HD2 - Evaluation of the Department of Medical Assistance Services Prescription Drug Reimbursement


Executive Summary:
The 1997 session of the Virginia General Assembly passed a resolution (HJR 623) which requested the Departments of Personnel and Training (DPT) and Medical Assistance Services (DMAS) to:

1."evaluate the level of compensation to participating (pharmacy) providers to provide a payment level which will allow them a reasonable profit," and

2."evaluate their prescription drug programs to ensure that they comply with the Pharmacy Freedom of Choice statute."

DPT has submitted a separate report and the Office of the Attorney General advised DMAS that the agency is not in conflict with the Pharmacy Freedom of Choice statute. This report focuses solely on the evaluation of DMAS reimbursement for pharmacy services. DMAS contracted with the VCU/MCV School of Pharmacy to estimate the level of compensation required (1) to reimburse pharmacies for their costs in filling a prescription and (2) to provide a reasonable profit. The School of Pharmacy used a literature search to determine the prices at which pharmacists in Virginia purchase prescription drug products and a survey of pharmacies to determine the costs which pharmacies incur in dispensing prescriptions and the amounts they have invested in assets such as inventories, accounts receivables, and fixed assets (such as counters, shelving, and computers) required to dispense prescriptions. The VCU/MCV School of Pharmacy also researched pharmacy reimbursement by other third-party payers.

Given that Virginia Medicaid reimburses Average Wholesale Price (AWP) - 9% for single source drugs (this is higher than the estimated acquisition cost of AWP - 15%) and the Maximum Allowable Cost (MAC) for multiple source drugs, the VCU/MCV School of Pharmacy estimated that a dispensing fee of $5.11 is necessary for pharmacies to cover pharmacy prescription costs and that a dispensing fee of $5.65 is necessary for pharmacies to earn a reasonable profit on prescriptions. In general, however, DMAS does not consider profit in setting reimbursement rates.

Currently DMAS pays a $4.25 dispensing fee for about 80% of prescriptions filled for Medicaid patients or an average dispensing fee of $3.36. On the one hand, this fee is significantly less than the above calculation. On the other hand, DMAS reimbursement for pharmacy services is significantly higher than payments by Virginia Medicaid HMOs, Virginia state employee health plans, and other national plans. DMAS reimbursement is somewhat lower, but similar to reimbursement in other state Medicaid programs. At the current level of reimbursement, recipients also have the maximum possible access to pharmacy providers because virtually all pharmacies in the state participate in the Virginia Medicaid program.

DMAS believes that an increase in Medicaid pharmacy reimbursement is unwarranted. As long as there are enough available pharmacies willing to take Medicaid reimbursement, the Commonwealth should not raise rates, especially since it is one of the more generous payers.