CMS Introduces Professional Dispensing Fees for Pharmacies

March 2016, Vol 4, No 3 - The First Word
Donald J. Dietz, RPh, MS

The Centers for Medicare & Medicaid Services (CMS) recently issued a 658-page final rule, Medicaid Program; Covered Outpatient Drugs (CMS-2345-FC; ie, the “final average manufacturer price [AMP] rule”), which takes effect on April 1, 2016.1 One section of the final rule involves using an AMP to calculate reimbursement Federal upper limits (FULs) when determining pharmacy reimbursement for generic drugs covered by state fee-for-service Medicaid programs. This final rule has been 10 years in the making, and started with the Deficit Reduction Act of 2005. The National Association of Chain Drug Stores (NACDS) and National Community Pharmacists Association (NCPA) have fought to ensure that the change in reimbursement to an actual acquisition cost (AAC) methodology would be fair to community pharmacies.2 The final AAC methodology uses the AMP for generic drugs; AMPs represent the price at which a manufacturer sells their drug product to a community pharmacy or wholesaler.

For pharmacies, the changeover to an AAC-based methodology built on AMP will occur in the next year. Although the new AMP rule is complex—relative to definitions of community pharmacy, which drugs are to be included or excluded, and other components—I wanted to make you aware of the change to a “professional dispensing fee” in the new AMP rule.

Addressing Dispensing Fee Disparities

For third-party insurance prescriptions, pharmacies receive a payment for the negotiated ingredient cost of the drug, plus a dispensing fee. The basis for determination of the ingredient cost and dispensing fee are contractually defined terms in the pharmacy network contract between the pharmacy and the pharmacy benefit manager (PBM). For fee-for-service Medicaid, this reimbursement has usually been based upon FULs that reference list prices (ie, average wholesale price or wholesale acquisition cost) of a prescription product, and not the AAC. Today, dispensing fees for commercial insurance prescriptions are often less than $1 per prescription, with fee-for-service Medicaid prescriptions costing a couple of additional dollars. This, however, in no way covers the cost of dispensing a prescription in a community pharmacy. Pharmacy has become accustomed to ingredient cost arbitrage, or, buying a drug at a lower cost than the reimbursed amount paid by the PBM in the pharmacy network contract to maintain profitability. Because of the nominal dispensing fees, pharmacy has depended on the ingredient cost margin to maintain profitability.

The mandated change to the AAC model will pay pharmacies an ingredient cost amount close to what the pharmacy pays for the product; this necessitates a dispensing fee greater than a couple of dollars, which was a key component of the NACDS and NCPA efforts on behalf of community pharmacies.

Professional Dispensing Fees

In the “final AMP rule,” the CMS replaces the regulatory term “dispensing fee” with “professional dispensing fee,” reinforcing their “position that the dispensing fee should reflect the pharmacist’s professional services and costs to dispense the prescription to a Medicaid beneficiary.”1 The professional dispensing fee, which compensates for costs beyond the ingredient cost of a covered outpatient drug, is gained at the point of sale or service each time a covered outpatient drug is dispensed. The CMS also states that it only includes pharmacy costs related to ensuring that appropriate covered outpatient drug possession is transferred to a Medicaid beneficiary. According to the CMS, reasonable expenses related to a pharmacist’s time that fall under the category of pharmacy costs include, but are not limited to:

  • Looking up information about a patient’s coverage on the computer
  • Carrying out drug use reviews and preferred drug list review activities
  • Measuring or mixing the covered outpatient drug
  • Filling the container
  • Beneficiary counseling
  • Physically giving the Medicaid beneficiary their completed prescription
  • Special packaging
  • Overhead associated with facility and equipment maintenance necessary to the pharmacy’s operation.

The CMS also adds that administrative costs the state incurs by operating covered outpatient drug benefits—including systems costs for interfacing with pharmacies—are not a part of the professional dispensing fee.

This detailed list of pharmacist activities included in the professional dispensing fee further demonstrates our value as healthcare practitioners. In a few states where an acquisition cost–based system has been implemented for fee-for-service Medicaid, the dispensing fees have been in the $9 to $13 range per prescription. More importantly, the CMS will require states to submit State Plan Amendments (SPAs), including changes to both the AAC ingredient cost reimbursement methodology, and the professional dispensing fee. The CMS will evaluate total pharmacy reimbursement when deciding whether to approve or deny the SPA.


As pharmacists seek to expand their role as healthcare practitioners, AAC reimbursement is positive for the profession, because it focuses on the services pharmacists provide to their patients. Pharmacists should carefully review how this new reimbursement methodology is implemented, not only in their state, but across the country. Hopefully the newly defined professional dispensing fee will serve as a basis and model for compensation for additional pharmacist-provided services.


  1. Centers for Medicare & Medicaid Services; Department of Health & Human Services. Medicaid Program; Covered Outpatient Drugs. Accessed February 22, 2016.
  2. National Association of Chain Drug Stores. NACDS, NCPA urge CMS for prompt guidance to states on Medicaid dispensing fees.,-ncpa-urge-cms-for-prompt-guidance-to-states-on-medicaid-dispensing-fees. Published January 27, 2012. Accessed February 22, 2016.
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Last modified: April 23, 2016
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