Medicaid Outpatient Drugs: Estimated 2007 Federal Upper Limits	 
for Reimbursement Compared with Retail Pharmacy Acquisition Costs
(22-DEC-06, GAO-07-239R).					 
                                                                 
Spending on outpatient prescription drugs in Medicaid--the joint 
federal-state program that finances medical services for certain 
low-income adults and children--has accounted for a substantial  
and growing share of Medicaid expenditures. Medicaid's total	 
spending on outpatient prescription drugs grew from $4.6 billion 
in fiscal year 1990 to $40 billion in fiscal year 2004--or from  
7.0 to 14.2 percent of Medicaid's total expenditures for medical 
care. State Medicaid programs do not directly purchase		 
prescription drugs; instead, they reimburse retail pharmacies for
covered outpatient prescription drugs dispensed to Medicaid	 
beneficiaries. For some outpatient multiple-source prescription  
drugs, state Medicaid programs may only receive federal matching 
funds for reimbursements up to a maximum amount known as a	 
federal upper limit (FUL). Required by law as a cost-containment 
strategy, FULs are calculated as 150 percent of the lowest price 
for a drug, from among the prices published nationally in three  
drug pricing compendia. State Medicaid programs have the	 
authority to determine their own reimbursements to retail	 
pharmacies6 for covered outpatient multiple-source prescription  
drugs, as long as those reimbursements do not exceed established 
FULs in the aggregate. The Deficit Reduction Act of 2005 (DRA)	 
included provisions that changed the methodology for calculating 
FULs. Beginning January 1, 2007, a drug's FUL will be based on	 
the average manufacturer price (AMP). The Congressional Budget	 
Office estimated that when implemented, AMP-based FULs could	 
reduce total Medicaid spending for prescription drugs by $3.6	 
billion from 2007 to 2010 and by about $11.8 billion from 2007 to
2015. Though representing a potential cost saving measure for	 
Medicaid, the change in FUL calculation methodology--using AMP	 
instead of the lowest published price--has raised concerns among 
retail pharmacies serving Medicaid beneficiaries. Because of	 
interest in the potential effects of the AMP-based FULs on retail
pharmacies, information was requested on how AMP-based FULs will 
compare with retail pharmacy acquisition costs. GAO estimated	 
what the AMP-based FULs would have been if they had applied in	 
2006 and compared them with average retail pharmacy acquisition  
costs from 2006 for frequently used and high expenditure	 
multiple-source outpatient prescription drugs in Medicaid.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-239R					        
    ACCNO:   A64444						        
  TITLE:     Medicaid Outpatient Drugs: Estimated 2007 Federal Upper  
Limits for Reimbursement Compared with Retail Pharmacy		 
Acquisition Costs						 
     DATE:   12/22/2006 
  SUBJECT:   Beneficiaries					 
	     Cost analysis					 
	     Cost control					 
	     Entitlement programs				 
	     Food and drug legislation				 
	     Health care costs					 
	     Medicaid						 
	     Medical economic analysis				 
	     Prescription drugs 				 
	     Price regulation					 
	     Prices and pricing 				 
	     Program evaluation 				 
	     Reimbursements from government			 

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GAO-07-239R

   

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December 22, 2006

The Honorable Joe Barton
Chairman
Committee on Energy and Commerce
House of Representatives

Subject: Medicaid Outpatient Prescription Drugs: Estimated 2007 Federal
Upper Limits for Reimbursement Compared with Retail Pharmacy Acquisition
Costs

Dear Mr. Chairman:

Spending on outpatient prescription drugs in Medicaid--the joint
federal-state program that finances medical services for certain
low-income adults and children--has accounted for a substantial and
growing share of Medicaid expenditures.^1 Medicaid's total spending on
outpatient prescription drugs grew from $4.6 billion in fiscal year 1990
to $40 billion in fiscal year 2004--or from 7.0 to 14.2 percent of
Medicaid's total expenditures for medical care. State Medicaid programs do
not directly purchase prescription drugs; instead, they reimburse retail
pharmacies for covered outpatient prescription drugs dispensed to Medicaid
beneficiaries.^2 For some outpatient multiple-source prescription drugs,
state Medicaid programs may only receive federal matching funds for
reimbursements up to a maximum amount known as a federal upper limit
(FUL).^3,4 Required by law as a cost-containment strategy, FULs are
calculated as 150 percent of the lowest price for a drug, from among the
prices published nationally in three drug pricing compendia.^5 State
Medicaid programs have the authority to determine their own reimbursements
to retail pharmacies^6 for covered outpatient multiple-source prescription
drugs, as long as those reimbursements do not exceed established FULs in
the aggregate.

^1Medicaid consists of 56 distinct programs created within broad federal
guidelines and administered by state Medicaid agencies. The 56 Medicaid
programs include one for each of the 50 states; the District of Columbia;
Puerto Rico; and the U.S. territories of American Samoa, Guam, Northern
Mariana Islands, and the Virgin Islands. Hereafter in this report, we use
"state Medicaid programs" to refer to these 56 programs.

^2Retail pharmacies are licensed nonwholesale pharmacies that are open to
the public.

^3FULs must be established for each multiple source drug for which there
are three or more therapeutically equivalent drug products. 42 U.S.C. S
1396r-8(e)(4) (2000). Therapeutically equivalent drug products can be
substituted with the full expectation that they will produce the same
clinical effect as the prescribed drug.

^4By regulation, FULs apply to multiple-source prescription drugs that the
Food and Drug Administration considers to have at least three
therapeutically equivalent versions and at least three manufacturers or
suppliers. 42 C.F.R. S 447.301 and 447.332 (2005).

The Deficit Reduction Act of 2005 (DRA) included provisions that changed
the methodology for calculating FULs.^7 Beginning January 1, 2007, a
drug's FUL will be based on the average manufacturer price (AMP). AMP
represents the average of prices paid to manufacturers by wholesalers for
a drug distributed to the retail pharmacy class of trade, including retail
pharmacies, and is typically less than any of a drug's published prices in
the three pricing compendia. Each therapeutically equivalent version of a
multiple-source drug has an AMP, and beginning January 1, 2007, a drug's
FUL will be calculated as 250 percent of the lowest AMP from among a
drug's therapeutically equivalent versions. The Congressional Budget
Office estimated that when implemented, AMP-based FULs could reduce total
Medicaid spending for prescription drugs by $3.6 billion from 2007 to 2010
and by about $11.8 billion from 2007 to 2015.^8

Though representing a potential cost saving measure for Medicaid, the
change in FUL calculation methodology--using AMP instead of the lowest
published price--has raised concerns among retail pharmacies serving
Medicaid beneficiaries. Drug manufacturers are required to report AMP data
on their drugs to CMS. Because these data are not publicly available,
retail pharmacies cannot determine what the relationship will be between
AMP-based FULs and the prices the pharmacies pay to acquire these drugs.^9

Because of your interest in the potential effects of the AMP-based FULs on
retail pharmacies, you requested information on how AMP-based FULs will
compare with retail pharmacy acquisition costs. We estimated what the
AMP-based FULs would have been if they had applied in 2006 and compared
them with average retail pharmacy acquisition costs from 2006 for
frequently used and high expenditure multiple-source outpatient
prescription drugs in Medicaid.

^5The Centers for Medicare & Medicaid Services (CMS), the agency that
oversees Medicaid, identifies which drugs are subject to FULs. The Deficit
Reduction Act of 2005 also included additional provisions relating to
Medicaid reimbursement of outpatient prescription drugs.

^6Many state Medicaid programs require retail pharmacies to dispense the
lower cost therapeutically equivalent version of a drug to Medicaid
beneficiaries when one is available. Under these mandatory generic
substitution policies, the higher cost version of the drug remains
available to beneficiaries if the prescribing physician receives prior
authorization. In cases when retail pharmacies are authorized to dispense
the higher cost version of the drug, the FUL does not apply.

^7Pub. L. No. 109-171, S 6001, 120 Stat. 4, 54-59 (2006) (to be codified
at 42 U.S.C. S 1396r-8).

^8Congressional Budget Office Cost Estimate. S. 1932, Deficit Reduction
Act of 2005. January 27, 2006.

^9The price a retail pharmacy pays to acquire a drug from a manufacturer
or wholesaler is known as a pharmacy's drug acquisition cost.

To estimate the AMP-based FULs and compare them with average retail
pharmacy acquisition costs, we used first quarter 2006 Medicaid
utilization data^10 to select a sample of multiple-source outpatient
prescription drugs subject to Medicaid FULs. To develop our sample, we
identified the 50 drugs that were the most frequently used--that is,
represented 53 percent of the outpatient prescription drugs subject to
FULs and dispensed to Medicaid beneficiaries in the first quarter of
2006--and the 50 drugs that were the highest expenditure--that is,
accounted for 56 percent of Medicaid spending on outpatient prescription
drugs subject to FULs in the first quarter of 2006,^11 with some drugs
overlapping the two categories. Our resulting sample contained 77
multiple-source outpatient prescription drugs, which comprised 27
frequently used prescription drugs in Medicaid, 27 high expenditure
prescription drugs in Medicaid, and 23 prescription drugs that overlapped
both categories.

We obtained AMP data from the Centers for Medicare & Medicaid Services
(CMS), which requires manufacturers to report AMP data within 30 days of
the end of every calendar quarter. We obtained the average retail pharmacy
acquisition cost data for the first quarter of 2006 from IMS Health, which
obtains these data on sales transactions from approximately 100
manufacturers and over 300 distribution centers, including drug
wholesalers and chain warehouses. These manufacturers and distribution
centers are responsible for over 85 percent of total market dollar volume.
IMS Health projects these data to represent national average acquisition
costs for each drug in our sample in the first quarter of 2006.^12 The
average pharmacy acquisition cost data that we obtained from IMS Health
may be greater than actual acquisition costs because these data do not
account for rebates that pharmacies may receive from wholesalers or
manufacturers.^13

For each of the 77 drugs in our sample, we estimated what the AMP-based
FULs would have been had they applied in 2006. Using AMP data from the
first quarter of 2006, we followed DRA provisions and selected the lowest
AMP for each group of therapeutically equivalent versions and multiplied
those AMPs by 250 percent. We did not exclude any outlier AMP data in
order to be consistent with how CMS officials told us they will be
implementing DRA provisions beginning January 1, 2007. We
compared these estimated AMP-based FULs with average retail pharmacy
acquisition cost data from the first quarter of 2006 for the 77 drugs in
our entire sample and for each of the three categories of drugs our sample
comprises--the frequently used drugs, the high expenditure drugs, and the
drugs that overlapped both categories.^14 In order to assess the extent to
which AMP-based FULs are likely to vary over time, we also examined the
variation in lowest AMPs for the drugs in our sample from the third
quarter of 2005 through the third quarter of 2006. We determined that the
data used were sufficiently reliable for our purposes. For more detail on
our scope and methodology, see enclosure I. The list of 77 drugs we
reviewed is included in enclosure II. We performed our work from July 2006
through November 2006 in accordance with generally accepted government
auditing standards.

^10Medicaid utilization data reported to CMS include information on the
total number of units and dollar amount for which state Medicaid programs
reimbursed retail pharmacies for covered drugs dispensed to Medicaid
beneficiaries. As of July 2006, when we selected our sample, utilization
data from Iowa, Minnesota, New Jersey, and Rhode Island were not included
because these states had not reported their Medicaid utilization data for
the first quarter of 2006.

^11In ranking drugs by their share of Medicaid expenditures for
multiple-source outpatient prescription drugs in the first quarter of
2006, we excluded any dispensing fees paid to pharmacies as a part of
state reimbursement formulas. Each state pays pharmacies, for each
prescription dispensed, a professional dispensing fee intended to cover
the pharmacy's labor and overhead costs, such as pharmacists' salaries,
drug packaging, rent, and utilities.

^12For any given drug, the acquisition costs of individual pharmacies may
be higher or lower than the national average.

^13These rebates may vary as retail pharmacies negotiate their rebates
based on various factors, including the type of drug, manufacturer, and
volume of purchases. In addition, they can negotiate rebates on a
manufacturer's entire line of products rather than on a per-drug basis.

Results in Brief

The AMP-based FULs we estimated using AMP data from first quarter 2006
were lower than average retail pharmacy acquisition costs from the same
period for 59 of the 77 drugs in our sample. For our entire sample of 77
multiple-source outpatient prescription drugs, we found that these
estimated AMP-based FULs were, on average, 36 percent lower than average
retail pharmacy acquisition costs for the first quarter of 2006. The
extent to which the AMP-based FULs were lower than average retail pharmacy
acquisition costs differed for high expenditure drugs compared with the
frequently used drugs and the drugs that overlapped both categories. In
particular, the estimated AMP-based FULs were, on average, 65 percent
lower than average retail pharmacy acquisition costs for the 27 high
expenditure drugs in our sample and 15 percent lower, on average, for the
27 frequently used drugs in our sample. For the 23 drugs that overlapped
both categories of drugs, the estimated AMP-based FULs were, on average,
28 percent lower than the average retail pharmacy acquisition costs. In
addition, we also found that the lowest AMPs for the 77 drugs in our
sample varied notably from quarter to quarter. Despite this variation,
when we estimated what the AMP-based FULs would have been using several
quarters of historical AMP data, these estimated FULs were also, on
average, lower than average retail pharmacy acquisition costs from the
first quarter of 2006.

Though the difference between AMP-based FULs and retail pharmacy
acquisition costs was in some cases sizable, the extent of this difference
may change because of several factors, including the quarter-to-quarter
variation in AMPs used to set FULs as well as the presence of rebates that
retail pharmacies may obtain from drug manufacturers and wholesalers. To
the extent that the utilization of multiple-source outpatient prescription
drugs by retail pharmacies remains similar in 2007 and later to the
utilization patterns captured in our sample of drugs for the first quarter
of 2006, the gap between estimated first quarter 2006 AMP-based FULs and
pharmacy acquisition costs could persist, once the AMP-based FULs are
implemented in 2007. However, to the extent that the cost-containment
measures of the AMP-based FULs influence pharmacies to acquire lower cost
therapeutically equivalent versions of drugs or negotiate lower prices
from manufacturers and wholesalers, the gap between AMP-based FULs and
acquisition costs could be narrowed or offset.

^14In our comparison of the AMP-based FULs and retail pharmacy acquisition
costs, we did not consider dispensing fees.

In reviewing a draft of this report, CMS disagreed with our finding that
the AMP-based FULs were lower than the average retail pharmacy acquisition
costs for most of the 77 drugs in our sample. In particular, CMS had
significant concerns with our estimates of both pharmacy acquisition costs
and AMP-based FULs and stated that our findings had not accounted for
changes in these two variables that are likely to take place after DRA
provisions are implemented in January 2007. In our view, we used the most
complete, accurate data sources available at the time of our analysis for
our purposes--to estimate both retail pharmacy acquisition costs and
AMP-based FULs, had the latter applied in the first quarter of 2006.
Furthermore, in our draft report we identified the limitations of the data
sources used in our estimates and acknowledged that the difference between
retail pharmacy acquisition costs and AMP-based FULs could change
following implementation of DRA provisions in 2007. Only after AMP-based
FULs are implemented in 2007 will there be an opportunity to determine the
extent to which these FULs facilitate both cost-effective Medicaid drug
expenditures and adequate reimbursement for retail pharmacies.

Background

Medicaid is a joint federal-state entitlement program that finances
medical services for certain low-income adults and children.^15 While
federal guidelines require that all state Medicaid programs offer certain
basic benefits, each state Medicaid program determines the extent to which
it will cover optional benefits. Outpatient prescription drug coverage is
an optional benefit that all state Medicaid programs have elected to
include in their Medicaid benefit packages. State Medicaid programs do not
directly purchase drugs; instead they reimburse retail pharmacies for
covered outpatient prescription drugs dispensed to Medicaid beneficiaries.
For some outpatient multiple-source prescription drugs, state Medicaid
programs may only receive federal matching funds for reimbursements up to
a maximum amount known as a FUL.

Medicaid Federal Upper Limits

FULs were first established in 1987 as a cost-containment strategy in an
effort to limit the amount that Medicaid could reimburse retail pharmacies
for certain multiple-source outpatient prescription drugs.^16 FULs have
been established for multiple-source drugs that have at least three
manufacturers or suppliers and CMS publishes a list of drugs that have
FULs in the State Medicaid Manual.^17 FULs are expressed on a per-unit
basis--for example, per tablet. As of first quarter 2006, the list
included more than 500 multiple-source drugs.^18

15Within guidelines established by federal statutes, regulations, and
policies, each state (1) establishes its own eligibility standards; (2)
determines the type, amount, duration, and scope of services; (3) sets the
rate of payment for services; and (4) administers its own program.

^1652 Fed. Reg. 28,648 (July 31, 1987). Legislation was enacted in 1990
making the application of FULs a statutory requirement. (Pub. L. No.
101-508, sec. 4401(a)(3), S 1927(f)(2), 104 Stat. 1388, 1388-143 (to be
codified, as amended by DRA S 6001(a)(1)-(2), 120 Stat. 54-55, at 42
U.S.C. S 1396r-8(e)(4)).

^17In addition, FULs are only established when multiple-source drugs are
listed as "A" rated-drug products--that is, that the Food and Drug
Administration (FDA) considers to be therapeutically equivalent to other
pharmaceutically equivalent products--in FDA's publication, Approved Drug
Products with Therapeutic Equivalence Evaluations. This list is commonly
known as the Orange Book and identifies drug products approved on the
basis of safety and effectiveness by FDA.

CMS determines the FUL for a multiple-source outpatient prescription drug
by grouping a drug's therapeutically equivalent versions together and
setting a FUL for each group. Each of a drug's therapeutically equivalent
versions has several published prices associated with it, including the
average wholesale price (AWP),^19 wholesale acquisition cost (WAC),^20 and
direct price (DP).^21 All of these prices are published in each of the
three national drug pricing compendia--First DataBank, Medi-Span, and Red
Book--which use different methods for determining these published prices.
The lowest published price for a FUL group--that is, a drug--may be any
one of these three prices, and this can vary depending on the FUL group.
Until provisions in DRA take effect January 1, 2007, CMS sets a FUL by
identifying a drug's therapeutic equivalent with the lowest price--either
AWP, WAC, or DP--in any of the three national drug pricing compendia, and
multiplying that price by 150 percent.

A state's total reimbursements for Medicaid prescription drugs subject to
FULs must not exceed, in the aggregate, the payment levels established by
the FULs over a year. States may exceed the FUL for an individual
prescription drug as long as their aggregate expenditures for all
prescription drugs subject to FULs do not exceed the amounts that are
calculated using the rate established by the FUL.

State Medicaid programs consider several methods for reimbursing
pharmacies for multiple-source prescription drugs. 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;^22 the
usual and customary charge of the retail pharmacy that dispensed the
drug;^23 the FUL for the drug, if applicable; or the state's maximum
allowable cost (MAC) for the drug,^24 if applicable. When the FUL for a
drug is not the lowest of these four amounts, Medicaid typically
reimburses pharmacies at a rate lower than the FUL.

^18Transmittal No. 37, Federal Upper Limit Drug List, November 20, 2001.
Federal Upper Limit (FUL) Changes to Transmittal No. 37, June 23, 2006.

^19AWP is the average of the list prices that the manufacturer suggests
wholesalers charge pharmacies.

^20WAC is the manufacturer's list price for wholesalers or other direct
purchasers before any rebates, discounts, allowances, or other price
concessions.

^21DP as published by First DataBank represents the manufacturer's
published catalog or list price for a drug product to nonwholesalers. DP
does not represent actual transaction prices and does not include prompt
pay or other discounts, rebates, or reductions.

^22States may establish their own methodologies for estimating retail
pharmacies' drug acquisition costs. Most states in the first quarter of
2006 chose to estimate these costs by taking a percentage discount from
the AWP.

^23The 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.

^24States that administer MACs publish lists of selected multiple-source
drugs with the maximum price at which the state will reimburse for those
medications. Pharmacies generally do not receive payments that are higher
than the MAC price. The MAC lists differ from the FUL list, as states have
more discretion in determining what drugs to include on their MAC lists.
Generally, state MAC lists include more drugs, and establish lower
reimbursement prices, than the FUL list. As of first quarter 2006, 43
states administer MACs.

Deficit Reduction Act of 2005 and Medicaid FULs

DRA modified the methodology used to set FULs for certain multiple-source
outpatient prescription drugs for Medicaid.^25 Rather than 150 percent of
the lowest published price of the therapeutically equivalent versions,
starting January 1, 2007, DRA required that CMS calculate FULs as 250
percent of the lowest AMP among a drug's therapeutically equivalent
versions. AMP data are collected by CMS and are not publicly available.
(Fig. 1 illustrates how Medicaid FULs are calculated before and after DRA
provisions take effect January 1, 2007.)

^25DRA S 6001,120 Stat. 54-59.

Figure 1: Illustration of FUL Methodology Before and After January 1, 2007

Note: The drug pricing compendia in fig.1 are published by First DataBank,
Medi-Span, and Red Book.

aFUL is the federal upper limit for reimbursement of certain Medicaid
outpatient prescription drugs.

bWAC is the manufacturer's list price for wholesalers or other direct
purchasers before any rebates, discounts, allowances, or other price
concessions.

cDP as published by First DataBank represents the manufacturer's published
catalog or list price for a drug product to nonwholesalers. DP does not
represent actual transaction prices and does not include prompt pay or
other discounts, rebates, or reductions.

dAWP is the average of the list prices that the manufacturer suggests
wholesalers charge pharmacies.

eAMP represents the average of prices paid to manufacturers by wholesalers
for a drug distributed to the retail pharmacy class of trade, including
retail pharmacies.

fCMS is the agency that oversees Medicaid.

DRA included additional provisions relating to prescription drugs. One
provision changed the criteria under which FULs must be established. Until
January 1, 2007, FULs must be established for multiple-source drugs for
which there are three or more therapeutically equivalent products.^26
Beginning on January 1, 2007, the DRA provides that FULs be established
for multiple-source drugs for which there are at least two therapeutically
equivalent products.^27 DRA also mandated several changes relating to the
AMP. For example, DRA required that prompt payment discounts be excluded
when manufacturers calculate AMP. DRA also required the Secretary of
Health and Human Services to make manufacturers' reported AMP data
available on a monthly basis to states, and to post those amounts on a Web
site accessible to the public beginning July 2006.^28 These requirements
were established in order to give states pricing information that was not
previously available to consider in setting reimbursement amounts.

^2642 U.S.C. S 1396r-8(e)(4) (2000).

^27DRA S 6001(a)(1), 120 Stat. 54 (to be codified at 42 U.S.C. S
1396r-8(e)(4)).

Estimated AMP-Based FULS Were Lower Than Average Pharmacy Acquisition
Costs for Most Drugs in our Sample

For most of the 77 drugs in our sample, the AMP-based FULs we estimated
using AMP data from the first quarter of 2006 were lower than average
retail pharmacy acquisition costs for the same period. In particular, the
percentage difference between the estimated AMP-based FULs and average
retail pharmacy acquisition costs was more pronounced for high expenditure
drugs than it was for frequently used drugs. Though lowest AMPs can vary
notably from quarter to quarter, when we estimated what AMP-based FULs
would have been using several quarters of AMP data we found that that
these estimated FULs were also lower than average retail pharmacy
acquisition costs for most of the drugs--and in particular the high
expenditure drugs--in our sample. Furthermore, the difference between
AMP-based FULs and retail pharmacy acquisition costs could change
following the implementation of DRA provisions in January 2007, to the
extent that retail pharmacies acquire lower cost therapeutically
equivalent versions of drugs or negotiate lower prices from manufacturers
and wholesalers.

Based on First Quarter 2006 Data, AMP-Based FULs Were Lower Than Average
Acquisition Costs, with Difference Most Pronounced for High Expenditure
Drugs

The AMP-based FULs we estimated using first quarter 2006 AMP data were
lower than the average retail pharmacy acquisition costs for the same
period for most--59 out of 77--of the drugs in our sample. The estimated
AMP-based FULs were, on average, 36 percent lower than average retail
pharmacy acquisition costs for our entire sample of drugs.^29 Further, for
43 of the 77 drugs, we found that the estimated AMP-based FULs fell below
the lowest acquisition cost available to retail pharmacies. While the
estimated AMP-based FULs were lower than average retail pharmacy
acquisition costs for our entire sample of drugs, this difference was most
pronounced for the 27 high expenditure drugs, compared with the 27
frequently used drugs and with the 23 drugs that were both high
expenditure and frequently used in our sample.

^28While CMS released AMP data to states starting in July of 2006, the
implementation of the provision requiring AMP data to be posted on a
publicly available Web site has been delayed until January 1, 2007.

^29Excluding statistical outliers from our analysis resulted in a less
than 1 percent change in the average percent difference between average
retail pharmacy acquisition costs and estimate AMP-based FULs.

High Expenditure Drugs

For 26 of the 27 high expenditure drugs in our sample, the AMP-based FULs
we estimated using first quarter 2006 data were lower than the average
retail pharmacy acquisition costs for this period (see fig. 2). The
estimated FULs for these 27 drugs were, on average, 65 percent lower than
average retail pharmacy acquisition costs.^30 We also found that for 21 of
the 27 high expenditure drugs, the estimated AMP-based FULs fell below the
lowest acquisition cost available to retail pharmacies.

Figure 2: Comparison of Estimated AMP-Based FULs and Average Retail
Pharmacy Acquisition Costs for 27 High Expenditure Outpatient Drugs in
Medicaid, First Quarter 2006

Frequently Used Drugs

For 17 of the 27 frequently used drugs in our sample, the AMP-based FULs
we estimated using first quarter 2006 data were lower than the average
retail pharmacy acquisition costs for this period (see fig. 3). For these
27 frequently used drugs, the estimated AMP-based FULs were, on average,
15 percent lower than average retail pharmacy acquisition costs.^31 We
also found that for 11 of the 27 frequently used drugs, the estimated
AMP-based FULs fell below the lowest acquisition cost available to retail
pharmacies.

^30In the first quarter of 2006 the average acquisition cost per unit for
the 27 high expenditure drugs in our sample was $0.49.

^31In contrast with the average acquisition cost per unit for the 27 high
expenditure drugs in our sample--$0.49--the average acquisition cost per
unit for the 27 frequently used drugs was $0.05 in the first quarter of
2006.

Figure 3: Comparison of Estimated AMP-Based FULs and Average Retail
Pharmacy Acquisition Costs for 27 Frequently Used Outpatient Drugs in
Medicaid, First Quarter 2006

aOne drug had an estimated AMP-based FUL the same as the average retail
pharmacy acquisition cost.

High Expenditure and Frequently Used Drugs

For 16 of the 23 drugs that were both high expenditure as well as
frequently used, the AMP-based FULs we estimated using first quarter 2006
AMP data were lower than the average retail pharmacy acquisition costs for
this period (see fig. 4). Further, the estimated AMP-based FULs for the 23
drugs were, on average, 28 percent lower than average retail pharmacy
acquisition costs.^32 We also found that for 11 of these 23 drugs the
estimated AMP-based FULs fell below the lowest acquisition costs available
to retail pharmacies.

^32For the 23 high expenditure and frequently used drugs, the average
acquisition cost per unit was $0.08.

Figure 4: Comparison of AMP-Based FULs and Average Retail Pharmacy
Acquisition Costs for 23 Outpatient Drugs That Were Both High Expenditure
and Frequently Used in Medicaid, First Quarter 2006

Though Lowest AMPs Can Vary Over Time, AMP-Based FULs Estimated for
Several Quarters Were Also Lower Than Acquisition Costs

Our comparison of estimated AMP-based FULs and average retail pharmacy
acquisition costs involves AMP data that can vary notably from quarter to
quarter. In particular, we found variation in the lowest AMPs--which will
set AMP-based FULs, beginning January 1, 2007--for the 77 drugs in our
sample. For example, from the first of quarter 2006 through the second
quarter of 2006,

           o 36 of the 77 drugs had a median increase of 33 percent in their
           lowest AMPs;

           o 11 of the 77 drugs had no change in their lowest AMPs; and

           o 30 of the 77 drugs had a median decrease of 33 percent in their
           lowest AMPs.

Similarly, the lowest AMPs for the 77 drugs in our sample varied from
quarter to quarter over the period covering the third quarter of 2005
through the third quarter of 2006. Despite this variation in lowest AMP
values, when we estimated what AMP-based FULs would have been in each of
several quarters--namely, the fourth quarter of 2005 through the second
quarter of 2006--we found that the estimated FULs for each of these
quarters were also lower, on average, than average retail pharmacy
acquisition costs from the first quarter of 2006.^33 Even if we made the
comparison using the quarter--from among the fourth quarter of 2005
through the second quarter of 2006--in which each drug's estimated
AMP-based FUL was the highest, the

estimated AMP-based FULs for 49 of the 77 drugs remained lower than first
quarter 2006 average retail pharmacy acquisition costs. Across our entire
sample of 77 prescription drugs, the estimated AMP-based FULs were 12
percent lower, on average, than the average retail pharmacy acquisition
costs from the first quarter of 2006. This analysis also showed
differences across the three groups of drugs in our sample:

           o For the high expenditure drugs, AMP-based FULs for 24 out of 27
           drugs remained lower than average retail pharmacy acquisition
           costs. Across this group of drugs, the estimated AMP-based FULs
           were 41 percent lower, on average, than the average retail
           pharmacy acquisition costs from the first quarter of 2006.

           o For frequently used drugs, AMP-based FULs for 10 out of 27 drugs
           remained lower than average retail pharmacy acquisition costs.
           Across this group of drugs, the estimated AMP-based FULs were 11
           percent higher, on average, than the average retail pharmacy
           acquisition costs from the first quarter of 2006.

           o For the high expenditure and frequently used drugs, AMP-based
           FULs for 15 out of 27 drugs remained lower than average retail
           pharmacy acquisition costs. Across this group of drugs, the
           estimated AMP-based FULs were 4 percent lower, on average, than
           the average retail pharmacy acquisition costs from the first
           quarter of 2006.

^33This analysis assumes that first quarter 2006 acquisition costs are a
valid proxy for acquisition costs in the fourth quarter of 2005 and the
second quarter of 2006.

Difference between AMP-Based FULs and Retail Pharmacy Acquisition Costs
Could Change Following Implementation of DRA Provisions in 2007

Though the difference between AMP-based FULs and retail pharmacy
acquisition costs in the first quarter of 2006 was in some cases
sizable--on average 65 percent for the high expenditure drugs in our
sample--it is important to recognize that the extent of this difference
may change, because of several factors. These factors include the
quarter-to-quarter variation in the AMPs used to set FULs, the
DRA-required change in the definition of AMP that excludes prompt payment
discounts from the calculation of AMPs, which may increase AMPs, and the
presence of rebates that retail pharmacies may obtain from drug
manufacturers and wholesalers that may lower retail pharmacy acquisition
costs. In addition, because FULs apply to state Medicaid program aggregate
expenditures for relevant outpatient multiple-source drugs in a year,
states may reimburse for some drugs in excess of the FULs as long as these
higher reimbursements are offset by others that are below the FULs.

Furthermore, the difference we found between AMP-based FULs and retail
pharmacy acquisition costs also reflects the particular multiple-source
outpatient prescription drugs pharmacies purchased and dispensed to
Medicaid beneficiaries in the first quarter of 2006. To the extent that in
2007 and in future years this utilization remains similar to the
utilization captured in our sample of drugs for the first quarter of 2006,
the gap we found could persist. However, to the extent that the
cost-containment measures of the AMP-based FULs influence retail
pharmacies to acquire lower cost therapeutically equivalent versions of
drugs or negotiate lower prices from manufacturers and wholesalers, the
gap between AMP-based FULs and acquisition costs could be narrowed or
offset. Only after AMP-based FULs are implemented in 2007 will there be an
opportunity to determine the extent to which these FULs are facilitating
both cost-effective Medicaid drug expenditures and adequate reimbursements
for retail pharmacies.

Agency and Other External Comments

CMS reviewed a draft of this report and provided written comments, which
are reproduced in enclosure III. CMS disagreed with our finding that the
AMP-based FULs were lower than the average retail pharmacy acquisition
costs for most of the 77 drugs in our sample. In particular, CMS had
significant concerns with our estimates of both pharmacy acquisition costs
and AMP-based FULs and stated that our findings had not accounted for
changes in these two variables that are likely to take place after DRA
provisions are implemented in January 2007. In our view, we used the most
complete, accurate data sources available at the time of our analysis for
our purposes--to estimate both retail pharmacy acquisition costs and
AMP-based FULs, had the latter applied in the first quarter of 2006.
Furthermore, in our draft report we identified the limitations of the data
sources used in our estimates and acknowledged that the difference between
retail pharmacy acquisition costs and AMP-based FULs could change
following implementation of DRA provisions in 2007.

In its written comments, CMS raised issues regarding our estimates of
retail pharmacy acquisition costs, our estimates of AMP-based FULs, and
our discussion of the impact of DRA provisions:

Our Estimates of Retail Pharmacy Acquisition Costs

CMS stated that our draft report did not provide source documents or
evidence of how IMS Health arrived at the acquisition costs used in our
comparison. Our draft report explained that IMS Health collects
acquisition cost data from actual sales transactions from manufacturers
and distribution centers, which represent over 85 percent of total market
dollar volume, and projects these data to represent national average
acquisition costs. We could not provide CMS with the acquisition cost data
used in our analysis because, while they are commercially available, they
are proprietary. Specifically, our data use agreement with IMS Health
prohibits us from releasing its data to third parties, such as CMS.

CMS also questioned the validity of our estimation of retail pharmacy
acquisition costs because we did not account for the rebates retail
pharmacies may receive from wholesalers and manufacturers. In our draft
report we stated that the IMS Health data did not account for such
rebates, and we identified this as a limitation of our analysis. However,
as CMS officials acknowledged to us, there are no known data sources of
pharmacy acquisition costs of multiple-source outpatient prescription
drugs that account for rebates. Identifying rebates is difficult because
retail pharmacies negotiate their rebates based on various factors and can
negotiate rebates on a manufacturer's entire line of products rather than
on a per-drug basis. We have amended our report to clarify these issues.

Our Estimates of AMP-Based FULs

CMS stated that in estimating the AMP-based FULs for our analysis we did
not exclude outlier AMP data. According to CMS, excluding outlier AMP data
could have "significantly" raised our estimates of AMP-based FULs for many
multiple-source outpatient prescription drugs. As we stated in our draft
report, we did not exclude outlier AMP data from our analysis because,
during the course of our work, CMS officials indicated that they would not
exclude any outlier AMP data when they begin calculating AMP-based FULs in
January 2007. To be consistent with the methodology CMS indicated the
agency will use when implementing DRA provisions, we did not exclude
outlier data from our estimates of AMP-based FULs. However, in their
comments, CMS indicated that they intend to address outlier AMP data, as
appropriate, in calculating the AMP-based FULs.

During the course of our work we identified outliers in the AMP data
underlying the FULs for several drugs in our analysis. However, excluding
these outliers did not significantly reduce the gap we found between the
estimated AMP-based FULs and retail pharmacy acquisition costs. We have
amended our report to include this information. We agree with CMS's
revised approach to publish clear criteria for (1) identifying and
excluding outliers from the AMP data that underlie each FUL group and (2)
identifying which therapeutically equivalent versions of each drug are
nationally available and should thereby be considered when setting the
FUL.^34

Potential Impact of DRA on Retail Pharmacy Acquisition Costs and AMP-Based
FULs

CMS stated that our analysis did not account for several ways in which DRA
may affect retail pharmacy acquisition costs and the AMP-based FULs. CMS
suggested that our estimation of retail pharmacy acquisition costs will
likely not reflect such costs after the implementation of DRA provisions
in January 2007. CMS expects that the AMP-based FULs implemented as a
result of DRA will drive retail pharmacies to fill more Medicaid
prescriptions with lower cost versions of multiple-source outpatient
prescription drugs--thereby reducing these pharmacies' acquisition costs.
In CMS's view, our study erroneously assumed that pharmacies' utilization
of multiple-source outpatient prescription drugs--and therefore pharmacy
acquisition costs--will remain unchanged after the implementation of DRA.
While we estimated average pharmacy acquisition costs for the
multiple-source outpatient prescription drugs in our sample using
utilization and cost data from the first quarter of 2006, we also
acknowledged in our draft report that retail pharmacies could change their
utilization of multiple-source outpatient prescription drugs in 2007 and
later to lower their acquisition costs. Specifically, our draft report
stated that "to the extent that the cost-containment measures of the
AMP-based FULs influence pharmacies to acquire lower cost therapeutically
equivalent versions of drugs or negotiate lower prices from manufacturers
and wholesalers, the gap between AMP-based FULs and acquisition costs
could be narrowed or offset."

^34In a media release dated December 15, 2006, CMS indicated that it will
publish in the Federal Register a proposed rule to implement provisions of
the Deficit Reduction Act of 2005 that highlights proposed changes in the
payment for certain drugs in the Medicaid program. See
http://www.cms.hhs.gov/apps/media/fact_sheet.asp (December 15, 2006).

CMS also pointed out that our study did not include an analysis of how
retail pharmacies could mitigate the effects of AMP-based FULs by filling
more Medicaid prescriptions with lower cost versions of multiple-source
outpatient prescription drugs. However, as part of our analysis, we
compared estimated AMP-based FULs to the lowest available acquisition cost
for each of the multiple-source outpatient prescription drugs in our
sample. As we reported in our draft, for most the drugs in our sample--43
of 77--the estimated AMP-based FUL fell below the lowest acquisition cost
available to retail pharmacies.

CMS had concerns that in estimating the AMP-based FULs we used AMP data
that included customary prompt payment discounts, even though DRA requires
their exclusion from AMP beginning in 2007. According to CMS, prompt
payment discounts decrease AMPs, and so using AMP data that include such
discounts will decrease AMP-based FULs. In our view, the impact of
excluding prompt payment discounts from the AMP data we used to estimate
AMP-based FULs is unclear. In our previous work, we have found that prompt
payment discounts are, on average, 2 percent of the sales transactions to
which they apply.^35 However, we have also reported that manufacturers
vary in the purchasers to whom they offer prompt payment discounts and
whether they include these discounts in their calculations of AMP.
Therefore, attempting to account for prompt payment discounts for all of
the multiple-source outpatient prescription drugs in our analysis would
have, in some cases, overstated the impact of these discounts on our
estimates of AMP-based FULs. We agree with CMS that the changes in the
definition of AMP as required by DRA will likely increase AMP-based FULs.
However, our previous work suggests that excluding prompt payment
discounts from the calculation of AMP-based FULs would not have offset the
gap we reported between retail pharmacy acquisition costs and estimated
AMP-based FULs. In our report, we have clarified the issue of prompt
payment discounts and its impact on our analysis.

In addition to their concerns related to the estimates used in our draft
report, CMS noted that our analysis did not address existing state cost
containment efforts, such as MAC programs, to reduce Medicaid
reimbursements for outpatient prescriptions drugs. While the relationship
between AMP-based FULs and state Medicaid cost containment efforts is a
valid comparison, the issue was beyond the scope of our report, which
compared estimated AMP-based FULs to retail pharmacy acquisition costs.

^35See GAO, Medicaid Drug Rebate Program: Inadequate Oversight Raises
Concerns about Rebates Paid to States, GAO-05-102 (Washington, D.C.: Feb.
4, 2005).

Finally, we agree with CMS that changing the basis of the FUL from the AWP
to the AMP was a step in the right direction towards achieving savings for
the federal government on Medicaid expenditures for multiple-source
outpatient prescription drugs. However, these savings should be achieved
while ensuring that reimbursements to retail pharmacies are adequate to
provide Medicaid beneficiaries access to multiple-source outpatient
prescription drugs. As we stated in our draft report, only after AMP-based
FULs are implemented in 2007 will there be an opportunity to determine the
extent to which these FULs facilitate both cost effective Medicaid drug
expenditures and adequate reimbursement for retail pharmacies.

CMS also provided technical comments that we incorporated as appropriate.

                                   - - - - -

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its date. We will then send copies of this report to the
Administrator of CMS and other interested parties. The report will also be
available at no charge on GAO's Web site at http://www.gao.gov . If you
or your staff have any questions about this report, please contact me at
(202) 512-7119 or [email protected] . Contact points for our Offices of
Congressional Relations and Public Affairs can be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in enclosure IV.

Sincerely yours,

John E. Dicken
Director, Health Care

Enclosures--4

                             Scope and Methodology

To examine the relationship between the Medicaid federal upper limits
(FUL) estimated using first quarter 2006 average manufacturer price (AMP)
data and the average retail pharmacy acquisition cost for frequently used
and high expenditure drugs in Medicaid, we used first quarter 2006
Medicaid utilization data from the Centers for Medicare & Medicaid
Services (CMS)^36 to select the 50 most frequently used and the 50 highest
expenditure multiple-source outpatient prescription drugs in Medicaid
subject to FULs.^37 Combined, these two lists comprised a sample of 77
unique drugs representing 53 percent of Medicaid prescriptions and 56
percent of Medicaid expenditures for drugs subject to the FUL in the first
quarter of 2006.^38 We obtained the list of drugs subject to the FUL from
CMS and, because the AMP-based FULs were not available during the course
of our work, estimated what the AMP-based FULs would have been using AMP
data from the first quarter of 2006 for each of the 77 drugs.

Our analyses are limited to multiple-source outpatient prescription drugs
that were subject to FULs for the first quarter of 2006 and do not include
those drugs that may be added to the FUL list beginning January 1, 2007,
per the expanded multiple-source definition in the Deficit Reduction Act
of 2005 (DRA). Additionally, we compared corresponding AMP data with
retail pharmacy acquisition cost data for each drug in our sample by
National Drug Codes (NDC).^39

To estimate FULs under the AMP-based methodology, we first extracted AMP
data for the first quarter of 2006 for each of the 77 drugs in our sample
from CMS's Medicaid Drug Rebate Initiative (MDRI) system. CMS requires
manufacturers to report AMP data within 30 days of the end of every
calendar quarter. We then selected the lowest AMP for the first quarter of
2006 for each group of therapeutically equivalent drugs and multiplied it
by 250 percent. These AMP data do not account for the impact of the
DRA-required change in the definition of AMP which excludes prompt payment
discounts.^40 In addition, in estimating the AMP-based FULs, we did not
exclude any outlier AMP data in order to be consistent with how CMS
officials told us they will be implementing DRA provisions beginning
January 1, 2007. Nonetheless, during the course of our work, we examined
the AMP data underlying each FUL group for the presence of statistical
outliers.

^36Medicaid utilization data reported to CMS include information on the
total number of units and dollar amounts reimbursed for each drug. As of
August 2006 when we selected our sample, Iowa, Minnesota, New Jersey, and
Rhode Island had not reported their Medicaid utilization data for the
first quarter of 2006.

^37For drugs subject to the FUL, Medicaid covered 32.9 million
prescriptions that were dispensed to Medicaid beneficiaries at retail
pharmacies in the first quarter of 2006.

^38Drugs with the same name but different strengths, forms (such as
capsules or tablets), or package sizes were counted separately as unique
drugs.

^39NDCs are the universal product identifiers for drugs for human use. The
Food and Drug Administration assigns the first segment of the NDC, which
identifies the firm that manufacturers, repackages, or distributes a drug;
the second segment identifies a specific strength, dosage form, and
formulation for a particular firm; and the third segment identifies
package size. A single drug can have multiple NDCs associated with it. For
example, a drug made by one manufacturer, in one form or strength, but in
three package sizes would have three NDCs. Three-segment NDCs are denoted
by 11 digits while two-segment NDCs are denoted by 9 digits, and do not
account for package size.

To determine retail pharmacies' acquisition costs for the 77 drugs, we
purchased national average retail pharmacy acquisition cost data from IMS
Health for the first quarter of 2006. IMS Health obtains these data on
sales transactions from approximately 100 manufacturers and over 300
distribution centers, including drug wholesalers and chain warehouses.
These manufacturers and distribution centers are responsible for over 85
percent of total market dollar volume. IMS Health projects these data to
represent national average acquisition costs for each drug in our sample
in the first quarter of 2006.^41 The average pharmacy acquisition cost
data that we obtained from IMS Health may be greater than actual average
acquisition costs because these data do not account for rebates that
pharmacies may receive from wholesalers or manufacturers.^42 We calculated
an average acquisition cost for each drug by weighting the acquisition
cost for each therapeutically equivalent drug by its Medicaid expenditure
for first quarter 2006.^43

To compare the estimated AMP-based FULs to the average retail pharmacy
acquisition costs for each of the 77 drug groups in our analysis, we
calculated the percentage difference between the AMP-based FUL and (1) the
average of acquisition costs for all therapeutically equivalent drugs
within a group and (2) the average acquisition cost for the lowest cost
therapeutically equivalent drug within a group. We also calculated the
percentage difference of the AMP-based FUL to the average acquisition cost
and minimum acquisition cost separately for the 27 high expenditure drugs,
27 frequently used drugs, and 23 drugs that were considered both high
expenditure and frequently used.

^40In our previous work we found that prompt payment discounts are, on
average, 2 percent of the sales transactions to which they apply. However,
we have also reported that manufacturers vary in the purchasers to whom
they offer prompt payment discounts and whether they include these
discounts in their calculations of AMP. Therefore, attempting to account
for prompt payment discounts for all of the multiple-source outpatient
prescription drugs in our analysis would have, in some cases, overstated
the impact of these discounts on our estimates of AMP-based FULs. See GAO,
Medicaid Drug Rebate Program: Inadequate Oversight Raises Concerns about
Rebates Paid to States, GAO-05-102 (Washington, D.C.: Feb. 4, 2005).

^41For any given drug, the acquisition costs of individual pharmacies may
be higher or lower than the national average.

^42These rebates may vary as retail pharmacies negotiate their rebates
based on various factors, including the type of drug, manufacturer, and
volume of purchases. In addition, they can negotiate rebates on a
manufacturer's entire line of products rather than on a per-drug basis.

^43We calculated a weighted average acquisition cost to account for
Medicaid prescription drug utilization patterns.

We also assessed the extent to which AMP-based FULs are likely to vary
over time by examining the variation of the lowest AMPs that would be used
to set the estimated FULs for each of the 77 drugs in our sample from the
third quarter of 2005 through the third quarter of 2006. Additionally, we
compared the highest estimated AMP-based FUL from the fourth quarter of
2005 through the second quarter of 2006 to the average retail pharmacy
acquisition cost for the first quarter of 2006 for each of the 77 drugs.
We also performed this comparison separately for the 27 high expenditure
drugs, 27 frequently used drugs, and 23 drugs that were considered both
high expenditure and frequently used.

To assess the reliability of the AMP data, we reviewed relevant
documentation regarding the construction and reporting of data extracted
from CMS's MDRI system. To assess the reliability of the IMS Health
average retail pharmacy acquisition cost data, we reviewed relevant
documentation regarding the construction and reporting of the data
supplied. We determined that the data used were sufficiently reliable for
our purposes.

We performed our work from July 2006 through November 2006 in accordance
with generally accepted government auditing standards.

Enclosure II

Percentage of Medicaid Prescriptions and Expenditures for 77 Medicaid Outpatient
              Prescription Drugs GAO Reviewed, First Quarter 2006

                                Percentage of    Ranking by   Percentage   Ranking by 
Drug name and        Dosage          Medicaid      Medicaid  of Medicaid     Medicaid 
strength             form       prescriptions prescriptions expenditures expenditures 
Acetaminophen        Tablet               1.2            14          0.5           49 
Codeine Phosphate                                                                     
300-30mg                                                                              
Acetaminophen        Tablet               3.2             2          0.5           47 
Hydrocodone                                                                           
Bitartrate 500-5mg                                                                    
Acetaminophen        Tablet               0.9            27          N/A          N/A 
Hydrocodone                                                                           
Bitartrate 500-7.5mg                                                                  
Acetaminophen        Tablet               0.6            43          1.1           17 
Hydrocodone                                                                           
Bitartrate 500-10mg                                                                   
Acetaminophen        Tablet               0.6            45          N/A          N/A 
Hydrocodone                                                                           
Bitartrate 750-7.5mg                                                                  
Acetaminophen        Tablet               1.2            17          N/A          N/A 
Oxycodone HCl                                                                         
325-5mg                                                                               
Acetaminophen        Tablet               1.1            19          0.6           42 
Propoxyphene                                                                          
Napsylate 650-100mg                                                                   
Albuterol 0.9mg/inh  Aerosol              3.7             1          1.8            9 
Albuterol Sulfate    Solution             1.8             4          2.0            6 
0.083mg/ml                                                                            
Alprazolam 0.25mg    Tablet               0.6            38          N/A          N/A 
Alprazolam 0.5mg     Tablet               0.9            26          N/A          N/A 
Alprazolam 1mg       Tablet               0.8            29          N/A          N/A 
Amoxicillin          Suspension           1.9             3          0.5           50 
125/5mg/ml                                                                            
Amoxicillin 500mg    Capsule              1.6             5          N/A          N/A 
Amoxicillin          Suspension           N/A           N/A          1.9            7 
Clavulanic Acid                                                                       
400/5mg/ml-57/5mg/ml                                                                  
Atenolol 25mg        Tablet               0.6            40          N/A          N/A 
Atenolol 50mg        Tablet               0.8            33          N/A          N/A 
Baclofen 10mg        Tablet               N/A           N/A          0.7           30 
Baclofen 20mg        Tablet               N/A           N/A          0.6           41 
Betamethasone        Cream                N/A           N/A          0.8           23 
Dipropionate                                                                          
Clotrimazole 0.05-1%                                                                  
Carbamazepine 200mg  Tablet               N/A           N/A          0.6           45 
Carisoprodol 350mg   Tablet               0.6            44          0.8           24 
Cephalexin 500mg     Capsule              1.0            22          0.7           36 
Ciprofloxacin HCl    Tablet               0.5            49          N/A          N/A 
500mg                                                                                 
Clonazepam 0.5mg     Tablet               1.3            11          0.7           29 
Clonazepam 1mg       Tablet               1.1            18          0.9           21 
Clonidine HCl 0.1mg  Tablet               1.0            24          N/A          N/A 
Cyclobenzaprine HCl  Tablet               1.0            23          0.7           34 
10mg                                                                                  
Diazepam 5mg         Tablet               0.6            42          N/A          N/A 
Fluoxetine HCl       Capsule              1.0            21          0.7           33 
                                                                                      
20mg                                                                                  
Fluoxetine HCl 40mg  Capsule              N/A           N/A          1.2           16 
Folic Acid 1mg       Tablet               1.2            15          N/A          N/A 
Furosemide 20mg      Tablet               0.9            28          N/A          N/A 
Furosemide           Tablet               1.4             7          N/A          N/A 
                                                                                      
40mg                                                                                  
Gabapentin 100mg     Capsule              N/A           N/A          0.7           32 
Gabapentin 300mg     Capsule              0.7            36          5.1            1 
Gabapentin 400mg     Capsule              N/A           N/A          1.3           12 
Gabapentin 600mg     Tablet               N/A           N/A          4.2            2 
Gabapentin 800mg     Tablet               N/A           N/A          2.0            5 
Glimepiride 4mg      Tablet               N/A           N/A          0.5           46 
Glyburide 5mg        Tablet               N/A           N/A          0.8           26 
Glyburide Metformin  Tablet               N/A           N/A          1.1           18 
HCl 5mg                                                                               
Hydrochlorothiazide  Tablet               1.5             6          N/A          N/A 
25mg                                                                                  
Hydroxyzine HCl 25mg Tablet               N/A           N/A          0.8           27 
Ibuprofen 400mg      Tablet               0.6            46          N/A          N/A 
Ibuprofen 600mg      Tablet               1.1            20          N/A          N/A 
Ibuprofen 800mg      Tablet               1.4             8          N/A          N/A 
Levothyroxine Sodium Tablet               0.6            47          N/A          N/A 
0.05mg                                                                                
Lisinopril 10mg      Tablet               0.8            32          0.6           44 
Lisinopril 20mg      Tablet               0.7            37          0.6           39 
Lisinopril 40mg      Tablet               N/A           N/A          0.6           40 
Lorazepam 0.5mg      Tablet               1.3            10          0.9           20 
Lorazepam 1mg        Tablet               1.2            16          1.3           13 
Lorazepam 2mg        Tablet               N/A           N/A          0.6           43 
Lovastatin 40mg      Tablet               N/A           N/A          0.7           35 
Metformin HCl 500mg  Tablet               1.2            12          1.8            8 
Metformin HCl 1000mg Tablet               0.6            41          1.0           19 
Metoprolol Tartrate  Tablet               0.8            30          N/A          N/A 
50mg                                                                                  
Metronidazole 500mg  Tablet               0.5            50          N/A          N/A 
Mirtazapine 15mg     Tablet               N/A           N/A          0.8           28 
Mirtazapine 30mg     Tablet               N/A           N/A          0.7           37 
Mupirocin 2%         Ointment             N/A           N/A          1.2           15 
Naproxen 500mg       Tablet               0.8            31          N/A          N/A 
Omeprazole 20mg      Capsule              N/A           N/A          1.4           10 
Paroxetine HCl 10mg  Tablet               N/A           N/A          0.6           38 
Paroxetine HCl 20mg  Tablet               N/A           N/A          2.3            3 
Paroxetine HCl 30mg  Tablet               N/A           N/A          0.8           22 
Paroxetine HCl 40mg  Tablet               N/A           N/A          1.2           14 
Penicillin V         Tablet               0.5            48          N/A          N/A 
Potassium 500mg                                                                       
Potassium Chloride   Tablet               0.8            34          0.8           25 
20mEq                                                                                 
Ranitidine HCl 150mg Tablet               1.3             9          0.5           48 
Ribavirin 200mg      Capsule              N/A           N/A          2.1            4 
Sulfamethoxazole     Tablet               1.0            25          N/A          N/A 
Trimethoprim                                                                          
800-160mg                                                                             
Tizanidine HCl 4mg   Tablet               N/A           N/A          0.7           31 
Tramadol HCl 50mg    Tablet               1.2            13          1.3           11 
Trazodone HCl 50mg   Tablet               0.8            35          N/A          N/A 
Trazodone HCl 100mg  Tablet               0.6            39          N/A          N/A 

Source: GAO analysis of CMS Medicaid state drug utilization data.

Note: Our sample contained 77 multiple-source outpatient prescription
drugs in Medicaid for the first quarter of 2006, which comprised 27
frequently used prescription drugs, 27 high expenditure prescription
drugs, and 23 prescription drugs that overlapped both categories. N/A
appears in the table for drugs that were not in the overlap category.

Enclosure III

                                  CMS Comments
											 
Enclosure IV											 

                     GAO Contact and Staff Acknowledgments

GAO Contact

John E. Dicken, (202) 512-7119 or [email protected]

Acknowledgments

In addition to the contact named above, Martha Kelly, Assistant Director;
Rashmi Agarwal; Shamonda Braithwaite; Krister Friday; Yung Park; and
Daniel Ries made key contributions to this report.

(290556)

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