Cost-effectiveness and cost-benefit analysis

Abstract

To compare average sales price (a statutorily defined price based on actual sales transactions) to average wholesale price (the published price most States use to set Medicaid reimbursement rates) for Medicare-covered drugs. BACKGROUNDIncreases in Medicaid's prescription drug costs have generated considerable attention from the Administration, Congress, and the States.Federal regulations require that each State's reimbursement for Medicaid prescription drugs not exceed the lower of (1) its estimated acquisition cost plus a dispensing fee, or (2) the provider's usual and customary charge to the public for the drug.Currently, most States estimate acquisition cost by discounting the average wholesale price (AWP) by a certain percentage.A small number of States use wholesale acquisition cost (WAC) plus a percentage markup when determining estimated acquisition cost.The AWP is a published price reported in commercial publications.Similarly, the WAC is a price reported in commercial publications.Prior to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Public Law 108-173), WAC was not a term defined in statute or regulation.The MMA defined WAC as the manufacturer's list price for the drug to wholesalers or direct purchasers, not including prompt pay or other discounts, rebates, or reductions in price, for the most recent month for which information is available.Previous Office of Inspector General work demonstrated that the AWPs States use to establish their Medicaid drug reimbursement rates are higher than the prices retail pharmacies pay to purchase drugs.The AWP is not defined in law or regulation, and fails to account for the discounts available to various payers.Prior to 2005, Medicare also used the AWP as the basis for Part B drug reimbursement.As of January 1, 2005, the MMA changed the basis of reimbursement for prescription drugs from AWP to average sales price (ASP).Unlike AWP and WAC, there is a specific method to calculate ASP defined in the MMA and the Social Security Act (the Act).

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