This is the accessible text file for GAO report number GAO-14-68 
entitled 'Medicaid Prescription Drugs: CMS Should Implement Revised 
Federal Upper Limits and Monitor Their Relationship to Retail Pharmacy 
Acquisition Costs' which was released on January 22, 2014. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

December 2013: 

Medicaid Prescription Drugs: 

CMS Should Implement Revised Federal Upper Limits and Monitor Their 
Relationship to Retail Pharmacy Acquisition Costs: 

GAO-14-68: 

GAO Highlights: 

Highlights of GAO-14-68, a report to congressional requesters. 

Why GAO Did This Study: 

States reimburse pharmacies for covered outpatient prescription drugs 
dispensed to Medicaid beneficiaries. For certain multiple-source 
outpatient prescription drugs, federal matching funds that states 
receive to reimburse pharmacies are limited by FULs. In 2010, PPACA 
modified the FUL formula to better reflect pharmacy acquisition costs 
and thus more effectively control Medicaid expenditures. However, CMS 
has not yet implemented the PPACA formula and continues to use FULs 
that were published in September 2009. CMS currently publishes draft 
PPACA-based FULs. CMS also recently created the NADACs for states to 
consider when setting reimbursement rates. 

You asked GAO to look at the NADAC and the PPACA-based FULs. This 
report (1) describes how CMS develops the NADACs and (2) examines how 
PPACA-based FULs compare to the NADACs. GAO compared draft FULs and 
NADACs for first quarter 2013 in aggregate across all multiple-source 
outpatient prescription drugs subject to the FUL. GAO also reviewed 
CMS documents and interviewed CMS officials on how the NADACs are 
developed and PPACA-based FULs are calculated. 

What GAO Found: 

To develop a national benchmark for retail pharmacy acquisition costs 
of Medicaid covered outpatient prescription drugs—-known as the 
National Average Drug Acquisition Cost (NADAC)—-the Centers for 
Medicare & Medicaid Services (CMS) within the Department of Health and 
Human Services (HHS) surveys each month randomly selected retail 
community pharmacies for invoice data on their actual drug acquisition 
costs. CMS then calculates an average acquisition cost for each drug 
based on invoice data received from about 500 to 600 pharmacies. CMS 
officials expressed confidence in their current process, but noted 
that some limitations may exist. For example, CMS officials stated the 
extent to which NADACs reflect rebates and discounts is limited 
because most occur off-invoice or are not tied to a specific drug 
purchase. CMS has developed and published more than 5,000 NADACs, 
which CMS has estimated apply to more than 90 percent of the drug 
claims reimbursed by Medicaid. 

GAO found that the total draft federal upper limits (FUL) amount based 
on the new formula under the Patient Protection and Affordable Care 
Act (PPACA) was about 1.4 percent lower than the total NADAC amount in 
aggregate for 1,035 outpatient drugs subject to the FUL in first 
quarter 2013. 

Figure: Comparison of PPACA-Based FULs to NADACs, First Quarter 2013: 

[Refer to PDF for image: horizontal bar graph] 

FULs higher than NADACs: 

Percentage: 100% or more; 
Number of drugs: 39. 

Percentage: 80% to less than 100%; 
Number of drugs: 20. 

Percentage: 60% to less than 70%; 
Number of drugs: 40. 

Percentage: 40% to less than 60%; 
Number of drugs: 75. 

Percentage: 20% to less than 40%; 
Number of drugs: 119. 

Percentage: 0 to less than 20%; 
Number of drugs: 234. 

Total number of drugs: 527. 

FULs lower than NADACs: 

Percentage: more than 0 to 20%; 
Number of drugs: 226. 

Percentage: more than 20% to 40%; 
Number of drugs: 162. 

Percentage: more than 40% to 60%; 
Number of drugs: 85. 

Percentage: more than 60% to 80%; 
Number of drugs: 25. 

Percentage: more than 80%; 
Number of drugs: 10. 

Total number of drugs: 508. 

Source: GAO analysis of CMS data. 

[End of figure] 

GAO found large differences between the total PPACA-based FUL amount 
and the total NADAC amount for generic and for branded generic 
versions—brand-name drugs with other versions that can be substituted 
for one another—of the drugs subject to the FUL in first quarter 2013. 
GAO found that the total PPACA-based FUL amount for the generic 
versions was 19 percent higher than the total NADAC amount, but for 
the branded generic versions was 26 percent lower. GAO's work 
indicates that CMS is close to having a formula under which FULs would 
better reflect pharmacy acquisition costs, but continues to apply FULs 
that were calculated more than 4 years ago. Additionally, the 
relationship between PPACA-based FULs and NADACs may be affected by 
several factors, including rebates and discounts that are not 
reflected on pharmacy invoices. To determine whether GAO's early 
results of the relationship between the PPACA-based FULs and the 
NADACs holds over time will require continued monitoring by CMS 

What GAO Recommends: 

GAO recommends that the CMS Administrator (1) expeditiously implement 
the PPACA-based FUL formula and (2) monitor the relationship between 
the PPACA-based FULs and the NADACs on an ongoing basis. HHS concurred 
with these recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-14-68]. For more 
information, contact John E. Dicken at (202) 512-7114 or 
dickenj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

CMS Develops NADACs by Surveying Retail Community Pharmacies for 
Invoice Data on Actual Acquisition Costs: 

First Quarter 2013 PPACA-Based FULs Were Nearly Equal to NADACs across 
All Drugs in Aggregate, but Varied Greatly for Individual Drugs: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Methodology for Comparing Federal Upper Limits to National 
Average Drug Acquisition Costs: 

Appendix II: Comparison of Federal Upper Limits to National Average 
Drug Acquisition Costs, Top 50 Medicaid Expenditure Drugs: 

Appendix III: Comparison of Federal Upper Limits to National Average 
Drug Acquisition Costs, Top 50 Medicaid Utilization Drugs: 

Appendix IV: 3-Month Rolling Average Federal Upper Limits Compared 
with National Average Drug Acquisition Costs: 

Appendix V: Comments from the Department of Health and Human Services: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Comparison of Single-Month PPACA-Based Federal Upper Limits 
(FUL) to National Average Drug Acquisition Costs (NADAC) for the 50 
Highest Medicaid Expenditure Drugs Subject to the FUL: 

Table 2: Comparison of Single-Month PPACA-Based Federal Upper Limits 
(FUL) to National Average Drug Acquisition Costs (NADAC) for the 50 
Highest Medicaid Utilization Drugs Subject to the FUL: 

Figures: 

Figure 1: CMS Process for Developing National Average Drug Acquisition 
Costs (NADAC) for Outpatient Prescription Drugs: 

Figure 2: Comparison of Single-Month PPACA-Based Federal Upper Limits 
(FUL) to National Average Drug Acquisition Costs (NADAC), First 
Quarter 2013: 

Figure 3: Comparison of PPACA-Based 3-Month Rolling Average Federal 
Upper Limits (FUL) to National Average Drug Acquisition Costs (NADAC), 
First Quarter 2013: 

Abbreviations: 

AAC: Average Acquisition Cost: 

AMP: average manufacturer price: 

CMS: Centers for Medicare & Medicaid Services: 

DRA: Deficit Reduction Act of 2005: 

FUL: federal upper limit: 

HHS: Department of Health and Human Services: 

NADAC: National Average Drug Acquisition Cost: 

NDC: national drug code: 

OIG: Office of Inspector General: 

PCI: per capita income: 

PPACA: Patient Protection and Affordable Care Act: 

WAC: wholesale acquisition cost: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

December 19, 2013: 

The Honorable Max Baucus: 
Chairman: 
Committee on Finance: 
United States Senate: 

The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on the Judiciary: 
United States Senate: 

Medicaid, a joint federal-state program that finances health care 
coverage for certain low-income individuals, spent an estimated $40.3 
billion on outpatient prescription drugs in fiscal year 2012. State 
Medicaid programs do not directly purchase prescription drugs, but 
instead reimburse pharmacies for covered prescription drugs dispensed 
to Medicaid beneficiaries. The federal government provides matching 
funds to each state for Medicaid expenditures, which cover a portion 
of the costs of these reimbursements.[Footnote 1] 

For certain multiple-source outpatient prescription drugs with three 
or more therapeutically and pharmaceutically equivalent versions, the 
federal government will provide matching funds for reimbursements only 
up to a maximum amount--known as a federal upper limit (FUL)--in order 
to control federal Medicaid expenditures on these drugs.[Footnote 2] 
While state Medicaid programs may use different methods to reimburse 
retail pharmacies for covered prescription drugs,[Footnote 3] for 
those drugs subject to the FUL the federal government will only 
provide matching funds to the extent that a state's annual 
reimbursements do not exceed the sum of the FULs in aggregate. 
[Footnote 4] As of September 2009, the formula used by the Centers for 
Medicare & Medicaid Services (CMS)--the agency within the Department 
of Health and Human Services (HHS) that oversees Medicaid--to 
calculate FULs was based on using 150 percent of the lowest price 
published in national drug pricing compendia and CMS continues to 
apply these FULs.[Footnote 5] 

Questions have been raised about whether FULs calculated using prices 
published in national compendia can effectively control Medicaid 
expenditures on drugs subject to the FULs because these prices do not 
reflect pharmacies' actual costs for acquiring these drugs.[Footnote 
6] For example, a 2005 report by the HHS Office of Inspector General 
(OIG) found that prices in the national compendia exceeded prices 
based on actual sales by as high as 70 percent.[Footnote 7] In 2006, 
Congress required CMS to modify the formula used to calculate FULs. 
This modified formula was based on using 250 percent of a drug's 
average manufacturer price (AMP), which represents the average of 
prices paid to manufacturers and is typically less than prices 
published in national compendia.[Footnote 8] However, although CMS 
published a final rule to implement this formula, implementation did 
not occur due to a lawsuit filed by pharmacy associations concerned 
that the modified formula would result in reimbursement below their 
acquisition costs. These concerns were based in part on work by GAO 
and the HHS OIG, which generally found that FULs calculated using the 
modified formula were significantly lower than the average retail 
pharmacy's acquisition costs.[Footnote 9] Reimbursing pharmacies below 
their acquisition costs could in turn affect pharmacies' ability to 
dispense outpatient prescription drugs to Medicaid beneficiaries and 
potentially reduce beneficiary access to drugs. In 2010, the Patient 
Protection and Affordable Care Act (PPACA) again modified the formula 
for calculating FULs to use no less than 175 percent of a drug's AMP 
and imposed an effective date of October 1, 2010.[Footnote 10] CMS has 
not implemented the PPACA FUL formula yet, but calculates FULs using 
the PPACA formula and publishes these FULs in draft form.[Footnote 11] 

CMS also recently took steps to improve states' access to actual 
pharmacy acquisition cost data. In June 2010, a working group within 
the National Association of State Medicaid Directors recommended that 
CMS develop a single national price benchmark for pharmacy 
reimbursement based on the average of actual drug acquisition costs to 
assist states in setting their own reimbursement rates for outpatient 
prescription drugs. In response to this recommendation, CMS began 
surveying retail community pharmacies to collect actual prescription 
drug acquisition cost data to develop a new, publicly available 
national price benchmark called the National Average Drug Acquisition 
Cost (NADAC) for Medicaid-covered outpatient prescription drugs. 
[Footnote 12] In late 2012, CMS began publishing the resulting NADACs 
in draft form to help states assess how the use of the NADACS may 
affect their reimbursements to pharmacies.[Footnote 13] CMS officials 
noted that states may choose to modify their drug reimbursement 
methodologies to use final NADACs by amending their Medicaid state 
plan.[Footnote 14] 

Because the NADACs are a new source of pharmacy acquisition cost data 
for states to consider in setting their reimbursements rates, it is 
important to understand how CMS develops the NADACs. Additionally, 
given questions about Medicaid FULs with regards to over-and under-
reimbursing pharmacies for dispensing outpatient prescription drugs to 
Medicaid beneficiaries, it is important to understand how PPACA-based 
FULs compare to pharmacy acquisition costs. Accordingly, you asked us 
to examine the NADACs and the PPACA-based FUL formula. This report (1) 
describes how CMS develops the NADACs and (2) examines how PPACA-based 
FULs compare to the NADACs. 

To describe how CMS develops the NADACs, we collected and reviewed CMS 
documentation on its methodology for calculating the NADACs, which 
included the process for surveying retail pharmacies, as well as 
comments stakeholders provided to CMS. We also reviewed NADACs 
published during the first quarter of 2013. In addition, we 
interviewed officials from CMS and Myers and Stauffer, LC (hereafter 
referred to as Myers and Stauffer), a public accounting firm, with 
which CMS contracted to develop the NADACs. 

To examine how PPACA-based FULs compare to NADACs, we compared the 
PPACA-based FULs to the NADACs for first quarter 2013 in aggregate 
across all drugs subject to the FUL.[Footnote 15] To make the 
aggregate comparison, we first determined a total FUL amount by 
multiplying each drug's FUL by its Medicaid utilization in the first 
quarter 2013--the most recent at the time we conducted our analysis--
and summing these amounts across all drugs. We then followed a similar 
process to determine the total NADAC amount for the same drugs. 
Finally, we compared the total FUL amount to the total NADAC amount to 
determine the aggregate difference. In addition, we compared the PPACA-
based FULs to the NADACs across generic versions and across branded 
generic versions--brand-name drugs with therapeutically equivalent 
versions, otherwise known as innovator multiple-source drugs.[Footnote 
16] We also compared the PPACA-based FULs to the NADACs for a subset 
of the 50 drugs with the highest Medicaid expenditures--accounting for 
42 percent of all Medicaid drug expenditures for drugs subject to the 
FUL--and for the 50 drugs with the highest Medicaid utilization--
accounting for 36 percent of all Medicaid prescriptions for drugs 
subject to the FUL--in the first quarter of 2013. 

To assess the reliability of the NADACs, PPACA-based FULs, and 
Medicaid utilization data we used, we performed electronic testing for 
missing and inconsistent data and reviewed documents describing the 
methodology and quality assurance steps used for collecting and 
managing the data as well as calculating the NADACs and PPACA-based 
FULs. We also interviewed agency officials knowledgeable about the 
data. We determined that the data were sufficiently reliable for the 
purposes of this report. (See appendix I for more details on our 
methodology.) 

We conducted this performance audit from July 2013 through December 
2013 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

Medicaid Coverage of Prescription Drugs: 

Outpatient prescription drug coverage is an optional benefit that all 
state Medicaid programs have elected to include in their Medicaid 
benefit packages. The outpatient prescription drugs covered by 
Medicaid include brand-name drugs and multiple-source drugs, the 
latter of which include branded generic versions and generic versions. 

State Medicaid programs may use different methods for reimbursing 
pharmacies for outpatient prescription drugs dispensed to Medicaid 
beneficiaries. In general, states base their Medicaid reimbursements 
to a retail pharmacy for a covered outpatient prescription drug on the 
lowest of the following: a state's best estimate of retail pharmacies' 
acquisition costs for the drug; the usual and customary charge of the 
retail pharmacy that dispensed the drug; the state's maximum allowable 
cost for the drug, if applicable; or the FUL for the drug, if 
applicable.[Footnote 17] 

Medicaid FULs: 

Historically, CMS has calculated the FULs by grouping the 
therapeutically equivalent branded generic and generic versions of 
drugs, identifying the version with the lowest price published in 
national drug pricing compendia, and multiplying that price by 150 
percent.[Footnote 18] The FULs currently apply to all branded 
generic and generic versions of drugs; however, FULs do not apply 
to branded generic versions if the prescribing provider certifies 
that the specific brand is medically necessary for a particular 
patient.[Footnote 19]  

Congress has twice since 2006 enacted legislation that required a 
change to the FUL formula. Congress's first change to the FUL formula 
was in the Deficit Reduction Act of 2005 (DRA). Specifically, the DRA 
required FULs to be calculated as 250 percent of AMP for a drug's 
least costly therapeutic equivalent.[Footnote 20] CMS issued a final 
rule in July 2007 to implement the DRA formula.[Footnote 21] However, 
a lawsuit filed by two retail pharmacy industry groups--the National 
Association of Chain Drug Stores and the National Community 
Pharmacists Association--challenged the implementation of this rule 
primarily due to concerns that the revised formula would result in 
reimbursement well below retail pharmacies' acquisition costs. These 
concerns were, in part, based on work by GAO and the HHS OIG.[Footnote 
22] In December 2007, the U.S. District Court for the District of 
Columbia issued a preliminary injunction prohibiting CMS from 
implementing this final rule to the extent that it affected Medicaid 
reimbursement rates to retail pharmacies.[Footnote 23] In July 2008, 
the Medicare Improvement for Patients and Providers Act of 2008 
prohibited CMS from implementing the FUL provisions of the 2007 rule 
and provided CMS with the authority to issue FULs under the pre-DRA 
formula through September 2009. Accordingly, CMS stopped calculating 
and publishing FULs and continued to apply the FULs as calculated at 
that time. 

In March 2010, legislation was again enacted that required a change to 
the formula for calculating the FUL. Under PPACA, FULs must be 
calculated as no less than 175 percent of the utilization-based 
weighted average of the most recent monthly reported AMP for a drug's 
pharmaceutical and therapeutic equivalents. Because PPACA specified a 
percentage multiplier for AMP-based FULs of at least 175, in 
implementing the modified formula the Secretary of HHS has the 
discretion to increase this percentage multiplier above that level. 
PPACA also changed the definition of AMP for outpatient prescription 
drugs and required the Secretary of HHS to implement a process to 
smooth out fluctuations in the AMPs reported by manufacturers. 
[Footnote 24] PPACA also provided that these changes become effective 
as of October 1, 2010, regardless of whether CMS issued final 
regulations by that date. Notwithstanding this effective date, CMS has 
continued to apply the FULs as calculated in 2009 rather than 
implementing the PPACA-based FULs.[Footnote 25] 

CMS has taken some steps towards addressing the PPACA-based FUL 
formula, including the issuance of a proposed rule in February 2012. 
[Footnote 26] As part of this rule, CMS proposed using the minimum 175 
percent multiplier in the calculation of FULs, which the agency 
determined would result in adequate reimbursement for pharmacies. 
[Footnote 27] In calculating the PPACA-based FULs, CMS proposed relying 
on the designation as a brand-name drug, branded generic version, or 
generic version from the AMP data reported by manufacturers.[Footnote 
28] In addition, CMS proposed various calculations for smoothing 
fluctuations in the FULs, such as using the mean of the monthly 
weighted AMPs for a FUL product group over a specific period of time, 
as the agency found significant variability in the PPACA-based FULs 
from month to month. During the comment period for the proposed rule, 
CMS received a number of comments from a variety of stakeholders, such 
as independent pharmacy associations, chain drug stores, and drug 
manufacturers. Many stakeholders that commented on the application of 
the 175 percent multiplier to the weighted AMP noted the importance of 
the flexibility provided by PPACA for CMS to increase the 175 percent 
multiplier in certain circumstances. A number of stakeholders also 
recommended that CMS implement a smoothing process for the FULs. 

In order to provide states with the opportunity to assess 
reimbursement under the PPACA-based FUL formula before it is 
implemented, CMS began publishing monthly PPACA-based FULs.[Footnote 
29] Specifically, CMS publishes two sets of PPACA-based FULs. One set, 
which has been available on a monthly basis since late 2011, is based 
on AMP data from a single month. In response to stakeholder requests 
that CMS smooth fluctuations in the single month FULs, a second set of 
PPACA-based FULs using AMP data from 3 months has also been available 
on a monthly basis since late 2012. To develop the 3-month rolling 
average, CMS calculates a weighted average of the most recent and 
prior 2 months' AMPs. CMS does not calculate this 3-month rolling 
average for any product group that did not meet the criteria for 
calculating a single-month FUL in any of the 3 months.[Footnote 30] 
This approach could result in some drugs not being subject to FULs 
that otherwise would be if a single-month FUL were used. 

NADAC: 

To develop the NADACs for outpatient prescription drugs, CMS entered 
into a contract with Myers and Stauffer to survey retail community 
pharmacies across the country on their drug acquisition costs. These 
acquisition costs are to reflect any discounts and rebates pharmacies 
may receive to the extent available.[Footnote 31] CMS published a 
draft methodology of the survey process in May 2012 and began sending 
surveys to retail community pharmacies beginning in June 2012. CMS 
also held three webinars between June and December 2012 to provide 
additional explanation of the draft methodology and receive feedback 
from stakeholders, such as state Medicaid programs and pharmacy 
industry groups. Stakeholders provided a range of comments seeking 
additional clarification and explanation regarding the draft 
methodology. CMS began publishing NADACs in draft form in late 2012. 

CMS Develops NADACs by Surveying Retail Community Pharmacies for 
Invoice Data on Actual Acquisition Costs: 

CMS develops NADACs for outpatient prescription drugs by surveying a 
sample of retail community pharmacies, collecting invoices on actual 
drug acquisition costs, and calculating NADACs based on the invoice 
data. Figure 1 summarizes the process CMS follows for developing 
NADACs. 

Figure 1: CMS Process for Developing National Average Drug Acquisition 
Costs (NADAC) for Outpatient Prescription Drugs: 

[Refer to PDF for image: process illustration] 

1. Selects a random sample of retail community pharmacies to survey 
each month. 

2. Sends a survey to the sample of pharmacies requesting invoices for 
drug purchases for the month. 

3. Collects copies of invoices from responding pharmacies. 

4. Enters acquisition cost data from invoices into a database and 
verifies the data using a series of electronic checks. 

5. Removes acquisition cost outliers. 

6. Calculates and publishes NADACs on website. 

Sources: GAO analysis of CMS information; Art Explosion (images). 

[End of figure] 

CMS develops NADACs by performing the following six steps: 

1. Selects a random sample of retail community pharmacies to survey 
each month. Each month, CMS selects a simple random sample of 
approximately 2,500 retail community pharmacies out of more than 
60,000 such pharmacies in the US to survey for acquisition cost data. 
[Footnote 32] According to CMS officials, this sample is nationally 
representative because it reflects characteristics of all retail 
community pharmacies in the US--namely, the proportion of chain and 
independent pharmacies and the proportion located in urban and rural 
areas, which can have different acquisition costs.[Footnote 33] 
In determining the sample size, CMS and Myers and Stauffer officials 
considered two main factors: (1) that 400 to 500 pharmacies are 
needed to respond in order to develop NADACs for most Medicaid 
covered prescription drugs and (2) to reach this target, at least 
2,000 pharmacies need to be surveyed each month given anticipated 
response rates from pharmacies based on prior survey experiences. 
Myers and Stauffer officials also determined that the sample size 
would limit the burden on pharmacies to respond to the survey since 
the chances of an individual pharmacy being selected twice in the same 
year is less than 5 percent. 

2. Sends a survey to the sample of pharmacies requesting invoices for 
drug purchases. CMS sends the survey to the sample of pharmacies 
requesting all invoices for drugs purchased from manufacturers and 
wholesalers during the reporting month. CMS and Myers and Stauffer 
officials noted that collecting actual invoices provided more reliable 
acquisition cost data than having pharmacies manually enter invoice 
costs into a survey and places a relatively low administrative burden 
on pharmacies. For each purchase, invoices must provide (1) the 11-
digit national drug code (NDC) identifying the product purchased, 
[Footnote 34] (2) the price paid, (3) the quantity purchased, and (4) 
purchase date. CMS and Myers and Stauffer officials indicated one 
limitation of using invoice data is that the extent to which rebates 
and discounts from wholesalers and manufacturers are reflected in the 
"price paid" is currently unknown. These officials also said some 
rebates and discounts may be included but, based on past experience, 
may not be significant compared to those occurring off-invoice or 
those not tied to a specific drug purchase.[Footnote 35] To address 
this limitation, CMS is planning to examine off-invoice rebates and 
discounts more closely. CMS officials stated they plan to use a survey 
to collect additional information from retail community pharmacies 
regarding such rebates and discounts in the future. 

3. Collects copies of invoices from responding pharmacies. According 
to CMS and Myers and Stauffer officials, approximately 500 to 600 
pharmacies respond with invoice data to the monthly surveys. While 
this number of responses represents about 30 percent of the 
approximately 2,500 surveyed pharmacies, it meets or exceeds the 
target of 400 to 500 pharmacies that are needed to develop NADACs for 
most covered prescription drugs. However, unlike the sample of 2,500 
surveyed pharmacies, the proportion of chain and independent 
pharmacies and the proportion rural and urban pharmacies that respond 
to the survey do not reflect the proportions of these pharmacies 
nationally. For example, chain pharmacies typically account for 
approximately 36 percent of survey responses, but account for about 65 
percent of all retail community pharmacies. Similarly, independent 
pharmacies typically account for approximately 64 percent of survey 
responses, but account for about 35 percent of all retail community 
pharmacies.[Footnote 36] While these differences are a limitation of 
the survey process, their impact on the NADACs is minimal based on 
analyses by Myers and Stauffer.[Footnote 37] Myers and Stauffer will 
continue to monitor the proportion of chain and independent pharmacies 
that respond to the survey compared to the proportion of these 
pharmacies nationally to ensure acquisition cost data collected 
reflects national acquisition costs. 

4. Enters acquisition cost data from invoices into a database and 
verifies the data using a series of electronic and manual checks. As 
CMS receives responses from surveyed pharmacies, CMS enters data from 
the invoices into a database and verifies the data. CMS uses a series 
of electronic and manual checks to determine whether the invoice data 
meet several verification criteria: (1) data are from the sampled 
pharmacies, (2) NDCs are valid and active, (3) purchase dates are from 
the appropriate month, (4) drug products are on the latest CMS rebate 
drug product data file,[Footnote 38] (5) drug products have not been 
declared less-than-effective by the Drug Efficacy Study Implementation 
program,[Footnote 39] (6) only one invoice cost per NDC per pharmacy, 
and (7) the purchase prices for all drug products reported from an 
individual pharmacy are not equal to or greater than its average 
wholesale prices.[Footnote 40] If any of the criteria are not met, CMS 
excludes the data from consideration for calculating a drug's NADAC. 
As a final check, Myers and Stauffer staff manually compare data from 
the database to the submitted invoices to verify the accuracy and 
completeness of the data entered. 

5. Removes acquisition cost outliers. CMS removes any acquisition 
costs that are outliers. To do this, CMS identifies each drug product 
as either brand or generic and then groups the brand and generic 
versions with the same active ingredient(s), strength, dosage form, 
and route of administration.[Footnote 41] Within each grouping, CMS 
reviews the acquisition costs and removes those that are greater than 
two standard deviations from the mean unit cost of the grouping. 

6. Calculates and publishes NADACs on the CMS website. CMS calculates 
NADACs for brand and generic versions once outliers are removed. CMS 
first calculates a simple average based on the acquisition cost data 
obtained through the survey. CMS then updates these amounts to reflect 
changes in the acquisition costs between the time data were collected 
and the time at which CMS is ready to publish NADACs.[Footnote 42] CMS 
updates NADACs for brand versions on a weekly basis to reflect pricing 
changes in the wholesale acquisition cost (WAC), which are relatively 
proportional to changes in pharmacy acquisition costs according to CMS 
officials.[Footnote 43] For example, if there is a 5 percent increase 
in the WAC of a particular brand version, retail community pharmacies' 
acquisition costs will also increase by 5 percent. By updating the 
NADACs weekly to reflect this correlation, CMS helps ensure the NADACs 
for brand versions reflect the most current acquisition costs at the 
time NADACs are published. Brand and generic versions are also 
reviewed and adjusted based on research initiated by pharmacy 
inquiries to the NADAC help desk--a service established to support 
pharmacies and state Medicaid agencies during the survey process and 
in response to notifications of drug price changes not reflected in 
the published NADACs. CMS publishes the updated NADACs on a weekly 
basis on the Medicaid website.[Footnote 44] CMS has developed about 
5,000 NADACs that relate to more than 22,000 NDCs and that CMS 
estimated would apply to over 90 percent of drug claims reimbursed by 
Medicaid.[Footnote 45] 

While CMS and Myers and Stauffer officials acknowledged some 
limitations exist in developing the NADACs, they also expressed 
confidence in their current process as one that is both robust and 
representative of actual acquisition costs. In particular, Myers and 
Stauffer officials noted that each of the six steps in developing the 
NADACs included various quality assurance checks. For example, in 
addition to the systematic procedures for removing acquisition invoice 
cost outliers, a review team of pharmacists, accountants, and analysts 
also manually review data for reasonableness. This review may involve 
evaluating factors that influence drug prices, such as drug shortages 
and manufacturer price increases. 

First Quarter 2013 PPACA-Based FULs Were Nearly Equal to NADACs across 
All Drugs in Aggregate, but Varied Greatly for Individual Drugs: 

Using the single-month PPACA-based FULs for all drugs subject to the 
FUL in the first quarter of 2013, we found the FULs were nearly equal 
to NADACs for these drugs in aggregate. Specifically, the total of the 
PPACA-based FUL amount for the 1,035 drugs included in our analysis 
was about 1.4 percent lower than the total NADAC amount for the same 
drugs.[Footnote 46] Individually, PPACA-based FULs for slightly less 
than half--508--of the 1,035 drugs were lower than the NADACs for the 
same drugs. (See figure 2.) Conversely, PPACA-based FULs for slightly 
more than half--527--of the drugs were higher than the NADACs. PPACA-
based FULs for individual drugs ranged from 96 percent lower than to 
404 percent higher than the NADACs for the same drugs. In addition, 
PPACA-based FULs were slightly lower than NADACs for most of the 50 
highest expenditure drugs, and nearly the same for most of the 50 
highest utilization drugs we reviewed. (See appendix II and III for 
additional details on our analysis comparing PPACA-based FULs and 
NADACs for the 50 highest expenditure and 50 highest utilization 
drugs.) 

Figure 2: Comparison of Single-Month PPACA-Based Federal Upper Limits 
(FUL) to National Average Drug Acquisition Costs (NADAC), First 
Quarter 2013: 

[Refer to PDF for image: horizontal bar graph] 

FULs higher than NADACs: 

Percentage: 100% or more; 
Number of drugs: 39. 

Percentage: 80% to less than 100%; 
Number of drugs: 20. 

Percentage: 60% to less than 70%; 
Number of drugs: 40. 

Percentage: 40% to less than 60%; 
Number of drugs: 75. 

Percentage: 20% 50 less than 40%; 
Number of drugs: 119. 

Percentage: 0 to less than 20%; 
Number of drugs: 234. 

Total number of drugs: 527. 

FULs lower than NADACs: 

Percentage: more than 0 to 20%; 
Number of drugs: 226. 

Percentage: more than 20% to 40%; 
Number of drugs: 162. 

Percentage: more than 40% to 60%; 
Number of drugs: 85. 

Percentage: more than 60% to 80%; 
Number of drugs: 25. 

Percentage: more than 80%; 
Number of drugs: 10. 

Total number of drugs: 508. 

Source: GAO analysis of CMS data. 

[End of figure] 

While we found that the PPACA-based FULs for the 1,035 drugs included 
in our analysis were nearly equally to NADACs in the aggregate, we 
found large differences for generic and for branded generic versions 
of these drugs. Specifically, we found that, in the aggregate, the 
total PPACA-based FUL amount for the generic versions of drugs was 19 
percent higher than the total NADAC amount for these same versions. We 
also found that, in the aggregate, the total PPACA-based FUL amount 
for the branded generic versions of drugs was 26 percent lower than 
the total NADAC amount for the same versions. While PPACA-based FULs 
are published for branded generic and generic versions of drugs, they 
would not apply to branded generics that are prescribed as medically 
necessary per CMS's proposed rule. CMS officials stated that in 
practice, branded generic versions generally are not dispensed unless 
they are prescribed as medically necessary. However, Medicaid data do 
not indicate whether dispensed branded generic versions were prescribed 
as medically necessary and CMS officials noted that the agency is still 
considering how the PPACA-based FULs will apply to branded generic 
versions in the final rule. 

Comparisons of PPACA-based 3-month rolling average FULs to NADACs 
resulted in findings that were generally within a few percentage 
points of the findings using the PPACA-based single-month FULs except 
for the comparison of branded generic versions. The total of the PPACA-
based 3-month rolling average FUL amount for the drugs included in our 
analysis was about 4.4 percent lower than the total NADAC amount for 
the same drugs. However, we found that there were 123 drugs that had a 
single-month FUL but did not have a 3-month rolling average FUL. 
[Footnote 47] We also found that, in the aggregate, the total PPACA-
based 3-month rolling average FUL amount for the generic versions of 
these drugs was 23 percent higher than the total NADAC amount for 
these same versions. Conversely, we found that, in the aggregate, the 
total PPACA-based 3-month rolling average FUL amount for the branded 
generic versions of these drugs was 43 percent lower than the total 
NADAC amount for the same versions. (See appendix IV for additional 
details on our analysis comparing 3-month rolling average PPACA-based 
FULs and the NADACs.) 

Conclusions: 

FULs are intended to control federal Medicaid expenditures on 
outpatient prescription drugs that are subject to the FUL while 
ensuring beneficiary access to those drugs. However, CMS has not 
calculated and published FULs since September 2009 when its authority 
to use the pre-DRA formula expired. As a result, CMS continues to 
apply FULs that were calculated more than 4 years ago, a practice that 
has not ensured effective control of federal reimbursement for the 
drugs subject to the FUL. In the interim, PPACA modified the FUL 
formula and established an effective date of October 1, 2010, 
regardless of whether CMS had issued final regulations. In response, 
CMS has issued a proposed rule and determined that its proposed 
implementation of the PPACA-based FUL formula will provide for 
adequate reimbursement to pharmacies. 

Our work, which found that PPACA-based FULs were nearly equal to the 
NADACs in the aggregate for all drugs subject to the FUL in first 
quarter 2013, indicates CMS is close to having a formula under which 
FULs better reflect pharmacy acquisition costs than they did under 
past formulas. However, the actual relationship between the PPACA-
based FULs and NADACs may be affected by several factors. For example, 
although the NADAC provides a national benchmark for pharmacy 
acquisition costs based on invoices reflecting actual drug purchases 
from 500 to 600 pharmacies, the NADACs may vary from actual 
acquisition costs experienced among individual pharmacies across the 
country. Additionally, not all rebates and discounts are reflected on 
invoices collected during monthly surveys to pharmacies. If they were 
included, any applicable rebates and discounts would reduce the NADACs 
calculated by CMS, which would have at least somewhat reduced the 
slight difference in the PPACA-based FULs and NADACs we identified in 
first quarter 2013. Given this, we agree with CMS's plans to further 
study off-invoice rebates and discounts to understand how these may 
affect NADACs. Further, our analysis--which found that, on average, 
PPACA-based FULs exceeded NADACs for generic versions but not for 
branded-generic versions of drugs--indicates that the extent to which 
the final rule applies PPACA-based FULs will be applied to branded 
generic versions will also affect the aggregate relationship between 
the PPACA-based FULs and NADACs. There is also some uncertainty about 
how PPACA-based FULs and NADACs will compare over time, as our analysis 
was limited to the first full quarter of the newly published NADACs, 
the latest available data at the time we conducted our analysis. To 
determine whether our early findings regarding the relationship between 
the PPACA-based FULs and the NADACs hold over time will require ongoing 
monitoring by CMS. 

Recommendation for Executive Action: 

We recommend the Secretary of HHS direct the Administrator of CMS take 
the following actions: 

* Expeditiously implement the PPACA-based FUL formula to better 
control federal reimbursement for Medicaid covered outpatient 
prescription drugs; and: 

* Monitor the relationship between PPACA-based FULs and the NADACs on 
an ongoing basis to help determine whether PPACA-based FULs 
effectively control federal Medicaid expenditures without reducing 
beneficiary access to drugs subject to FULs over time. 

Agency Comments and Our Evaluation: 

We provided HHS a draft of this report for comments. In its written 
comments, HHS concurred with our two recommendations and provided 
other remarks on our findings, as further discussed below. 

HHS concurred with our recommendation that CMS expeditiously implement 
the PPACA-based FUL formula to better control federal reimbursement 
for Medicaid covered outpatient prescription drugs. HHS stated that 
CMS announced in late November 2013 that it anticipates implementing 
the final PPACA-based FULs in July 2014, in order to provide states 
an opportunity to revise their reimbursement methodologies and adjust 
their reimbursement payment systems to incorporate the new PPACA-based 
FULs. HHS also concurred with our recommendation that CMS should monitor 
the relationship between PPACA-based FULs and the NADACs on an ongoing 
basis. HHS noted that CMS has been conducting analyses comparing 
PPACA-based FULs and NADACs and plans to continue these efforts. 

HHS also commented on our findings, noting that CMS's analyses examining 
the relationship between PPACA-based FULs and NADACs found that, in 
aggregate, FULs were generally higher than NADACs. HHS indicated our 
inclusion of branded generic versions of drugs subject to the FUL in our 
analysis does not reflect that FULs typically do not apply to such 
versions because these versions are rarely dispensed unless prescribed 
as medically necessary. HHS also noted that our comparison of generic 
versions of drugs is consistent with HHS's analysis showing that the 
PPACA-based FULs were generally higher than NADACs. As we stated in our 
draft report, Medicaid data do not indicate whether dispensed branded 
generic versions were prescribed as medically necessary and thus do not 
identify specifically which dispensed branded generic versions would be 
subject to FULs. Further, in our discussion with CMS officials, they 
noted that the agency was still considering how the PPACA-based FULs 
would apply to branded generic versions in the final rule. Given this, 
we believe that our inclusion of branded generic versions is a more 
conservative approach to examining the relationship between the 
PPACA-based FULs and NADACs than entirely excluding these versions. 
We also reported information that separately analyzed PPACA-based 
FULs and NADACs for generic versions and branded generic versions. 
In its comments, HHS also noted that CMS finalized the NADACs in late 
November 2013 and suggested that states may want to consider using the 
NADACs as part of their reimbursement methodology. 

HHS's comments are reproduced in appendix V. HHS also provided 
technical comments, which we incorporated as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the Secretary of Health and Human Services. In addition, the report 
will be available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix VI. 

Signed by: 

John E. Dicken: 
Director, Health Care: 

[End of section] 

Appendix I: Methodology for Comparing Federal Upper Limits to National 
Average Drug Acquisition Costs: 

To examine how the Patient Protection and Affordable Care Act (PPACA)-
based Medicaid Federal Upper Limits (FUL) compared to National Average 
Drug Acquisition Costs (NADAC), we compared first quarter 2013 PPACA-
based FULs to NADACs both in aggregate and individually for (1) all 
drugs subject to the FUL, (2) branded generic versions of drugs 
subject to the FUL, (3) generic versions of drugs subject to the FUL, 
(4) a subset of the 50 highest expenditure drugs based on Medicaid 
reimbursement, and (5) a subset the 50 highest utilization drugs based 
on Medicaid prescriptions filled. 

To conduct our analyses we used three data sources from CMS: 

* Draft PPACA-based FULs: we examined PPACA-based single-month FULs 
for first quarter 2013.[Footnote 48] We calculated a quarterly FUL 
price for each drug by taking the simple average of the 3 monthly FULs 
for that quarter. For purposes of this report, we consider a drug to 
consist of all the National Drug Codes (NDC) within a single FUL 
group.[Footnote 49] 

* Draft NADACs: for each of the drugs with a single-month FUL, we 
examined the corresponding NADACs published for first quarter 
2013.[Footnote 50] We calculated a quarterly NADAC price for each drug 
by taking a simple average of the weekly NADACs. 

* Medicaid Drug Utilization Data: to examine how the single-month FULs 
compared to NADACs in aggregate across all drugs included in our 
analyses, we used national Medicaid utilization data from first 
quarter 2013, which included both fee-for-service and managed care 
data, to weight our analyses. We also used this data to select the 50 
highest expenditure drugs--accounting for 42 percent of all Medicaid 
expenditures for drugs covered by the FUL--and the 50 highest 
utilization drugs--accounting for 36 percent of all Medicaid 
prescriptions for drugs covered by the FUL. This utilization data was 
the latest available at the time of our analysis. 

To compare the FULs to the NADACs in the aggregate, we (1) multiplied 
the FUL for each drug by its utilization and then summed all the FULs 
across the drugs, (2) multiplied the NADAC for each drug by its 
utilization and then summed all the NADACs across the drugs, and (3) 
compared the sum of the FULs to the sum of the NADACs. We repeated 
these same steps to examine how 3-month rolling average FULs compared 
to NADACs for first quarter 2013 in the aggregate.[Footnote 51] 

We also conducted additional analyses to test the sensitivity of our 
results for first quarter 2013. Specifically, (1) to determine the 
extent to which there may be month-to-month variation in our results, 
we reviewed how single-month FULs compared to NADACs for each month in 
first quarter 2013 and (2) since CMS typically does not publish the 
FULs until about 2 months after the actual manufacturer sales on which 
it is based have occurred, we compared single-month FULs--those that 
would have been available for states to use to reimburse pharmacies in 
first quarter 2013 if CMS had published FULs in final form on its 
website--to NADACs.[Footnote 52] The results of our sensitivity 
analyses were about the same as the results of our original analysis. 

We reviewed all data for soundness and consistency and determined that 
they were sufficiently reliable for our purposes. Specifically, we 
performed electronic testing for missing and inconsistent data, 
reviewed CMS documents on the data, and spoke with CMS officials 
knowledgeable about the data. To test for missing and inconsistent 
data, we used 11 digit NDCs to identify a drug in our three data 
sources. We only included those NDCs in our analyses that had a 
published FUL in any month of first quarter 2013, a published NADAC in 
any month of first quarter 2013, and had utilization data for first 
quarter 2013. While there were 1,060 drugs with a single-month FUL in 
first quarter 2013, we dropped 25 drugs from our analyses because of a 
lack of NADAC data.[Footnote 53] We also excluded those NDCs that did 
not meet all the criteria for having a FUL, including those NDCs for 
which CMS listed a FUL for a single source drug and that were not 
rated as being fully therapeutically equivalent.[Footnote 54] We also 
excluded NDCs that listed different unit types across the FUL and 
NADAC data sets. We reviewed CMS documentation describing the 
methodology used to generate the data and the quality assurance steps 
that were followed for each data set. We also discussed the data with 
knowledgeable officials from CMS--specifically, we discussed the steps 
to collect and process the data, any limitations on the data's 
accuracy and completeness, and steps CMS takes to assure data quality. 

There are limitations to our comparison of FULs to NADACs. We examined 
data representing only one quarter of 2013, which may not be 
representative of the relationship between FULs and NADAC for other 
months or quarters of that year or future years. Additionally, the 
extent to which off-invoice rebates and discounts are captured in the 
NADAC calculation is also a limitation and could lower the NADACs used 
in our analyses. Finally, all data used in this analysis are national 
and may not represent the experience of individual pharmacies and 
states across the country. 

[End of section] 

Appendix II: Comparison of Federal Upper Limits to National Average 
Drug Acquisition Costs, Top 50 Medicaid Expenditure Drugs: 

We compared the Patient Protection and Affordable Care Act (PPACA)-
based single-month Federal Upper Limits (FUL) to the National Average 
Drug Acquisition Costs (NADAC) for the first quarter of 2013 for the 
50 highest expenditure drugs subject to the FUL based on Medicaid 
reimbursement in first quarter 2013. In the aggregate, the total PPACA-
based FUL amount for the 50 highest expenditure drugs was 5 percent 
lower than the total NADAC amount for the same drugs. We also found 
that 41 of the 50 highest expenditure drugs included branded-generic 
versions. Among the 50 highest expenditure drugs, PPACA-based FULs 
ranged from 69 percent lower to 64 percent higher than NADACs and 29 
drugs had PPACA-based FULs lower than NADACs. Table 1 below summarizes 
the results of our comparisons for these high expenditure drugs. 

Table 1: Comparison of Single-Month PPACA-Based Federal Upper Limits 
(FUL) to National Average Drug Acquisition Costs (NADAC) for the 50 
Highest Medicaid Expenditure Drugs Subject to the FUL: 

Drug name and strength (dosage form): Methylphenidate hydrochloride 
36mg (extended release tablet); 
Total number of Medicaid prescriptions: 296,096; 
Total Medicaid reimbursement: $58,205,864; 
Percent that FUL is higher than (or lower than) NADAC: 27.8%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Amphetamine aspartate; 
amphetamine sulfate; dextroamphetamine saccharate; dextroamphetamine 
sulfate 20mg (extended release capsule); 
Total number of Medicaid prescriptions: 192,336; 
Total Medicaid reimbursement: $42,655,407; 
Percent that FUL is higher than (or lower than) NADAC: (0.3%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Methylphenidate hydrochloride 
54mg (extended release tablet); 
Total number of Medicaid prescriptions: 219,753; 
Total Medicaid reimbursement: $38,812,213; 
Percent that FUL is higher than (or lower than) NADAC: 28.1%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Amphetamine aspartate; 
amphetamine sulfate; dextroamphetamine saccharate; dextroamphetamine 
sulfate 30mg (extended release capsule); 
Total number of Medicaid prescriptions: 165,996; 
Total Medicaid reimbursement: $34,603,783; 
Percent that FUL is higher than (or lower than) NADAC: 19.2%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Cefdinir 250mg/5ml (suspension); 
Total number of Medicaid prescriptions: 349,245; 
Total Medicaid reimbursement: $24,577,411; 
Percent that FUL is higher than (or lower than) NADAC: (54.2%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Methylphenidate hydrochloride 
27mg (extended release tablet); 
Total number of Medicaid prescriptions: 148,954; 
Total Medicaid reimbursement: $23,129,472; 
Percent that FUL is higher than (or lower than) NADAC: 16.2%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Ziprasidone hydrochloride 80mg 
(capsule); 
Total number of Medicaid prescriptions: 80,214; 
Total Medicaid reimbursement: $23,077,344; 
Percent that FUL is higher than (or lower than) NADAC: (15.6%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Amphetamine aspartate; 
amphetamine sulfate; dextroamphetamine saccharate; dextroamphetamine 
sulfate 10mg (extended release capsule); 
Total number of Medicaid prescriptions: 119,591; 
Total Medicaid reimbursement: $22,376,497; 
Percent that FUL is higher than (or lower than) NADAC: (3.9%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Olanzapine 20mg (tablet); 
Total number of Medicaid prescriptions: 74,736; 
Total Medicaid reimbursement: $22,288,978; 
Percent that FUL is higher than (or lower than) NADAC: (43.9%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Quetiapine fumarate 300mg 
(tablet); 
Total number of Medicaid prescriptions: 122,409; 
Total Medicaid reimbursement: $19,891,900; 
Percent that FUL is higher than (or lower than) NADAC: (50.9%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Amphetamine aspartate; 
amphetamine sulfate; dextroamphetamine saccharate; dextroamphetamine 
sulfate 15 mg (extended release capsule); 
Total number of Medicaid prescriptions: 97,754; 
Total Medicaid reimbursement: $18,085,246; 
Percent that FUL is higher than (or lower than) NADAC: 7.5%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Quetiapine fumarate 200mg 
(tablet); 
Total number of Medicaid prescriptions: 138,133; 
Total Medicaid reimbursement: $17,858,754; 
Percent that FUL is higher than (or lower than) NADAC: (49.5%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Azithromycin 200mg/5ml 
(suspension); 
Total number of Medicaid prescriptions: 798,759; 
Total Medicaid reimbursement: $17,131,334; 
Percent that FUL is higher than (or lower than) NADAC: (16.8%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Tacrolimus 1mg (capsule); 
Total number of Medicaid prescriptions: 57,113; 
Total Medicaid reimbursement: $17,117,891; 
Percent that FUL is higher than (or lower than) NADAC: 20.0%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Quetiapine fumarate 400mg 
(tablet); 
Total number of Medicaid prescriptions: 86,733; 
Total Medicaid reimbursement: $15,882,157; 
Percent that FUL is higher than (or lower than) NADAC: (46.0%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Montelukast sodium 5mg (chewable 
tablet); 
Total number of Medicaid prescriptions: 438,743; 
Total Medicaid reimbursement: $15,619,948; 
Percent that FUL is higher than (or lower than) NADAC: 10.7%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Olanzapine 10mg (tablet); 
Total 
number of Medicaid prescriptions: 83,794; 
Total Medicaid reimbursement: $15,282,033; 
Percent that FUL is higher than (or lower than) NADAC: (50.1%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Amoxicillin 400mg/5ml 
(suspension); 
Total number of Medicaid prescriptions: 1,540,964; 
Total Medicaid reimbursement: $14,321,528; 
Percent that FUL is higher than (or lower than) NADAC: (19.9%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Olanzapine 15mg (tablet); 
Total number of Medicaid prescriptions: 50,948; 
Total Medicaid reimbursement: $13,643,832; 
Percent that FUL is higher than (or lower than) NADAC: (46.5%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Acetaminophen; 
oxycodone hydrochloride 325mg;10mg (tablet); 
Total number of Medicaid prescriptions: 289,423; 
Total Medicaid reimbursement: $13,456,537; 
Percent that FUL is higher than (or lower than) NADAC: 20.3%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Amphetamine aspartate; 
amphetamine sulfate; dextroamphetamine saccharate; dextroamphetamine 
sulfate 25mg (extended release capsule); 
Total number of Medicaid prescriptions: 65,484; 
Total Medicaid reimbursement: $13,195,339; 
Percent that FUL is higher than (or lower than) NADAC: (5.1%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Omeprazole 20mg (delayed release 
capsule); 
Total number of Medicaid prescriptions: 1,169,782; 
Total Medicaid reimbursement: $13,168,847; 
Percent that FUL is higher than (or lower than) NADAC: 28.8%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Divalproex sodium 500mg (extended 
release tablet); 
Total number of Medicaid prescriptions: 247,355; 
Total Medicaid reimbursement: $13,043,598; 
Percent that FUL is higher than (or lower than) NADAC: 28.4%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Quetiapine fumarate 100mg 
(tablet); 
Total number of Medicaid prescriptions: 187,744; 
Total Medicaid reimbursement: $12,682,377; 
Percent that FUL is higher than (or lower than) NADAC: (57.5%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Azithromycin 250mg (tablet); 
Total number of Medicaid prescriptions: 1,223,048; 
Total Medicaid reimbursement: $12,513,992; 
Percent that FUL is higher than (or lower than) NADAC: (22.3%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Clopidogrel Bisulfate 75mg 
(tablet); 
Total number of Medicaid prescriptions: 357,703; 
Total Medicaid reimbursement: $12,272,079; 
Percent that FUL is higher than (or lower than) NADAC: 2.6%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Acetaminophen; hydrocodone 
bitartrate 325mg; 10mg (tablet); 
Total number of Medicaid prescriptions: 460,950; 
Total Medicaid reimbursement: $10,836,338; 
Percent that FUL is higher than (or lower than) NADAC: (24.4%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Ziprasidone hydrochloride 60mg 
(capsule); 
Total number of Medicaid prescriptions: 39,987; 
Total Medicaid reimbursement: $10,487,768; 
Percent that FUL is higher than (or lower than) NADAC: (18.8%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Permethrin 5% (cream); 
Total number of Medicaid prescriptions: 191,998; 
Total Medicaid reimbursement: $10,427,828; 
Percent that FUL is higher than (or lower than) NADAC: 1.8%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Omeprazole 40mg (delayed release 
capsule); 
Total number of Medicaid prescriptions: 563,859; 
Total Medicaid reimbursement: $10,234,185; 
Percent that FUL is higher than (or lower than) NADAC: 14.5%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Escitalopram oxalate 20mg 
(tablet); 
Total number of Medicaid prescriptions: 226,560; 
Total Medicaid reimbursement: $10,093,613; 
Percent that FUL is higher than (or lower than) NADAC: (30.8%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Lamivudine; 
zidovudine 150mg; 300mg (tablet); 
Total number of Medicaid prescriptions: 13,997; 
Total Medicaid reimbursement: $10,031,093; 
Percent that FUL is higher than (or lower than) NADAC: 53.8%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Pioglitazone hydrochloride 30 mg 
(tablet); 
Total number of Medicaid prescriptions: 47,405; 
Total Medicaid reimbursement: $9,888,358; 
Percent that FUL is higher than (or lower than) NADAC: (67.3%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Polyethylene glycol 3350 17gm 
(powder); 
Total number of Medicaid prescriptions: 442,756; 
Total Medicaid reimbursement: $9,812,873; 
Percent that FUL is higher than (or lower than) NADAC: 11.1%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Valacyclovir hydrochloride 500mg 
(tablet); 
Total number of Medicaid prescriptions: 114,470; 
Total Medicaid reimbursement: $9,481,547; 
Percent that FUL is higher than (or lower than) NADAC: (40.4%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Oxycodone hydrochloride 30mg 
(tablet); 
Total number of Medicaid prescriptions: 151,142; 
Total Medicaid reimbursement: $9,471,666; 
Percent that FUL is higher than (or lower than) NADAC: 1.9%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Amoxicillin; clavulanic acid 
875mg; 125mg (tablet); 
Total number of Medicaid prescriptions: 382,380; 
Total Medicaid reimbursement: $9,316,296; 
Percent that FUL is higher than (or lower than) NADAC: (38.7%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Modafinil 200 mg (tablet); 
Total number of Medicaid prescriptions: 9,964; 
Total Medicaid reimbursement: $9,309,238; 
Percent that FUL is higher than (or lower than) NADAC: (25.4%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Gabapentin 300mg (capsule); 
Total number of Medicaid prescriptions: 627,146; 
Total Medicaid reimbursement: $9,219,813; 
Percent that FUL is higher than (or lower than) NADAC: 40.9%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Clozapine 100mg (tablet); 
Total number of Medicaid prescriptions: 72,320; 
Total Medicaid reimbursement: $9,137,289; 
Percent that FUL is higher than (or lower than) NADAC: 47.0%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Ziprasidone hydrochloride 40mg 
(capsule); 
Total number of Medicaid prescriptions: 45,734; 
Total Medicaid reimbursement: $9,125,666; 
Percent that FUL is higher than (or lower than) NADAC: (18.7%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Cefdinir 125mg/5ml (suspension); 
Total number of Medicaid prescriptions: 210,063; 
Total Medicaid reimbursement: $9,021,313; 
Percent that FUL is higher than (or lower than) NADAC: (41.0%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Fentanyl 100mcg (film); 
Total number of Medicaid prescriptions: 25,415; 
Total Medicaid reimbursement: $9,020,333; 
Percent that FUL is higher than (or lower than) NADAC: 28.4%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Montelukast sodium 4 mg (chewable 
tablet); 
Total number of Medicaid prescriptions: 253,879; 
Total Medicaid reimbursement: $9,013,163; 
Percent that FUL is higher than (or lower than) NADAC: 6.5%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Amphetamine aspartate; 
amphetamine sulfate; dextroamphetamine saccharate; dextroamphetamine 
sulfate 20 mg (tablet); 
Total number of Medicaid prescriptions: 119,141; 
Total Medicaid reimbursement: $8,255,920; 
Percent that FUL is higher than (or lower than) NADAC: (24.9%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Pioglitazone hydrochloride 45mg 
(tablet); 
Total number of Medicaid prescriptions: 34,830; 
Total Medicaid reimbursement: $7,967,823; 
Percent that FUL is higher than (or lower than) NADAC: (68.9%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Desmopressin acetate 0.2mg 
(tablet); 
Total number of Medicaid prescriptions: 79,371; 
Total Medicaid reimbursement: $7,805,000; 
Percent that FUL is higher than (or lower than) NADAC: (33.5%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Valacyclovir hydrochloride 1gm 
(tablet); 
Total number of Medicaid prescriptions: 77,215; 
Total Medicaid reimbursement: $7,780,332; 
Percent that FUL is higher than (or lower than) NADAC: (38.5%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Escitalopram oxalate 10mg 
(tablet); 
Total number of Medicaid prescriptions: 171,992; 
Total Medicaid reimbursement: $7,719,647; 
Percent that FUL is higher than (or lower than) NADAC: (48.4%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Atorvastatin calcium 20mg 
(tablet); 
Total number of Medicaid prescriptions: 192,973; 
Total Medicaid reimbursement: $7,661,997; 
Percent that FUL is higher than (or lower than) NADAC: 64.3%; 
FUL group includes branded-generic versions[A]: Yes. 

Total: 
Total number of Medicaid prescriptions: 766,013,460; 
Total Medicaid reimbursement: $13,158,357. 

Total for all Medicaid drugs subject to the FUL[B]: 
Total number of Medicaid prescriptions: 1,754,665,444; 
Total Medicaid reimbursement: $70,934,358. 

Source: GAO analysis of CMS data. 

[A] Total Medicaid reimbursement includes amounts states pay to 
pharmacies using their own methodologies. 

[B] Branded-generic versions are brand-name drugs with therapeutically 
equivalent generic versions. 

[C] This is the total for the 1,035 drugs with both FULs and NADACs in 
first quarter 2013. 

[End of table] 

[End of section] 

Appendix III: Comparison of Federal Upper Limits to National Average 
Drug Acquisition Costs, Top 50 Medicaid Utilization Drugs: 

We compared the Patient Protection and Affordable Care Act (PPACA)-
based single-month Federal Upper Limits (FUL) to National Average Drug 
Acquisition Costs (NADAC) for the first quarter of 2013 for the 50 
highest utilization drugs subject to the FUL based on the number of 
Medicaid prescriptions filled in first quarter 2013. In the aggregate, 
the total PPACA-based FUL amount for the 50 highest utilization drugs 
was 1.8 percent lower than the total NADAC amount for the same drugs. 
We also found that 31 of the 50 highest utilization drugs included 
branded-generic versions. Among the 50 highest utilization drugs, 
PPACA-based FULs ranged from 54 percent lower to 258 percent higher 
than NADACs and 31 drugs had PPACA-based FULs higher than NADACs. 
Table 2 below summarizes the results of our comparisons for these high 
utilization drugs. 

Table 2: Comparison of Single-Month PPACA-Based Federal Upper Limits 
(FUL) to National Average Drug Acquisition Costs (NADAC) for the 50 
Highest Medicaid Utilization Drugs Subject to the FUL: 

Drug name and strength (dosage form): Amoxicillin 400mg/5ml 
(suspension); 
Total number of Medicaid prescriptions: 1,540,964; 
Total Medicaid reimbursement: $14,321,528; 
Percent that FUL is higher than (or lower than) NADAC: (19.9%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Azithromycin 250mg (tablet); 
Total number of Medicaid prescriptions: 1,223,048; 
Total Medicaid reimbursement: $12,513,992; 
Percent that FUL is higher than (or lower than) NADAC: (22.3%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Omeprazole 20mg (delayed release 
capsule); 
Total number of Medicaid prescriptions: 1,169,782; 
Total Medicaid reimbursement: $13,168,847; 
Percent that FUL is higher than (or lower than) NADAC: 28.8%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Tramadol hydrochloride 50mg 
(tablet); 
Total number of Medicaid prescriptions: 1,056,066; 
Total Medicaid reimbursement: $7,415,078; 
Percent that FUL is higher than (or lower than) NADAC: 116.9%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Ergocalciferol 50000iu (capsule); 
Total number of Medicaid prescriptions: 915,435; 
Total Medicaid reimbursement: $4,932,530; 
Percent that FUL is higher than (or lower than) NADAC: (18.0%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Acetaminophen hydrocodone 
bitartate 500mg' 5mg (tablet); 
Total number of Medicaid prescriptions: 893,728; 
Total Medicaid reimbursement: $5,575,897; 
Percent that FUL is higher than (or lower than) NADAC: (1.1%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Ibuprofen 800mg (tablet); 
Total number of Medicaid prescriptions: 868,270; 
Total Medicaid reimbursement: $4,749,196; 
Percent that FUL is higher than (or lower than) NADAC: 12.7%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Amoxicillin 500mg (capsule); 
Total number of Medicaid prescriptions: 827,419; 
Total Medicaid reimbursement: $4,751,523; 
Percent that FUL is higher than (or lower than) NADAC: (11.5%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Azithromycin 200mg/5ml 
(suspension); 
Total number of Medicaid prescriptions: 798,759; 
Total Medicaid reimbursement: $17,131,334; 
Percent that FUL is higher than (or lower than) NADAC: (16.8%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Acetaminophen; oxycodone 
hydrochloride 325mg; 5mg (tablet); 
Total number of Medicaid prescriptions: 780,009; 
Total Medicaid reimbursement: $6,429,739; 
Percent that FUL is higher than (or lower than) NADAC: 124.7%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Ibuprofen 600mg (tablet); 
Total number of Medicaid prescriptions: 706,099; 
Total Medicaid reimbursement: $3,276,242; 
Percent that FUL is higher than (or lower than) NADAC: (3.0%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Folic acid 1mg (tablet); 
Total number of Medicaid prescriptions: 662,268; 
Total Medicaid reimbursement: $3,028,028; 
Percent that FUL is higher than (or lower than) NADAC: (26.8%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Amoxicillin 250mg/5ml 
(suspension); 
Total number of Medicaid prescriptions: 646,289; 
Total Medicaid reimbursement: $5,112,039; 
Percent that FUL is higher than (or lower than) NADAC: (19.6%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Ibuprofen 100 mg/5ml (oral 
suspension); 
Total number of Medicaid prescriptions: 640,338; 
Total Medicaid reimbursement: $6,214,432; 
Percent that FUL is higher than (or lower than) NADAC: 6.1%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Gabapentin 300mg (capsule); 
Total number of Medicaid prescriptions: 627,146; 
Total Medicaid reimbursement: $9,219,813; 
Percent that FUL is higher than (or lower than) NADAC: 40.9%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Zolpidem tartrate/10mg (tablet); 
Total number of Medicaid prescriptions: 613,169; 
Total Medicaid reimbursement: $3,115,853; 
Percent that FUL is higher than (or lower than) NADAC: 205.8%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Amlodipine besylate/10mg 
(tablet); 
Total number of Medicaid prescriptions: 591,798; 
Total Medicaid reimbursement: $3,417,952; 
Percent that FUL is higher than (or lower than) NADAC: 38.4%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Simvastatin/20mg (tablet); 
Total number of Medicaid prescriptions: 584,065; 
Total Medicaid reimbursement: $3,878,650; 
Percent that FUL is higher than (or lower than) NADAC: 258.4%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Hydrochlorothiazide 25mg 
(tablet); 
Total number of Medicaid prescriptions: 584,039; 
Total Medicaid reimbursement: $1,885,987; 
Percent that FUL is higher than (or lower than) NADAC: (25.5%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Clonidine hydrochloride 0.1mg 
(tablet); 
Total number of Medicaid prescriptions: 579,656; 
Total Medicaid reimbursement: $3,752,068; 
Percent that FUL is higher than (or lower than) NADAC: 7.0%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Omeprazole/40mg/capsule, (delayed 
release capsule); 
Total number of Medicaid prescriptions: 563,859; 
Total Medicaid reimbursement: $10,234,185; 
Percent that FUL is higher than (or lower than) NADAC: 14.5%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Sertraline hydrochloride/100mg 
(tablet); 
Total number of Medicaid prescriptions: 515,116; 
Total Medicaid reimbursement: $4,436,743; 
Percent that FUL is higher than (or lower than) NADAC: 59.5%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Alprazolam/1mg (tablet); 
Total number of Medicaid prescriptions: 499,203; 
Total Medicaid reimbursement: $3,808,778; 
Percent that FUL is higher than (or lower than) NADAC: 59.2%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Clonazepam/1mg (tablet); 
Total number of Medicaid prescriptions: 489,458; 
Total Medicaid reimbursement: $3,508,070; 
Percent that FUL is higher than (or lower than) NADAC: 31.5%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Acetaminophen hydrocodone 
bitartate 325mg; 10mg (tablet); 
Total number of Medicaid prescriptions: 460,950; 
Total Medicaid reimbursement: $10,836,338; 
Percent that FUL is higher than (or lower than) NADAC: (24.4%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Lisinopril 20mg (tablet); 
Total number of Medicaid prescriptions: 459,499; 
Total Medicaid reimbursement: $2,510,837; 
Percent that FUL is higher than (or lower than) NADAC: 14.1%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Amlodipine besylate 5mg (tablet); 
Total number of Medicaid prescriptions: 458,272; 
Total Medicaid reimbursement: $2,524,117; 
Percent that FUL is higher than (or lower than) NADAC: 56.2%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Lisinopril 10mg (tablet); 
Total number of Medicaid prescriptions: 455,919; 
Total Medicaid reimbursement: $2,173,460; 
Percent that FUL is higher than (or lower than) NADAC: 2.3%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Citalopram hydrobromide 20mg 
(tablet); 
Total number of Medicaid prescriptions: 454,701; 
Total Medicaid reimbursement: $2,635,369; 
Percent that FUL is higher than (or lower than) NADAC: 62.5%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Simvastatin 40mg (tablet); 
Total number of Medicaid prescriptions: 453,681; 
Total Medicaid reimbursement: $3,346,908; 
Percent that FUL is higher than (or lower than) NADAC: 134.7%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Clonazepam 0.5mg (tablet); 
Total number of Medicaid prescriptions: 450,300; 
Total Medicaid reimbursement: $2,720,148; 
Percent that FUL is higher than (or lower than) NADAC: 76.2%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Fluoxetine hydrochloride 20mg 
(capsule); 
Total number of Medicaid prescriptions: 446,655; 
Total Medicaid reimbursement: $3,066,156; 
Percent that FUL is higher than (or lower than) NADAC: 179.4%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Polyethylene glycol 3350 17gm 
(powder); 
Total number of Medicaid prescriptions: 442,756; 
Total Medicaid reimbursement: $9,812,873; 
Percent that FUL is higher than (or lower than) NADAC: 11.1%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Montelukast sodium 5 mg (chewable 
tablet); 
Total number of Medicaid prescriptions: 438,743; 
Total Medicaid reimbursement: $15,619,948; 
Percent that FUL is higher than (or lower than) NADAC: 10.7%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Trazodone hydrochloride 50mg 
(tablet); 
Total number of Medicaid prescriptions: 420,164; 
Total Medicaid reimbursement: $2,161,362; 
Percent that FUL is higher than (or lower than) NADAC: (0.3%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Sertraline hydrochloride 50mg 
(tablet); 
Total number of Medicaid prescriptions: 403,083; 
Total Medicaid reimbursement: $2,880,428; 
Percent that FUL is higher than (or lower than) NADAC: 34.1%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Cephalexin 500mg (capsule); 
Total number of Medicaid prescriptions: 401,844; 
Total Medicaid reimbursement: $3,053,676; 
Percent that FUL is higher than (or lower than) NADAC: (19.6%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Trazodone hydrochloride 100mg 
(tablet); 
Total number of Medicaid prescriptions: 393,268; 
Total Medicaid reimbursement: $2,412,039; 
Percent that FUL is higher than (or lower than) NADAC: 13.6%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Amoxicillin; 
clavulanic acid/875mg; 125mg (tablet); 
Total number of Medicaid prescriptions: 382,380; 
Total Medicaid reimbursement: $9,316,296; 
Percent that FUL is higher than (or lower than) NADAC: (38.7%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Prednisone/20mg (tablet); 
Total number of Medicaid prescriptions: 378,602; 
Total Medicaid reimbursement: $1,794,632; 
Percent that FUL is higher than (or lower than) NADAC: 38.5%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Metronidazole/500mg (tablet); 
Total number of Medicaid prescriptions: 376,128; 
Total Medicaid reimbursement: $3,569,294; 
Percent that FUL is higher than (or lower than) NADAC: (45.0%); 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Alprazolam/0.5mg (tablet); 
Total number of Medicaid prescriptions: 376,042; 
Total Medicaid reimbursement: $2,358,658; 
Percent that FUL is higher than (or lower than) NADAC: 51.7%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Promethazine hydrochloride/25mg 
(tablet); 
Total number of Medicaid prescriptions: 375,489; 
Total Medicaid reimbursement: $3,102,305; 
Percent that FUL is higher than (or lower than) NADAC: (43.4%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Acetaminophen; 
codeine phosphate/300mg;30mg (tablet); 
Total number of Medicaid prescriptions: 365,345; 
Total Medicaid reimbursement: $2,526,844; 
Percent that FUL is higher than (or lower than) NADAC: (25.0%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Clopidogrel bisulfate/75mg 
(tablet); 
Total number of Medicaid prescriptions: 357,703; 
Total Medicaid reimbursement: $12,272,079; 
Percent that FUL is higher than (or lower than) NADAC: 2.6%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Cefdinir/250mg/5ml/suspension; 
Total number of Medicaid prescriptions: 349,245; 
Total Medicaid reimbursement: $24,577,411; 
Percent that FUL is higher than (or lower than) NADAC: (54.2%); 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Dextromethorphan hydrobromide; 
promethazine hydroc; 
Total number of Medicaid prescriptions: 339,225; 
Total Medicaid reimbursement: $2,414,183; 
Percent that FUL is higher than (or lower than) NADAC: 36.5%; 
FUL group includes branded-generic versions[A]: No. 

Drug name and strength (dosage form): Pantoprazole sodium/40mg (delayed 
release tablet); 
Total number of Medicaid prescriptions: 328,358; Total 
Medicaid reimbursement: $4,896,464; 
Percent that FUL is higher than (or lower than) NADAC: 107.1%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Citalopram hydrobromide/40mg 
(tablet); 
Total number of Medicaid prescriptions: 327,904; 
Total Medicaid reimbursement: $1,879,229; 
Percent that FUL is higher than (or lower than) NADAC: 59.2%; 
FUL group includes branded-generic versions[A]: Yes. 

Drug name and strength (dosage form): Prednisolone 15mg/5ml (syrup); 
Total number of Medicaid prescriptions: 318,911; 
Total Medicaid reimbursement: $2,256,691; 
Percent that FUL is higher than (or lower than) NADAC: (1.4%); 
FUL group includes branded-generic versions[A]: No. 

Total: 
Total number of Medicaid prescriptions: 28,791,1150; 
Total Medicaid reimbursement: $292,596,249. 

Total for all Medicaid drugs subject to the FUL[B]: 
Total number of Medicaid prescriptions: 70,943,358; 
Total Medicaid reimbursement: $1,754,665,444. 

Source: GAO analysis of CMS data. 

[A] Total Medicaid reimbursement includes amounts states pay to 
pharmacies using their own methodologies. 

[B] Branded-generic versions are brand-name drugs with therapeutically 
equivalent generic versions. 

[C] This is the total for the 1,035 drugs with FULs and NADACs in 2013. 

[End of table] 

[End of section] 

Appendix IV: 3-Month Rolling Average Federal Upper Limits Compared 
with National Average Drug Acquisition Costs: 

We found that, in aggregate, the total Patient Protection and 
Affordable Care Act (PPACA)-based 3-month rolling average Federal 
Upper Limit (FUL) amount was 4.4 percent lower than the total National 
Average Drug Acquisition Costs (NADAC) amount for 912 drugs included 
in our analysis.[Footnote 55] We found that PPACA-based 3-month 
rolling average FULs were higher than the NADACs for 459 drugs and 
lower than the NADACs for 453 drugs. Figure 3 shows the number of 
drugs with 3-month rolling average PPACA-based FULs higher and lower 
than NADACs for the same drugs. 

Figure 3: Comparison of PPACA-Based 3-Month Rolling Average Federal 
Upper Limits (FUL) to National Average Drug Acquisition Costs (NADAC), 
First Quarter 2013: 

[Refer to PDF for image: horizontal bar graph] 

FULs higher than NADACs: 

Percentage: 100% or more; 
Number of drugs: 32. 

Percentage: 90% to less than 100%; 
Number of drugs: 13. 

Percentage: 80% to less than 90%; 
Number of drugs: 10. 

Percentage: 70% to less than 80%; 
Number of drugs: 11. 

Percentage: 60% to less than 70%; 
Number of drugs: 22. 

Percentage: 50% to less than 60%; 
Number of drugs: 22. 

Percentage: 40% to less than 50%; 
Number of drugs: 39. 

Percentage: 30% to less than 40%; 
Number of drugs: 44. 

Percentage: 20% to less than 30%; 
Number of drugs: 65. 

Percentage: 10% to less than 20%; 
Number of drugs: 93. 

Percentage: 0 to less than 10%; 
Number of drugs: 108. 

Total number of drugs: 459. 

FULs lower than NADACs: 

Percentage: more than 0 to 10%; 
Number of drugs: 107. 

Percentage: more than 10% to 20%; 
Number of drugs: 113. 

Percentage: more than 20% to 30%; 
Number of drugs: 87. 

Percentage: more than 30% to 40%; 
Number of drugs: 58. 

Percentage: more than 40% to 50%; 
Number of drugs: 32. 

Percentage: more than 50% to 60%; 
Number of drugs: 26. 

Percentage: more than 60% to 70%; 
Number of drugs: 14. 

Percentage: more than 70% to 80%; 
Number of drugs: 9. 

Percentage: more than 80% to 90%; 
Number of drugs: 5. 

Percentage: more than 90%; 
Number of drugs: 2. 

Total number of drugs: 453. 

Source: GAO analysis of CMS data. 

[End of figure] 

PPACA-based 3-month rolling average FULs were lower than NADACs for 
most of the 50 highest expenditure drugs, but higher for most of the 
50 highest utilization drugs we reviewed. In the aggregate, the total 
PPACA-based 3-month rolling average FUL amount for the 50 highest 
expenditure drugs was 0.6 percent higher than the total NADAC amount 
for the same drugs. Among the 50 highest expenditure drugs, PPACA-
based 3-month rolling average FULs ranged from 40 percent lower to 113 
percent higher than NADACs and 29 drugs had PPACA-based FULs lower 
than the NADACs. Our analysis of the 50 highest utilization drugs 
found that, in the aggregate, the total PPACA-based FUL amount was 6.2 
percent higher than the total NADAC amount for the same drugs. Among 
the 50 highest utilization drugs, PPACA-based 3-month rolling average 
FULs ranged from 47 percent lower to 122 percent higher than NADACs 
and 31 drugs had FULs higher than NADACs. 

[End of section] 

Appendix V: Comments from the Department of Health and Human Services: 

Department Oof Health and Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

December 9, 2013: 

John E. Dicken: 
Director, Health Care: 
U.S. Government Accountability Office:  
441 G Street NW: 
Washington, DC 20548: 

Dear Mr. Dicken, 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) report entitled, "Medicaid Prescription Drugs: CMS Should Implement 
Revised Federal Upper Limits and Monitor Their Relationship to Retail 
Pharmacy Acquisition Costs" (GAO-14-68). 

The Department appreciates the opportunity to review this report prior 
to publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

General Comments Of The Department Of Health And Human Services (HHS) 
On The Government Accountability Office (GAO) Draft Report: "Medicaid 
Prescription Drugs: CMS Should Implement Revised Federal Upper Limits 
And Monitor Their Relationship To Retail Pharmacy Acquisition Costs" 
(GAO-14-68): 

The Department appreciates the opportunity to review and comment on 
this draft report. 

CMS finalized the National Average Drug Acquisition Costs (NADAC) on 
November 27, 2013 and notified states that it expects to finalize 
Federal Upper Limits (FUL) in July 2014. At that time, CMS also would 
anticipate discontinuing the previous FULs. In notifying states of the 
intent to finalize FULs, CMS notes its analysis shows that quarterly 
aggregate state payments using either the monthly average manufacturer 
price (AMP) based FUL or the 3-month rolling average FUL are generally 
above those payments using the NADAC pricing. Therefore, CMS also expects 
that the use of the NADAC would meet the FULs aggregate upper limit. 
States may want to consider the use of the NADAC as a reimbursement 
methodology; however, CMS notes that a state must submit a state plan 
amendment in accordance with the state plan requirements if it decides 
to use NADACs. 

GAO's analysis of the FULs and NADACs supports the position in the 
paragraph above. The appropriate comparison between the FULs and the 
NADAC would be for the generic versions of the drugs, where GAO confirms 
that the FULs prices exceed the NADAC, for the following reason: 

While CMS is required to include the brand name drug in the calculation 
of the FUL for a drug group, the FUL does not generally apply to that 
brand name drug. Instead, a brand name drug for which there is a FUL 
established would likely only be dispensed if the prescriber certifies 
that it is medically necessary and the state approves that determination. 
In that circumstance, the FUL would not apply and the state would use an 
alternate payment methodology for that drug that would recognize its cost. 
It is possible that a pharmacy may elect to dispense a brand name drug 
without such a medically necessary determination, but there is no 
requirement to do so under Medicaid law when generic drugs are available. 
We also note the pharmacy would do so knowing that it would probably lose 
money on that transaction. Further, under section 1903(i)(10)(B) of the 
Social Security Act, CMS is prohibited from providing federal funds for 
any amount for an innovator multiple source drug above the FULs when a 
generic drug could be dispensed. Accordingly, we think a pharmacy would 
rarely dispense a brand name drug without it being determined medically 
necessary and therefore not subject to the FUL. 

The GAO recommendations and HHS responses are discussed below. 

GAO Recommendation: 

The GAO recommends that CMS should expeditiously implement the PPACA-based 
FUL formula to better control federal reimbursement for Medicaid covered 
outpatient prescription drugs. 

HHS Response: 

HHS concurs. As previously noted, CMS has notified states that it intends 
to finalize the FULs in July 2014. This timeframe is in response to 
requests from the states to give them adequate time to decide on a FULs 
methodology, submit a state plan amendment, and make the necessary system 
changes to effectuate this change in payment. 

GAO Recommendation: 

The GAO recommends that CMS should monitor the relationship between the 
PPACA-based FULs and the NADACs on an ongoing basis. 

HHS Response: 

HHS concurs. CMS has looked at the historical relationship between the 
FULs and the NADAC as described above and will continue to do so. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John E. Dicken, (202) 512-7114 or dickenj@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, key contributors to this 
report were Rashmi Agarwal, Assistant Director; Aaron Holling; Laurie 
Pachter; Daniel Ries; Hemi Tewarson; and Stephen Ulrich. 

[End of section] 

Related GAO Products: 

Medicaid Outpatient Prescription Drugs: Estimated Changes to Federal 
Upper Limits Using the Formula under the Patient Protection and 
Affordable Care Act. [hyperlink, 
http://www.gao.gov/products/GAO-11-141R]. Washington, D.C.: Dec 15, 
2010. 

Medicaid Outpatient Prescription Drugs: Second Quarter 2008 Federal 
Upper Limits for Reimbursement Compared with Average Retail Pharmacy 
Acquisition Costs. [hyperlink, 
http://www.gao.gov/products/GAO-10-118R]. Washington, D.C.: Nov 30, 
2009. 

Medicaid Outpatient Prescription Drugs: Estimated 2007 Federal Upper 
Limits for Reimbursement Compared with Retail Pharmacy Acquisition 
Costs. [hyperlink, http://www.gao.gov/products/GAO-07-239R]. 
Washington, D.C.: Dec 22, 2006. 

[End of section] 

Footnotes: 

[1] The federal government matches most Medicaid expenditures on the 
basis of a statutory formula known as the Federal Medical Assistance 
Percentage (FMAP). The FMAP is calculated based on each state's per 
capita income (PCI) in relation to the national PCI. For fiscal year 
2013, states' FMAPs ranged from 50 to 73 percent. 

[2] Therapeutically equivalent drugs are defined as those that can be 
substituted for one another with the full expectation that they will 
produce the same clinical effect and safety profile as each other. 
Pharmaceutically equivalent drugs must contain the same active 
ingredient(s) in the same dosage form and meet strength and other 
applicable standards. 

[3] Each state administers its Medicaid program in accordance with a 
state Medicaid plan. These plans include methods used to reimburse 
pharmacies for outpatient prescription drugs. 

[4] This aggregate is determined by first multiplying the FUL by the 
number of units dispensed for each drug in a given state for a given 
year. The resulting dollar amounts are then added across all drugs 
subject to a FUL and the sum total represents the maximum amount 
eligible for federal matching funds. Therefore, it might be possible 
for a state Medicaid program to reimburse pharmacies at an amount 
above the FUL for certain drugs and not exceed the sum of FULs in 
aggregate if it also reimburses them at an amount below the FUL for 
other drugs. 

[5] These prices are published in three national drug pricing 
compendia--First DataBank, Medi-Span, and Red Book. According to 
agency officials, CMS's legal authority to calculate FULs using this 
formula expired in September 2009. Accordingly, CMS currently 
continues to apply the FULs that were calculated and published as of 
September 2009. 

[6] Retail pharmacies acquire prescription drugs from manufacturers 
and drug wholesalers. The price a retail pharmacy pays to these 
entities is known as a pharmacy's acquisition cost. Drug wholesalers 
(hereafter referred to as wholesalers) purchase bulk quantities of 
drugs from pharmaceutical manufacturers and then distribute them to 
pharmacies. 

[7] See HHS OIG, Medicaid Drug Price Comparisons: Average Manufacturer 
Price to Published Prices (Washington, D.C.: June 2005). More 
recently, the HHS OIG has found that FULs based on national compendia 
prices were more than four times higher than actual pharmacy 
acquisition costs. See HHS OIG, A Comparison of Medicaid Federal Upper 
Limit Amounts to Acquisition Costs, Medicare Payment Amounts, and 
Retail Prices (Washington D.C.: August 2009) and Analyzing Changes to 
Medicaid Federal Upper Limit Amounts (Washington D.C.: October 2012). 

[8] Deficit Reduction Act of 2005, Pub. L. No. 109-171, § 6001(a)(2), 
120 Stat. 4, 54-55 (2006). 

[9] See GAO, Medicaid Outpatient Drugs: Estimated 2007 Federal Upper 
Limits for Reimbursement Compared with Retail Pharmacy Acquisition 
Costs, [hyperlink, http://www.gao.gov/products/GAO-07-239R] 
(Washington, D.C.: Dec. 22, 2006), and HHS OIG, Deficit Reduction Act 
of 2005: Impact on the Medicaid Federal Upper Limit Program, 
(Washington, D.C.: June 2007). 

[10] Specifically, the revised formula uses the weighted average of 
the most recently reported monthly AMPs for pharmaceutically and 
therapeutically equivalent multiple-source drugs that are available 
for purchase by retail community pharmacies on a nationwide basis. 
Pub. L. No. 111-148, § 2503(a), 124 Stat. 119, 310-312 (2010), as 
amended by the Health Care and Education Reconciliation Act of 2010 
(HCERA), Pub. L. No. 111-152, § 1101(c), 124 Stat. 1029, 1039, and 
Pub. L. No. 111-226, § 202, 124 Stat. 2389, 2394 (2010). For purposes 
of this report, references to PPACA include the amendments made by 
HCERA and Public Law No. 111-226. 

[11] Throughout this report, references to PPACA-based FULs refer to 
FULs based on the PPACA FUL formula, but which are published in draft 
form. CMS publishes the PPACA-based FULs on a monthly basis on the 
federal Medicaid website. See [hyperlink, 
http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-
Topics/Benefits/Prescription-Drugs/Federal-Upper-Limits.html], 
accessed June 18, 2013. 

[12] A retail community pharmacy is defined as a pharmacy that is 
licensed by a state and that dispenses medications to the general 
public at retail prices. The definition does not include pharmacies 
that dispenses prescription medications to patients primarily through 
the mail, nursing home pharmacies, hospital pharmacies, and pharmacy 
benefit managers, among others. 

[13] Throughout this report, references to NADACs refer to NADACs 
published in draft form unless noted otherwise. CMS publishes the 
NADACs on a weekly basis on the federal Medicaid website. See 
[hyperlink, http://www.medicaid.gov/Medicaid-CHIP-Program-
Information/By-Topics/Benefits/Prescription-Drugs/Survey-of-Retail-
Prices.html], accessed June 18, 2013. 

[14] Any changes to reimbursement methodologies for outpatient 
prescription drugs generally require CMS review and approval of an 
amendment to the state plan. 

[15] Drugs subject to the FUL accounted for more than $1.75 billion of 
Medicaid expenditures on outpatient prescription drugs in the first 
quarter 2013. 

[16] In reporting AMP data to CMS for calculating the PPACA-based 
FULs, manufacturers designate each drug version as single-source, 
innovator multiple-source, or non-innovator multiple-source. A 
single-source drug is defined as a brand-name drug with no generic 
versions. A brand-name drug is a drug marketed under a proprietary, 
trademark-protected name. After any patent and market exclusivity 
for the brand-name drug expires, other drug companies may develop a 
therapeutic equivalent--generic--version. An innovator 
multiple-source is defined as a brand-name drug that has available 
generic versions. A non-innovator multiple source drug is defined 
as a generic version. For purposes of this report, we refer to 
single-source drugs as brand-name drugs, innovator multiple-source 
drugs as branded generic versions, and non-innovator multiple-source 
drugs as generic versions. 

[17] The usual and customary charge for a drug is the full retail 
price that individuals without prescription drug coverage pay when 
purchasing drugs at a retail pharmacy. States that administer a 
maximum allowable cost program publish lists of selected drugs with 
the maximum prices at which the state will reimburse for those 
medications, which are often lower than the FUL for the same drugs. 
Pharmacies generally do not receive payments that are higher than the 
state-determined maximum allowable cost. 

[18] Published prices included the average wholesale price, wholesale 
acquisition cost, and direct price. Average wholesale price is the 
average of the list prices that the manufacturer suggests wholesalers 
charge pharmacies. Wholesale acquisition cost is the manufacturer's 
list price for wholesalers or other direct purchasers before any 
rebates, discounts, allowances, or other price concessions. Direct 
price as published by First DataBank represents the manufacturer's 
published catalog or list price for a drug product to nonwholesalers. 

[19] In this circumstance, the FUL does not apply and the state may 
use an alternative payment methodology for that branded generic version. 

[20] Pub. L. No. 109-171, § 6001(a)(2), 120 Stat. 4, 54-55 (2006). 

[21] 72 Fed. Reg. 39142 (July 17, 2007). The final rule provided that 
federal reimbursement for drugs subject to a FUL could not exceed, in 
the aggregate, a reasonable dispensing fee plus an amount established 
by CMS in accordance with the revised FUL formula. The final rule also 
provided instructions for drug manufacturers in calculating and 
reporting AMPs, among other things. 

[22] In a 2006 report, we found that, for a sample of 77 drugs, the 
estimated AMP-based FULs using the DRA formula were on average 36 
percent lower than average retail pharmacy acquisition costs for the 
first quarter of 2006. See [hyperlink, 
http://www.gao.gov/products/GAO-07-239R]. In a 2007 report, HHS OIG 
determined that, on average, pharmacies would have been able to 
purchase only 6 of 25 selected high-expenditure drugs for less than 
the AMP-based FULs using the DRA formula during the second quarter of 
2006. See HHS OIG, Deficit Reduction Act of 2005: Impact on the 
Medicaid Federal Upper Limit Program (Philadelphia, Pa.: June 2007). 

[23] See National Ass'n of Chain Drug Stores v. Health and Human 
Servs., 631 F. Supp. 2d 17 (D. D.C. 2009). 

[24] Among other changes, PPACA specified that AMPs will be the 
average of prices paid to manufacturers for drugs available for 
purchase at retail community pharmacies on a nationwide basis. PPACA 
required the Secretary of HHS to implement a smoothing process for 
AMPs that is similar to the smoothing process used in determining 
average sales price of a drug or biologic covered under Medicare Part 
B. Medicare Part B covers certain physician, outpatient hospital, 
laboratory and other services, and medical equipment and supplies. 
Drugs obtained under Medicare Part B are those that are commonly 
administered by a physician or under a physician's close supervision 
in physicians' offices and hospital outpatient departments. 

[25] In an August 2013 report, the HHS OIG found that had the PPACA-
based FUL amounts been implemented in January 2012 the aggregate 
reimbursement under the PPACA-based FULs would have been 22 percent 
lower than the aggregate reimbursement under the compendia-based FULs 
for 32 states. See HHS OIG, Medicaid Drug Pricing in State Maximum 
Allowable Cost Programs (Washington, D.C.: August 2013). 

[26] 77 Fed. Reg. 5318 (Feb. 2, 2012). 

[27] In a 2010 report, we found that across 40 drugs FULs calculated 
based on the PPACA formula using the minimum 175 percent multiplier 
were 78 percent lower than FULs calculated based on compendia prices, 
but were still 35 percent higher than pharmacy acquisition costs, in 
the aggregate. See GAO, Medicaid Outpatient Prescription Drugs: 
Estimated Changes to Federal Upper Limits Using the Formula under the 
Patient Protection and Affordable Care Act, [hyperlink, 
http://www.gao.gov/products/GAO-11-141R] (Washington, D.C.: Dec. 15, 
2010). Similarly, in a 2012 report, the HHS OIG found that FUL amounts 
based on the PPACA formula using a 175 percent multiplier were 61 
percent lower than FULs based on compendia prices, at the median, and 
43 percent higher than pharmacy acquisition costs, in the aggregate. 
See HHS OIG, Analyzing Changes to Medicaid Federal Upper Limit Amounts 
(Washington D.C.: October 2012). 

[28] CMS proposed excluding brand-name drugs from the FUL calculation 
because statutory provisions require the agency to only use 
multiple-source drugs in this calculation. 

[29] According to CMS officials, the agency typically does not publish 
the PPACA-based FULs until about 2 months after the actual 
manufacturer sales on which the FULs are based have occurred. CMS 
officials indicated that this delay is due in part to the additional 
30 days after the end of the month in which sales occurred that 
manufacturers have to report AMP data. For example, AMP data based on 
April manufacturer sales would be due to CMS by May 30 and then 
typically published in June. 

[30] Criteria for calculating a FUL for a product group include, among 
others, having three or more suppliers, having three or more 
therapeutic equivalents, and having all labelers report and certify an 
AMP. 

[31] Retail community pharmacies can receive discounts and rebates 
from manufacturers and wholesalers which sell drugs to retail 
pharmacies. 

[32] Data from the National Council for Prescription Drug Programs 
(NCPDP) are used to identify the universe of retail community 
pharmacies to sample. According to CMS and Myers and Stauffer 
officials, the NCPDP data provides the most comprehensive and up-to-
date listing of retail community pharmacies. 

[33] A chain pharmacy is generally defined as a pharmacy that belongs 
to a group of four or more pharmacies that are all under the same 
ownership. There are various definitions of independent pharmacies. In 
this report, we use the definition from the NCPDP, which defines an 
independent pharmacy as one to three pharmacies under common ownership. 

[34] An NDC is a unique identifying prescription drug product number 
that is assigned in part by the Food and Drug Administration and 
registered and listed with it. 

[35] Rebates and discounts for retail community pharmacies can occur 
on a wholesaler's or manufacturer's entire line of products, rather 
than on a per-drug product basis, and the amounts of rebates and 
discounts may vary based on retail community pharmacies' negotiations 
with these entities. 

[36] Urban pharmacies account for approximately 68 percent of survey 
responses but account for 77 percent of all retail community 
pharmacies. Rural pharmacies typically account for approximately 32 
percent of survey responses but account for about 23 percent of all 
retail community pharmacies. 

[37] Myers and Stauffer found that for chain pharmacies the average 
acquisition costs for generic versions were 1 to 2 percent lower, and 
for brand versions were about 1 percent higher, than costs for 
independent pharmacies. Myers and Stauffer also found that for rural 
pharmacies average acquisition costs for generic versions were about 2 
to 3 percent higher, and for brand drugs were less than 1 percent 
higher, than costs for urban pharmacies. Due to these relatively low 
differences, Myers and Stauffer concluded the effect of the difference 
between the proportion of chain and independent pharmacies that 
respond to the survey and their proportion nationally was minimal. 

[38] The rebate drug product data file contains the active outpatient 
prescription drugs reported by drug manufacturers for purpose of the 
Medicaid Drug Rebate Program. 

[39] The Drug Efficacy Study Implementation program is a standard used 
by the Food and Drug Administration to categorize drugs according to 
their effectiveness--that is, whether a drug demonstrates a health 
benefit in a real-world situation. 

[40] The average wholesale price is the average of the list prices 
that the manufacturer suggests wholesalers charge pharmacies and is a 
common benchmark used in pharmaceutical pricing and contracts. The 
acquisition costs pharmacies pay for a drug are typically less than 
average wholesale prices. 

[41] NDCs are categorized as brand or generic based on the single-
source, innovator multiple-source, and non-innovator multiple-source 
designations from the CMS outpatient drug file. Single-source and 
innovator multiple source are categorized together as brand. An 
override process is used to re-categorize drug versions to reflect 
reimbursement policy used by the states. For example, an innovator 
multiple-source version may be re-categorized as generic if it is 
generally considered generic by states for reimbursement purposes. In 
some cases where there is a demonstrated variance in prices paid, 
package size may also be used to define drug groupings. 

[42] NADACs are published approximately 6 to 8 weeks after requesting 
invoices from surveyed pharmacies. 

[43] WAC is the manufacturer's list price for wholesalers before 
rebates and discounts and is published on a weekly basis. Changes in 
the WAC are measured as the relative percentage difference from the 
most current published WAC and the previously published WAC. 

[44] Myers and Stauffer has performed an analysis of the margin of 
error associated with NADACs at a 95 percent confidence level--that 
is, the interval that would contain the actual mean unit costs for 95 
percent of the samples that could have been drawn. Based on this 
analysis, NADACs for nearly all brand versions have a margin of error 
within plus or minus 5 percentage points of the mean unit cost. On 
average, the margin of error for all NADACs of brand versions was 0.5 
percent. NADACs for all generic versions have a margin of error within 
plus or minus 10 percentage points of the mean unit cost. On average, 
the margin of error for all NADACs of generic versions was 2.4 
percent. Myers and Stauffer also determined that NADACs for brand 
drugs are generally consistent with state calculated Average 
Acquisition Cost (AAC) data. An AAC program is similar to the NADAC 
program, but on a state level. Myers and Stauffer compared AAC data 
from Alabama--one of four states with an AAC program at the time--and 
NADACs. After adjusting for methodological differences such as smaller 
sample size and biannual surveys of retail community pharmacies, Myers 
and Stauffer found that the results for brand drugs were not 
significantly different. 

[45] Myers and Stauffer compared NADAC data and state utilization data 
to calculate the percent of claims reimbursed by Medicaid for which a 
NADAC had been developed. This analysis found that NADACs had been 
developed for about 93 percent of all brand-name claims and about 97 
percent of generic claims. Myers and Stauffer expect to perform a 
similar comparison each year to determine the completeness of NADACs 
and its applicability to state Medicaid programs. 

[46] Twenty-seven drugs were not included in our analysis due to 
either a lack of NADAC or utilization data. 

[47] For those 123 drugs, using the single-month PPACA-based FUL would 
allow states to use the FUL to set their drug reimbursements to 
pharmacies and allow the FUL to limit Medicaid expenditures, while the 
3-month rolling average FUL would not. 

[48] CMS publishes the draft single-month PPACA-based FUL files at 
[hyperlink, http://www.medicaid.gov/Medicaid-CHIP-Program-
Information/By-Topics/Benefits/Prescription-Drugs/Federal-Upper-
Limits.html], accessed June 18, 2013. 

[49] An NDC is a unique identifying prescription drug product number 
that is assigned in part by the Food and Drug Administration and 
registered and listed with it. See [hyperlink, 
http://www.fda.gov/Drugs/InformationOnDrugs/ucm142438.htm] for the 
Food and Drug Administration's listing of NDCs, accessed November 4, 
2013. Each drug may have more than one NDC, representing different 
manufacturers and different package sizes. Brand and generic versions 
of a drug also have different NDCs. The Food and Drug Administration 
assigns the first segment of the NDC, which identifies the labeler 
(i.e., the firm that manufactures, repackages, or distributes a drug). 
The labeler assigns the second and third segments. The second segment 
identifies a specific strength, dosage form, and formulation (e.g., 20 
mg capsules) and the third segment identifies package size and type 
(e.g., 100 capsules in a bottle). 

[50] CMS publishes the draft NADAC files at [hyperlink, 
http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-
Topics/Benefits/Prescription-Drugs/Survey-of-Retail-Prices.html], 
accessed June 18, 2013. 

[51] The 3-month rolling average FUL is the weighted average of the 
single-month FUL for the current month and the 2 previous months for 
those drugs with a single-month FUL in all 3 months. For example, the 
March 2013 3-month rolling average FUL for a drug is the average of 
the January, February, and March 2013 single-month FULs for that drug. 
The 3-month rolling average FUL is intended to address problems with 
month-to-month fluctuations in the single-month FUL. CMS publishes the 
draft 3-month rolling average PPACA-based FUL files at [hyperlink, 
http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-
Topics/Benefits/Prescription-Drugs/Federal-Upper-Limits.html], 
accessed August 8, 2013. 

[52] CMS officials said they instruct states to use the most recently 
published FULs for reimbursing pharmacies. For the purposes of our 
sensitivity analyses, we compared the November 2012, December 2012, 
and January 2013 single-month FUL data to January, February, and March 
2013 NADAC data since these data most likely would have been available 
for states to use to reimburse pharmacies during first quarter 2013. 

[53] We also excluded one drug, polyethylene glycol 3350, from our 
analysis because it had conflicting unit types in the FUL and NADAC 
files. 

[54] The criteria for establishing a FUL include, but are not limited 
to, that there be at least three suppliers of a drug that all report 
and certify AMPs for the drug with a consistent unit type (e.g., 
tablet). Additionally, the drugs must not be generally considered to 
be inhalation, infusion, instilled, implanted, or injectable drugs and 
they must also be fully therapeutically equivalent (i.e., A-rated for 
therapeutic equivalence). 

[55] There were 123 drugs that had a single-month FUL but did not have 
a 3-month rolling average FUL. 

[End of section] 

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