Medicaid Acronym of the Day – CPI-PD

Consumer Price Index for Prescription Drugs and Medical Supplies –

The prescription drugs index is comprised of drugs one may purchase by prescription at a retail, mail order or Internet pharmacy. However, prescription drugs that are primarily consumed and paid for as part of hospital visits are not included in this sample.

Item sampling: This index employs a streamlined sampling method. At each of the pharmacies selected, the BLS field staff selects a specific item for each of the assigned number of items to be priced. To do this, the field staff obtains a list of the last 20 prescriptions dispensed. This “last 20 list” serves as a proxy for all the prescription drugs dispensed at that pharmacy, and a price is obtained for each prescription on the list. The price includes both patient and insurance payments to the pharmacy, and the sum of all 20 prices makes up total spending (by the consumer at this pharmacy). Thus, each price represents an observed share of total spending, and the probability of any one prescription being selected is proportional to its share in total spending. The more frequently a certain drug shows up in the “last 20 list” and the more expensive it is, the more likely it is to be selected for the index. This item selection procedure is done for every outlet when it is initiated for pricing.

Drugs losing patent protection: When a brand-name drug in the sample loses its patent protection, generic versions of the drug receive a one-time chance to replace the original, brand-name drug even if the pharmacy continues to sell the brand name drug. Six months after a drug in the sample loses patent protection, CPI field staff selects among all drugs (including the original) that the Food and Drug Administration deems to be therapeutically-equivalent. Delaying the reselection for six months allows emerging generic drugs an opportunity to gain market share. The chance of drug selection is proportional to the number of prescriptions sold for each version of the drug over the previous 3 months. If a generic is selected, the CPI treats any price difference between the original drug and its selected substitute as a price change, and reflects this change in the index in the month when the procedure was performed.

When prescription drugs become available over-the-counter (OTC), the CPI continues to price them in the prescription drug index until they rotate out under normal rotation procedures. They are not transferred to the non-prescription drugs index. The observations remain in the prescription drug sample, and any price change is reflected in the prescription drug index. Similarly, if any over-the-counter drugs were to change so they required prescriptions, they would remain in the non-prescription drugs and medical supplies index until the next rotation and any resulting price change would occur in that index.

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