DHH Announces Adjustments to Pharmacy Reimbursement Change

State will issue new emergency rule based on feedback from Louisiana pharmacists

Friday, Oct. 19, 2012  |  Contact: DHH Media & Communications; (225) 342-1532

Baton Rouge, LA - Today, Louisiana Department of Health and Hospitals (DHH) Secretary Bruce D. Greenstein announced adjustments to the Louisiana Medicaid program's pharmacy reimbursement methodology.

DHH promulgated an emergency rule in August that revised its reimbursement methodology for pharmacy services from an Average Wholesale Price (AWP) model to an Average Acquisition Cost (AAC) model. This change is consistent with federal policy direction and is similar to policies other states have successfully implemented for their Medicaid pharmacy programs. Effective Sept. 5, Medicaid began reimbursing pharmacists for their prescription services to Medicaid enrollees at the Average Acquisition Cost (AAC) plus a $10.13 dispensing fee.

In recent years, several national organizations have noted AWP-based reimbursement for Medicaid pharmacy is unreliable, subject to manipulation, and not representative of the actual purchase price for pharmaceutical products. A review of claims data showed when using the previous AWP reimbursement model Medicaid was consistently a top payer for pharmacy providers, paying more generously than commercial Pharmacy Benefit Management programs that serve patients with private insurance. As a result, a 2009 national Medicaid workgroup recommended state Medicaid programs shift their reimbursement methodology toward AAC to bring costs more in line with the actual cost of acquiring and dispensing prescription drugs to Medicaid recipients.

"We've talked about this change in reimbursement for more than two years. Since its implementation, we've worked extensively with community pharmacists to examine the impact," Greenstein said. "Louisiana pharmacists raised specific concerns about how the new rates were being applied to our attention, and we've made changes to adjust reimbursement upward and address their concerns." 

In order to incorporate feedback from pharmacists, DHH convened a workgroup of both independent and chain pharmacists to discuss the new reimbursement structure. After careful analysis, including a detailed review of cost and reimbursement data through information submitted by community pharmacists, DHH has made several enhancements to the reimbursement methodology that will increase reimbursement for pharmacy services. The new items are:

1. Provide a markup of 10 percent above the AAC rate for generic drugs, and 1 percent for brand name generics.
2.  Increase the dispensing fee paid to pharmacy providers as part of their reimbursement from $10.13 to $10.51, based on a factor of consumer price index inflation.
3.  Reimburse certain classes of specialty drugs, which cost more and are more complex to stock and dispense than mass-market prescription drugs, at their Wholesale Average Cost (a more generous price index) plus 5 percent.
4. Closely monitor drug-pricing updates that manufacturers make on product and pass along to pharmacists, to ensure Medicaid can adjust to the updated pricing quickly and accurately, which will limit instances where pharmacy reimbursement is below the cost of acquisition.

Medicaid made these changes to better use taxpayer dollars by more effectively containing costs in the program, while providing a fair reimbursement for pharmacists.  Given Congress' unexpected reduction in Louisiana's Medicaid reimbursement rate to the lowest point in 25 years, Greenstein emphasized the importance of balancing the budget, living within the state's means and more effectively using taxpayer dollars.

"Due to Congress' reduction in Medicaid funding to Louisiana, we must look at how we can operate in a more effective and less expensive manner," Greenstein said. "In making these changes, our top priority is ensuring Medicaid recipients have access to the prescription drug services they need, while also ensuring that we make optimal use of taxpayer dollars and that our pharmacists are paid a fair and transparent reimbursement."

"I want to recognize the members of the House, particularly the Health and Welfare Committee, for their strong advocacy on behalf of the pharmacists in Louisiana," said House of Representatives Speaker Chuck Kleckley. "I also want to thank the Department for their willingness to listen and respond to pharmacists' concerns. Secretary Greenstein has made a commitment to continue their dialogue, and House members will closely monitor their progress."

"I'm pleased with the progress we've made by bringing all parties to the table to determine the best path forward for the Medicaid pharmacy program," said Senator David Heitmeier, Chairman of the Senate Health and Welfare Committee. "DHH and the Legislature are committed to making necessary adjustments to these policies, and will continue to closely monitor the data to ensure that we are paying a fair rate for pharmacy services."

"The pharmacies in Louisiana continue to work to be accessible to the population of the state needing necessary prescription drugs, regardless of the payer," said Randal Johnson, President and CEO of the Louisiana Independent Pharmacy Association. "The move by DHH to address shortfalls in funding is something that our small business community pharmacies understand and respect as members of the tax-paying public and as health care providers. We appreciate the willingness of DHH to continue to review the information and work toward a fair and transparent reimbursement methodology."

"On behalf of our chain pharmacies operating more than half of the retail pharmacies throughout Louisiana, we are encouraged by the Department's willingness to continue these discussions and make adjustments where appropriate," said Mary Staples, Director of State Government Affairs with the National Association of Chain Drug Stores. "We've been working with DHH for over a year on this issue, and we look forward to continuing our positive relationship as we observe the impact of these reimbursement changes."

The Department is promulgating the new emergency rule, which will implement the updated reimbursement methodology changes for Medicaid fee-for-service pharmacy claims with dates of service Nov. 1, 2012 and beyond. Like all reimbursement changes, these adjustments in methodology will be subject to federal approval by the Center for Medicaid and Medicare Services (CMS).

The Louisiana Department of Health and Hospitals strives to protect and promote health statewide and to ensure access to medical, preventive and rehabilitative services for all state citizens. To learn more about DHH, visit http://www.dhh.louisiana.gov. For up-to-date health information, news and emergency updates, follow DHH's blog, Twitter account and Facebook.

###