Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Pricing for Medicaid Programs

04/01/2000

Medicaid programs pay retail pharmacies using fixed cost limits and fixed dispensing fees. For single-source drugs (brand-name drugs without generic equivalents), the cost limit is set at the estimated pharmacy acquisition cost for the drug. For multiple-source drugs (with brand name or generic competitors), the limit is based on a MAC. These are similar in concept to the MACs used by PBMs; some PBMs may simply use the Medicaid MACs, while others develop their own. The Medicaid MACs are published by HCFA(now known as CMS) every six months and are set at 150 percent of the lowest published price for any equivalent drug, plus a dispensing fee.19

Under provisions of the Omnibus Budget Reconciliation Act of 1990, Medicaid programs receive rebates from manufacturers.20 Participation is generally required for a manufacturer's drugs to be eligible for Medicaid reimbursement. For single source drugs and innovator multiple-source drugs, the rebate must equal the difference between the average manufacturer price (AMP) - the average paid by wholesalers - and the manufacturer's "best price." The best price is the lowest price offered by the manufacturer to any purchaser at any time during the year, excluding the special prices for federal purchasers and certain other covered entities.21 The minimum rebate must be 15.1 percent of the AMP. For non-innovator multiple source drugs, the rebate is 11 percent of the AMP; the best price concept does not apply.

In Table 3-1, Medicaid reimburses the retail pharmacy for its acquisition price plus a dispensing fee. As noted, states obtain a minimum 15.1 percent rebate, corresponding to a net effective price of $37. Average rebates are in the range of 21 percent, which would yield an ultimate price of $34, but may range higher for certain drugs.

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