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Proposed Cuts to Pharmacy Medicaid Reimbursement
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Summary

On February 1, 2016 the Center for Medicaid and Medicare Services (CMS) published its Final Outpatient Drug 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 stipulates 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. DHS 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.

 

A formal Right-to-Know Request was filed with DHS for the Pharmacy Cost of Dispensing Study, but DHS exercised a 30-day extension on March 3, 2017.

 

On March 6, 2017, PPA in conjunction with PACDS, the National Association of Chain Drug Stores (NACDS), the National Community Pharmacists Association (NCPA), Independent Pharmacy Buying Group (IPBG), Keystone Pharmacy Purchasing Alliance, and Value Drug Company 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 Caucus 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 Pharmacy Cost of Dispensing Study. The first provision is adopting an AAC payment methodology for ingredient cost that is based on the National Average Drug Acquisition Cost (NADAC), or on an adjusted Wholesaler Acquisition Cost (WAC) 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.

 

This issue is closely tied to Governor Wolf's proposed cuts to pharmacy PACE reimbursement. This is because Governor Wolf has requested uniformity in pharmaceutical pricing and proposed merging several state agencies to create a new Pennsylvania Department of Health and Human Services - these agencies include DHS, the Pennsylvania Department of Health, the Pennsylvania Department of Aging, and the Pennsylvania Department of Drug & Alcohol Programs. Click here to learn more about the proposed cuts to PACE pharmacy reimbursement and PPA's opposition to these cuts.

 

 

Visual Representation of Rebalancing the Payment System

 

 

Why PPA Opposes the Current DHS Proposal

The proposed $7 professional dispensing fee is significantly lower than expected and is among the lowest in the United States - the majority other state proposals call for dispensing fees of $10 or more. One of the only states with a lower proposed professional dispensing fee, Washington, is now facing a lawsuit over its proposal. On March 30, 2017, the National Association of Chain Drug Stores (NACDS), Washington State Pharmacy Association (WSPA), and the National Community Pharmacists Association (NCPA) filed suit against the State of Washington to stop the “substantively and procedurally flawed” rule that would pay pharmacies below the actual cost to dispense Medicaid prescriptions. Click here to learn more about this lawsuit.

 

Pharmacy stakeholders repeatedly asked for transparency throughout this process and requested to see the Pharmacy Cost Dispensing Study, but DHS continually failed to accommodate these requests.

 

Section 447.502 of the CMS Final Outpatient Drug Rule defines "Professional dispensing fee" and stipulates that this include "pharmacy costs associated with ensuring that possession of the appropriate covered outpatient drug is transferred to a Medicaid beneficiary." Section 447.502 goes on to state that these pharmacy costs include "overhead associated with maintaining the facility and equipment necessary to operate the pharmacy." DHS failed to accurately account for overhead expenses in formulating its proposed professional dispensing fee of $7.

 

 

Status

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

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

 

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

 

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

 

Take Action

DHS has invited interested parties to submit written comments and questions to OMAP-Pharmacy@pa.gov by April 27, 2017. PPA and PACDS are actively drafting comments to submit in opposition.

 

To view PPA's comments, click here.

 

Understanding the Terminology

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


AWP (Average Wholesale Price): This is the estimated compendium benchmark for ingredient cost, including mark up. Medicaid cannot use AWP after April 1, 2017.


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


FULs (Federal Upper Limits): This applies to ingredient cost on generic drugs, dramatically cut by Feds to conform with cost-based reimbursement.


WAC (Wholesale Acquisition Cost): This is the estimated compendium benchmark for ingredient cost, including mark up. Medicaid cannot use WAC after April 1, 2017.

 

 

Issue Brief

Click here for an issue brief on the proposed cuts to pharmacy Medicaid reimbursement.

 

 

Resources

House Republican committee leaders oppose DHHS merger

By Carley Mossbrook of Capitolwire
April 17, 2017

 

Pharmacy Pricing for Federal Upper Limits (FULs) and National Average Drug Acquisition Cost (NADAC)

Medicaid.gov

 

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

By Michael Johnsen of Drug Store News

March 30, 2017

 

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

 

Facts about the Governor’s PACE and Medicaid Pharmacy Reimbursement Cut Proposals

 

Pharmacy Reimbursement Flyer prepared for members of the Pennsylvania Community Pharmacy Caucus

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