Review of Pharmacy Acquisition Costs for Drugs Reimbursed Under the Medicaid Prescription Drug Program of the California Department of Health Services

This review was conducted as part of a nationwide audit of pharmacy drug acquisition costs at the Health Care Financing Administration's request. The objective of the nationwide review is to develop an estimate of the difference between the actual acquisition costs of drugs of pharmacies and the average wholesale price (AWP) used by States in helping establish drug reimbursement amounts. Most States reimburse pharmacies for Medicaid prescriptions using a formula which generally discounts the AWP by 10.5 percent. This review was made in 11 States. This final report discloses results in California. In California the overall estimate of the extent that AWP exceeded pharmacy purchase invoice prices was 17.5 percent for brand names drugs and 41.4 percent for generic drugs. We believe that the difference between AWP and pharmacy acquisition costs as determined by our review are significant enough to warrant consideration by the State in any evaluation of the drug program. Therefore, we recommended that the State agency consider the results of our review in determining any future changes to pharmacy reimbursement for Medicaid drugs in California. The State concurred and stated they intend to use our report to support a provision in their Governor's budget proposal to decrease drug ingredient reimbursement.