BILL ANALYSIS �
AB 804
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Date of Hearing: April 30, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 804 (Lowenthal) - As Introduced: February 21, 2013
SUBJECT : Medi-Cal: pharmacy providers: invoices.
SUMMARY : Requires pharmacy invoice information that is
submitted to the Department of Health Care Services (DHCS) or a
designated vendor for the purpose of establishing average
acquisition cost (AAC) to be confidential and exempt from
disclosure under the California Public Records Act.
EXISTING LAW :
1)Establishes the Medicaid program (Medi-Cal) in California to
provide health care services to low-income families, children,
seniors, and people with disabilities.
2)Establishes a schedule of benefits and services in the
Medi-Cal program, including prescription drugs and pharmacy
services.
3)Provides for the reimbursement to pharmacies for the
dispensing and acquisition costs of pharmaceuticals in the
Medi-Cal Fee-for-service (FFS) program.
4)Requires pharmacy providers to submit their usual and
customary charge when billing the Medi-Cal program for
prescribed drugs. Defines "usual and customary charge" as the
lower of the following:
a) The lowest price reimbursed to the pharmacy by other
third-party payers in California, excluding Medi-Cal
managed care plans and Medicare Part D prescription drug
plans; or,
b) The lowest price routinely offered to any segment of the
general public.
5)Requires reimbursement to Medi-Cal pharmacy providers for
prescription drugs from exceeding the lowest of either of the
following:
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a) The estimated acquisition cost of the drug plus a
professional fee for dispensing; or,
b) The pharmacy's usual and customary charge.
6)Requires, with specified exceptions, Medi-Cal payments to be
reduced by 10% of Medi-Cal FFS benefits for dates of service
on and after June 1, 2011. Requires payment reductions and
adjustments to be implemented only if the DHCS Director
determines the payments that result from the application of
the 10% reduction will comply with applicable federal Medicaid
requirements and that federal financial participation will be
available.
7)Requires Medi-Cal pharmacy providers to submit drug price
information to DHCS or a vendor designated by DHCS for the
purpose of establishing the AAC.
8)Authorizes DHCS to require providers, manufacturers, and
wholesalers to submit any data the DHCS Director determines
necessary or useful in preparing for the transition from a
methodology based on Average Wholesale Price (AWP) to a
methodology based on AAC.
9)Requires adjustments to pharmacy drug product payments under
the 10% Medi-Cal rate reduction provision to no longer apply
when:
a) DHCS determines that the AAC methodology has been fully
implemented; and,
b) DHCS' pharmacy budget reduction targets, consistent with
payment reduction levels under the 10% rate reduction
provision, have been met.
10)Prohibits any adjustment to the dispensing fee from exceeding
the aggregate savings associated with the implementation of
the AAC methodology.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, as required by
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AB 102 (Committee on Budget), Chapter 29, Statutes of 2011,
DHCS is revising the pharmacy reimbursement methodology for
Medi-Cal. As part of the implementation, DHCS is allowed to
contract with a vendor for the purposes of surveying drug
pricing information, collecting data from pharmacy providers,
and calculating a proposed AAC. Medi-Cal pharmacy providers
will have to submit drug pricing information to the DHCS or
their selected vendor, which will include invoice prices and
all discounts, rebates, and refunds known to the provider
applied toward the acquisition cost of drugs. This bill will
protect the confidentiality of sensitive and proprietary
pharmacy invoice information. The author argues that much of
the information pharmacy providers will be required to submit
for the purpose of establishing AAC is extremely sensitive and
proprietary pricing information. According to the author,
each company has a unique arrangement with drug manufacturers
and wholesalers in the acquisition of drugs. The author
concludes that it is important that this information be
protected for obvious competitive reasons.
2)BACKGROUND . Medi-Cal pharmacy reimbursement consists of two
components -- a professional dispensing fee and payment for
drug ingredient costs. The professional fee for dispensing is
presently $7.25 per prescription for most drugs, and $8 per
prescription for certain specialty drugs and long-term care
facilities.
For the drug ingredient cost of this equation, DHCS relies
primarily on the AWP. However AWP is not independently
verified and has been considered to be an inflated price over
what pharmacies actually pay to purchase the pharmaceuticals.
This is because the AWP has been the only price readily
available for all drugs, but the value is based on information
supplied solely by drug manufacturers. Over time, the AWP has
been subject to differing and variable interpretations, as
evidenced by legal actions relating to its calculation and
use. Because AWP is an inflated figure, third-party payers,
including Medi-Cal, reduce AWP by a specified percentage. In
Medi-Cal, the reduction is AWP minus 17%.
The primary sources of AWP are private drug data compendia, with
most pharmacies and third-party payers using First Data Bank
or Med-Span. DHCS had been using First Data Bank as its
primary pricing reference. However, in 2009, First Data Bank
and the McKesson Corporation (a drug wholesaler) were found to
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have wrongfully inflated the mark-up factor used to determine
AWP for certain prescription drugs. Subsequent to the
settlement of that lawsuit, First Data Bank announced that it
would cease the publication of AWP within two years (as of
September 2011). Further, recent federal regulation requires
that any new drug ingredient cost benchmark must be one that
has a genuine relationship to what pharmacies are actually
paying for drug acquisition costs.
In the 2011 budget, AB 97 (Committee on Budget), Chapter 3,
Statutes of 2011, a 10% reduction on many Medi-Cal providers
was implemented, including pharmacists. In addition, AB 102
codified the Governor's May revision proposal to establish a
new methodology for pharmacy reimbursement based on AAC to
represent the actual acquisition cost paid for drugs by
Medi-Cal pharmacy providers, including those that provide
specialty drugs. When fully implemented, this method would be
used in lieu of the existing AWP because of the flaws in AWP.
Once this new AAC methodology is fully implemented, the 10%
reduction on pharmacy providers, as enacted in AB 97, will no
longer apply. This is because comparable savings will be
achieved through this new methodology. In the meantime, DHCS
is using a temporary custom reimbursement rate duplicating
AWP.
AB 102 provided authority to DHCS to establish a process with
the primary price reference source vendor (First Data Bank) to
temporarily provide to DHCS with a custom reimbursement rate,
duplicating AWP. This rate will be used until AAC is fully
implemented. AAC may be determined in one of the following
ways: a) based on the volume weighted average acquisition cost
representing the average purchase price paid by retail
pharmacies in California; b) based on the proposed average
acquisition cost as calculated by a contracted vendor; or, c)
based on a national pricing benchmark obtained from the
federal Centers for Medicare and Medicaid Services (CMS) or on
a similar benchmark listed in the DHCS primary price reference
source. In July 2012, DHCS released a Request for Proposal to
procure a vendor to the conduct the Pharmacy Survey. The
vendor will survey drug price information, collect data from
providers, wholesalers, or drug manufacturers, and will look
at the cost of the product as well as the associated
dispensing fee cost. According to DHCS, the successful vendor
will develop the survey tool, engaging feedback from pharmacy
stakeholder groups. It is estimated that the development
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phase will take three months, and the survey is estimated to
be released to providers in the third quarter of 2013. The
survey process is estimated to take six months. The final
report of the survey findings is estimated to be final in the
first quarter of 2014. CMS approval of a State Plan
Amendment, proposing the changes, as determined by the results
of the survey, will be needed before full implementation of
AAC based reimbursement.
3)SUPPORT . The California Retailers Association and the
National Association of Chain Drug Stores write in support
that in 2011, AB 102 proposed sweeping changes to the manner
in which pharmacies are to be reimbursed in Medi-Cal FFS
program by replacing the current reimbursement methodology
with a new pricing benchmark of AAC. In order to fully
implement AAC, DHCS or their contracted third party vendor
will have to carry out a number of tasks including conducting
a cost of dispensing study, in addition to surveying and
collecting proprietary information from pharmacies in order to
determine AAC. These supporters state that existing law
protects drug-pricing information that is provided to DHCS and
its contracted vendor for the purpose of establishing the
appropriate level of reimbursement for each drug. However,
these supporters assert, information contained within a
pharmacy invoice may include other proprietary information
related to volume discounts or other pharmacy information that
goes beyond the drug prices. These supporters state that
because of the sheer number of pharmacies that DHCS will be
collecting this information from and the fact that they will
be utilizing a nongovernmental, third party vendor to carry
out this task, it is crucial that there be specific privacy
protections for pharmacies providing proprietary, and in some
cases, trade secret information to DHCS and its vendor. The
California Pharmacists Association (CPhA) also writes in
support that the invoice and other pricing information
submitted to DHCS for the purposes of establishing a new
pricing methodology for prescription drugs covered under the
Medi-Cal program is confidential and proprietary. CPhA states
that without this bill, this information will be subject to
public disclosure under the Public Records Act.
4)RELATED LEGISLATION . AB 900 (Alejo) and SB 640 (Lara),
require Medi-Cal payments for FFS benefits, including
pharmacy, to be determined without application of the 10%
payment reduction in existing law for dates of service on or
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after June 1, 2011, and require Medi-Cal payments to managed
care health plans to be determined without application of the
10% payment reduction required in existing law for dates of
service on and after the effective date of these bills.
Require Medi-Cal payments for nursing facilities that are a
distinct part of a general acute care hospital and subacute
care units that are parts of general acute care hospitals for
dates of service on or after June 1, 2011, to be determined
without application of the Medi-Cal reductions and roll back
in existing law. SB 900 and SB 640 contain an urgency clause
to take effect immediately upon enactment.
5)PREVIOUS LEGISLATION .
a) AB 399 (Lowenthal) of 2012 proposed a number of changes
to the Medi-Cal pharmacy reimbursement provisions. These
changes included: i) eliminating the requirement that the
pharmacy rate be reduced to a level that meets the 10%
savings target if, after the transition to the AAC is fully
implemented, the target has not been met; ii) repealing the
requirement that pharmacy providers submit information on
rebates, discounts and refunds for the purpose of
establishing the AAC; iii) requiring retail pharmacies to
be paid the professional dispensing fee determined by a
survey when DHCS implements AAC; and, iv) excluding from
the definition of "usual and customary charge" the lowest
price reimbursed by other third-party payers in California.
AB 399 was held on suspense in the Senate Appropriations
Committee.
b) AB 102 codifies the Governor's May revision proposal to
establish a new methodology for pharmacy reimbursement
based on AAC to represent the actual acquisition cost paid
for drugs by Medi-Cal Pharmacy providers, including those
that provide specialty drugs.
c) AB 97 implements a 10% reduction on many Medi-Cal
providers, including pharmacists.
6)POLICY COMMENT . In the 2011-12 session, the author and
supporters of this bill deleted unrelated provisions of AB 399
and inserted substantive amendments in the Senate on this
issue. The provisions had not been heard by a policy
committee in the Assembly. AB 399 was held in the Senate
Appropriations Committee on suspense. These provisions
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included:
a) Requiring the survey to include specific data from
pharmacy providers that dispense specialty drugs and
requiring a professional fee for dispensing specialty drugs
in compliance with federal Medicaid requirements;
b) Prohibiting DHCS from implementing an AAC methodology
without adjusting and implementing the pharmacy
professional dispensing fee pursuant to the survey;
c) Repealing a provision that prohibits any adjustment to
the dispensing fee from exceeding the aggregate savings
associated with the implementation of the AAC methodology;
d) Eliminating the requirement that the pharmacy rate be
reduced to a level that meets the 10% savings target if
after full implementation of the AAC the target has not
been met;
e) Deleting the requirement that pharmacy providers provide
all discounts, rebates, and refunds known to the provider
that would apply to the acquisition cost of the drug
products purchased during the calendar quarter and instead
required the submission of the invoice prices known to the
provider on the date of delivery as the acquisition cost of
the drug products purchased;
f) Redefining the "usual and customary charge" by deleting
the lowest price reimbursed to the pharmacy by other
third-party payers in California. Instead defining "usual
and customary price" to be the lowest price routinely
offered to any segment of the general public;
g) Repealing the authority of DHCS to require providers,
manufacturers, and wholesalers to submit any data the DHCS
Director determines is necessary or useful. DHCS would
instead be allowed to require the submission of information
pursuant to a specific list;
h) Deleting the requirement that pharmacy warehouses
provide drug cost information upon audit by DHCS for the
purpose of validating individual pharmacy provider
acquisition costs;
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i) Deleting the reference to the AWP ceasing to be "listed"
and replacing it with the AWP ceases to be "updated and
current" and requiring DHCS to make the AWP readily
available to pharmacy providers if the Fiscal Intermediary
establishes a process to temporarily report the AWP; and,
j) Including in the definition of AWP a requirement that
AWP reflect current prices, pursuant to regular updates and
ongoing maintenance, and that these prices be concurrently
and readily available to pharmacies from DHCS' website.
7)POLICY QUESTION . The conversion to a verified AAC price
benchmark is an attempt to ensure that Medi-Cal is not paying
more than other providers in the marketplace. In order to
accomplish this, price transparency is essential. A lack of
transparency is what resulted in the loss of the prior
database and the finding that prices were being wrongfully
inflated. The new state policy is intended to ensure that the
state is obtaining accurate information and can achieve price
efficiencies without having to make arbitrary across the board
rate reductions. The author and sponsors have been in
discussions with DHCS to resolve outstanding issues raised by
the amendments proposed in the last session. The author may
wish to comment on her intent with regard to use of this as a
vehicle for additional amendments and whether future
amendments could undermine this goal.
REGISTERED SUPPORT / OPPOSITION :
Support
California Retailers Association
National Association of Chain Drug Stores
California Pharmacists Association
Opposition
None on file.
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097
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