OIG Issues Report on the Relationship Between Part D Payments and Drug Acquisition Costs for Community Pharmacies

14 January 2008 Publication

American Health Lawyers Association Alert

On January 10, 2008, the HHS Office of Inspector General (OIG) posted a report on the results of its survey of the relationship between Medicare Part D payments to community pharmacies and those pharmacies' drug acquisition costs. The report, titled "Review of the Relationship Between Medicare Part D Payments to Local, Community Pharmacies and the Pharmacies' Drug Acquisition Costs," found that community and rural pharmacies are being reimbursed about 18% more for Medicare Part D drugs than it costs the pharmacies to purchase the drugs.

The OIG reviewed a random sample of 100 non-chain pharmacies throughout the United States and Puerto Rico and found that Part D payments consistently exceeded the pharmacies' drug acquisition costs. The estimated difference was 18.1% ($9.13 per prescription) when including rebates from wholesalers and 17.3% ($8.78 per prescription) when excluding those rebates. Rebates were excluded from the latter analysis to correct for automatically lower drug acquisition costs for pharmacies that receive rebates.

The survey also looked at the differences in Part D payments and drug acquisition costs when taking into account different variance factors. Pharmacies that were members of group purchasing organizations and those that were not differed slightly in their differential percentages as did rural pharmacies as compared to non-rural pharmacies. However, in each category, Part D payments exceeded acquisition costs.

The survey concluded that the average dispensing fee of $2.27 under Part D was less than Medicaid's average dispensing fee of $4.30.

The Centers for Medicare & Medicaid Services (CMS) responded to the report stating that OIG's findings were consistent with its expectations, in part because CMS does not receive complaints from pharmacies regarding Part D negotiated prices as relates to acquisition costs.

Senate Finance Chair Max Baucus (D-MT) and ranking minority member Chuck Grassley (R-IA) released a joint statement on January 11 in reaction to the OIG report noting that they will be seeking further information as to other non-acquisition costs attributed to pharmacies when they dispense a drug. Senator Baucus stated that he wants to ensure that such costs are being covered by Medicare drug plans, so that local, community pharmacists can continue to participate successfully. Senator Grassley concurred and added his support for legislation that will require Medicare Part D plans to pay pharmacies promptly, use electronic funds transfers, and regularly update maximum allowable cost lists.

Access the joint statement from Senators Baucus and Grassley.

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