HCFA DROPS OCT. 1 DEADLINE FOR STATES TO ALTER AWP-BASED Rx REIMBURSEMENT FORMULAS; AGENCY TELLS COURT IT WILL WORK WITH STATES IN SETTING EACs

Executive Summary

The Health Care Financing Administration (HCFA) is rescinding its Oct. 1 deadline for state Medicaid agencies to change Rx drug reimbursement formulas. The federal financing agency announced its decision in a Sept. 20 brief filed in D.C. Federal Court by HCFA and HHS. The court filing responded to a Sept. 13 complaint by seven pharmaceutical assns. That suit challenged the deadline and requested the govt. to submit a full reply by Sept. 23 so that a ruling could issue by the Oct. 1 deadline. Opposing the plaintiffs' request, the govt. said: "The Oct. 1 'deadline' of which the plaintiffs complain has been superseded and there is accordingly no 'urgency' here whatsoever." HCFA "is not presently mandating that states' methods for calculating reimbursement rates for providers of Rx drugs for Medicaid patients be changed by Oct. 1, 1985," the govt. argued. "It is true that certain HCFA regional offices had earlier issued correspondence which indicated that states would be obliged by Oct. 1, 1985 to alter their methods of Rx drug reimbursement if they were relying on a listing of the drugs' AWPs (average wholesale prices). However, it is HCFA's current policy specifically not to require that states take such action with respect to drug pricing by the Oct. 1 date, as had been indicated previously by certain lower level HCFA officials," the filing states. The Pharmaceutical Mfrs. Assn., the Natl. Assn. of Chain Drug Stores, the Natl. Whsle. Druggists' Assn., the American Pharmaceutical Assn., the Natl. Assn. of Retail Druggists, the American Society of Hospital Pharmacists, and the American Society of Consultant Pharmacists sued HHS and HCFA Sept. 16 to block implementation of the changes. Three HCFA regions had told state Medicaid agencies that federal matching grants would be reduced after Oct. 1 by an amount equaling the difference between AWP and EACs established by the regional offices. HCFA has said lower EACs more accurately reflect the prices pharmacists actually pay for Rx drugs. "As evidence of its current policy," the govt. maintained, "HCFA transmitted to all states on Sept. 17, 1985 a letter that explicitly states that HCFA was not mandating any specific formula or methodology that states had to adopt for the reimbursement of Rx drugs." "It is HCFA's "intent to look forward to working with states in the future to assist them in analyzing their Rx drug pricing methodologies. Nowhere does the letter express any intention to take enforcement action of any kind against states on Oct. 1, because HCFA has no such intention," the document states. In the Sept. 17 letter to states, HCFA suggests it will entertain arguments for continued reliance on AWP. In light of data showing that AWPs are artificially high acquisition cost estimates, "states that rely solely on AWPs as an indicator of what providers are actually paying for Rx drugs can no longer do so and still claim that they are applying their best estimate to determining Rx drug costs (as required by ]the regulations[) unless they can provide other evidence." The letter adds that HCFA's "expectation is that each state will analyze drug pricing and when necessary implement Medicaid drug pricing levels which reflect more accurately than AWPs the prices that pharmacists are generally paying for drugs." The seven assns. withdrew their request for preliminary injunction on Sept. 25. They have not yet determined whether to pursue a permanent injunction. In their motion withdrawing the preliminary injunction request, the assns. pointed out that before the lawsuit was initially filed, they, "their members, and numerous states had asked HHS to rescind both the deadlines and the new federal formulas. HHS refused."