This post was also written by Vicky G. Gormanly.

On July 8, 2011, CMS announced that it had awarded Myers and Stauffer, LC a contract to prepare a monthly survey of retail community pharmacy (“RCP”) prescription drug prices. The contract is in furtherance of CMS’s commitment to develop and publish “Average Acquisition Cost” data reflecting RCPs’ purchase costs for all covered outpatient drugs, for potential use by State Medicaid agencies in rate-setting.

According to CMS, the contract is divided into two parts, which will be completed concurrently:

• Part I focuses on RCP consumer prices, including (i) calculation of the monthly national RCP prices; and (ii) reporting by the States of payment and utilization rates for the 50 most widely prescribed drugs; and (iii) comparison of State drug payment rates to national retail survey prices.
• Part II focuses on RCP ingredient purchase costs, including a survey of purchase costs of all covered outpatient drugs purchased by RCPs, including independent community pharmacies, chain pharmacies and specialty pharmacies. This data would be used to develop the AAC, which would be updated on at least a monthly basis.

CMS states that to ensure that the methodology for Part II is implemented appropriately, it intends to include stakeholders such as representatives from pharmacy associations, wholesalers, and States “to assure that there is transparency and input on the AAC determination process.” The agency plans to host “an All-State teleconference to introduce the components of the Retail Price Survey and Average Acquisition Cost initiative”, details of which will be made available in the near future.

Alabama and Oregon, also pursuant to contracts with Myers & Stauffer, have already incorporated the use of AACs in their Medicaid pharmacy reimbursement formulas. Earlier this year California appeared to be moving toward an AAC reimbursement policy, but the relevant language was removed from the bill that was ultimately signed by Governor Brown. Notably, there appear to be variations in each State’s definition of AAC, e.g., relative to treatment of rebates.

The details regarding how AAC will be collected, calculated and reported could be significant for pharmacies, manufacturers and other industry participants. Pharmacy trade groups have previously questioned CMS’s authority to require RCPs to report their acquisition prices in surveys for purposes of publishing an AAC.

CMS is expected to publish for comment proposed regulations regarding the redefinition of Average Manufacturer Price (“AMP”), which under the Affordable Care Act (“ACA”) will be used to determine Federal Upper Limits (“FULs”) for State Medicaid reimbursement to pharmacies for multi-source drugs. Many of the questions which apply to reporting and determination of AMP and FUL prices could also apply to reporting and determination of AAC. Notably, however, AAC will presumably apply to branded drugs as well as generic drugs. Further, States (and commercial payors) may choose to use AAC in a variety of ways not anticipated by CMS, whereas FULs act as a nation-wide cap on Medicaid pricing for the drugs to which they apply.

We will continue to monitor progress as to CMS’s calculation and use of AAC, as well as related issues such as that of the upcoming proposed rule for reporting of AMP and calculation of FULs for covered outpatient drugs.