OLYMPIA – The Department of Social and Health Services notified providers and drug manufacturers this week that it plans to change the discount from Average Wholesale Price (AWP) used to calculate pharmacy reimbursements for brand-name drug ingredients, effective July 1.

The discount rate will change from 14 percent below AWP to 16 percent below. That will mean a decrease in the amount reimbursed to pharmacies during the coming biennium. Overall, DSHS said the change will save approximately $12 million a year in state and federal funds.

"We completed an analysis of the prescription drug market, and it concludes that the Medicaid reimbursement discount could be justified at even a bigger discount – all the way to 17 percent below AWP," said Assistant Secretary Doug Porter. "However, in the budget for the next biennium, the Legislature instructed us to go no further than 16 percent, so we are staying with that limit."

The change is one of a number of pharmacy purchasing and payment strategies designed to save state taxpayers about $183 million in the biennium that will begin on July 1. Together, the changes are also a comprehensive attempt to change prescribing behaviors, steering patients and providers away from the most expensive brand-name drugs and toward less-expensive generics – provided the alternatives are equally safe and effective.

The other initiatives include:

• Using generic medications, not brand-name drugs, as DSHS' first choice whenever they are available and fully equivalent from a therapeutic standpoint.
• Modifying some of the ground rules on the state's Preferred Drug List to give the state more flexibility to steer selections to other less expensive drugs that are therapeutic or generic equivalents of more expensive brand products.
• Several additional clinical initiatives, including tightened controls on narcotic prescriptions and certain specific medications.

Porter said the increased emphasis on generic and preferred drugs alone will save the state an estimated $81 million. Most private health insurance plans aim for generic fill rates at more than 80 percent, while the state's current rate is only 63 percent.

Meanwhile, the individual clinical initiatives should save the state about $61 million, Porter said.

"Currently, Medicaid is one of the higher paying insurance plans for brand-name drugs," Porter said. "This will bring us in better alignment with what the rest of the market is paying."

DSHS had planned earlier to change the discount rate to AWP minus 20 percent on April 1. However, the change was ultimately dropped after pharmacy organizations filed a lawsuit against the plan in federal court.

HRSA officials said at the time that they would wait for direction from the Legislature before proposing a new rate change.

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FOR MORE INFORMATION AND BACKGROUND: Jim Stevenson, Communications Director, HRSA, DSHS, 360-902-7604 (Pager: 360-971-4067).

DSHS does not discriminate and provides equal access to its programs and services for all persons without regard to race, color, gender, religion, creed, marital status, national origin, sexual orientation, age, veteran's status or the presence of any physical, sensory or mental disability.