Drug costs and pricing are very obtuse and lack transparency at the manufacturer, wholesale and retail level, due to complex pricing and rebate schemes. Manufacturers and others in the distribution chain like this lack of transparency; as it probably allows them to make higher profits. Government funded payers such as Medicare and Medicaid, however, are fairly determined to pay as little as possible and continue to devise new formulas to identify actual costs of drugs at different levels and base pricing on those costs. CMS has engaged Myers and Stauffer to help with this process and a recent presentation by the firm covered both the Federal Upper Limit calculation and the results of the CMS retail price surveys. (FUL and Retail Price Report) Simplistically, the FUL is the maximum amount that Medicaid programs are supposed to pay for drugs. It had been calculated as 175% of the monthly weighted average of the most recent month’s average manufacture prices, itself a complex formula. Because of issues, a three-month rolling average has been proposed as a substitute.
The retail price analysis is the more interesting exercise. It is an attempt to ascertain both the actual average drug acquisition cost and the average retail price for retail pharmacies. These are intended to be available for the Medicaid programs to use for reimbursement. One report will also cover new drugs that came out in the past month, both single source brand names and authorized generics. The National Average Retail Price is established by an analysis of actual pharmacy claims and encompasses all customers except Medicare and all payments–drug, dispensing fee and co-payments. The firm believes that the retail price report is accurate at a 95% confidence level within 5% for brands and 10% for generics. The final report is a representative survey of actual costs paid by retail pharmacies for the drugs they dispense. This data is updated frequently. This survey has a similar confidence level as the pricing analysis. The combination of these reports will give all interested parties a lot better view of retail pharmacies’ ingredient costs and the reimbursement they receive.