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Proposed Cuts to Pharmacy Medicaid Reimbursement
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Summary

On February 1, 2016 the Centers for Medicaid and Medicare Services (CMS) published its Final Outpatient Drug Rule (Final Rule) requiring states to adjust their Medicaid reimbursement methodology. This includes migrating the ingredient cost reimbursement benchmark to an Actual Acquisition Cost (AAC) payment methodology more reflective of the cost pharmacies pay for medications and paying pharmacies an increased professional dispensing fee that reflects the true cost to dispense as evidenced by a Pharmacy Cost of Dispensing Study. CMS stipulated that states submit a State Plan Amendment (SPA) detailing their proposal for compliance by April 1, 2017 and finalize their proposal by June 30, 2017. States are then required to pay pharmacies at the new rate retroactive to April 1, 2017.

 

In 2016, the Pennsylvania Department of Human Services (DHS) contracted with Mercer to conduct a Pharmacy Cost of Dispensing Study and mandated pharmacies throughout Pennsylvania to participate in this study, which was completed on September 2, 2016.

 

From December of 2016 through March of 2017, the Pennsylvania Pharmacists Association (PPA) and the Pennsylvania Association of Chain Drug Stores (PACDS) repeatedly requested that DHS make public the Pharmacy Cost Dispensing Study and asked to meet with DHS representatives, but DHS continually rebuffed these requests.

 

On March 6, 2017, PPA in conjunction the Pennsylvania Community Pharmacy Coalition sent a memo to members of the Senate and House Appropriations Committees conveying the desire for transparency in this process and the need for a fair professional dispensing fee. Click here to view this memo.

 

Also on March 6, 2017, the Co-Chairs of the bipartisan Pennsylvania Community Pharmacy Coalition sent a letter to Governor Wolf conveying their desire for transparency in this process and the need for a fair professional dispensing fee. Click here to view this letter.

 

On March 23, 2017, at a meeting of the Medical Assistance Advisory Committee (MAAC), DHS announced the proposal it plans to submit to CMS. This proposal includes two major provisions, one that DHS claims is based on its Cost of Dispensing Study. The first provision is adopting an ingredient cost reimbursement methodology that is based on the National Average Drug Acquisition Cost (NADAC), using an alternative benchmark of Wholesale Acquisition Cost (WAC) minus 3.3% for brand medications or WAC minus 50.5% for generic medications when no NADAC is available. The second provision is adopting a professional dispensing fee of $7.

 

Click here to view the DHS presentation from the MAAC meeting held on March 23, 2017.

 

Click here to view the Pharmacy Cost Dispensing Study that DHS released on March 23, 2017.

 

On April 4, 2017, pharmacy stakeholders met with representatives of DHS to voice concerns over the proposed $7 professional dispensing fee.

 

On April 27, 2017, PPA and the National Community Pharmacists Association (NCPA) filed a joint comment letter to DHS expressing concern over the department's proposal. Click here to view this letter. Additionally, numerous other pharmacists, associations, and buying groups submitted their own comment letters supporting PPA's position and opposing DHS's proposal.

 

On May 17, 2017, PPA in conjunction with the Pennsylvania Community Pharmacy Coalition sent a letter to DHS Secretary Ted Dallas reiterating strong opposition to the current proposal. In addition, this letter urged DHS to revise its proposal to reimburse pharmacies based on NADAC, or a flat WAC when no NADAC is available, in conjunction with a $10.49 professional dispensing fee. Click here to view this letter.

 

House Bill 1595, sponsored by Representative Garth Everett (R-84), and Senate Bill 797, sponsored by Senator Thomas Killion (R-9), would establish a $10.49 professional dispensing fee in the Medicaid program while reimbursing pharmacies for ingredient cost based on the NADAC, or a flat WAC when no NADAC is available.

 

On June 28, 2017, DHS submitted its official State Plan Amendment (SPA) with CMS in compliance with the Final Rule. DHS's bulletin states that Medicaid will be adjudicating claims at the new rate starting on June 30, 2017 for any claim submitted for services on or after April 1, 2017. The bulletin further states that DHS will provide more information concerning retroactively adjudicating claims submitted between 4/1 and 6/29. Click here to read this bulletin in full.

 

 

Status

 

On July 6, 2017, PPA sent a comment letter to CMS expressing our opposition to the SPA submitted by DHS on June 28 and asking CMS to reject this SPA. Click here to view this comment letter in full.

 

On June 29, 2017, Senator Thomas Killion (R-9) introduced Senate Bill 797, which was referred to the Senate Health and Human Services Committee where it now awaits consideration.

 

On June 28, 2017, the House Health Committee voted House Bill 1595, sponsored by Representative Garth Everett (R-84), out of committee. The bill was then re-committed to the House Rules Committee where it now awaits consideration.

 

 

Why PPA Opposes DHS's Current Proposal

DHS's proposed $7 professional dispensing fee is by far the lowest of any state that has either proposed or implemented a new methodology to comply with the CMS Final Rule.

 

The Pharmacy Cost of Dispensing Study used to justify this proposal understates the actual costs pharmacies incur in dispensing medications and fails to account for necessary overhead expenses, even going so far as to include $0 in certain required overhead categories. Other cost of dispensing studies, conducted over the past four years, found overhead expenses to account for a far greater percentage of the total cost to dispense with averages of 19.1% and 11.6%. However, DHS bases its proposal on a study that claims overhead expenses account for only 3.5% of the cost to dispense. This figure is not reflective of the true cost to dispense in Pennsylvania. 

 

The alternative benchmark in DHS’s proposed ingredient cost reimbursement methodology will drastically hinder pharmacies in providing care. This proposal would result in pharmacies being reimbursed below their cost to purchase medications. Most other states using the NADAC payment methodology have proposed a flat WAC as an alternative benchmark; these include Maryland, Ohio, Virginia, West Virginia, North Carolina, the District of Columbia, and Kentucky.

 

Pharmacy stakeholders repeatedly asked DHS for transparency throughout their process of developing the current proposal and requested to see the Pharmacy Cost Dispensing Study, but DHS continually failed to accommodate these requests prior to officially releasing its proposal.

 

When NADAC is used, professional dispensing fees are the only way a pharmacy can cover all of the costs and services (including overhead) of dispensing a prescription.

 

DHS's current proposal would pay pharmacies below their cost to purchase and dispense medications, which would hinder the care provided to a vulnerable Medicaid population and push many local community pharmacies out of business.

 

 

Understanding Pharmacy Reimbursement

 

 

In this way, the change does not result in paying pharmacies more. Rather, it rebalances the formula taking the margin out of the ingredient cost and offsetting it with a true professional dispensing fee. In many cases, the payment to pharmacies is still a decrease, especially if the dispensing fee is set too low.

 

 

Understanding the Terminology

NADAC (National Actual Drug Acquisition Cost): This is the cost the pharmacy pays to purchase medications. The price list is readily available on the CMS website and is updated weekly.

AWP (Average Wholesale Price): This is an estimated compendium benchmark for ingredient cost, including mark up. CMS stipulates that this cannot be used as the primary form of reimbursement in the new system.

CMS (Centers for Medicaid and Medicare Service): This is the federal agency under the Department of Health and Human Services with jurisdiction over Medicare and Medicaid.

WAC (Wholesale Acquisition Cost): This is an estimated compendium benchmark for ingredient cost, including mark up. CMS stipulates that this cannot be used as the primary form of reimbursement in the new system.

 

 

Additional Resources

House Republican committee leaders oppose DHHS merger

By Carley Mossbrook of Capitolwire
April 17, 2017

 

On April 5, 2017, Representative Tim Hennessey questioned Human Services Secretary Ted Dallas and Aging Secretary Teresa Osborne on the proposed cuts to pharmacy. Click here to view (questioning runs from 17:11 to 23:47).

 

NACDS, NCPA join state pharmacy association in suit contesting ‘flawed’ Medicaid rule

By Michael Johnsen of Drug Store News

March 30, 2017

 

On March 29, 2017, Senator Michele Brooks questioned Human Services Secretary Ted Dallas on the Wolf Administration's proposed cuts to pharmacy. Click here to view (questioning runs from 43:15 to 47:25).

 

Stakeholders remain skeptical of Wolf’s pharmacy 'consolidation' plan

By Carley Mossbrook of Capitolwire

March 27, 2017

 

Big chuck of proposed HHS merger savings questions by PA's pharmacies

By Carley Mossbrook of Capitolwire

March 21, 2017

 

On March 3, 2017, Representative Seth Grove questioned Human Services Secretary Ted Dallas on the Wolf Administration's proposed cuts to pharmacy. Click here to view (questioning runs from 01:11:30 to 01:16:40).

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