Defines estimated acquisition cost of prescription drugs for pharmacy reimbursement

Sections 2 and 3 of the bill would amend the elder law to change the reimbursement methodology used to reimburse pharmacies for brand-name drugs under the Elderly Pharmaceutical Insurance Coverage Program (EPIC) from AWP-16.25% to its equivalent, WAC plus 5%.

Section 4 of the bill establishes the effective date of the bill as September 26, 2009.

Existing law

Under current law, pharmacies are reimbursed for brand-name drugs under Medicaid, EPIC, Family Health Plus, Child Health Plus, ADAP, a specialized HIV pharmacy and workers compensation using the benchmark Average Wholesale Price.

Prior legislative history

None.

Statement in support

On September 26, 2009, First Data Bank and Medi-Span will adjust the values of Average Wholesale Price (AWP) to decrease AWP by approximately four percentage points. First Data Bank and Medi-Span are the national publishers of Average Wholesale Prices, which currently form the basis of reimbursement policies in both public and private health care programs. The four-percentage point across the board reduction in the value of AWP on September 26, 2009 is part of a Settlement accepted by Federal District Court in Massachusetts in an action that began in 2001 charging that the values of AWP were inflated for approximately 1400 drugs. Pharmacies were not parties in this case and there was no alleged wrongdoing on the part of pharmacies in this case.

As a result of this Settlement and the resulting four-percentage point reduction in the value of AWP, pharmacies will experience the largest and most significant cut in pharmacy reimbursement for brand-name drugs in history if programs continue to use AWP as their benchmark for determining such reimbursement. It is important to understand, that while reimbursement would be decreased substantially for over 8,000 brand-name drugs as a result of the Settlement, inventory costs and the cost to acquire prescription drugs incurred by pharmacies would remain unchanged. The potential impact on the State's pharmacies and in turn, patient access to pharmacy services could be severe.

In New York, pharmacies have already experienced serious cuts over the last decade. In 2001, pharmacies were reimbursed under Medicaid at a rate of AWP-10%. Today, pharmacies are reimbursed at AWP-16.25% -- a six and one quarter percentage decrease in reimbursement in the last eight years alone.

Further, as a result of this case, First Data Bank and Medi-Span have stated that the publication of Average Wholesale Prices will be discontinued at some point within the next two years. For this reason, it is inevitable that public and private health care programs that currently use AWP to determine their pharmacy reimbursement will need to move to a new reimbursement methodology at some point within two years.

The private prescription benefit market has already responded positively to the change coming on September 26, 2009. Citing the need to ensure provider network stability, many have notified pharmacies that their current reimbursement levels will not change on this date.

This legislation would make this needed adjustment for the drug benefits provided in New York's public health care programs including Medicaid, Family Health Plus, Child Health Plus, ADAP, a specialized HIV pharmacy and EPIC. Specifically, this legislation would make the necessary statutory changes to move away from Average Wholesale Price as the benchmark for pharmacy reimbursement for brand-name drugs to its equivalent, Wholesale Acquisition Cost. The equivalent rate of the current AWP minus 16.25% is WAC plus 5% under Medicaid, Family Health Plus, Child Health Plus, ADAP and EPIC.

Wholesale Acquisition Cost (WAC) is a readily available and regularly updated published price for prescription drugs. Many see it is a more transparent and reliable methodology for determining pharmacy-pricing.

A number of state Medicaid programs base pharmacy reimbursement on WAC. For example: Massachusetts (WAC + 5%), Maryland (WAC + 8%), Missouri (WAC + 10%), Mississippi (WAC + 9%), North Dakota (WAC + 12.5%), Ohio (WAC + 7%), Pennsylvania (WAC + 7%), Texas (WAC + 12%), and Virginia (WAC + 10%). Many public and private programs across the country are also in the process of moving from AWP to WAC.

This legislation and its enactment prior to September 26, 2009 is critical to prevent the steepest and most precipitous pharmacy payment reduction in history which has the real potential to destabilize the provider networks in Medicaid and other public health programs. If the State does not act, patient access to pharmacy services could be compromised. Limited access to pharmacy may result in significantly increased costs to the State since the products and services routinely provided by pharmacies are critical to control health care costs and enable patients to remain in their homes and the community, preventing far more costly care in hospitals, clinics and emergency rooms.

In the interest of fairness and out of concern for maintaining the current level of access to pharmacy services for all New Yorkers, New York should follow the lead of almost a dozen other states and private insurers and move to a Wholesale Acquisition Cost methodology for pharmacy reimbursement for its public health care programs through the enactment of this legislation.

Budget implications

Division of Budget has booked $9 million in savings from the impact of the federal lawsuit for this fiscal year. The bill would not create new expenditures for the state but would maintain the status quo in terms of Medicaid reimbursement to pharmacies. In doing so, it would prevent future savings arising from the revaluing of AWP.

Effective date

This bill would take effect September 26, 2009.