Assessing potential prescription reimbursement changes: estimated acquisition costs in Wisconsin

Health Care Financing Review,  Spring, 1989  by David H. Kreling

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Direct prices are paid for all non-MAC products from eight manufacturers (Abbott, Lederle, Merck, Parke-Davis, Pfizer/Roerig, Squibb, Upjohn, Wyeth), the manufacturers for which HCFA proposed direct prices. All remaining products covered under the Stat program are reimbursed at the AWP amount published in the Blue Book pricing reference. Expanding the Federal MAC program and incorporating direct prices as ingredient cost reimbursement amounts have helped the State restrain program costs. Adopting the proposed reimbursement changes should reduce expenditures, and the reimbursement amounts more accurately would reflect pharmacists' actual purchase costs for drug products.

In fiscal year 1986 (July 1986 through June 1987), prescription drug program payments to providers totaled $58.6 million. The average prescription claim amount paid was $12.69, and the average ingredient cost was estimated at $8.48. The dispensing fees paid were $3.68 and $5.67 for traditional and unit-dose prescriptions, respectively.

These program statistics were obtained from the pharmacy consultant with the Bureau of Health Care Financing, Wisconsin Department of Health and Social Services (Boushon, 1986-87). The State-allowed fee amount is subtracted from the total claim amount to estimate the cost of goods sold. This is a fee-primary method of estimating the cost of goods sold. Because some claims are paid at the usual and customary charge when that amount is lower than the State's EAC plus the dispensing fee, this method of estimating the average ingredient cost is conservative. There is no precise mechanism to calculate the real average ingredient cost amount paid by the program. These per-prescription amounts also are reported in Pharmaceutical Benefits Under State Medical Assistance Programs (National Pharmaceutical Council, 1986). Methodology

The first step in the project was to develop a market basket of products for which reimbursement amounts could be estimated. A large market basket was desired that represented products commonly dispensed in pharmacies and also encompassed products dispensed to Medicaid recipients. Generally, the mix of products dispensed to Medicaid recipients is similar to the mix dispensed to the general public. However, some differences in product popularity and products used occur because of differences in patient characteristics and disease states between the general population and Medicaid recipients.

The primary source from which the market basket was developed was the Top 200 Drugs of 1984, published in Pharmacy Times (1985). This listing is based on a national prescription audit conducted by IMS America. The number of new and refill prescriptions dispensed in a national sample of approximately 2,000 community pharmacies are documented. The Top 200 is not a listing of products per se but rather a listing of drug brand names. There are several drug products for many of the Top 200 entries. For example, Inderal ranked second in the Top 200, but there are several individual strength and dosage form combinations (products) for Inderal. The ranking results from the aggregate popularity of these different Inderal products.