Using Average Acquisition Cost for Medicaid Reimbursement

Cincinnati—Patrick Lupinetti, senior vice president, First Databank, Inc., is an expert on government drug pricing. At the AMCP meeting, he presented a Contemporary Issues session titled Drug Pricing Developments-AAC (Average Acquisition Cost), AMP (Average Manufacturer Price), and the Prospect for an Alternative Benchmark.

He began with a definition of wholesale acquisition cost (WAC) from the US Code: “…wholesale acquisition cost means, with respect to a drug or biological, the manufacturer’s list price for the drug or biological to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates or reductions in prices, for the most recent month for which the information is available, as reported in wholesale price guides or other publications of drug or biological pricing data” [42USC§1395w-3a(c)(6)].

He followed by noting that the definition of average manufacturer price (AMP) has been expanded from “average price paid to manufacturers by wholesalers for drugs distributed to retail pharmacy class of trade” to “average price paid to the manufacturer by wholesalers for drugs distributed to retail community pharmacies and by retail community pharmacies that purchase drugs directly from the manufacturers.”

Provisions in the Patient Protection and Affordable Care Act of 2010 call for draft AMPs to be published for 10 months and for federal upper limits for AMPs to be set at “no less than” 175% of AMP, Mr. Lupinetti continued.

He then discussed a Medicaid reimbursement model based on average acquisition costs on the state level. In September 2010, Alabama was the first state to publish AACs for both generic and brand products. Oregon and Idaho moved to using AAC methodology in January 2011 and September 2011, respectively. In 2012, Iowa and Louisiana passed legislation calling for transition to the AAC model and Colorado and New Jersey also used AACs to some degree. The 3 states with existing AAC models used the same methodology with survey data generated from the same firm, Mr. Lupinetti said.

In 2011, New York and California passed legislation to move Medicaid reimbursement to the AAC model. The regulations in both states look beyond the invoice price: in New York, the AAC is calculated “minus the amount of all discounts and other cost reductions attributable to such dispensed drug” and the California statute includes “invoice process and all current and future discounts, rebates, and refunds known to the provider that would apply to the acquisition price.”

Mr. Lupinetti noted that, at this point, there are limited data available to evaluate the AAC reimbursement model. In 2013, data are expected from New York and California, as well as the National Average Drug Acquisition Cost Survey from the Centers for Medicare & Medicaid Services.

It is expected that over time, reporting and publication of AACs will become more standardized, Mr. Lupinetti said. He noted that real analysis could only begin when data are evaluated over time and there is a single standard used or a combination of several models utilizing AACs.

He concluded with a quote from George E. P. Box: “All models are wrong, but some are useful.”