Pharmacy Associations Challenge Final CMS AMP Rule; Legislative Fixes Pending in Congress

The Deficit Reduction Act of 2005 changed the basis for the federal government’s calculation of how much it reimburses states for their Medicaid generic prescription drug purchases.  Instead of using the “average wholesale price,” or AWP, which is a benchmark price, the federal reimbursement is now based on the “average manufacturer price,” or AMP (which is based on actual sales data, and which is usually quite a bit lower than AWP).

In July 2007, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule with a comment period (“AMP Rule”) clarifying how manufacturers must calculate AMP.  (Hyman, Phelps & McNamara, P.C.’s summary and analysis of the AMP Rule is available here.)  The regulations became effective on October 1, 2007, but comments may be submitted to CMS until January 2008, after which time CMS will consider revising the regulations. 

Earlier this month, two pharmacy associations -- the National Association of Chain Drug Stores (“NACDS”) and the National Community Pharmacists Association (“NCPA”) -- filed a complaint for injunctive and declaratory relief in the U.S. District Court for the District of Columbia challenging the AMP Rule.  The NACDS and NCPA allege that:

The AMP Rule unlawfully changes the methodology by which pharmacies are reimbursed for dispensing prescription drugs to Medicaid patients.  The AMP Rule is contrary to the plain language of the Social Security Act, contrary to Congress’ clear intent when it enacted the statute, contrary to [the] prior application of that statute [by CMS], contrary to dozens of other federal agency and State statutes and regulations, contrary to long-standing industry practices, and contrary to common sense.

Furthermore, the associations question CMS's motivation behind promulgating the AMP Rule:

[CMS] failed to implement the plain meaning of the Social Security Act because they were motivated to cut billions of dollars from payments to retail pharmacies that serve disadvantaged Americans through the Medicaid program.  All of the [CMS] statutory violations result from the [Centers’] efforts to cut Medicaid reimbursement to retail pharmacies below levels permitted by the statute.

The associations request that the court: “(1) declare the AMP Rule illegal; (2) preliminarily and permanently enjoin [CMS] from implementing the AMP Rule; (3) declare illegal the posting on the [CMS] website of AMP data calculated pursuant to the AMP Rule; (4)  preliminarily and permanently enjoin [CMS] from posting on the [Centers’] website AMP data collected pursuant to the AMP Rule; and (5) such other relief as the Court deems appropriate.” 

According to a joint NACDS/NCPA letter addressed to “Senators and Representatives on the Senate Finance Committee and House Energy and Commerce Committee and Co-Sponsors of Medicaid Pharmacy Payment Legislation:”

[T]his lawsuit was necessary at this time given the impending crisis on January 2008, but legislative action this year remains necessary to sufficiently remedy this problem. Only new legislation can eliminate the severe damage to community pharmacies and their patients caused by this new reimbursement method. Action by Congress is the only long-term solution. [(emphasis in original)]

The aforementioned “Medicaid Pharmacy Payment Legislation” is reference to S. 1951, H.R. 3700, and H.R. 3140, which are purported legislative fixes for NACDS/NCPA objections to the AMP Rule.  Clearly, the associations hope that following this two-pronged “belt and suspenders” approach will lead to a favorable resolution of their concerns over pharmacy reimbursement in Medicaid.