NCPA: Alabama's Proposed Medicaid Reimbursement Changes Warrant Careful CMS Review

Alexandria, VA - June 22, 2010


The State of Alabama's Medicaid State Plan Amendment represents a new pharmacy reimbursement model that should be carefully considered to ensure it will treat local pharmacists fairly, while satisfying budgetary pressures, the National Community Pharmacists Association (NCPA) said in a letter today to the U.S. Centers for Medicare and Medicaid Services.

"In the current economy, states face enormous pressure to balance the budget while meeting essential health needs," NCPA Executive Vice President and CEO Bruce T. Roberts, RPh, said. "Community pharmacists recognize that and want to work constructively with state and federal Medicaid officials to control costs and improve quality. We commend the state of Alabama for working in that spirit with pharmacy providers to develop this new model.

"In many ways, independent community pharmacies are the backbone of the Medicaid drug benefit," Roberts added. "They're more often in underserved rural and urban areas where Medicaid recipients live. Many independents also rely almost exclusively on prescription sales to stay in business, so it's critical for policymakers to get this right."

NCPA's letter, available in its entirety here, offered the following recommendations to CMS:
  • As states determine which reimbursement benchmark to use in the wake of the First DataBank/Medi-Span AWP Settlements, NCPA favors the use of wholesale acquisition cost (WAC)-based reimbursement for brands and a reasonable Maximum Allowable Cost (MAC) for multiple source drugs that retains an incentive for promoting the use of generic drugs.

  • Alabama's application to use average acquisition cost (AAC) should only be approved with clear language requiring the state to update the AAC at least weekly to account for frequent price changes in the market.

  • Because generic acquisition costs can vary widely, states should consider using a "median" rather than "average" reimbursement benchmark to avoid penalizing independent pharmacies that pay higher acquisition costs and lack the resources to self-warehouse. 

  • The use of AAC-based reimbursement should only be allowed when it is irrevocably tied to the higher, more accurate dispensing fee Alabama proposes. Most states traditionally pay pharmacies dispensing fees well below the actual cost of dispensing. Combining AAC-based reimbursement with inadequate dispensing fees would force many community pharmacies out of Medicaid or to close altogether.

  • CMS should recognize both WAC and AAC as legitimate pharmacy pricing models. While initially more states may gravitate toward WAC, CMS should also issue guidance for states considering an AAC-based model.

  • With the pending expansion of Medicaid under the recently signed health care reform law, federal and state Medicaid officials should work more closely with pharmacy providers. Utilized properly, community pharmacists can aggressively help physicians manage the drug therapy of Medicaid recipients to maximize positive patient outcomes and lower overall costs.

The National Community Pharmacists Association (NCPA®) represents America's community pharmacists, including the owners of more than 22,700 independent community pharmacies, pharmacy franchises, and chains. Together they represent an $88 billion health-care marketplace, employ over 65,000 pharmacists, and dispense over 40% of all retail prescriptions. To learn more go to or read NCPA's blog, The Dose, at

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