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    Document Summary
    - Report Published -

    Report Document No. 65
    PUBLICATION YEAR 2007
    View PDF Version*

    Document Title
    Annual Report on the Maximum Allowable Cost (MAC) Generic Drug Reimbursement Methodology

    Author
    Department of Medical Assistance Services

    Enabling Authority
    Appropriation Act - Item 302 Y.4. (Special Session I, 2006)

    Executive Summary
    The 2004 General Assembly, through Item 326 WW (1) of the 2004–2006 Appropriations Act, directed the Virginia Department of Medical Assistance Services (DMAS) to implement a new pricing methodology used to reimburse pharmacies for multiple source drugs dispensed to Medicaid recipients. Specifically, the General Assembly directed DMAS to amend the Virginia Medicaid State Plan by replacing an existing drug pricing methodology, known as the Virginia Maximum Allowable Cost (VMAC) program, with a new pricing methodology that is referred to simply as the Maximum Allowable Cost (MAC) program. The General Assembly also required DMAS to report on the savings achieved through the new MAC program by January 1 of each year of the biennium. The 2006 General Assembly directed DMAS to continue the MAC program through Item 302 Y(1) of the 2006–2008 Appropriations Act (Appendix A).

    The MAC drug pricing methodology, which became effective in December 2004, is applicable to multiple source drugs, which are drugs that are made by several companies and are available in both brand name and generic versions. Generic drugs contain the same active ingredients as their brand name equivalents, but are typically sold at less expensive prices. In fiscal year (FY) 2005, Virginia Medicaid spent approximately $174 million (or 28 percent) of the total $622 million in pharmacy expenditures on multiple source drugs. The purpose of the new MAC program is to set prices for multiple source drugs that more accurately reflect the true acquisition costs incurred by pharmacies than the previous VMAC program. It is expected that the more accurate MAC methodology will produce lower reimbursement prices on average which will produce savings for the Commonwealth.

    This is the third annual report on the MAC program. The second annual report was submitted to the General Assembly in January 2006. Chapter I provides a brief overview of state pharmaceutical reimbursement policies and a description of both the VMAC and MAC pricing methodologies. Chapter II presents an analysis of the impact of the MAC program since December 2004, and it includes a comparison of the MAC prices against prices calculated using other pricing methodologies, the frequency with which pharmacy claims for multiple source drugs were paid at MAC prices, the change in drug payments since the MAC program was implemented, and the effect of the program on the State’s pharmacy community.

    Based on the analysis performed for this study, DMAS staff estimated that the MAC program has saved the State approximately $12 million since its implementation in 2004. However, it should be noted that this estimate is subject to several caveats that have made it increasingly difficult to accurately estimate the savings generated exclusively by the MAC program. These caveats are discussed in Chapter II.