GAO to Congress: Pharmacies Face Major Medicaid Cuts without Congressional AMP Fix


By John Coster

A new government study affirms that community pharmacies would, on average, be significantly underpaid for dispensing generic prescription drugs to Medicaid recipients under an existing Average Manufacturer Price (AMP) reimbursement formula that was created through the 2005 Deficit Reduction Act. Current law would pay pharmacies 250% of the lowest AMP for a particular multiple source drug. On Monday, the Government Accountability Office (GAO) released an analysis it prepared on the issue for U.S. Senator Charles Grassley (R-Iowa), Ranking Member of the Senate Finance Committee.

This marks the second time that the agency has concluded that AMP-based reimbursement, currently delayed by federal injunction, would have a dire impact on community pharmacies. On Capitol Hill, there are bipartisan efforts to enact an AMP fix in health care reform that would preserve patient access to community pharmacies.

The new GAO study again demonstrates the strong negative financial impact that the AMP cuts would produce. After comparing acquisition costs and proposed reimbursement rates for a sample of drugs covered under Medicaid’s Federal Upper Limit (FUL) list, the GAO had found that for 65% of the drugs studied, retail pharmacies would be paid under these new rates far less than what is needed for the pharmacy to purchase the drug from a wholesaler or manufacturer.

Even this analysis understates the losses to pharmacies. In comparing acquisition costs to reimbursement rates, the GAO did not incorporate the costs associated with dispensing medication.  Even for the relatively few drugs that the GAO concluded would result in reimbursement rates greater than acquisition costs, there is no reason to believe pharmacies would break even. Medicaid has a history of paying very low dispensing fees that do not reflect the pharmacy’s costs.  Moreover, the report bases its reporting on the percentage by which the FUL would exceed a pharmacy’s acquisition costs. With generics being low cost items, even FULs that were significantly higher than pharmacies acquisition costs – using percentages – could still mean only pennies!

The GAO study further corroborates earlier research regarding the impact of AMP backed FULs.  According to the Congressional Budget Office, the new reimbursement strategy would cut payments to retail pharmacies by $11.8 billion over 10 years.  The Office of Inspector General at the U.S. Department of Health and Human found that payments to pharmacies under the AMP based formula would be less than acquisition costs for 19 of the 25 drugs on the FUL list with the highest Medicaid expenditures.  The Government Accountability Office found similar results with a much larger sample in their 2006 report, demonstrating that on average the AMP based FULs would pay retail pharmacies 36% below acquisition cost.

The most recent GAO report incorporates into their analysis changes made by the Centers for Medicare & Medicaid Services (CMS) for determining the FUL that were set in place after publication of the original 2006 GAO report.  Furthermore, the report demonstrates great variability in the financial impact to community pharmacies from state to state.  Such uncertainty will create additional problems for pharmacies dispensing medications under Medicaid, but overall, the new AMP based FULs would lead to 36 of the 47 states studied to reimburse pharmacies less than what the pharmacy would need in order to purchase these drugs from their wholesaler or manufacturer. 

Overall, the GAO concludes that, even after incorporating the methodological changes set out by CMS, in the aggregate the AMP based FULs would lead to pharmacies being reimbursed 17% less than their acquisition costs for the sample of drugs studied.

Reductions of this magnitude would likely force many independent pharmacies to re-evaluate their participation in the Medicaid program or to close altogether – reducing patient access. NCPA will continue to work with Congress on a fair AMP fix that averts these scenarios. 

We are pleased that both House and Senate bills include a permanent fix to this dangerous situation. We are hopeful that the conference committee will accept the Senate’s changes to the Medicaid reimbursement formula, which would set FULs at no less than 175% of the weighted average AMP.

1 Response to “GAO to Congress: Pharmacies Face Major Medicaid Cuts without Congressional AMP Fix”



  1. 1 Getting that Medicaid AMP Fix Right in Health Reform « Trackback on January 13, 2010 at 10:19 pm

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