Medicaid Pays More Than Other Federal Programs for AIDS Drugs, HHS Report Says
A report released last week by the HHS Office of the Inspector General found that Medicaid pays up to 33% more than other federal programs for AIDS medications, the Chicago Tribune reports (Zajac/Japsen, Chicago Tribune, 7/27). The report studied Medicaid payments in 10 states that accounted for almost 75% of the program's total fee-for-service spending on antiretrovirals in FY 1999 -- California, Florida, Georgia, Illinois, Maryland, Massachusetts, New Jersey, New York, Pennsylvania and Texas -- and found that Medicaid could have spent much less if it used the same pricing as the Department of Defense, the Coast Guard, the Department of Veterans Affairs and certain other public health agencies. For example, according to the OIG, Medicaid could have saved $140 million if it had used the same drug rates as the VA. In FY 1999, Medicaid spent $617 million on antiretrovirals in all states for approximately 141,100 HIV beneficiaries who receive regular care. The report did not look at Medicaid managed care pricing (OIG, "Medicaid HIV/AIDS Drugs Cost Containment," 7/26). The reduced reimbursement rate would have allowed the program to cover an additional 8,500 people for the same amount of money, an expansion that will become increasingly important as the HIV/AIDS epidemic shifts more toward low-income Medicaid-eligible people, the Tribune reports.
Explanation, State Impact
The report primarily attributed the pricing disparities to Medicaid's "flawed" reimbursement system. Unlike the VA and large pharmacy chains that negotiate prices with drugmakers, Medicaid determines reimbursements based on "average wholesale price," or AWP, an amount determined by the drug manufacturers. Drugmakers "can inflate AWP" in order to attract physicians, who make a profit when the reimbursement received from Medicaid is higher than the actual drug cost, but Medicaid generally goes along with the price, according to the report. However, a spokesperson for Abbott Laboratories, which makes Norvir, one of the drugs studied, said that the problem lies not with the AWP, but with the Medicaid reimbursement formula itself. The report notes that some states have attempted to contain costs by only paying a percentage of the AWP. Illinois only pays 89% for brand-name drugs and 80% for generics, but those figures are still above the prices paid by wholesale pharmacies, which obtain brand-name drugs for 82% of the AWP and generics for 60% (Chicago Tribune, 7/27). As a result of variation of state policy, Massachusetts pays 24% more than the maximum price set by the VA. Georgia, which pays the highest amount of the 10 states studied, pays 55% more (Meckler, Associated Press, 7/31).
The report recommends that the Centers for Medicare and Medicaid Services (formerly HCFA) review its present reimbursement formula and "work with states to find a method that more accurately estimates pharmacy acquisition cost." The report recommends that the agency meet this end in one of the following ways:
- Develop "safeguards" to ensure that Medicaid is safe from AWP "manipulations" by drug companies;
- Develop a "national estimated acquisition cost" for the states to use as a guideline based on the average manufacturers price; or
- Let the states determine their own Medicaid reimbursement rates after supplying them with average manufacturers' price.