Generics Are Boon to Those on Medicaid, Bane to Pharmacists

Ed Lamb
Published Online: Sunday, July 1, 2007
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Regulations, payer policies, and the education of health care providers and patients are combining to make generic medications the principal pharmacotherapy options for Medicare and Medicaid beneficiaries. Last year, these market influences led to 63% of prescriptions for patients covered by Medicare Part D being filled with unbranded products.1 Generic dispensing also is common under Medicaid. The US Department of Health and Human Services Office of Inspector General found that, in 2004, "generics were dispensed 89% of the time when they were available." Overall, the percentages of prescriptions for Medicaid beneficiaries dispensed as generics ranged as high as 61% in Alabama and Washington.2

Policy makers, program administrators, and insurers would like to see generic use increase, because keeping medication costs low can allow the government health plans to cover more beneficiaries without breaking the bank.2-4 This does appear to be the case with Medicare. In Medicaid, paradoxically, new federal rules, likely to lower reimbursements to pharmacies for generic drug products, may mean that needy patients have less access to medications.

Calling attention to this possibility in January 2007, National Community Pharmacists Association (NCPA) Executive Vice President and Chief Executive Officer Bruce Roberts, RPh, said, "The Centers for Medicare & Medicaid Services [CMS] is effectively putting community pharmacies out of the Medicaid business. It will be the nation's poor - in particular women and children who make up the majority of Medicaid recipients - who will suffer when they no longer have access to community pharmacies for the medicines they need."5

Part D Plans Encourage Generic Use
IMS Health estimates that the launch of the comprehensive federal drug benefit for seniors and the disabled in 2006 "lifted prescription volume by an estimated 1 to 2 percentage points and pharmaceutical sales by just under 1 percentage point."1 Much of this growth was driven by generics.

On the cost side of the equation, the Pharmaceutical Care Management Association has estimated that the first-time market entry of generic equivalents to drugs losing patent protection through 2009 could save Medicare $23.3 billion.6

Perhaps anticipating such developments, the rules that CMS set for Part D drug plans allow insurers to add products to their formularies at any time. Also, CMS requires plans to cover nearly every generic antidepressant, antipsychotic, anticonvulsant, antiretroviral, antineoplastic, and immunosuppressant. Approximately 75% of the brand name products listed in the FDA's Orange Book have at least 1 generic equivalent, and CMS is working to educate prescribers and beneficiaries about those products.

In September 2006, then- CMS Administrator Mark McClellan, MD, PhD, told the Senate Special Committee on Aging: "The utilization of generic drugs has played an important role in the low costs and expected further cost reductions in the drug benefit.?[T]he availability of excellent coverage of generic drugs in the Part D benefit, as well as personalized information and support to help beneficiaries find out how they can save using generics, have been important contributors to costs that are much lower than expected. Continuing to promote greater reliance on generics when available among Medicare beneficiaries is an important strategy to keep the new drug benefit affordable over the long term."4

Medicaid Reimbursements Could Be Far Below Product Costs
Generic dispensing is being strongly encouraged under Medicare; it is mandatory under Medicaid in all but a handful of states. An analysis done for the Kaiser Commission on Medicaid and the Uninsured in 2005 revealed that 34 of 37 surveyed states required pharmacists to fill prescriptions for Medicaid beneficiaries with generics unless prior authorization was obtained.7

This situation may become problematic if proposed changes to the federal formula for calculating generic drug product reimbursements took effect on July 1 as scheduled. Provisions of the Deficit Reduction Act of 2005 set the federal upper limit for payment for a drug with at least 3 equivalents at 250% of the average manufacturers price (AMP) for the cheapest product. Previously, the upper limit typically was calculated as 150% of the lowest average wholesale price (AWP).

The AMP is what drugmakers charge wholesalers, and it is almost lower than what pharmacies pay to wholesalers. How much less on a product-by-product basis is not yet known, because CMS has not published the data on AMP. Working with information published in drug-pricing compendia, however, the US Government Accountability Office determined that AMP-based payments would be 36% lower on average than reimbursements based on retail pharmacy acquisition costs, a figure that is close to AWP. The difference was as much as 60% less for AMP-based reimbursement for the most expensive products.8

"Thirty-six percent below cost for the average generic is pretty outrageous," Robert Appel, NCPA senior vice president for communications, told Pharmacy Times. He noted that close to a quarter of the dispensing done by the independent community pharmacies his organization represents is for Medicaid beneficiaries, and that decreased payments for those drugs could cause pharmacies to stop participating in Medicaid.

A survey of NCPA members revealed that 86% of respondents would consider dropping out of Medicaid if the CMS reimbursement changes were implemented in their current form.9 "This could be particularly difficult in rural communities where the local pharmacy may be the only health facility for 30 miles or more," Appel said. "Ten percent of our members say that Medicaid is 90% of their business. If drug payments don't cover costs, then those pharmacies just can't stay in Medicaid."

Pharmacy organizations and dozens of members of Congress have brought pressure on CMS to delay the enactment of AMP-based reimbursement or to change the rules so that AMP will more closely approximate stores' acquisition costs. In February, a bipartisan group of US representatives delivered a letter to CMS asking the agency to reconsider its rules, and a similarly diverse group of 46 senators made the same request in March.

CMS Acting Administrator Leslie Norwalk, JD, told the Wall Street Journal on March 28 that more than 1000 comments had been received concerning the Medicaid reimbursement formula changes. The agency is currently reviewing that feedback.10

Mr. Lamb is a freelance pharmacy writer living in Virginia Beach, Va, and president of Thorough Cursor Inc.

References

  1. IMS Health. IMS Health reports U.S. prescription sales jump 8.3 percent in 2006, to $274.9 billion. Press release. March 8, 2007.
  2. US Department of Health and Human Services, Office of Inspector General. Generic Drug Utilization in State Medicaid Programs. OEI-05-05. Bethesda, Md: HHS; July 2006.
  3. Generic Pharmaceutical Association. Generics provide "life jacket" for seniors falling into Medicare prescription drug "doughnut hole," says GPhA. Press release. September 21, 2006.
  4. McClellan MB. Testimony before the Senate Special Committee on Aging Hearing on Generic Drug Utilization in the Medicare Prescription Drug Benefit. September 21, 2006. Available at: http://aging.senate.gov/events/hr166mm.pdf. Accessed March 22, 2007.
  5. National Community Pharmacists Association. GAO report reveals CMS will stop Medicaid patients from using their community pharmacists. Press release. January 23, 2007.
  6. Pharmaceutical Care Management Association. Potential Savings to Medicare from New Generic Drugs Becoming Available. Available at: www.pcmanet.org/issues/pdf/medicaregenerics.pdf. Accessed March 22, 2007.
  7. Crowley JS, Ashner D, Elam L. State Medicaid Outpatient Prescription Drug Policies: Findings from a National Survey, 2005 Update. Available at: www.kff.org/medicaid/upload/State-Medicaid-Outpatient-Prescription-Drug-Policies- Findings-from-a-National-Survey-2005-Update-report.pdf. Accessed March 29, 2007.
  8. US Government Accountability Office. Medicaid Outpatient Prescription Drugs: Estimated 2007 Federal Upper Limits for Reimbursement Compared with Retail Pharmacy Acquisition Costs. Available at: www.gao.gov/new.items/d07239r.pdf. Accessed March 29, 2007.
  9. National Community Pharmacists Association. Federal regulations threaten patient access to prescription drugs, says NCPA. Press release. February 13, 2007.
  10. Merrick A, Zhang J. Medicaid Proposal Is Bitter Pill for Pharmacies. Wall Street Journal. March 27, 2007.


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