This post was also written by Vicky G. Gormanly.

On August 4, 2011, CMS held an “External Stakeholders Meeting” at its Baltimore headquarters to discuss the development of a survey for what it is now calling “National Average Drug Acquisition Cost” or “NADAC”. Earlier this year, CMS announced that it would publish a pricing benchmark based upon pharmacies’ acquisition costs for both brand and generic drugs, which State Medicaid programs could use instead of Average Wholesale Price (AWP) or Wholesale Acquisition Cost (WAC) to establish pharmacy reimbursement rates. CMS has entered into a contract with Myers & Stauffer, LC, to develop NADAC; Myers & Stauffer currently collects pharmacy acquisition costs for Oregon and Alabama, two states that have made such costs an element of their Medicaid pharmacy reimbursement.

Representatives of Myers & Stauffer handled the bulk of the presentation. They indicated that they plan to survey approximately 2,000 – 2,500 independent, chain and specialty pharmacies monthly, selected randomly from the 62,000 such pharmacies; “closed door” pharmacies such as mail order and long-term care pharmacies would not be included. Given that many “specialty” pharmacies dispense primarily through the mail, it is not clear why they have not been excluded along with non-specialty mail order pharmacies or whether it suggests that CMS might view them as community retail pharmacies for purposes of manufacturer price reporting under the Medicaid rebate statute. Pharmacies will be asked to submit their invoice data for all drug purchases made during the most recent 30-day period (it wasn’t clear how the period would be defined). Myers & Stauffer stated that pharmacies could simply photocopy invoices and send them in; alternatively, invoice data could be submitted in electronic form via e-mail, or the pharmacy’s wholesaler could submit the data on behalf of the pharmacy. CMS intends to minimize the submission burden on pharmacies.

Whether or not to respond to the survey request will be voluntary on the part of pharmacies. Monthly submissions will not seek data on discounts, rebates, chargebacks, free goods, or other off-invoice transactions. Instead, CMS will conduct a separate survey, on an annual basis, for that information–for which pharmacy responses will also be voluntary. Once Myers & Stauffer gets that data, they and CMS “will determine next steps”; apparently there is no current intent or specific plan to make it part of the NADAC that CMS will be publishing. One of the main purposes of that survey will be to look for “trends” over time; if this is collected only annually, then it would presumably be at least a year before this has any impact.

Myers & Stauffer expects a 2-month lag in the data–i.e., data published for January pricing would be from November. Myers & Stauffer recognizes that this lag could put pharmacies “underwater” (for brand drugs) when manufacturers implement price increases, if the increased acquisition price were not reflected in NADAC until two months later; accordingly, Myers & Stauffer is working with CMS to take that into account, by monitoring WACs, and adjusting reported NADAC prices when WACs are increased. They stated that they could do this given that their experience shows average acquisition costs are closely correlated with WAC. Nevertheless, the timeliness of such adjustments is to be determined, particularly for WAC increases between monthly NADAC updates; CMS noted that updates would be “at least” monthly.

It will be up to individual States whether or how to use NADAC, but if they want to use it they will need to do a State Plan amendment which CMS would have to approve. Joseph Fine, CMS’s MPA Technical Director, Division of Pharmacy, who is a pharmacist, referenced an industry study from several years ago indicating pharmacies’ dispensing costs are in the range of $10.00 per prescription, rather than the $2.00 – $2.50 dispensing fee in many current reimbursement formulas. He implied that CMS would expect a State formula with no markup on ingredient cost would be approved only if the dispensing fee were much higher, and indicated a belief that this creates an opportunity for the focus of pharmacy reimbursement to change from a focus on margin over ingredient cost to payment for what is actually done by the pharmacy. Nevertheless, in answers to public questions, CMS refused to give any parameters about what it would or would not require.

Prices will be published for each strength/dosage form of a given drug, with separate prices for generic and brand. “Generic” and “brand” will be defined based upon CMS covered outpatient drug file; in answering a question, Mr. Fine appeared to indicate that single source and innovator multiple source drugs would be considered brands, and noninnovator multiple source drugs considered generics. However, CMS did not directly address how authorized generics would be treated; since these are classified as innovator multiple source, it would appear that they would be mixed into the “brand” reimbursement, even though they are often treated as generics in pharmacy reimbursement today.

Data will be analyzed to exclude “outliers.” In addition, 340B pharmacies will be excluded, although it is not clear how emerging 340B contract pharmacy arrangements will be excluded.

CMS still expects to publish its first file of NADAC prices by the end of the year. CMS pledged to be fully transparent in developing the NADAC, and says it will look for comments after NADAC is published.

The ultimate impact of the survey is far from clear, given its voluntary nature and the fact that it will only focus on gross acquisition costs and not off-invoice transactions and adjustments. For branded drugs, it is not clear how NADAC will be materially different from WAC data available through pricing services, and the lag in reflecting manufacturer price increases appears to present problems. For generics, the new AMP-based “Federal Upper Limit” prices to be published by CMS under the Affordable Care Act will reflect manufacturer discounts (subject to various issues with calculating and reporting AMP), and will constitute an upper limit of Medicaid ingredient cost reimbursement–albeit at “not less than” 175% of utilization-weighted average AMP. Nevertheless, development of NADAC was prompted by interest from State Medicaid programs, and some States may propose to utilize it as the basis–or one basis–of their pharmacy reimbursement methodologies. Some private payors may also seek to utilize it. Accordingly, we will be monitoring further developments with respect to NADAC.