NACDS Urges Clarifications, Enhancements in Two Pharmacy Reimbursement Provisions in House Healthcare Reform Legislation

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Continues to Support Goals of Healthcare Reform

Today, President and Chief Executive Officer of the National Association of Chain Drug Stores (NACDS) Steven C. Anderson, IOM, CAE sent a letter to the Chairman of the Committee on Ways and Means Charles B. Rangel (D-N.Y.), Chairman of the Committee on Energy and Commerce Henry Waxman (D-CA.), and Chairman of the Committee on Education and Labor George Miller (D-CA.) on H.R. 3200, the America's Affordable Health Choices Act.

In the letter, Anderson expressed NACDS' strong commitment to reforming healthcare in America, including reducing costs, improving quality care and increasing access to critical services. Also included were two NACDS concerns with the pharmacy reimbursement provisions - the definition of the average manufacturer price (AMP), and the 130 percent multiplier for dispensing drugs. NACDS believes that these two provisions, unless they are modified, could result in unsustainable pharmacy reimbursement in Medicaid, threatening patient access to affordable prescription medicines and essential pharmacy services.

In order to reduce costs, improve quality care and increase access, NACDS believes that Congress needs to address, refine, and correct these two provisions in order to ensure that America's community pharmacies are fairly and accurately reimbursed for the essential healthcare services they perform. As Congress debates the healthcare reform bill, NACDS will continue to work with Congress and the Administration to advocate for pro-patient and pro-pharmacy provisions.

The full text of the letter follows:

July 20, 2009

The Honorable Charles B. Rangel
Committee on Ways and Means
United States House of Representatives
Washington, DC 20515

The Honorable Henry Waxman
Committee on Energy and Commerce
United States House of Representatives
Washington, DC 20515

The Honorable George Miller
Committee on Education and Labor
United States House of Representatives
Washington, DC 20515

Dear Chairmen:

The National Association of Chain Drug Stores (NACDS) appreciates your efforts to improve our nation's healthcare system and shares the goal of reforming the healthcare system to reduce costs, improve quality, and increase access. Millions of Americans rely on their local pharmacy every day for prescription drugs and pharmacy services. We are committed to advancing healthcare reform legislation that meets the needs of our member companies and the patients they serve.

The NACDS membership identified several key priorities for healthcare reform, and your legislation includes many of them. Most notably, the bill reforms Medicaid pharmacy reimbursement for generic drugs and maintains access to durable medical equipment for Medicare beneficiaries. The legislation also paves the way for an expanded role for community pharmacy in a reformed healthcare delivery system through the medical home pilot project.

We appreciate the inclusion of these provisions, and believe that they are critical components of any healthcare reform legislation. While we think some additional changes to several aspects of the legislation are needed, we support the legislative process moving forward. We hope to continue working together to strengthen H.R. 3200 as the legislation advances.

We believe the following provisions of the legislation are critical to maintaining patient access to local pharmacies:

Medicaid Reform: We applaud the inclusion of provisions to reform pharmacy reimbursement for generic drugs in the Medicaid program. As you know, the Deficit Reduction Act of 2005 (DRA) made drastic cuts to pharmacy reimbursement, threatening patient access and eliminating incentives to dispense generic medications.

H.R. 3200 makes significant improvements to the flawed reimbursement system created by the DRA, taking steps to define average manufacturer price (AMP) in a manner that will result in a more accurate approximation of retail pharmacy's acquisition costs. The legislation also proposes using the weighted average AMP rather than the lowest AMP to set federal upper limits (FULs), a much needed improvement that takes into account the wide range of market prices for generic drugs.

We appreciate the inclusion of these key provisions in the legislation, as they will reform Medicaid pharmacy reimbursement in several critical areas. However, we strongly urge improvements in two key areas: the AMP definition, and the AMP multiplier.

We believe a crucial component of a reformed average manufacturer price-based reimbursement system is an accurately defined AMP. The AMPs currently reported to CMS by drug manufacturers do not reflect the AMP definition, the average price paid by wholesalers for drugs distributed to the retail class of trade. H.R. 3200 rightfully removes pharmacy benefit manager (PBM) rebates from the AMP definition, as these discounts are not available to retail pharmacies, and makes several other important improvements. However, additional changes to the AMP definition are needed. For example, sales of certain drugs to hospitals, physicians, and clinics remain part of the AMP definition. Clearly, these entities are not part of the retail class of trade, and inclusion of these sales skew the AMP benchmark downward. While we recognize that an AMP may need to be calculated for these sales for the purposes of rebate collection, they should not be used to set FULs for pharmacy reimbursement.

We also remain extremely concerned about the 130% multiplier in the legislation. Keeping in mind dispensing fees that reimburse pharmacies well below their costs to dispense, this multiplier will result in insufficient reimbursement to pharmacies for dispensing generic drugs in the Medicaid program. We are concerned that this reimbursement will end the incentives to dispense generic medications, which are so critical to reducing prescription drug expenditures in the Medicaid program. In the 110th Congress, NACDS supported H.R. 3700, the Fair Medicaid Drug Payment Act, sponsored by Representative Frank Pallone, which proposed a multiplier of 300% and is clearly key to appropriate pharmacy reimbursement.

Access to DME Supplies and Services: We appreciate the legislation's recognition of the importance of patient access to healthcare products in addition to prescription drugs. Many Medicare beneficiaries rely on their community pharmacy for durable medical equipment (DME) such as diabetes testing supplies and monitors, in addition to prescription medications. We applaud the inclusion of a limited exemption for pharmacies from accreditation and surety bond requirements. These narrow exemptions are consistent with efforts to curb fraud, waste, and abuse in the Medicare program, while at the same time protecting beneficiary access to these supplies and services. We do believe a technical correction to the surety bond provision is needed to ensure it is better targeted to protect patient access to local pharmacy providers, and look forward to working with you to incorporate this minor modification.

Pharmacy's Role in a Reformed Healthcare System: Highly accessible and our healthcare system's medication experts, community pharmacists have an invaluable role in a reformed healthcare delivery system. Professional services provided by pharmacists help to ensure the safety and effectiveness of patients' medication therapy. NACDS is publicly supportive of H.R. 3108, "The Medication Therapy Management Benefits Act of 2009" which strengthens the Medicare Part D medication therapy management (MTM) benefit as well as the provisions of the Senate HELP legislation establishing grants for community health teams with MTM services and MTM services in the treatment of chronic disease. We appreciate the recognition of this important service in the legislation's medical home pilot project and urge inclusion of additional provisions to support MTM services.

Public Plan Provider Reimbursement: The legislation permits the Secretary of HHS to negotiate pharmacy reimbursement rates for prescription drugs in the public plan. We are concerned that this could result in insufficient national or regional pharmacy reimbursement rates. These insufficient rates might discourage participation by pharmacies, possibly compromising access to prescription drugs and pharmacy services.

We urge Congress to be mindful that there are two components of pharmacy reimbursement - product reimbursement as well as a dispensing fee - to cover the costs of dispensing a medication. A national study conducted by the accounting firm Grant Thornton found that the actual cost to dispense is approximately $10.50. In order to create a robust pharmacy network for public plan beneficiaries, fair and accurate pharmacy reimbursement for product cost as well as cost to dispense is critical.

Thank you again for your leadership at this historic time. We look forward to working with you in the weeks and months ahead to make necessary reforms to our nation's healthcare system.


Steven C. Anderson, IOM, CAE
President and Chief Executive Officer

CC: Members of the House Ways and Means Committee
Members of the House Energy and Commerce Committee
Members of the House Education and Labor Committee

Contact: Chrissy Kopple
(703) 837-4266

The National Association of Chain Drug Stores (NACDS) represents traditional drug stores, supermarkets, and mass merchants with pharmacies. Its more than 160 chain member companies include regional chains with a minimum of four stores to national companies. NACDS members also include more than 1,000 suppliers of pharmacy and front-end products, and 85 international members representing 28 countries. Chains operate 39,000 pharmacies, and employ a total of more than 2.5 million employees, including 118,000 pharmacists. They fill more than 2.5 billion prescriptions yearly, and have annual sales of over $750 billion. For more information about NACDS, visit

Pharmacies. The face of neighborhood healthcare.


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