Assessment of the adequacy of reimbursement rates to pharmacies and its impact on the access to medication and pharmacy services by Medicaid recipients - Rc 91-078

Health Care Financing Review, Fall, 1994

The following summary is of a report from the Secretary of Health and Human Services released to Congress on March 10, 1994.

Legislative Mandate

Section 4401 (d) (4) of OBRA 1990 requires the Secretary of Health and Human Services to conduct a "study on reimbursement rates to pharmacists." The specific mandates for the study were to determine: "(i) the adequacy of current reimbursement

rates to pharmacists under each

State medical assistance programs

(sic) conducted under Title XIX of the

Social Security Act; and (ii) the extent to which reimbursement

rates under such programs have an

effect on beneficiary access to medications

covered and pharmacy services

under such programs."

Overview

This report addresses research questions in two major areas, adequacy and access. Adequacy was measured as the difference between payment and cost. The major question regarding adequacy is whether State payments are adequate in relation to the costs of dispensing drugs. The major questions regarding access are how access varies across States and whether there is a relationship between the adequacy of State payment and access to pharmacy services.

Summary findings of the report are as follows:

The economic model indicated that Medicaid's purchasing volume and the ability of the pharmacy to price-discriminate make it likely that Medicaid can pay close to marginal cost and still induce participation on the part of many pharmacies. The model estimates that marginal cost was approximately 75 percent of average cost at profitable output levels. Therefore, the effect of payment rates on Medicaid participation may take the form of a threshold effect; that is, there may be virtually no effect of payment on participation so long as Medicaid payments are above marginal cost.

On the issue of adequacy, the report states:

* Overall, States are paying 95-100 percent

of estimated total average costs of dispensing

drug products. Importantly, no

State's payment is below marginal costs.

* States tend to pay more than the average

costs for the ingredient component, but

not for the dispensing component.

* The national average dispensing cost is

$5.55 ($4.87 - $8.23) per prescription.

* The dispensing fee paid by States ranges

from $2.60 to $7.84 per prescription, with

a U.S. average of $4.34.

On the issue of access, the following findings are reported:

* Payment adequacy (the relationship of

State payment to an estimated average

total cost) does not appear to affect

participation rates.

* Overall, the number of pharmacies submitting

at least one claim was 88 percent

in low-poverty areas and 84 percent in

high-poverty areas.

* When participation was defined as a 5-percent

or greater volume of Medicaid

prescriptions overall, the number of participating

pharmacies was 58 percent in

low-poverty areas and 80 percent in high-poverty

areas.

* On average, there are almost 2 participating

pharmacies per 1,000 enrollees.

* The average number of prescriptions per

enrollee is 8.8 per year.

* The pharmacy participation rate in

Medicaid is higher than the physician

participation rate, as measured by

Medicaid, accounting for 5 percent or

more of claims volume.

In conclusion, State payments for pharmacy services are not a cause for concern at present because the study results indicate that all States are paying above marginal costs. In fact, it is estimated that the majority of States are paying between 95 and 100 percent of total average costs. This study applies to the present level of payment adequacy--if payments drop to a certain point, participation may also drop. Because of the study's scope, data on actual State-level costs and payments were not gathered but were estimated.

The study could not determine if there are instances in which Medicaid enrollees have experienced pharmacy-related access problems. States may wish to monitor access through use of their administrative data supplemented by surveys of pharmacies and beneficiaries. Because a physician contact is needed to generate a prescription, States may also wish to review physician participation within their Medicaid programs and how it relates to enrollee access for needed primary care.

For Further Information Contact: Kathleen Gondek, Ph.D. Office of Research and Demonstrations Health Care Financing Administration Room 2504 Oak Meadows Building 6325 Security Boulevard Baltimore, Maryland 21207 (410) 966-7765