MEDICAID 

PRESCRIPTION 

DRUGS

CMS Should 

Implement Revised 

Federal Upper Limits 

and Monitor Their 

Relationship to Retail 

Pharmacy Acquisition 

Costs

Report to Congressional Requesters

December 2013

GAO-14-68

United States Government Accountability Office

This report was revised on February 6, 2014 to correct the omission of 

reprinting written comments from the Department of Health and Human 

Services (HHS) on a draft report. A copy of the HHS’s written comments 

was inserted in appendix V.
United States Government Accountability Office

Highlights of GAO-14-68, a 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

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 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 

documentation and interviewed CMS 

officials on how the NADACs are 

developed and PPACA-based FULs 

are calculated.

What GAO Recommends

GAO recommends that the CMS 

Administrator (1) expeditiously 

implement the PPACA-based FUL 

formula and (2) monitor the 

relationship between the PPACAbased FULs and the NADACs on an 

ongoing basis. HHS concurred with 

these recommendations.

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. 

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

GAO found large differences between the total PPACA-based FUL amount and 

the total NADAC amount for generic and for branded generic versions—brandname 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 PPACAbased 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.

View GAO-14-68. For more information, 

contact John E. Dicken at (202) 512-7114 or 

dickenj@gao.gov.
Page i GAO-14-68 Medicaid Prescription Drugs

Letter 1 

Background 6

CMS Develops NADACs by Surveying Retail Community 

Pharmacies for Invoice Data on Actual Acquisition Costs 11

First Quarter 2013 PPACA-Based FULs Were Nearly Equal to 

NADACs across All Drugs in Aggregate, but Varied Greatly for 

Individual Drugs 18

Conclusions 20

Recommendation for Executive Action 21

Agency Comments and Our Evaluation 22

Appendix I Methodology for Comparing Federal Upper Limits to National 

Average Drug Acquisition Costs 24

Appendix II Comparison of Federal Upper Limits to National Average Drug 

Acquisition Costs, Top 50 Medicaid Expenditure Drugs 27

Appendix III Comparison of Federal Upper Limits to National Average Drug 

Acquisition Costs, Top 50 Medicaid Utilization Drugs 31

Appendix IV 3-Month Rolling Average Federal Upper Limits Compared with 

National Average Drug Acquisition Costs 34

Appendix V Comments from the Department of Health and Human Services 36

Appendix VI GAO Contact and Staff Acknowledgments 39

Related GAO Products 40

Contents
Page ii GAO-14-68 Medicaid Prescription Drugs

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 28

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 32

Figures

Figure 1: CMS Process for Developing National Average Drug 

Acquisition Costs (NADAC) for Outpatient Prescription 

Drugs 12

Figure 2: Comparison of Single-Month PPACA-Based Federal 

Upper Limits (FUL) to National Average Drug Acquisition 

Costs (NADAC), First Quarter 2013 19

Figure 3: Comparison of PPACA-Based 3-Month Rolling Average 

Federal Upper Limits (FUL) to National Average Drug 

Acquisition Costs (NADAC), First Quarter 2013 34
Page iii GAO-14-68 Medicaid Prescription Drugs

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

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Page 1 GAO-14-68 Medicaid Prescription Drugs

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.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.2 While 

state Medicaid programs may use different methods to reimburse retail 

pharmacies for covered prescription drugs,3

 

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.

for those drugs subject to the 

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.
 

Page 2 GAO-14-68 Medicaid Prescription Drugs

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.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.

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.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.7

 

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.

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 

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).
 

Page 3 GAO-14-68 Medicaid Prescription Drugs

less than prices published in national compendia.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.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, 2010.10 CMS has not implemented the 

PPACA FUL formula yet, but calculates FULs using the formula and 

publishes these FULs in draft form.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 

 

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, 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).

10Specifically, the revised formula uses the weighted average of the most recently 

reported monthly AMPs for pharmaceutically and therapeutically equivalent multiplesource 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.

11Throughout 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 PPACAbased FULs on a monthly basis on the federal Medicaid website. See 

http://www.medicaid.gov/Medicaid-CHIP-Program-Information/ByTopics/Benefits/Prescription-Drugs/Federal-Upper-Limits.html, accessed June 18, 2013.
 

Page 4 GAO-14-68 Medicaid Prescription Drugs

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, publically available national price benchmark 

called the National Average Drug Acquisition Cost (NADAC) for Medicaidcovered outpatient prescription drugs.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.

13

CMS officials noted that states may choose to modify their drug 

reimbursement methodologies to use final NADACs by amending their 

Medicaid state plan.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 underreimbursing 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 

 

12A 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 dispense prescription medications to patients primarily through 

the mail, nursing home pharmacies, hospital pharmacies, and pharmacy benefit 

managers, among others.

13Throughout 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 http://www.medicaid.gov/Medicaid-CHIP-Program-Information/ByTopics/Benefits/Prescription-Drugs/Survey-of-Retail-Prices.html, accessed June 18, 2013.

14Any changes to reimbursement methodologies for outpatient prescription drugs 

generally require CMS review and approval of an amendment to the state plan.
 

Page 5 GAO-14-68 Medicaid Prescription Drugs

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.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.16

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 

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.

 

15Drugs subject to the FUL accounted for more than $1.75 billion of Medicaid 

expenditures on outpatient prescription drugs in the first quarter 2013.

16In 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.
 

Page 6 GAO-14-68 Medicaid Prescription Drugs

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 app. 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.

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.17

 

17The 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.

Background

Medicaid Coverage of 

Prescription Drugs
 

Page 7 GAO-14-68 Medicaid Prescription Drugs

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.18 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.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.20 CMS issued a final rule in July 2007 to 

implement the DRA formula.21

 

18Published 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.

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 

19In this circumstance, the FUL does not apply and the state may use an alternative 

payment methodology for that branded generic version.

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

2172 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.

Medicaid FULs
 

Page 8 GAO-14-68 Medicaid Prescription Drugs

work by GAO and the HHS OIG.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.23

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.

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.

24

 

22In 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 

PPACA also 

provided that these changes become effective as of October 1, 2010, 

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).

23See National Ass’n of Chain Drug Stores v. Health and Human Servs., 631 F. Supp. 2d 

17 (D. D.C. 2009).

24Among 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.
 

Page 9 GAO-14-68 Medicaid Prescription Drugs

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.25

CMS has taken some steps towards addressing the PPACA-based FUL 

formula, including the issuance of a proposed rule in February 2012.26 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.27 In calculating the PPACAbased 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.

28

 

25In 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 PPACAbased 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).

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 

2677 Fed. Reg. 5318 (Feb. 2, 2012).

27In 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, 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).

28CMS proposed excluding brand-name drugs from the FUL calculation because statutory 

provisions require the agency to only use multiple-source drugs in this calculation. 
 

Page 10 GAO-14-68 Medicaid Prescription Drugs

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.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 singlemonth FUL in any of the 3 months.30 This approach could result in some 

drugs not being subject to FULs that otherwise would be if a single-month 

FUL were used.

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.31

 

29According 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.

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 

30Criteria 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.

31Retail community pharmacies can receive discounts and rebates from manufacturers 

and wholesalers which sell drugs to retail pharmacies.

NADAC
 

Page 11 GAO-14-68 Medicaid Prescription Drugs

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 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.

CMS Develops 

NADACs by 

Surveying Retail 

Community 

Pharmacies for 

Invoice Data on 

Actual Acquisition 

Costs
 

Page 12 GAO-14-68 Medicaid Prescription Drugs

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

Page 13 GAO-14-68 Medicaid Prescription Drugs

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.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.33

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,

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.

34

 

32Data 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 upto-date listing of retail community pharmacies.

 

33A 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.

34An 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. 
 

Page 14 GAO-14-68 Medicaid Prescription Drugs

(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.35

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.

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.

36

 

35Rebates 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.

While these differences are a 

limitation of the survey process, their impact on the NADACs is 

36Urban 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.
 

Page 15 GAO-14-68 Medicaid Prescription Drugs

minimal based on analyses by Myers and Stauffer.37

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,

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.

38 (5) drug products have not been 

declared less-than-effective by the Drug Efficacy Study 

Implementation program,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.40

 

37Myers 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.

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.

38The rebate drug product data file contains the active outpatient prescription drugs 

reported by drug manufacturers for purpose of the Medicaid Drug Rebate Program.

39The 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.

40The 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.
 

Page 16 GAO-14-68 Medicaid Prescription Drugs

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.41

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.

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.

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.43

 

41NDCs 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 recategorized 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.

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 

42NADACs are published approximately 6 to 8 weeks after requesting invoices from 

surveyed pharmacies.

43WAC 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.
 

Page 17 GAO-14-68 Medicaid Prescription Drugs

publishes the updated NADACs on a weekly basis on the Medicaid 

website.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.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. 

 

44Myers 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.

45Myers 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.
 

Page 18 GAO-14-68 Medicaid Prescription 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.46

 

46Twenty-seven drugs were not included in our analysis due to either a lack of NADAC or 

utilization data.

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. PPACAbased 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 app. 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.)

First Quarter 2013 

PPACA-Based FULs 

Were Nearly Equal to 

NADACs across All 

Drugs in Aggregate, 

but Varied Greatly for 

Individual Drugs
 

Page 19 GAO-14-68 Medicaid Prescription Drugs

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

(NADAC), First Quarter 2013

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 PPACAbased 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.
 

Page 20 GAO-14-68 Medicaid Prescription Drugs

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.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 app. IV for additional details on our analysis 

comparing 3-month rolling average PPACA-based FULs and the 

NADACs.)

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 

 

47For 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.

Conclusions
 

Page 21 GAO-14-68 Medicaid Prescription Drugs

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, PPACAbased FULs exceeded NADACs for generic versions but not for brandedgeneric versions of drugs—indicates that the extent to which PPACAbased 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.

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 PPACAbased FULs effectively control federal Medicaid expenditures without 

reducing beneficiary access to drugs subject to FULs over time.

Recommendation for 

Executive Action
 

Page 22 GAO-14-68 Medicaid Prescription Drugs

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 PPACAbased 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.

Agency Comments

and Our Evaluation
 

Page 23 GAO-14-68 Medicaid Prescription Drugs

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 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. 

John E. Dicken

Director, Health Care
Appendix I: Methodology for Comparing 

Federal Upper Limits to National Average Drug 

Acquisition Costs

Page 24 GAO-14-68 Medicaid Prescription Drugs

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 singlemonth FULs for first quarter 2013.1 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.2

• Draft NADACs: for each of the drugs with a single-month FUL, we 

examined the corresponding NADACs published for first quarter 

2013.3

• Medicaid Drug Utilization Data: to examine how the single-month 

FULs compared to NADACs in aggregate across all drugs included in 

We calculated a quarterly NADAC price for each drug by 

taking a simple average of the weekly NADACs.

 

1

CMS publishes the draft single-month PPACA-based FUL files at 

http://www.medicaid.gov/Medicaid-CHIP-Program-Information/ByTopics/Benefits/Prescription-Drugs/Federal-Upper-Limits.html, accessed June 18, 2013.

2

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 

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).

3

CMS publishes the draft NADAC files at http://www.medicaid.gov/Medicaid-CHIPProgram-Information/By-Topics/Benefits/Prescription-Drugs/Survey-of-Retail-Prices.html, 

accessed June 18, 2013.

Appendix I: Methodology for Comparing 

Federal Upper Limits to National Average 

Drug Acquisition Costs
Appendix I: Methodology for Comparing 

Federal Upper Limits to National Average Drug 

Acquisition Costs

Page 25 GAO-14-68 Medicaid Prescription Drugs

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.4

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 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.

5

 

4

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 

The 

results of our sensitivity analyses were about the same as the results of 

our original analysis.

http://www.medicaid.gov/Medicaid-CHIP-ProgramInformation/By-Topics/Benefits/Prescription-Drugs/Federal-Upper-Limits.html, accessed 

August 8, 2013.

5

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.
Appendix I: Methodology for Comparing 

Federal Upper Limits to National Average Drug 

Acquisition Costs

Page 26 GAO-14-68 Medicaid Prescription Drugs

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.6 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.7

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.

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.

 

6

We also excluded one drug, polyethylene glycol 3350, from our analysis because it had 

conflicting unit types in the FUL and NADAC files.

7

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).
Appendix II: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Expenditure Drugs

Page 27 GAO-14-68 Medicaid Prescription 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 PPACAbased 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.

Appendix II: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Expenditure Drugs
Appendix II: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Expenditure Drugs

Page 28 GAO-14-68 Medicaid Prescription 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)

Total number of 

Medicaid 

prescriptions 

Total Medicaid 

reimbursement

Percent that FUL 

is higher than 

(or lower than) NADAC a

FUL group includes 

branded-generic 

versions

Methylphenidate hydrochloride 36mg 

(extended release tablet)

b

296,096 $58,205,864 27.8% Yes

Amphetamine aspartate; amphetamine 

sulfate; dextroamphetamine saccharate; 

dextroamphetamine sulfate 20mg 

(extended release capsule) 192,336 $42,655,407 (0.3%) Yes

Methylphenidate hydrochloride 54mg 

(extended release tablet) 219,753 $38,812,213 28.1% Yes

Amphetamine aspartate; amphetamine 

sulfate; dextroamphetamine saccharate; 

dextroamphetamine sulfate 30mg 

(extended release capsule) 165,996 $34,603,783 19.2% Yes

Cefdinir 250mg/5ml (suspension) 349,245 $24,577,411 (54.2%) No

Methylphenidate hydrochloride 27mg 

(extended release tablet) 148,954 $23,129,472 16.2% Yes

Ziprasidone hydrochloride 80mg 

(capsule) 80,214 $23,077,344 (15.6%) Yes

Amphetamine aspartate; amphetamine 

sulfate; dextroamphetamine saccharate; 

dextroamphetamine sulfate 10mg 

(extended release capsule) 119,591 $22,376,497 (3.9%) Yes

Olanzapine 20mg (tablet) 74,736 $22,288,978 (43.9%) Yes

Quetiapine fumarate 300mg (tablet) 122,409 $19,891,900 (50.9%) Yes

Amphetamine aspartate; amphetamine 

sulfate; dextroamphetamine saccharate; 

dextroamphetamine sulfate 15 mg 

(extended release capsule) 97,754 $18,085,246 7.5% Yes

Quetiapine fumarate 200mg (tablet) 138,133 $17,858,754 (49.5%) Yes

Azithromycin 200mg/5ml (suspension) 798,759 $17,131,334 (16.8%) Yes

Tacrolimus 1mg (capsule) 57,113 $17,117,891 20.0% Yes

Quetiapine fumarate 400mg (tablet) 86,733 $15,882,157 (46.0%) Yes

Montelukast sodium 5mg 

(chewable tablet) 438,743 $15,619,948 10.7% Yes

Olanzapine 10mg (tablet) 83,794 $15,282,033 (50.1%) Yes

Amoxicillin 400mg/5ml (suspension) 1,540,964 $14,321,528 (19.9%) Yes

Olanzapine 15mg (tablet) 50,948 $13,643,832 (46.5%) Yes

Acetaminophen; oxycodone 

hydrochloride 325mg; 10mg (tablet) 289,423 $13,456,537 20.3% No
Appendix II: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Expenditure Drugs

Page 29 GAO-14-68 Medicaid Prescription Drugs

Drug name and strength 

(dosage form)

Total number of 

Medicaid 

prescriptions 

Total Medicaid 

reimbursement

Percent that FUL 

is higher than 

(or lower than) NADAC a

FUL group includes 

branded-generic 

versions

Amphetamine aspartate; amphetamine 

sulfate; dextroamphetamine saccharate; 

dextroamphetamine sulfate 25mg 

(extended release capsule)

b

65,484 $13,195,339 (5.1%) Yes

Omeprazole 20mg 

(delayed release capsule) 1,169,782 $13,168,847 28.8% Yes

Divalproex sodium 500mg 

(extended release tablet) 247,355 $13,043,598 28.4% Yes

Quetiapine fumarate 100mg (tablet) 187,744 $12,682,377 (57.5%) Yes

Azithromycin 250mg (tablet) 1,223,048 $12,513,992 (22.3%) Yes

Clopidogrel Bisulfate 75mg (tablet) 357,703 $12,272,079 2.6% Yes

Acetaminophen; hydrocodone bitartrate 

325mg; 10mg (tablet) 460,950 $10,836,338 (24.4%) No

Ziprasidone hydrochloride 60mg 

(capsule) 39,987 $10,487,768 (18.8%) Yes

Permethrin 5% (cream) 191,998 $10,427,828 1.8% No

Omeprazole 40mg 

(delayed release capsule) 563,859 $10,234,185 14.5% Yes

Escitalopram oxalate 20mg (tablet) 226,560 $10,093,613 (30.8%) Yes

Lamivudine; zidovudine 150mg; 

300mg (tablet) 13,997 $10,031,093 53.8% Yes

Pioglitazone hydrochloride 30 mg 

(tablet) 47,405 $9,888,358 (67.3%) Yes

Polyethylene glycol 3350 17gm (powder) 442,756 $9,812,873 11.1% No

Valacyclovir hydrochloride 500mg 

(tablet) 114,470 $9,481,547 (40.4%) Yes

Oxycodone hydrochloride 30mg (tablet) 151,142 $9,471,666 1.9% No

Amoxicillin; clavulanic acid 875mg; 

125mg (tablet) 382,380 $9,316,296 (38.7%) Yes

Modafinil 200 mg (tablet) 9,964 $9,309,238 (25.4%) Yes

Gabapentin 300mg (capsule) 627,146 $9,219,813 40.9% Yes

Clozapine 100mg (tablet) 72,320 $9,137,289 47.0% Yes

Ziprasidone hydrochloride 40mg 

(capsule) 45,734 $9,125,666 (18.7%) Yes

Cefdinir 125mg/5ml (suspension) 210,063 $9,021,313 (41.0%) No

Fentanyl 100mcg (film) 25,415 $9,020,333 28.4% Yes

Montelukast sodium 4 mg 

(chewable tablet) 253,879 $9,013,163 6.5% No
Appendix II: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Expenditure Drugs

Page 30 GAO-14-68 Medicaid Prescription Drugs

Drug name and strength 

(dosage form)

Total number of 

Medicaid 

prescriptions 

Total Medicaid 

reimbursement

Percent that FUL 

is higher than 

(or lower than) NADAC a

FUL group includes 

branded-generic 

versions

Amphetamine aspartate; amphetamine 

sulfate; dextroamphetamine saccharate; 

dextroamphetamine sulfate 20 mg 

(tablet)

b

119,141 $8,255,920 (24.9%) Yes

Pioglitazone hydrochloride 45mg (tablet) 34,830 $7,967,823 (68.9%) Yes

Desmopressin acetate 0.2mg (tablet) 79,371 $7,805,000 (33.5%) Yes

Valacyclovir hydrochloride 1gm (tablet) 77,215 $7,780,332 (38.5%) Yes

Escitalopram oxalate 10mg (tablet) 171,992 $7,719,647 (48.4%) Yes

Atorvastatin calcium 20mg (tablet) 192,973 $7,661,997 64.3% Yes

Total 13,158,357 $766,013,460

Total for all Medicaid drugs subject 

to the FUL 70,934,358 c $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 both FULs and NADACs in first quarter 2013.
Appendix III: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Utilization Drugs

Page 31 GAO-14-68 Medicaid Prescription 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 brandedgeneric 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.

Appendix III: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Utilization Drugs
Appendix III: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Utilization Drugs

Page 32 GAO-14-68 Medicaid Prescription 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)

Total number of 

Medicaid 

prescriptions

Total Medicaid 

reimbursement

Percent that FUL is 

higher than 

(or lower than) NADAC a

FUL group includes 

branded-generic 

versions

Amoxicillin 400mg/5ml (suspension)

b

1,540,964 $14,321,528 (19.9%) Yes

Azithromycin 250mg (tablet) 1,223,048 $12,513,992 (22.3%) Yes

Omeprazole 20mg 

(delayed release capsule) 1,169,782 $13,168,847 28.8% Yes

Tramadol hydrochloride 50mg (tablet) 1,056,066 $7,415,078 116.9% Yes

Ergocalciferol 50000iu (capsule) 915,435 $4,932,530 (18.0%) Yes

Acetaminophen; hydrocodone bitartate 

500mg; 5mg (tablet) 893,728 $5,575,897 (1.1%) No

Ibuprofen 800mg (tablet) 868,270 $4,749,196 12.7% No

Amoxicillin 500mg (capsule) 827,419 $4,751,523 (11.5%) No

Azithromycin 200mg/5ml (suspension) 798,759 $17,131,334 (16.8%) Yes

Acetaminophen; oxycodone 

hydrochloride 325mg; 5mg (tablet) 780,009 $6,429,739 124.7% No

Ibuprofen 600mg (tablet) 706,099 $3,276,242 (3.0%) No

Folic acid 1mg (tablet) 662,268 $3,028,028 (26.8%) No

Amoxicillin 250mg/5ml (suspension) 646,289 $5,112,039 (19.6%) No

Ibuprofen 100mg/5ml (suspension) 640,338 $6,214,432 6.1% Yes

Gabapentin 300mg (capsule) 627,146 $9,219,813 40.9% Yes

Zolpidem tartrate 10mg (tablet) 613,169 $3,115,853 205.8% Yes

Amlodipine besylate 10mg (tablet) 591,798 $3,417,952 38.4% Yes

Simvastatin 20mg (tablet) 584,065 $3,878,650 258.4% Yes

Hydrochlorothiazide 25mg (tablet) 584,039 $1,885,987 (25.5%) No

Clonidine hydrochloride 0.1mg (tablet) 579,656 $3,752,068 7.0% Yes

Omeprazole 40mg 

(delayed release capsule) 563,859 $10,234,185 14.5% Yes

Sertraline hydrochloride 100mg (tablet) 515,116 $4,436,743 59.5% Yes

Alprazolam 1mg (tablet) 499,203 $3,808,778 59.2% Yes

Clonazepam 1mg (tablet) 489,458 $3,508,070 31.5% Yes

Acetaminophen; hydrocodone bitartate 

325mg; 10mg (tablet) 460,950 $10,836,338 (24.4%) No

Lisinopril 20mg (tablet) 459,499 $2,510,837 14.1% Yes

Amlodipine besylate 5mg (tablet) 458,272 $2,524,117 56.2% Yes

Lisinopril 10mg (tablet) 455,919 $2,173,460 2.3% Yes

Citalopram hydrobromide 20mg (tablet) 454,701 $2,635,369 62.5% Yes

Simvastatin 40mg (tablet) 453,681 $3,346,908 134.7% Yes
Appendix III: Comparison of Federal Upper 

Limits to National Average Drug Acquisition 

Costs, Top 50 Medicaid Utilization Drugs

Page 33 GAO-14-68 Medicaid Prescription Drugs

Drug name and strength 

(dosage form)

Total number of 

Medicaid 

prescriptions

Total Medicaid 

reimbursement

Percent that FUL is 

higher than 

(or lower than) NADAC a

FUL group includes 

branded-generic 

versions

Clonazepam 0.5mg (tablet)

b

450,300 $2,720,148 76.2% Yes

Fluoxetine hydrochloride 20mg (capsule) 446,655 $3,066,156 179.4% Yes

Polyethylene glycol 3350 17gm (powder) 442,756 $9,812,873 11.1% No

Montelukast sodium 5 mg 

(chewable tablet) 438,743 $15,619,948 10.7% Yes

Trazodone hydrochloride 50mg (tablet) 420,164 $2,161,362 (0.3%) No

Sertraline hydrochloride 50mg (tablet) 403,083 $2,880,428 34.1% Yes

Cephalexin 500mg (capsule) 401,844 $3,053,676 (19.6%) Yes

Trazodone hydrochloride 100mg (tablet) 393,268 $2,412,039 13.6% No

Amoxicillin; clavulanic acid 875mg; 

125mg (tablet) 382,380 $9,316,296 (38.7%) Yes

Prednisone 20mg (tablet) 378,602 $1,794,632 38.5% No

Metronidazole 500mg (tablet) 376,128 $3,569,294 (45.0%) Yes

Alprazolam 0.5mg (tablet) 376,042 $2,358,658 51.7% Yes

Promethazine hydrochloride 25mg 

(tablet) 375,489 $3,102,305 (43.4%) No

Acetaminophen; codeine phosphate

300mg;30mg (tablet) 365,345 $2,526,844 (25.0%) No

Clopidogrel bisulfate 75mg (tablet) 357,703 $12,272,079 2.6% Yes

Cefdinir 250mg/5ml (suspension) 349,245 $24,577,411 (54.2%) No

Dextromethorphan hydrobromide; 

promethazine hydrocholoride 15mg/5ml; 

6.25mg/5ml (syrup) 339,225 $2,414,183 36.5% No

Pantoprazole sodium 40mg 

(delayed release tablet) 328,358 $4,896,464 107.1% Yes

Citalopram hydrobromide 40mg (tablet) 327,904 $1,879,229 59.2% Yes

Prednisolone 15mg/5ml (syrup) 318,911 $2,256,691 (1.4%) No

Total 28,791,115 $292,596,249

Total for all Medicaid drugs subject to 

the FUL 70,943,358 c $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. 
Appendix IV: 3-Month Rolling Average Federal 

Upper Limits Compared with National Average 

Drug Acquisition Costs

Page 34 GAO-14-68 Medicaid Prescription Drugs

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.1

Figure 3: Comparison of PPACA-Based 3-Month Rolling Average Federal Upper Limits (FUL) to National Average Drug 

Acquisition Costs (NADAC), First Quarter 2013

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.

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 PPACAbased 3-month rolling average FUL amount for the 50 highest 

expenditure drugs was 0.6 percent higher than the total NADAC amount 

 

1

There were 123 drugs that had a single-month FUL but did not have a 3-month rolling 

average FUL.

Appendix IV: 3-Month Rolling Average 

Federal Upper Limits Compared with 

National Average Drug Acquisition Costs
Appendix IV: 3-Month Rolling Average Federal 

Upper Limits Compared with National Average 

Drug Acquisition Costs

Page 35 GAO-14-68 Medicaid Prescription Drugs

for the same drugs. Among the 50 highest expenditure drugs, PPACAbased 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.
Appendix V: Comments from the Department 

of Health and Human Services

Page 36 GAO-14-68 Medicaid Prescription Drugs

Appendix V: Comments from the Department 

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

of Health and Human Services

Page 37 GAO-14-68 Medicaid Prescription Drugs
Appendix V: Comments from the Department 

of Health and Human Services

Page 38 GAO-14-68 Medicaid Prescription Drugs
Appendix VI: GAO Contact and Staff 

Acknowledgments

Page 39 GAO-14-68 Medicaid Prescription Drugs

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

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.

Appendix VI: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Related GAO Products

Page 40 GAO-14-68 Medicaid Prescription Drugs

Medicaid Outpatient Prescription Drugs: Estimated Changes to Federal 

Upper Limits Using the Formula under the Patient Protection and 

Affordable Care Act. 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. 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. GAO-07-239R. Washington, D.C.: Dec 22, 2006.

Related GAO Products

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