Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

Daniel R. Levinson 

Inspector General 

February 2009 

OEI-03-07-00350 

 

COMPARING PHARMACY 

REIMBURSEMENT: 

MEDICARE PART D TO MEDICAID
Office of Inspector General 

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities. 
 

Δ EXECUTIVE SUMMARY 

OBJECTIVE

1. To compare Medicare Part D and Medicaid pharmacy 

reimbursement amounts for selected drugs at the national level. 

2. To compare the components of Part D and Medicaid pharmacy 

reimbursement amounts (i.e., ingredient cost and dispensing fee) 

for selected drugs in five States. 

BACKGROUND 

This study compares pharmacy reimbursement for two Federal health 

care programs: Medicare Part D and Medicaid. It does not compare 

total program expenditures and does not examine the impact of 

rebates or post-point-of-sale price concessions. 

Medicare Part D coverage is provided through private drug plans 

offered by plan sponsors. Under Federal guidelines, Part D sponsors 

independently negotiate pharmacy reimbursement and price 

concessions with manufacturers and pharmacies. Unlike Part D, 

State Medicaid agencies administer Medicaid and reimburse 

pharmacies for drugs. States, in conjunction with the Federal 

Government, determine pharmacy reimbursement under broad 

Federal guidelines. States also receive federally mandated Medicaid 

drug rebates and may negotiate with manufacturers for additional 

rebates. 

Beneficiaries enrolled in Medicare’s voluntary drug benefit typically 

obtain drugs from pharmacies. Pharmacy reimbursement under 

Part D is based on negotiated prices. Negotiated prices are made up 

of three elements: ingredient cost, dispensing fee, and sales tax. 

Ingredient costs are usually based on the average wholesale price 

(AWP) discounted by a specified percentage or maximum allowable 

cost set by the plan sponsors. 

Medicaid beneficiaries also typically receive covered drugs through 

pharmacies, which are reimbursed for these drugs by State Medicaid 

agencies. Most States typically calculate reimbursement based upon 

the AWP discounted by a specified percentage plus a dispensing fee. 

For certain drugs, States also use the Federal upper limit or State 

maximum allowable cost programs, which establish ceiling prices for 

certain multiple-source drugs. 

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EXECUTIVE SUMMARY 

The Deficit Reduction Act of 2005 (DRA) would have (1) expanded the 

number of drugs subject to Federal upper limit amounts, (2) changed 

the basis for the calculation of Federal upper limit amounts to 

average manufacturer prices (AMP), and (3) required the Centers for 

Medicare & Medicaid Services (CMS) to share AMP data with States. 

However, an injunction from a Federal district court and the July 

2008 passage of the Medicare Improvements for Patients and 

Providers Act of 2008 (MIPPA) delayed the implementation of these 

new requirements. Therefore, Federal upper limits are calculated 

using the prior formula based on the lowest published price (i.e., AWP 

or wholesale acquisition cost), which the Office of Inspector General 

(OIG) has found to result in inflated payments. 

We compared the average unit reimbursement amount (the sum of 

ingredient costs and dispensing fees) between Part D and Medicaid at 

the national level (i.e., data from all States). We also compared the 

individual components of reimbursement amount (i.e., ingredient 

costs and dispensing fees) between Part D and Medicaid for five 

selected States. For this review, we selected 40 single-source 

(i.e., drugs available from one manufacturer) and 39 multiple-source 

(i.e., drugs available from more than one manufacturer) drugs with 

high Part D and/or Medicaid expenditures in the third and fourth 

quarters of 2006. 

FINDINGS 

Nationally, the average Part D and Medicaid pharmacy 

reimbursement amounts were similar for most selected 

single-source drugs. Based on data from all States, there was less 

than a 5-percent difference between Medicare Part D and Medicaid 

pharmacy reimbursement amounts for most single-source drugs 

under review (34 of 40). At the median, the Medicaid reimbursement 

amount was 0.6 percent less than the Part D amount for the selected 

drugs. 

The average unit ingredient costs of both Medicaid and Part D were 

also very similar for the single-source drugs in the five States under 

review. However, Medicaid dispensing fees in each of the five States 

exceeded the average Part D dispensing fees for these single-source 

drugs by at least 40 percent. 

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EXECUTIVE SUMMARY 

Nationally, the average Medicaid pharmacy reimbursement amounts 

typically exceeded the average Part D reimbursement amounts for 

selected multiple-source drugs. Based on data from all States, 

Medicaid pharmacy reimbursement amounts exceeded Part D pharmacy 

reimbursement amounts by at least 10 percent for 28 of the 

39 multiple-source drugs under review. Medicaid reimbursed less than 

Part D, on average, for just three of these drugs. At the median, the 

Medicaid reimbursement amount was 17 percent greater than the 

Part D amount for the 39 selected multiple-source drugs. 

In all five selected States, the Medicaid ingredient cost exceeded the 

average Part D ingredient cost for more than half of the multiple-source 

drugs under review. Some factors that may contribute to the differences 

between Medicaid and Part D pharmacy reimbursement in the five 

States include differences in pharmacy reimbursement methodologies 

and in the use of maximum allowable cost programs. 

For all five States, the Medicaid dispensing fee exceeded the average 

Part D dispensing fee for these multiple-source drugs by at least 

55 percent. In two of five States, the Medicaid dispensing fee was more 

than double the average Part D dispensing fee. 

CONCLUSION 

We found that Part D and Medicaid pharmacy reimbursement amounts 

for most of the single-source drugs that we reviewed were similar; 

however, Medicaid reimbursement amounts for the multiple-source 

drugs that we reviewed were typically higher than Part D amounts. 

Congress took action to reduce reimbursement for multiple-source 

drugs in the Medicaid program through provisions in the DRA. These 

provisions would have expanded the number of drugs subject to 

Federal upper limits and reduced the Federal upper limit amounts for 

these multiple-source drugs (including 14 under review in this study). 

The provisions would have also granted States access to AMP data. 

However, a Federal judge issued an injunction to prevent the 

implementation of AMP-based Federal upper limits and State access 

to AMP data. In addition, because of MIPPA, CMS is prohibited from 

establishing Federal upper limit amounts based on AMPs or sharing 

AMP data prior to October 1, 2009. As a result, Federal upper limits 

and Medicaid reimbursement amounts are still based on published 

prices, which previous OIG work has found to result in inflated 

payments for multiple-source drugs. 

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EXECUTIVE SUMMARY 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS agreed with the methodology and concurred with the findings in 

this report. CMS reiterated that the DRA mandated that Federal upper 

limit amounts be based on AMPs and that those AMPs be publicly 

posted to ensure transparency. CMS stated that it believes that as a 

result, until the DRA provisions are implemented, Medicaid pharmacy 

reimbursement will continue to be inflated. However, CMS noted that 

provisions of MIPPA prohibit it from posting AMPs publicly until 

October 1, 2009, and require it to continue calculating Federal upper 

limit amounts based on published prices. In addition, CMS stated that 

further work by OIG on dispensing fees would be beneficial. 

CMS made one technical comment on the report regarding the 

classification of a single-source drug. Based on this comment, we 

conducted additional analysis and made revisions to the report, where 

appropriate. 

 

 
Δ TABLE OF CONTENTS 

EXECUTIVE SUMMARY .....................................i

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

Nationally, the average Part D and Medicaid pharmacy 

reimbursement amounts were similar for most selected 

single-source dugs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

 Nationally, the average Medicaid pharmacy reimbursement 

 amounts typically exceeded the average Part D 

 reimbursement amounts for selected multiple-source drugs . . . . 13 

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 

Agency Comments and Office of Inspector General Response . . . 17 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 

 A: Medicare Part D Drug Coverage. . . . . . . . . . . . . . . . . . . . . . . . 18 

 B: Medicaid Pharmacy Reimbursement and Dispensing Fees 

for Selected States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 

 C: Differences in Pharmacy Reimbursement for Selected 

Single-Source and Multiple-Source Drugs . . . . . . . . . . . . . . . . 22 

 

 D: Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
 

Δ INTRODUCTION 

OBJECTIVE 

1. To compare Medicare Part D and Medicaid pharmacy 

reimbursement amounts for selected drugs at the national level. 

2. To compare the components of Part D and Medicaid pharmacy 

reimbursement amounts (i.e., ingredient cost and dispensing fee) 

for selected drugs in five States. 

BACKGROUND 

This study compares pharmacy reimbursement for two Federal health 

care programs: Medicare Part D and Medicaid. It does not compare 

total program expenditures and does not examine the impact of 

rebates or post-point-of-sale price concessions. 

Medicare Part D coverage is provided through private drug plans 

offered by plan sponsors. Under Federal guidelines, Part D sponsors 

independently negotiate pharmacy reimbursement and price 

concessions with manufacturers and pharmacies. Unlike Part D, 

State Medicaid agencies administer Medicaid and reimburse 

pharmacies for drugs. States, in conjunction with the Federal 

Government, determine pharmacy reimbursement under broad 

Federal guidelines. States also receive federally mandated Medicaid 

drug rebates and may negotiate with manufacturers for additional 

rebates. 

Medicare Part D Drug Coverage 

The Medicare Prescription Drug, Improvement, and Modernization 

Act of 2003 created the Medicare Prescription Drug Program, known 

as Medicare Part D, to provide an optional drug benefit for all 

Medicare beneficiaries. Part D sponsors provide drug coverage to the 

25 million beneficiaries who had enrolled in the program as of 

January 2008.1 Part D expenditures totaled more than $49 billion in 

2007, the second year of the benefit.2 

1 Part D 2008 Enrollment Information. Available online at 

http://www.cms.hhs.gov/PrescriptionDrugCovGenIn/. Accessed June 3, 2008. 

2 “2008 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and 

Federal Supplementary Medical Insurance Trust Funds,” p. 5. Available online at 

http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2008.pdf. Accessed April 16, 

2008. 

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INTRODUCTION 

Part D sponsors offer benefits through (1) stand-alone prescription 

drug plans (PDP) and (2) Medicare Advantage prescription drug plans 

(MA-PD), which provide integrated medical coverage, including drugs, 

through managed care. See Appendix A for a more detailed 

description of drug coverage under Medicare Part D. 

Medicare Part D Drug Reimbursement 

Beneficiaries enrolled in Medicare’s voluntary drug benefit typically 

obtain drugs from pharmacies. Pharmacy reimbursement under 

Part D is based on negotiated prices. The Centers for Medicare & 

Medicaid Services (CMS) defines negotiated prices (or point-of-sale 

prices) as prices for covered Part D drugs that: (1) are available to 

beneficiaries at the point of sale at network pharmacies; (2) are 

reduced by those discounts, direct or indirect subsidies, rebates, other 

price concessions, and direct or indirect remunerations that the 

Part D sponsor has elected to pass through to Part D enrollees at the 

point of sale; and (3) include any pharmacy dispensing fees.3 These 

prices are typically based on agreements between manufacturers, 

plan sponsors, and their affiliated contractors.4 Negotiated prices, or 

pharmacy reimbursement, include two main elements: 5 

1. Ingredient cost. The ingredient cost is the amount paid to the 

pharmacy for the drug itself. Dispensing fees or other costs are 

not to be included in this amount. 

2. Dispensing fee. The dispensing fee is the amount paid to the 

pharmacy for dispensing the drug. This amount includes only 

those activities related to the transfer of the drug from the 

pharmacy to the beneficiary, including charges associated with 

mixing the drug, delivery, and overhead.6 

The negotiated price that the sponsors and beneficiaries pay 

pharmacies for the ingredient cost of the drug is usually based on the 

average wholesale price (AWP) discounted by a specified percentage 

3 42 CFR § 423.100. 

4 There may be additional price concessions between plan sponsors, manufacturers, and 

other stakeholders that are not included in the negotiated price (e.g., rebates). These price 

concessions are not typically shared with the pharmacy. 

5 Negotiated prices for Medicare Part D also include a data element for sales tax. 

However, we did not include sales tax in our price comparison. 

6 Requirements for Submitting Prescription Drug Event Data. Available online at 

http://www.cms.hhs.gov/DrugCoverageClaimsData/Downloads/PDEGuidance.pdf. Accessed 

July 15, 2008. 

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 INTRODUCTION INTRODUCTION 

or maximum allowable cost plus a dispensing fee, according to CMS 

staff.7 The portion of the negotiated price paid by the plan sponsor 

and the portion paid by the beneficiary are determined by the plan’s 

cost-sharing rules. 

Medicaid Drug Coverage 

Title XIX of the Social Security Act (the Act) established Medicaid, a 

program administered by States and financed with State and Federal 

funds. Medicaid pays for medical and health-related assistance for 

certain vulnerable and needy individuals and families. 

All 50 States and the District of Columbia provide coverage for drugs 

under the Medicaid program. Medicaid expenditures for drugs 

totaled over $21 billion in 2006.8 

Medicaid Drug Reimbursement 

Medicaid beneficiaries typically receive covered drugs through 

pharmacies, which are reimbursed for these drugs by State Medicaid 

agencies. Federal regulations require, with certain exceptions, that 

each State Medicaid agency’s reimbursement for covered outpatient 

drugs not exceed (in the aggregate) the lower of the estimated 

acquisition cost for drugs (i.e., the ingredient cost) plus a reasonable 

dispensing fee or the provider’s usual and customary charge to the 

public for the drugs.9 

1. Ingredient costs. Medicaid payment for ingredient costs is based 

on the estimated acquisition cost. Regulations define estimated 

acquisition cost to be the State’s “best estimate” of the price 

generally and currently paid by providers for the drug.10 CMS 

allows States flexibility in determining what constitutes the 

ingredient cost of drugs covered by their Medicaid programs; 

therefore, Medicaid reimbursement varies across States. Most 

States calculate the estimated acquisition cost based on the AWP 

7 AWPs are listed in commercial publications, derived from manufacturer-reported data 

for both brand and generic drugs, and not defined in law or regulation. Previous Office of 

Inspector General (OIG) work found that AWPs are often significantly higher than the 

prices that drug manufacturers, wholesalers, and similar entities actually charge the 

physicians and suppliers that purchase these drugs. 

8 This amount is calculated using national summary data for 2006 and includes both 

Federal and State payments. Rebates collected by States under the Medicaid drug rebate 

program (section 1927 of the Act) were not subtracted from this figure. 

9 42 CFR § 447.512. 

10 42 CFR § 447.502. 

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INTRODUCTION 

discounted by a specified percentage.11 12 For certain drugs, 

States also use the Federal upper limit or State maximum 

allowable cost programs in setting reimbursement amounts. 

2. Dispensing fees. State Medicaid agencies also pay “reasonable” 

dispensing fees to pharmacies for pharmacy services. Each State 

determines its Medicaid dispensing fees, which range from 

$1.75 to $12.50 per prescription.13 

Federal upper limit program. The Federal upper limit program was 

created to ensure that the Federal Government acts as a prudent buyer 

of drugs by taking advantage of current market prices for 

multiple-source drugs (i.e., drugs available from more than one 

manufacturer).14 This program establishes a ceiling price that, in the 

aggregate, limits Medicaid payments. Prior to January 1, 2007, Federal 

regulation set the Federal upper limit amount at 150 percent of the 

lowest price published in the national compendia for therapeutically 

equivalent products that can be purchased by pharmacists in quantities 

of 100 tablets or capsules, plus a reasonable dispensing fee.15 

OIG has found that the published prices on which Federal upper limit 

amounts were based often substantially exceeded the acquisition 

costs.16 Based in part on OIG’s work, section 6001(a) of the Deficit 

Reduction Act of 2005 (DRA) required significant changes to the 

Federal upper limit program, including changes to the calculation of 

Federal upper limit amounts. In January 2008, Federal upper limit 

amounts were to be based on 250 percent of the lowest reported 

11 “Medicaid Prescription Reimbursement Information by State – Quarter Ending 

December 2006.” Available online at 

http://www.cms.hhs.gov/MedicaidDrugRebateProgram/downloads/RxReimbursementRate 

December2006.pdf. Accessed July 15, 2008. 

12 A small number of States base Medicaid reimbursement on wholesaler acquisition cost 

plus a markup percentage. 

13 This range excludes dispensing fees for home IV therapy. “Medicaid Prescription 

Reimbursement Information by State – Quarter Ending December 2006.” Available online 

at 

http://www.cms.hhs.gov/MedicaidDrugRebateProgram/downloads/RxReimbursementRate

December2006.pdf. Accessed on July 15, 2008. 

14 Available online at http://www.cms.hhs.gov/FederalUpperLimits. Accessed June 2, 

2008. 

15 42 CFR § 447.332. 

16 “Comparison of Medicaid Federal Upper Limit Amounts to Average Manufacturer 

Prices,” OEI-03-05-00110, June 2005; “Deficit Reduction Act of 2005: Impact on the 

Medicaid Federal Upper Limit Program,” OEI-03-06-00400, June 2007. 

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INTRODUCTION 

average manufacturer price (AMP) for each drug rather than 

150 percent of the lowest price published in national compendia. 

AMP is a statutorily defined price, which is based on actual sales 

transactions.17 Additional provisions in the DRA would have 

expanded the number of drugs subject to Federal upper limit amounts 

and required CMS to share AMP data with States. 

However, in December 2007, a Federal judge issued a preliminary 

injunction to prevent the implementation of AMP-based Federal 

upper limits.18 Further, on July 15, 2008, the Medicare 

Improvements for Patients and Providers Act of 2008 (MIPPA), 

P.L. No. 110-275, was enacted. As a result of this legislation, CMS is 

prohibited from establishing Federal upper limit amounts based on 

AMPs or sharing AMP data with States prior to October 1, 2009. 

State maximum allowable cost programs. Many States have implemented 

maximum allowable cost programs to limit reimbursement amounts for 

certain drugs. A maximum allowable cost is a ceiling price that applies 

to a group of multiple-source drugs. Individual States determine which 

drugs are included in their programs and the methods by which the 

maximum allowable cost for a drug is calculated. 

Rebates. For Federal payments to be available for covered outpatient 

drugs provided under Medicaid, section 1927(a)(1) of the Act requires 

drug manufacturers to enter into rebate agreements with the Secretary 

of the Department of Health and Human Services and pay quarterly 

rebates to State Medicaid agencies. Under these rebate agreements, 

manufacturers must provide CMS with the AMP for each of their 

national drug codes. The quarterly rebate for single-source drugs is 

generally based on the greater of 15.1 percent of the AMP or the 

difference between the AMP and the best price.19 The rebate amount 

for generic drugs is 11 percent of the AMP. 

17 Section 1927(k)(1) of the Act defines AMP as the average price paid to the 

manufacturer by wholesalers in the United States for drugs distributed to the retail 

pharmacy class of trade. 

18 Civil Action No. 1:07cv02017 (RCL). 

19 Pursuant to section 1927(c)(1)(C) of the Act, best price is the lowest price available 

from the manufacturer during the rebate period to any wholesaler, retailer, provider, health 

maintenance organization, nonprofit entity, or government entity within the United States, 

with certain exceptions. Further, the Federal Medicaid rebate formula for brand name 

drugs also includes an additional calculation using an inflation factor. 

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INTRODUCTION 

Related Office of Inspector General Work 

Federal upper limit program. In 2004 and 2005, OIG issued four reports 

detailing potential problems with the Federal upper limit program.20 

These reports focused on two main concerns: (1) qualified drugs were 

not being included on the Federal upper limit list in a timely manner 

and (2) Federal upper limit amounts often greatly exceeded pharmacy 

acquisition costs. For example, we found that Federal upper limit 

amounts were five times higher than average AMPs (a figure that we 

used as an estimate of pharmacy acquisition costs) in the third quarter 

of 2004. Based in part on this work, the DRA required that Medicaid 

Federal upper limits be based on 250 percent of the lowest AMP rather 

than on 150 percent of the lowest price published in the national 

compendia. 

A June 2007 OIG report assessed the potential effect of AMP-based 

Federal upper limits.21 According to this report, pre-DRA Federal 

upper limit amounts substantially exceeded estimated average 

pharmacy acquisition costs for 25 selected drugs in the second quarter 

of 2006 and would decrease considerably under the new calculati

method established by the D

on 

RA.22 

Part D payment. A January 2008 OIG report (1) analyzed the 

relationship between Part D payments to pharmacies and the 

pharmacies’ drug acquisition costs and (2) estimated Part D dispensing 

fees and compared them with Medicaid dispensing fees.23 This report 

found that Medicare Part D payments, excluding dispensing fees, 

exceeded the pharmacies’ drug acquisition costs by an estimated 

18 percent when including rebates that drug wholesalers paid to 

pharmacies. In addition, the average Medicaid dispensing fee was 

$2 more than the average Part D dispensing fee. 

20 “Omission of Drugs From the Federal Upper Limit List in 2001” (OEI-03-02-00670, 

February 2004); “Addition of Qualified Drugs to the Federal Upper Limit List” 

(OEI-03-04-00320, December 2004); “Comparison of Medicaid Federal Upper Limit 

Amounts to Average Manufacturer Prices” (OEI-03-05-00110, June 2005); and “How 

Inflated Published Prices Affect Drugs Considered for the Federal Upper Limit List” 

(OEI-03-05-00350, September 2005). 

21 “Deficit Reduction Act of 2005: Impact on the Medicaid Federal Upper Limit Program” 

(OEI-03-06-00400, June 2007). 

22 At the time OIG conducted its assessment, CMS had not fully developed its outlier 

policy. Therefore, for the purposes of OIG’s report, Federal upper limit amounts were 

calculated without regard to outlier AMPs. 

23 “Review of the Relationship Between Medicare Part D Payments to Local, Community 

Pharmacies and the Pharmacies’ Drug Acquisition Costs” (A-06-07-00107), January 2008. 

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INTRODUCTION 

METHODOLOGY 

Scope 

This study compared Part D and Medicaid pharmacy reimbursement 

for selected drugs by (1) comparing the average total reimbursement 

amount (the sum of ingredient costs and dispensing fees) between 

Part D and Medicaid at the national level (i.e., data from all 

States24) and (2) comparing the individual components of the total 

reimbursement amount (i.e., ingredient costs and dispensing fees) 

between Part D and Medicaid for five selected States. 

For this review, we selected 25 single-source (i.e., drugs available 

from one manufacturer) and 25 multiple-source (i.e., drugs available 

from more than one manufacturer) drugs with the highest Medicare 

Part D expenditures as well as 25 single-source drugs and 

25 multiple-source drugs with the highest Medicaid expenditures in 

the third and fourth quarters of 2006. Because of overlap in the 

selected drugs, there were initially 43 single-source and 

37 multiple-source drugs to be included in this review.25 26 However, 

after the drugs were selected, it was determined that three drugs 

identified by the compendium as single-source products actually had 

generic versions available during most of the review period. 

Therefore, for this analysis, we considered these to be multiple-source 

drugs. Similarly, it was determined that one drug identified by the 

compendium as multiple-source was actually a single-source drug. 

This particular drug would not have been selected had it been 

initially classified as single-source and was removed from our 

24 Arizona does not participate in the Medicaid Drug Rebate Program; therefore, there 

are no Medicaid data from this State included in this analysis. Further, we identified 

errors in Medicaid utilization data from two additional States. We excluded Medicaid 

utilization data from these two States from this analysis. 

25 We excluded from this review drugs that could not be identified, could not be identified 

as single source or multiple source, or did not have utilization in both programs (i.e., they 

had Part D utilization but no Medicaid utilization). 

26 For our initial selection of single-source and multiple-source drugs, we used drug-type 

data from Red Book, a national drug compendium that contains drug product and pricing 

information. 

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INTRODUCTION 

analysis.27 As a result the final selection included 40 single-source 

drugs and 39 multiple-source drugs.28 

We examined Part D reimbursement by PDPs only; we did not 

examine reimbursement data from MA-PDs and we excluded 

noncovered drugs. 

Data Collection 

Medicare Part D. We first obtained prescription drug event (PDE) 

records with dates of service in the third and fourth quarters of 2006 

from CMS for all States.29 We then aggregated the data to identify 

total pharmacy reimbursement by drug. The PDE records contained 

only final action claims and data for both the ingredient cost and the 

dispensing fee for each claim. We identified the Part D drugs with 

the highest expenditures (i.e., the sum of ingredient cost plus 

dispensing fee) using the PDE data and drug type data from the 

national drug compendium, known as the Red Book. 

Medicaid. We first downloaded State Medicaid payment, utilization, 

and dispensing fee data for all States with dates of service in the third 

and fourth quarters of 2006 from CMS’s Web site. We then 

aggregated the data to determine national payment and utilization by 

drug. We identified the multiple-source drugs with the highest total 

pharmacy reimbursement (i.e., the sum of ingredient cost plus 

dispensing fee) using the Medicaid data and drug type data from the 

Red Book. 

Data Analysis 

National analysis. We first calculated the average unit reimbursement 

amount for selected drugs with dates of service in the third and fourth 

quarters of 2006 based on data from all States. To calculate the 

national Medicare Part D average unit cost for selected drugs, we 

divided the total reimbursement (i.e., the sum of ingredient cost plus 

27 This drug would not have been selected because the total expenditure threshold for the 

25 single-source drugs was substantially higher than the threshold for multiple-source 

drugs. 

28 The drugs selected for this report accounted for 37 percent of total Part D expenditures 

and 30 percent of total Medicaid expenditures during the third and fourth quarters of 2006. 

29 Every time a beneficiary fills a prescription covered under Part D, plans must submit 

a summary called the PDE record. The PDE record contains drug cost and payment data 

that enable CMS to administer the Part D benefit. See Appendix A for a more detailed 

description of PDE data. 

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INTRODUCTION 

dispensing fee) by the number of units dispensed for each drug.30 We 

calculated the national average Medicaid unit payment amount for 

each selected drug (i.e., based on data from all States) by dividing 

total reimbursement (i.e., the sum of ingredient cost plus dispensing 

fees) by the number of units dispensed for each drug. 

We compared the average Part D and Medicaid drug reimbursement 

amount for the selected drugs and calculated the percentage 

difference between programs for each drug. In addition, we 

calculated the median percentage difference for all single-source and 

all multiple-source drugs. 

State analysis. We calculated the average unit ingredient cost and 

average dispensing fee for selected drugs based on data from five 

States: Arkansas, Hawaii, Illinois, New York, and Wyoming. We 

chose these States because they (1) had relatively straightforward 

reimbursement methodologies for determining ingredient costs and 

dispensing fees, (2) represented a range of reimbursement levels for 

ingredient costs, (3) varied in total Medicaid reimbursement for 

drugs, and (4) represented different geographic regions.31 See 

Appendix B for information on each of these States. 

To calculate the average unit ingredient cost and average dispensing 

fee under Part D, we first identified all PDE data for the selected 

drugs in the selected States. We then calculated the average unit 

ingredient cost for Part D drugs in each State by dividing total 

ingredient cost by total units dispensed for each selected drug. We 

calculated the average Part D dispensing fee per prescription for each 

State for single-source and multiple-source drugs by dividing total 

dispensing fees by total number of prescriptions.32 

Medicaid utilization data aggregate ingredient cost and dispensing 

fees but do not provide separate data on each. Therefore, we 

calculated the total Medicaid ingredient cost for each drug by 

subtracting total dispensing fees from total expenditures. To 

30 For most drugs in this review, unit refers to a pill (e.g., tablet, capsule). 

31 These States have one reimbursement amount and dispensing fee for all drugs or a 

small number of reimbursement amounts and dispensing fees based on whether the drug is 

a brand or generic product. One State has an additional reimbursement amount for drugs 

dispensed at specialized pharmacies. 

32 For the analysis of PDE data from five States, we excluded all PDE records where the 

dispensing fee was equal to zero. 

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INTRODUCTION 

calculate total dispensing fees, we multiplied the State’s dispensing 

fee from the fourth quarter of 2006 by the total number of 

prescriptions for each drug.33 We calculated the average State 

Medicaid ingredient cost by dividing total ingredient cost by the total 

units dispensed for the selected drugs. 

We compared average Part D ingredient costs and average dispensing 

fees for each of the selected drugs to average Medicaid unit ingredient 

costs and Medicaid dispensing fees for five selected States. We 

calculated the percentage difference for each amount between the 

programs.34 We also examined Part D and Medicaid reimbursement 

for drugs with Federal upper limit amounts. 

Limitations 

This study compares pharmacy reimbursement for two Federal health 

care programs: Medicare Part D and Medicaid. It compares only the 

amounts paid to pharmacies for selected drugs under both programs. 

The study does not compare total program expenditures and does not 

examine the impact of rebates or post-point-of-sale price concessions. 

The findings in this report apply only to the 40 single-source and 

39 multiple-source drugs we reviewed. The findings are not 

projectable to all drugs covered under Part D and Medicaid. We did 

not verify the accuracy or completeness of CMS’s data or the accuracy 

of data in the national compendium. In addition, we analyzed 

Medicaid data summarized by drug; i.e., we did not analyze 

claims-level data. Therefore, we were unable to analyze the effect of 

usual and customary charges in the Medicaid program. 

Standards 

This study was conducted in accordance with the “Quality Standards 

for Inspections” issued by the President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

10 

33 The Medicaid dispensing fees for the five States included in this review were the same 

for both the third and fourth quarters of 2006. Further, for the two States with more than 

one dispensing fee, we used the brand drug dispensing fee for single-source drugs and the 

generic dispensing fee for multiple-source drugs. 

34 We compared reimbursement only for drugs that had both Part D and Medicaid 

utilization in all five States (i.e., if one State did not have both Part D and Medicaid 

utilization for a particular drug, we excluded that drug from all State data in our 

comparison). As a result, the State comparison included 39 single-source drugs and 

34 multiple-source drugs. 

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Based on data from all States, 

there was less than a 5-percent 

difference between Medicare Part D 

and Medicaid pharmacy 

reimbursement amounts for most of 

the single-source drugs under review in the third and fourth quarters of 

2006. At the median, the Medicaid reimbursement amount was 

0.6 percent less than the Part D amount for the selected drugs. 

Nationally, the average Part D and Medicaid 

pharmacy reimbursement amounts were similar 

for most selected single-source drugs 

Δ FINDINGS 

For 34 of the 40 single-source drugs under review, the difference 

between the Medicare Part D and Medicaid reimbursement amount was 

no more than 5 percent (18 of these had a difference of 1 percent or 

less). Only 1 of 40 single-source drugs included in our analysis had a 

difference between Part D and Medicaid reimbursement that exceeded 

10 percent. Table 1 illustrates the differences between Part D and 

Medicaid reimbursement for the 40 single-source drugs that we 

reviewed. For additional details concerning how pharmacy 

reimbursement for individual single-source drugs compared in both 

percentage and dollar terms, please see Appendix C. 

Table 1. Comparison of Average Medicare Part D and Medicaid Unit 

Reimbursement Amounts for the 40 Single-Source Drugs Under Review 

Difference in Medicare Part D and Medicaid Reimbursement Single-Source 

Drugs

Medicaid > 50% higher than Part D 0

25% < Medicaid < 50% higher than Part D 0

10% < Medicaid < 25% higher than Part D 0

5% < Medicaid < 10% higher than Part D 1

1% < Medicaid < 5% higher than Part D 6

0.01% < Medicaid < 1% higher than Part D 9

Medicaid reimbursement equal to Part D reimbursement* 1

0.01% < Medicaid < 1% lower than Part D 8

1% < Medicaid < 5% lower than Part D 10

5% < Medicaid < 10% lower than Part D 4

10% < Medicaid < 25% lower than Part D 1

Medicaid > 25% lower than Part D 0

 Total number of drugs 40

*Difference between Medicaid and Part D pharmacy reimbursement was less than one-tenth of one cent. 

Source: OIG analysis of third- and fourth-quarter 2006 Medicaid utilization and Part D PDE data. 

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FINDINGS 

Pharmacy reimbursement for ingredient costs was similar for both programs 

in the five selected States 

Overall, the average ingredient cost for both Medicaid and Part D 

pharmacy reimbursement was similar for single-source drugs under 

review in the five States. For over four-fifths of the selected 

single-source drugs in each State, the difference between Medicaid and 

Part D ingredient costs was less than 10 percent. 

However, Medicaid dispensing fees exceeded average Part D dispensing 

fees in the five selected States 

In each of the five States, Medicaid dispensing fees exceeded the average 

Part D dispensing fees for the selected single-source drugs by at least 

40 percent. In two of the five States, the Medicaid dispensing fee was 

more than double the average Part D dispensing fee. However, because of 

the relatively high cost of most single-source drugs, dispensing fees 

typically account for a very small percentage of total cost for these drugs.35 

See Table 2 for a more detailed comparison of Medicaid and Part D 

dispensing fees for single-source drugs. 

 

Table 2. Dispensing Fees for the Single-Source Drugs Under Review 

State 

Medicaid Dispensing Fees for 

Single-Source Drugs 

Average Part D Dispensing Fees 

for Single-Source Drugs 

Percentage Difference 

Between Medicaid and Part D 

Dispensing Fees

Arkansas $5.51 $2.54 117% 

Hawaii $4.67 $3.01 55% 

Illinois $3.40 $2.42 40% 

New York $3.50 $2.43 44% 

Wyoming $5.00 $2.20 127% 

Source: CMS’s Web site and OIG analysis of third- and fourth-quarter 2006 Part D PDE data. 

35 Part D dispensing fees for selected single-source drugs in these five States accounted 

for only 2 percent of pharmacy reimbursement (i.e., ingredient cost and dispensing fee) for 

these drugs. Similarly, Medicaid dispensing fees for selected single-source drugs accounted 

for only 2 percent of pharmacy reimbursement for the five States. 

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FINDINGS 

Based on data from all States, the 

average Medicaid pharmacy 

reimbursement amount exceeded 

the average Part D pharmacy 

reimbursement amount by at least 

10 percent for 28 of the 39 multiple-source drugs under review. 

Medicaid reimbursed less than Part D, on average, for just three of 

these 39 drugs. At the median, the Medicaid reimbursement amount 

was 17 percent greater than the Part D amount for selected 

multiple-source drugs. Table 3 illustrates the reimbursement 

differences for the 39 multiple-source drugs under review. For 

additional details concerning how pharmacy reimbursement for 

individual multiple-source drugs compared in both percentage and 

dollar terms, please see Appendix C. 

Nationally, the average Medicaid pharmacy 

reimbursement amounts typically exceeded the 

average Part D reimbursement amounts for 

selected multiple-source drugs

Fourteen of the thirty-nine multiple-source drugs in this review are 

included on the Federal upper limit list. The average Medicaid 

reimbursement amount for all but one of the Federal upper limit drugs 

exceeded the average Part D reimbursement amount. At the median, 

the Medicaid reimbursement amount was 32 percent greater than the 

Part D reimbursement amount for these 14 drugs. 

Table 3. Comparison of Average Medicare Part D and Medicaid Unit 

Reimbursement Amounts for the 39 Multiple-Source Drugs Under Review 

Difference in Medicare Part D and Medicaid Reimbursement MultipleSource Drugs

Medicaid > 50% higher than Part D 4

25% < Medicaid < 50% higher than Part D 12

10% < Medicaid < 25% higher than Part D 12

5% < Medicaid < 10% higher than Part D 4

1% < Medicaid < 5% higher than Part D 3

0.01% < Medicaid < 1% higher than Part D 1

Medicaid reimbursement equal to Part D reimbursement 0

0.01% < Medicaid < 1% lower than Part D 1

1% < Medicaid < 5% lower than Part D 0

5% < Medicaid < 10% lower than Part D 0

10% < Medicaid < 25% lower than Part D 1

25% < Medicaid < 50% lower than Part D 0

Medicaid > 50% lower than Part D 1

 Total number of drugs 39

Source: OIG analysis of third- and fourth-quarter 2006 Medicaid utilization and Part D PDE data. 

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FINDINGS 

In all five selected States, Medicaid’s ingredient cost was higher than the 

average Part D ingredient cost for the multiple-source drugs under review 

In all five States, the Medicaid ingredient cost for more than half of the 

multiple-source drugs under review exceeded the average Part D 

ingredient cost. At the median, the Medicaid ingredient cost in these 

States was between 2 percent and 29 percent greater than the Part D 

cost for selected drugs. 

Several factors may contribute to the variation across the five States in 

Part D and Medicaid pharmacy reimbursement for multiple-source 

drugs. Each State develops its own Medicaid reimbursement formula; 

therefore, Medicaid reimbursement amounts vary across States. In 

addition, States have the flexibility to establish maximum allowable 

cost programs to set a cap on pharmacy reimbursement for certain 

drugs. 

Medicaid dispensing fees for the multiple-source drugs under review 

exceeded average Part D dispensing fees in all five selected States 

In each of the five States, the Medicaid dispensing fee exceeded the 

average Part D dispensing fee for multiple-source drugs by at least 

55 percent. In two of the five States, the Medicaid dispensing fee was 

more than double the average Part D dispensing fee. Because 

reimbursement amounts for multiple-source drugs are typically lower 

than those for single-source drugs, dispensing fees make up a larger 

percentage of total cost.36 See Table 4 on the next page for a more 

detailed comparison of Medicaid and Part D dispensing fees for the 

multiple-source drugs under review. 

14 

36 Part D dispensing fees for the selected multiple-source drugs in the five selected States 

accounted for 5 percent of total pharmacy reimbursement (i.e., ingredient cost and 

dispensing fee). Medicaid dispensing fees for these multiple-source drugs accounted for 

8 percent of total pharmacy reimbursement. 

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FINDINGS 

Table 4. Dispensing Fees for the Multiple-Source Drugs Under Review 

State 

Medicaid Dispensing Fees for 

Multiple-Source Drugs 

Average Part D Dispensing Fees 

for Multiple-Source Drugs 

Percentage Difference 

Between Medicaid and Part D 

Dispensing Fees

Arkansas $5.51 $2.66 107% 

Hawaii $4.67 $3.00 56% 

Illinois $4.60 $2.59 78% 

New York $4.50 $2.72 65% 

Wyoming $5.00 $2.43 106% 

Source: CMS’s Web site and OIG analysis of third- and fourth-quarter 2006 Part D PDE data. 

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ΔFINDINGS CONCLUSIONS CONCLUSION 

This study compares pharmacy reimbursement for two Federal health 

care programs: Medicare Part D and Medicaid. It compares only the 

amount paid to pharmacies for selected drugs under both programs. 

This study does not compare total program expenditures and does not 

examine the impact of rebates or post-point-of-sale price concessions. 

We compared total reimbursement (ingredient cost plus dispensing fee) 

between Medicare Part D and Medicaid based on data from all States. 

We also compared Part D and Medicaid ingredient costs and dispensing 

fees for five selected States. We found that Part D and Medicaid 

pharmacy reimbursement amounts for most single-source drugs that we 

reviewed were similar; however, Medicaid reimbursement amounts for 

multiple-source drugs that we reviewed were typically higher than 

Part D amounts. In all five States under review, the average Medicaid 

ingredient costs of most multiple-source drugs under review exceeded 

the average Part D ingredient costs. In addition, we found that 

Medicaid dispensing fees were substantially higher than the average 

Part D dispensing fee for the single and multiple-source drugs under 

review in all five States. 

Congress took action to reduce multiple-source drug prices in the 

Medicaid program through provisions in the DRA. These provisions 

would have expanded the number of drugs subject to Federal upper 

limits and reduced the Federal upper limit amounts for these 

multiple-source drugs (including 14 under review in this study). These 

provisions would have also granted States access to AMP data which, in 

turn, would have allowed States to base Medicaid drug reimbursement 

on AMPs. However, a Federal judge issued a preliminary injunction to 

prevent the implementation of AMP-based Federal upper limits and 

AMP-based Medicaid reimbursement amounts. In addition, because of 

MIPPA, CMS is prohibited from establishing Federal upper limit 

amounts based on AMPs or sharing AMP data with States prior to 

October 1, 2009. As a result, Federal upper limits and Medicaid 

reimbursement amounts are still based on published prices, which 

previous OIG work has found to result in inflated payments for 

multiple-source drugs. 

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CONCLUSION 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS agreed with the methodology and concurred with the findings in 

this report. CMS reiterated that the DRA mandated that Federal upper 

limit amounts be based on AMPs and that those AMPs be publicly 

posted to ensure transparency. CMS stated that it believes that as a 

result, until the DRA provisions are implemented, Medicaid pharmacy 

reimbursement will continue to be inflated. However, CMS noted that 

provisions of MIPPA prohibit it from posting AMPs publicly until 

October 1, 2009, and require it to continue calculating Federal upper 

limit amounts based on published prices. In addition, CMS stated that 

further work by OIG on dispensing fees would be beneficial. 

CMS made one technical comment on the report regarding the 

classification of a single-source drug. Based on this comment, we 

conducted additional analysis and made revisions to the report, where 

appropriate. 

The full text of CMS’s comments is provided in Appendix D. 

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Δ APPENDIX~A 

Medicare Part D Drug Coverage 

Part D sponsors are required by the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 to offer, at a minimum, 

a basic prescription drug benefit that is either the standard 

prescription drug benefit (described below) or is actuarially equivalent 

to the standard benefit.37 Most beneficiaries who elect Part D 

coverage are responsible for certain costs, which may include a 

monthly premium, an annual deductible, and coinsurance. 

In 2008, the standard drug benefit had a beneficiary deductible of 

$275. In the initial phase of the Part D benefit, after beneficiaries 

pay the deductible, they contribute 25-percent coinsurance toward 

their drug costs and the plan pays the remaining 75 percent until 

combined beneficiary and plan payments reach $2,510. After 

combined payments reach $2,510, beneficiaries enter the coverage gap 

phase of the benefit in which they are responsible for 100 percent of 

their drug costs. The catastrophic coverage phase begins when a 

beneficiary’s out-of-pocket costs reach $4,050. This amount includes a 

beneficiary’s deductible and coinsurance payments. Once 

beneficiaries reach $4,050 in out-of-pocket costs, they contribute 

approximately 5 percent in coinsurance toward their drug costs. Of 

the remaining 95 percent of drug costs, the Part D sponsors are 

responsible for approximately 15 percent and Medicare pays 

80 percent. 

Part D plans may also offer enhanced plan benefit packages. 

Enhanced plans include benefits such as lower (or no) deductibles and 

coverage during the coverage gap phase. 

Plan Bids and Subsidy Payments 

Before the beginning of the plan year, sponsors are required to submit 

a bid for each plan that they intend to offer.38 The bid is an estimate 

of the average costs to provide the basic benefit per beneficiary. 

Throughout the year, the Centers for Medicare & Medicaid Services 

(CMS) makes prospective payments to sponsors for three subsidies 

based on sponsors’ approved bids. These subsidies are: (1) the direct 

18 

37 “Actuarially equivalent” means that the plan’s benefit must be at least of a dollar 

value equivalent to that of the standard benefit. 

38 42 CFR § 423.265. 

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APPENDIX~A 

subsidy, (2) the reinsurance subsidy, and (3) the low-income 

cost-sharing subsidy. 

Direct subsidy. The direct subsidy, together with beneficiary 

premiums, is designed to cover the sponsor’s cost of providing the 

benefit to each beneficiary. 

Reinsurance subsidy. The reinsurance subsidy covers the Federal 

Government’s share of drug costs for beneficiaries who have reached 

catastrophic coverage. 

Low-income cost-sharing subsidy. The low-income cost-sharing subsidy 

covers the Federal Government’s portion of the cost-sharing payments 

for certain low-income beneficiaries. 

At the end of the plan year, CMS reconciles these prospective 

payments with the actual costs incurred by the plan sponsors.39 

Prescription Drug Event Data 

As a condition of payment, all Part D plan sponsors submit data and 

information necessary for CMS to determine and make payment.40 

Every time a beneficiary fills a prescription covered under Part D, 

plans must submit a summary called the prescription drug event 

(PDE) record. The PDE record contains drug cost and payment data 

that enable CMS to administer the Part D benefit.41 Part D plan 

sponsors submit one PDE record each time a Part D covered drug is 

dispensed to its enrollees, including those events in which enrollees 

have 100 percent cost sharing (i.e., they are in the coverage gap or 

deductible phase). 

CMS uses the National Council for Prescription Drug Programs 

industry standard for collecting PDE data. The PDE data contain 

information on the beneficiary, plan, pharmacy, and prescribing 

physician, as well as information about the event including the date, 

quantity dispensed, number of days supplied, national drug code, 

control number, and the amount reimbursed to the pharmacy by the 

plan. The amount reimbursed to the pharmacy (i.e., negotiated price) 

39 42 CFR § 423.343. 

40 Social Security Act, §§ 1860D-15(c)(1)(C) and (d)(2), 42 CFR § 423.322. 

41 “Requirements for Submitting Prescription Drug Event Data.” Available online at 

http://www.cms.hhs.gov/DrugCoverageClaimsData/Downloads/PDEGuidance.pdf. Accessed 

May 29, 2008. 

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APPENDIX~A 

consists of three fields: ingredient cost paid, dispensing fee paid, and 

total amount attributed to sales tax. 

Dual Eligibles 

In 2006, more than 6 million Medicare beneficiaries were full-benefit 

dual eligibles, i.e., beneficiaries enrolled in both Medicare and 

Medicaid. Until December 31, 2005, dual eligibles received outpatient 

drug benefits through Medicaid. However, on January 1, 2006, 

Federal financial participation ended for Medicaid drug coverage for 

dual eligibles.42 Instead, dual eligibles now receive drug coverage 

under Part D through either a prescription drug plan or a Medicare 

Advantage Prescription Drug Plan. 

20 

42 42 U.S.C. § 1396u-5 (2003). 

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Δ APPENDIX~B 

Medicaid Pharmacy Reimbursement and Dispensing Fees for Selected States 

State 

Basis for State 

Medicaid 

Reimbursement* 

Dispensing Fee 

Maximum 

Allowable Cost 

Program 

State Rank by Total 

Medicaid Drug 

Expenditures** 

Arkansas 

Average wholesale 

price (AWP)-20% 

(generic) 

AWP-14% (brand) $5.51 Yes 21 

Hawaii AWP-10.5% $4.67 Yes 42 

Illinois 

AWP-25% (generic) 

AWP-12% (brand) 

$4.60 (generic) 

$3.40 (brand) Yes 7 

New York 

AWP-12.75% (brand) 

AWP-16.5% 

(generic) 

AWP-12% 

(specialized HIV 

pharmacies) 

$4.50 (generic) 

 $3.50 (brand) No 1 

Wyoming AWP-11% $5.00 Yes 45 

Sources: Centers for Medicare & Medicaid Services Web site and Office of Inspector General (OIG) analysis of State Medicaid expenditures for 

drugs. 

*This is the method that each State uses to calculate the ingredient cost portion for Medicaid reimbursement. 

**Denotes State rank by total Medicaid expenditures for drugs in the third and fourth quarters of 2006 according to OIG analysis. 

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22 

Differences in Pharmacy Reimbursement for Selected Single-Source Drugs* 

Drug 

Percentage Difference per 

Unit Between Medicaid and 

Part D Pharmacy 

Reimbursement** 

Dollar Difference per 

Unit Between Medicaid 

and Part D Pharmacy 

Reimbursement** 

Alendronate Sodium 70 mg 0.85% $0.153 

Amlodipine Besylate 5 mg 0.16% $0.002 

Amlodipine Besylate 10 mg 1.96% $0.041 

Aripiprazole 5 mg -5.03% -$0.555 

Aripiprazole 10 mg -3.40% -$0.374 

Aripiprazole 15 mg -2.23% -$0.245 

Atorvastatin Calcium 20 mg 0.39% $0.014 

Atorvastatin Calcium 40 mg 0.41% $0.014 

Atorvastatin Calcium 10 mg 0.44% $0.011 

Celecoxib 200 mg 1.13% $0.034 

***Clopidogrel Bisulfate 75 mg 8.08% $0.302 

Divalproex Sodium 500 mg -3.47% -$0.083 

Divalproex Sodium 500 mg (extended release) -2.72% -$0.062 

Donepezil Hydrochloride 10 mg -8.23% -$0.412 

Emtricitabine/Tenofovir Disoproxil Fumarate 200 mg-300 

mg 1.19% $0.308 

Esomeprazole Magnesium 40 mg 1.78% $0.080 

Ezetimibe 10 mg 0.68% $0.018 

Fluticasone Propionate/Salmeterol Xinafoate 0.49% $0.013 

Insulin Glargine, Recombinant 100 U/mL -0.10% -$0.007 

Lansoprazole 30 mg -0.39% -$0.018 

Lopinavir/Ritonavir 200 mg-50 mg 3.54% $0.197 

Memantine Hydrochloride 10 mg -9.33% -$0.217 

Montelukast Sodium 5 mg 0.19% $0.006 

Montelukast Sodium 10 mg 1.27% $0.039 

Olanzapine 10 mg -0.98% -$0.102 

Olanzapine 15 mg -0.82% -$0.127 

Olanzapine 20 mg 0.00% -$0.001 

Palivizumab 100 mg/mL -15.49% -$216.212 

Pantoprazole Sodium 40 mg -0.82% -$0.030 

Quetiapine Fumarate 100 mg -1.93% -$0.061 

Quetiapine Fumarate 200 mg -1.10% -$0.065 

Quetiapine Fumarate 300 mg -0.58% -$0.045 

Risedronate Sodium 35 mg -2.26% -$0.409 

Risperidone 1 mg -4.64% -$0.178 

Risperidone 2 mg -1.23% -$0.077 

Risperidone 3 mg -0.91% -$0.067 

Rosiglitazone Maleate 4 mg 0.49% $0.015 

Tamsulosin Hydrochloride 0.4 mg -0.70% -$0.015 

Topiramate 100 mg -5.69% -$0.270 

Zolpidem Tartrate 10 mg -1.18% -$0.043 

*Some of the selected single-source products had generic versions become available after the time period under review. 

**For most drugs in this review, unit refers to one pill. Negative numbers indicate that Part D pharmacy reimbursement exceeded 

Medicaid pharmacy reimbursement. 

***Clopidogrel bisulfate had a generic version approved in January 2006. The manufacturer marketed the generic version of this drug 

beginning on August 8, 2006. However, litigation between the brand and generic manufacturers resulted in an injunction on 

August 31, 2006, barring additional sales by the manufacturer of the generic drug. Because the generic drug was sold by the 

manufacturer for less than 1 out of the 6 months under review, it is classified as a single-source drug for the period under review. 

Source: Office of Inspector General analysis of third- and fourth-quarter 2006 Medicaid utilization data and Part D prescription drug 

event data.

Δ APPENDIX~C 

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APPENDIX~C 

Differences in Pharmacy Reimbursement for Selected Multiple-Source Drugs 

Drug 

Percentage Difference per 

Unit Between Medicaid and 

Part D Pharmacy 

Reimbursement* 

Dollar Difference per 

Unit Between Medicaid 

and Part D Pharmacy 

Reimbursement* 

Acetaminophen/Oxycodone Hydrochloride 325 mg-10 mg 13.68% $0.137 

Albuterol 0.09 mg/Actuation 25.69% $0.210 

Albuterol Sulfate 0.083% -21.85% -$0.028 

Amoxicillin/Clavulanate Potassium 600 mg/5 mL-42.9 

mg/5 mL 14.04% $0.051 

Amoxicillin/Clavulanate Potassium 875 mg-125 mg 33.44% $0.778 

Azithromycin 250 mg 38.82% $1.784 

Bupropion Hydrochloride 150 mg 17.12% $0.198 

Clozapine 100 mg 14.47% $0.295 

Desmopressin Acetate 0.2 mg 0.33% $0.011 

Diltiazem Hydrochloride 240 mg 7.85% $0.095 

Ethinyl Estradiol/Norgestimate 15.55% $0.158 

Fentanyl 75 mcg/HR 29.67% $8.270 

Fentanyl 100 mcg/HR 30.39% $10.992 

Fentanyl 50 mcg/HR 32.50% $5.813 

Fexofenadine Hydrochloride 180 mg 16.27% $0.282 

Fluticasone Propionate 0.05 mg/Actuation 20.64% $0.722 

Gabapentin 600 mg 63.33% $0.602 

Gabapentin 300 mg 123.25% $0.465 

Immune Globulin 100 mg/mL 36.35% $3.270 

Insulin Human Isophane (NPH) 100 U/mL 2.99% $0.101 

Insulin Human Isophane/Insulin Human Regular 70 U/mL30 U/mL 3.62% $0.123 

Lisinopril 20 mg 39.25% $0.119 

Loratadine 10 mg -83.77% -$2.245 

Lorazepam 1 mg 13.13% $0.038 

Lovastatin 40 mg 39.72% $0.379 

Megestrol Acetate 40 mg/mL 5.87% $0.023 

Metformin Hydrochloride 500 mg 56.74% $0.104 

Nifedipine 60 mg 19.46% $0.312 

Omeprazole 20 mg 44.64% $0.525 

Oxycodone Hydrochloride 40 mg 5.75% $0.177 

Oxycodone Hydrochloride 80 mg 10.03% $0.597 

Paroxetine Hydrochloride 20 mg 81.70% $0.728 

Phenytoin Sodium, Extended 100 mg 3.18% $0.009 

Polyethylene Glycol 3350 17 GM/Dose -0.92% -$0.001 

Potassium Chloride 20 MEQ 24.88% $0.073 

Sertraline Hydrochloride 100 mg 9.01% $0.204 

Simvastatin 20 mg 25.96% $0.916 

Simvastatin 40 mg 27.16% $0.955 

Warfarin Sodium 5 mg 12.67% $0.054 

*For most drugs in this review, unit refers to one pill. Negative numbers indicate that Part D pharmacy reimbursement exceeded

Medicaid pharmacy reimbursement. 

Source: Office of Inspector General analysis of third- and fourth-quarter 2006 Medicaid utilization data and Part D prescription drug 

event data.

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Δ APPENDIX~D 

Agency Comments 

 O E I - 0 3 - 0 7 - 0 0 3 5 0 C OMPARING P HARMACY REIMBURSEMENT: MEDICARE PART D TO MEDICAID 24 
 

APPENDIX~D 

 O E I - 0 3 - 0 7 - 0 0 3 5 0 C OMPARING P HARMACY REIMBURSEMENT: MEDICARE PART D TO MEDICAID 25 
 

 O E I - 0 3 - 0 7 - 0 0 3 5 0 C OMPARING P HARMACY REIMBURSEMENT: MEDICARE PART D TO MEDICAID 26 

ΔAPPENDIX~D ACKNOWLEDGMENTS 

This report was prepared under the direction of Robert A. Vito, 

Regional Inspector General for Evaluation and Inspections in the 

Philadelphia regional office, and David E. Tawes, Director, Prescription 

Drug Pricing Unit. 

Edward K. Burley served as the team leader for this study. Other 

principal Office of Evaluation and Inspections staff from the 

Philadelphia regional office who contributed to the report include 

Eric M. Biersmith; other central office staff who contributed include 

Eddie Baker, Jr., Dave J. Graf, Kevin Manley, Matthew S. McMullen, 

and Cynthia Thomas.