Bipartisan Senate Finance Committee Legislation Includes Enhanced Medicaid Pharmacy Pricing Survey Provision

On November 8, 2023, on an unanimous 26-0 vote, the Senate Finance Committee approved the Better Mental Health Care, Lower-Cost Drugs, and Extenders Act.  The bill includes a number of Medicare and Medicaid provisions but also incorporates two sound Medicaid drug pricing provisions related to “spread pricing” in Medicaid managed care and to Medicaid pharmacy reimbursement that were previously part of the Modernizing and Ensuring PBM Accountability Act reported out by the Senate Finance Committee in July, which I previously analyzed here.  While the Medicaid managed care spread pricing provision remains unchanged, the Medicaid pharmacy provision has been enhanced to further increase its effectiveness, which would more than double the federal savings it is estimated to produce.

Medicaid pharmacy reimbursement consists of two parts: the cost of the drug itself, known as the ingredient cost, and a professional dispensing fee.  Federal regulations require that state Medicaid programs base their ingredient cost payment methodology on “actual acquisition cost,” which is the price a pharmacy pays to acquire a drug dispensed to a Medicaid beneficiary.  State Medicaid programs can use federal pricing survey data as one source to determine this actual acquisition cost although states can also use their own pharmacy drug pricing surveys or other pricing benchmarks such as the Average Manufacturer Price.  The federal pricing data is collected through the ongoing, nationwide National Average Drug Acquisition Cost (NADAC) survey of retail community pharmacies, which is conducted by a vendor on behalf of CMS.

Retail community pharmacies, however, are not required to respond to the NADAC survey.  This may skew the results of the survey if respondents are not representative of pharmacies nationally.  For example, initial data from when the NADAC survey was first implemented indicated that larger chain pharmacies, who likely obtain their drugs at lower prices, were less likely to respond to the NADAC survey than smaller independent pharmacies, who likely obtain their drugs at higher prices.  That would likely have the effect of raising the NADAC price for a drug and lead to states setting higher reimbursement rates that benefit chain pharmacies and other large pharmacies (and offer them a higher profit margin) when such pharmacies dispense a prescription drug to a Medicaid beneficiary.

Like section 6 of the Modernizing and Ensuring PBM Accountability Act, section 202 of the Better Mental Health Care, Lower-Cost Drugs, and Extenders Act would require all Medicaid-participating retail community pharmacies to respond to the NADAC survey, if such pharmacies are included in the monthly survey’s representative sample of retail community pharmacies.  This part of the provision would be effective 18 months after enactment.

The survey, however, would also now be extended to non-retail pharmacies such as specialty pharmacies and mail-order pharmacies, who would be required to respond to the NADAC survey starting on January 1, 2027.  (Nursing home pharmacies, long-term care facility pharmacies, hospital pharmacies, clinics, charitable or non-profit pharmacies, government pharmacies and low dispensing pharmacies would remain exempt.)  National average acquisition costs for such non-retail pharmacies would be calculated separately from the average acquisition costs for retail pharmacies.  Moreover, state Medicaid programs would be prohibited from using non-retail pharmacy pricing information collected from the survey in developing or informing Medicaid pharmacy reimbursement rates for retail community pharmacies, as the acquisition costs of non-retail pharmacies may differ significantly from those of retail pharmacies.  At the discretion of the Secretary of Health and Human Services (HHS), the survey could calculate separate national average acquisition costs by type of non-retail pharmacies (e.g. separate average acquisition costs for specialty pharmacies and for mail-order pharmacies) as well.

Information on national drug acquisition prices collected through the survey would be made publicly available, along with other specified information and information on price concessions to pharmacies.  The survey vendor would be required to conduct the survey monthly and to also differentiate among pharmacies by a variety of indicators including ownership type, retail community pharmacy or non-retail pharmacy, and type of non-retail pharmacy.  Pharmacy compliance would be enforced through civil monetary penalties.  The HHS Inspector General would also be required to conduct periodic studies of the survey data.

Mandatory participation in the NADAC survey for both retail pharmacies and non-retail pharmacies such as specialty pharmacies and mail-order pharmacies would better ensure a representative sample of pharmacies and a more accurate average acquisition cost for each drug by type of pharmacy.  That’s especially important in the case of specialty pharmacies, as they are playing a rapidly increasing role in dispensing new, high-cost therapies to Medicaid beneficiaries.  Over time, Medicaid pharmacy reimbursement would likely be increasingly set at amounts that are more appropriately in line with pharmacies’ actual acquisition costs, especially for larger chain pharmacies, specialty pharmacies and mail-order pharmacies.

As a result, the mandatory survey response provision would produce substantial federal and state Medicaid prescription drug savings over time.  According to preliminary estimates from the Congressional Budget Office, this provision would produce federal Medicaid savings of $2 billion over 10 years, more than double the $722 million in savings the previous provision approved by the Senate Finance Committee in July was estimated to produce.  That is likely the result of extending the survey to non-retail pharmacies such as specialty pharmacies and mail-order pharmacies.

Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.