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    Document Summary
    - Report Published -

    Report Document No. 14
    PUBLICATION YEAR 2006
    View PDF Version*

    Document Title
    Annual Report on Maximum Allowable Cost Program Reimbursement Methodology for Generic Drugs

    Author
    Department of Medical Assistance Services

    Enabling Authority
    Appropriation Act - Item 326 WW4 (Special Session I, 2004)

    Executive Summary
    The 2004 General Assembly 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, Item 326 WW (1) of the 2004-2006 Appropriations Act (Appendix A) required DMAS to amend the Virginia Medicaid State Plan to replace 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 Appropriations Act also required DMAS to report to the General Assembly by January 1 of each year on the savings achieved through the new MAC program.

    The new MAC 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 sold at less expensive prices. In FY 2004, Virginia Medicaid spent approximately $160 million (or 28 percent) of the total $573 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 second annual report on the MAC program. The first report was submitted to the General Assembly in January 2005. 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 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.