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The ABC’s of AWP & AMP

BY Jim Frederick

WASHINGTON —Policy-makers and pharmacy advocates sometimes call it “alphabet soup.” But unlike chicken soup, the litany of acronyms swirling around the pharmacy reimbursement debate—such shorthand terms as AWP, AMP, WAC and FUL—isn’t always good for you.

For good reason, such terms as average wholesale price (AWP), average manufacturer’s price (AMP), wholesale acquisition cost (WAC) and federal upper limit (FUL) resonate with pharmacy and managed care groups. Each term conveys a meaning that can determine whether pharmacies make a profit off the prescriptions they dispense or end up slipping into financial ruin. And as the nation, the White House and Congress wrestle over competing visions for reforming the fractured U.S. healthcare system and the way that system pays for prescription medicines, a fair pharmacy reimbursement system hangs in the balance.

One thing is certain: That system is changing. Thanks to a recent court ruling resolving a long-standing legal challenge, the AWP-based formula for setting drug prices—a formula at the heart of public and private managed care prescription payments to pharmacies—is now in rollback mode, and may even fade away over the next two years. And given the pharmacy industry’s opposition to most AMP-based payment formulas floated by the government in recent years, the future of third-party pharmacy reimbursement—which now accounts for more than 9-of-every-10 prescriptions dispensed in U.S. pharmacies—is extremely clouded.

For pharmacy leaders, the most immediate challenge is adapting to a new AWP-based payment formula. Rejecting an appeal from the National Association of Chain Drug Stores and other pharmacy groups, a federal court upheld a settlement Sept. 3 between two drug-price publishers and health plan payers (see story on p. 13). That settlement paved the way for a reduction in the markup of more than 1,400 commonly prescribed drugs between WAC and AWP.

First publication of the new drug price data was set for Sept. 26.

“The terms of the First DataBank/Medi-Span Settlements require First DataBank to reduce the AWP from 125% of…WAC for the majority of the affected products to 120% of the WAC for 1,442 drug products,” NACDS noted. “In addition, First DataBank/Medi-Span have announced that they will reduce the AWPs for an additional 20,000 distinct prescription products.”

What’s more, noted Adam Fein, founder and president of Pembroke Consulting, “first Databank will stop publishing Blue Book AWP values within the next two years.”

On the private-payer side, the eventual impact of the AWP rollback likely is to be mitigated by ongoing contract negotiations between PBMs and pharmacies. But pharmacy leaders clearly are concerned over the effect the 120% formula will have on government-sponsored payments. “Medicaid is another story and will likely mean real cuts,” Fein predicted after the appeals court ruling.

Indeed, NACDS noted, “These changes to AWP will reduce Medicaid reimbursement to pharmacies by about 4%, which translates to a conservatively estimated loss of more than $350 million each year in Medicaid payments to community pharmacies.”

The loss could be significantly higher, according to NACDS president and CEO Steve Anderson, who predicted that the reductions “may force many pharmacies to close, reduce hours or stop providing Medicaid pharmacy services.”

Beyond AWP, the battle over Medicaid drug reimbursements has raged in another, higher-profile setting: Congress. Pharmacy groups have lobbied hard to halt a plan by the Centers for Medicare and Medicaid Services to shift to a new, AMP-based payment system for generic drugs dispensed under Medicaid. They’ve successfully fought the plan in court, obtaining an injunction to halt its implementation until CMS develops an acceptable definition of a multiple-source drug on which to base the AMP formula. And they’ve enlisted support within Congress.

If implemented in its original form, an AMP-based Medicaid reimbursement model would have cut federal and state pharmacy payments by some $2 billion, according to industry analysts. Subsequent efforts by lawmakers have eased that threat, culminating with a health-reform bill hammered out in the Senate Finance Committee and unveiled by committee chairman Sen. Max Baucus, D-Mont., in mid-September.

The Baucus bill, 1-of-4 health-reform proposals unveiled in Congress in recent months, is a big improvement over the original, draconian cuts envisioned for Medicaid, pharmacy leaders noted, although they remain cautious about its long-term impact on pharmacy margins.

“The Baucus proposal sets federal upper limits for the reimbursement of Medicaid generic drugs at 175% of the weighted average of the average manufacturer’s price,” noted Bruce Roberts, EVP and CEO of the National Community Pharmacists Association. “While we’re still analyzing the full impact of this change, no other health-reform proposal goes so far to ensure community pharmacies can continue serving Medicaid beneficiaries.”

Anderson said his group remains “extremely concerned that an insufficient ‘multiplier’ for establishing federal upper payment limits for generic drugs could have extremely negative consequences for pharmacies and their low-income patients,” adding that NACDS “has questions” about the 175% formula.

“That being said, NACDS strongly commends the framework’s adoption of a ‘weighted average’ AMP rather than the lowest AMP to set FULs, as was the case under the Deficit Reduction Act of 2005,” Anderson added. “The use of a weighted average AMP would deliver a much needed improvement that takes into account the wide range of market prices for generic drugs.”

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Bartell forges ahead with another store opening

BY Alaric DeArment

SEATTLE Before the linoleum in its two newest stores even has a chance to get dirty, Bartell Drugs will open another store.

The Seattle-based regional chain announced the Friday opening of its 57th store, in Overlake Center at 5700 East Lake Sammamish Parkway SE in Issaquah, Wash. A ribbon-cutting event will take place at 10 a.m. Pacific time Tuesday.

The 16,395 sq.-ft. store is the third Bartell’s to open in 2009, following the openings of stores in Lynnwood, Wash., and Mill Creek, Wash., in July and August, respectively.

“We have been working towards opening a location in Issaquah for a number of years,” chairman and CEO George Bartell said in a statement. “We’re very excited about this new location and look forward to serving the needs of the community.”

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CVS/pharmacy marks a milestone with 7,000th store

BY DSN STAFF

LITTLE CANADA, Minn.

The sun was shining bright and spirits were high as CVS Caremark executives and city and state officials gathered here on Thursday to celebrate the grand opening of the pharmacy retailer’s 7,000th store.

“I am certainly delighted to see such a terrific turnout, and just when we were getting ready to start you can see the sun came out, and we think that is a very good sign as we open our 7,000th store,” Larry Merlo, president of CVS/pharmacy, told attendees of the milestone event.

The new store marks the company’s 41st location in the state and the 7,000th store since the retailer first opened its doors in Massachusetts in 1963 initially under the “Consumer Value Stores” banner. The company entered the state of Minnesota five years ago and today employs more than 1,000 people in the state.

In talking with Drug Store News, Merlo said the company has a healthy pipeline of stores and is looking to open between 275 and 300 stores a year nationwide — which, not including acquisitions, is pretty consistent with its number of openings in the last three to four years.

“We still have lots of opportunity for growth,” Merlo said.

Nested along busy Rice Street, at 2650 Rice St. to be specific, the new 13,000-sq.-ft. store is the retailer’s current prototype with a full-service pharmacy and double-lane drive-thru; digital photo cafe that provides customers with a relaxing atmosphere while they customize and print their own pictures; and a complete line of health and beauty products, general merchandise and convenience food items.

While this newest location does not feature a MinuteClinic, there is a MinuteClinic location at a nearby CVS store and, in fact, about two dozen of the CVS stores in the state have a MinuteClinic.

To celebrate the opening, local residents filled the parking lot to enjoy hot dogs and refreshments as the local Johnson Senior High School marching band kicked off the festivities in style.

CVS executives, including Merlo and SVP Hanley Wheeler, addressed the crowd, as did several officials, including Little Canada Mayor Bill Blesener and Minnesota Department of Employment and Economic Development Commissioner Dan McElroy.

“To have 7,000 stores is quite an accomplishment, and we feel quite honored to have store No. 7,000 here in our city,” Blesener said.

The opening of the CVS store is among the latest positive development in Little Canada. Two months ago, the city had another reason to celebrate; a St. Jude medical facility of 190,000 sq. ft opened its doors, which is expected to bring in 650 new jobs to the city.

“With 7,000 locations, we are the largest retail pharmacy in America. As part of CVS Caremark, we are the No. 1 provider of prescriptions in pharmacy-related health services in the country,” Merlo said. “CVS Caremark is the only fully integrated pharmacy healthcare company in the United States, and our pharmacy care services actually allow us to provide a greater a convenience and choice for patients to improve patient outcomes and lower overall healthcare costs.”

During the event, Merlo announced that Minnesota is participating in the company’s free seasonal flu shot program. CVS is partnering with the Department of Employment and Economic Development to provide more than 2,500 vouchers for a free flu shot to the unemployed in Minnesota. The 2,500 vouchers, a $75,000 value, will be distributed through 11 WorkForce Centers in the Twin Cities area.

Nationwide, the retailer is holding more than 9,000 scheduled flu clinics in CVS stores and, as part of the campaign, is providing more than $3 million worth of free seasonal flu shots to unemployed Americans through vouchers good for a free flu shot in any MinuteClinic or any of the scheduled CVS/pharmacy flu clinics.

CVS also handed out flu prevention kits containing CVS brand products like hand sanitizers to the first 100 shoppers at the store.

To further mark the occasion, CVS presented a $7,000 donation to the Courage Center, a Minnesota-based rehabilitation and resource center that advances the lives of children and adults experiencing barriers to health and independence. The donation is in keeping with CVS’ philanthropic program All Kids Can, a five-year, $25 million initiative to help children with disabilities. Accepting the donation on behalf of the Courage Center was Jan Malcolm, CEO of Courage Center.

With the sun in full force, an official ribbon cutting and round of applause wrapped up the presentation as a voice from the crowd shouted, “Let’s go shopping!”

Click here to view photos of the grand opening of the 7,000th CVS store.

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