States Overpaying for Generics, HHS Inspector General Says

NEW YORK (Reuters Health) Mar 18 – Many state Medicaid programs are significantly overpaying pharmacies for generic drugs, according to a new government audit.
The report released on Thursday follows up on earlier OIG analyses of pharmaceutical acquisition costs.

Most states pay pharmacies the average wholesale price (AWP) of a drug minus a percentage discount. But according to the new report, states could do better if they paid closer to what pharmacies pay for those drugs. The OIG recommended that HHS' Centers for Medicare and Medicaid Services (CMS) require states to bring their pharmacy reimbursements for generics "more in line" with actual acquisition costs.

Using generic drug invoice prices from 217 pharmacies in eight states, the OIG determined that pharmacies paid, on average, 65.93% below AWP in 1999. That represents an increase of over 55% in the average discount below AWP for generics compared with an earlier estimate based on 1994 data.

CMS Administrator Tom Scully said that the agency would "strongly encourage" states to re-evaluate their drug reimbursement methods and to review their estimates of acquisition costs.

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