NADAC Pricing Leads to Unreasonably Low Medicaid Reimbursement: What Can a Pharmacy Do?

There has been perhaps nothing more detrimental to pharmacy margins in the Medicaid arena than the implementation of the National Average Drug Acquisition Cost (NADAC) pricing benchmark. Indeed, many pharmacies conducting business in states that utilize NADAC pricing have seen their reimbursement rates plummet, oftentimes to rates at or below acquisition cost. What’s worse for independent pharmacies, NADAC pricing has seemed to gain momentum and has recently been adopted by numerous state Medicaid programs. Independent pharmacies, however, have a number of available options to curtail the implementation of NADAC and effectively challenge unreasonable state Medicaid reimbursement rates.

By way of background, until recently states were directed by the Centers for Medicare and Medicaid Services (CMS) to set reimbursement rates for drugs in the Medicaid program based upon pharmacy estimated acquisition cost (EAC) plus a nominal dispensing fee. However, over the last few years Medicaid began shifting its reimbursement structure from EAC to actual acquisition cost, or AAC. In so doing, CMS contracted with a private firm to develop the NADAC pricing benchmark. NADAC pricing is calculated by collecting drug acquisition data from a random sample of retail pharmacies from all fifty states. While collecting drug acquisition data from pharmacies to analyze the AAC seems innocent in theory, the resulting reimbursement rates have been nothing short of a disaster for independent pharmacies. For instance, a study conducted by the Kaiser Foundation revealed that while the weighted reimbursement for a set of cardiovascular drugs in states that utilize the Average Wholesale Price was $1.95 per unit, the weighted NADAC reimbursement for those same drugs was $0.13 per unit.

Critically, states are not permitted to set unreasonably low reimbursement rates in the Medicaid program. Indeed, federal Medicaid laws require state Medicaid programs to “assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough provides so that care and services are available under the plan…” 42 U.S.C. § 1396a(30(A). Frier Levitt can utilize applicable Medicaid laws to effectively challenge unreasonable reimbursement states set by state Medicaid plans. If your pharmacy has seen its reimbursement reduced to unreasonable levels in the Medicaid program, contact Frier Levitt today.

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