Prescription DRUG Purchasing:
Moving in the Right Direction?

October 21, 2004 Contacts:       Alfred Chiplin, Esq.

202) 293-5760

NOTE: This is the third of a three-part Alert series that the Center for Medicare Advocacy, Inc. is publishing regarding the implications of the Medicare Modernization Act (MMA) of 2003 for AIDS Drug Assistance Programs (ADAPs).  The first Alert reviewed ADAP structures and funding.  The second Alert explored how ADAPs will interact with MMA to provide coverage.  This third CMA Weekly Alert explores prescription drug purchase options.

AIDS Drug Assistance Programs (ADAPs) have several options for purchasing expensive HIV/AIDS prescription drugs at a reduced rate for their clients.  The proposed regulations published August 3, 2004 in the Federal Register for the Medicare Modernization Act (MMA) of 2003 encourage all states to move toward the direct purchase model in order to achieve greater savings.  As the Center for Medicare Advocacy (the Center), and other consumer advocacy groups noted in their comments on the proposed regulations, this proposal raises several issues.

All but three state ADAPs participate in the 340B Drug Discount Program, and about half use the direct purchasing model.  The 340B Program created under the Veteransí Health Care Act of 1992 (Public Law 102-585) allows ADAPs, among others, access to the same drug prices that Medicaid receives.  The 340B Program is administered by the Office of Pharmacy Affairs under the Health Resources and Services Administration (HRSA), not by the Centers for Medicare & Medicaid Services (CMS).  As noted in the comments, because ADAPs are not administered by CMS, advocates believe that it is inappropriate for them to provide direction on this issue.  In addition, the direct purchasing model does not necessarily provide the deepest discount on HIV/AIDS drugs.

State ADAPs that use direct purchasing usually do so because there is already a centralized state distribution mechanism in place that ADAPs can use.  In the direct model, ADAPs purchase drugs at the reduced price from manufacturers or wholesalers, obtaining an upfront discount.  ADAPs then distribute the drugs using a centralized state system or through their own pharmacies.  It is important to note that the process of distributing and dispensing the drugs adds to the overall cost incurred by the ADAPs.  The alternate model used by the other half of state ADAPs is a rebate mechanism.  In this approach, an ADAP pays contract pharmacies a reduced rate for the prescription dispensed to an ADAP client.  The ADAP then submits a rebate claim to the manufacturer.  The manufacturer in turn reimburses the ADAP.  Here, though there is no upfront discount, ADAPs are not burdened with distributing and dispensing the prescriptions.

These are the two principle models state ADAPs use to obtain discounts.  A state-by-state summary of all the models used is available at the Health Resources and Services Administration HIV/AIDS Bureau.  These two models achieve comparable discounts, and though direct purchasing has lower upfront costs, it does not necessarily mean that the final price of dispensing the drug will be less than the discount achieved through the rebate model.  The merits of each model, as noted in the comments, also depend on the size, geography, and pharmacy infrastructure of the state.  Requiring all states to use one particular model overlooks this point.

If state ADAPs are required to use direct purchasing, they will either have to create an infrastructure to distribute prescriptions, or they might use a pharmacy benefits manager to develop a network of pharmacies to serve ADAP clients.  These additional steps would add costs that would mitigate the direct purchase discount.  States might offset costs of this kind by participating in the Prime Vendor program, which allows 340B entities to pool their purchasing resources in a single vendor who is awarded a contract by HRSA.  In theory this program allows deeper upfront discounts as several 340B entities are purchasing as one single group.

There are solutions that would allow all state ADAPs to use one purchasing model.  It is questionable whether states need to move in that direction, however, as the rebate model allows ADAPs to achieve discounts comparable to direct purchase savings.  There is also evidence that states can achieve comparable discounts without participating in the 340B program at all.  In fact, as a condition of not participating, an ADAP must prove that it is achieving better saving through its own methods.  The District of Columbia, Kentucky, Michigan and Pennsylvania do not participate in the 340B program.  For more information about these programs, see The National ADAP Monitoring Project Annual Report, May 2004.

The purchasing mechanism debate underscores the larger issue of cost containment.  Seventeen state ADAPs have or are planning to implement cost containment measures (The National ADAP Monitoring Project Annual Report, May 2004).  Purchasing mechanisms are one more way to control the ever increasing cost of prescription drugs for the treatment of HIV/AIDS.

Many Medicare beneficiaries who are also ADAP clients will have the option of receiving their prescription drugs through Part D, the prescription drug program to begin in 2006 under the MMA.  It is very likely that this option will simply shift the cost of expensive prescriptions to a different plan, which will in turn need to develop its own cost-containment strategies.  Such a shift could greatly affect the quality of coverage HIV/AIDS patients receive and should be carefully monitored as Part D is implemented.

Copyright © Center for Medicare Advocacy, Inc. 09/10/2013