Colorado Develops New Payment Method for Physician-Administered Drugs – with the Potential to Save Millions

The National Academy for State Health Policy (NASHP) provided a grant to the Colorado Department of Health Care Policy and Financing to develop a new payment methodology for physician-administered drugs (PADs). PADs are drugs delivered by intravenous infusion or injection in clinical settings. The category includes costly drugs, such as chemotherapy and other specialty medications.

Developing an appropriate payment methodology is a challenge for states due to a lack of information about how much providers actually pay to acquire these drugs. Colorado’s current methodology reimburses providers based on an average sales price (ASP) plus 2.5 percent – however, it is unknown how closely these prices reflect what providers actually pay. One recent analysis suggested that hospital markups for a variety of brand name drugs ranged from three- to seven-times more than the average sales price. Hospital markups for generic drugs were even higher.

To determine what providers actually pay for PADs, Colorado contracted with Myers & Stauffer to survey Medicaid providers from July to August 2018 to establish their actual acquisition costs. Using the aggregated acquisition cost data, Myers & Stauffer developed an average acquisition cost-based payment rate model and compared them to existing payment rates in Colorado.

They found that current Colorado payment rates were 12 percent higher overall than the average acquisition cost-based rates, meaning this new methodology could produce significant savings for the state.

The new model for payment rates based on the average acquisition cost survey is similar to the average acquisition model that many states currently use to pay for pharmacy-dispensed prescription drugs – called the National Average Drug Acquisition Cost (NADAC).

For more information about Colorado’s trailblazing work and research findings on the impact of NADAC on state drug spending, register for the upcoming NASHP webinar State Tools to Lower Medicaid Prescription Drug Costs: Exploring Payment Methodologies for Retail and Physician-Administered Drugs, from 2 to 3 p.m. (EST) Friday, March 29, 2019.