursement methodologies for single-source drugs, brand-name multiple-source drugs, and generic multiple-source drugs.

We recommended that CMS share the results of this review with States to use when considering changes to their pharmacy reimbursement methodologies, including those for single-source drugs, brand-name multiple-source drugs, and generic multiple-source drugs. CMS officials said that they appreciated the information we provided.