BILL ANALYSIS �
AB 804
Page 1
ASSEMBLY THIRD READING
AB 804 (Lowenthal)
As Introduced February 21, 2013
Majority vote
HEALTH 18-0
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|Ayes:|Pan, Ammiano, Atkins, |
| |Bonilla, Bonta, Chesbro, |
| |Gomez, Roger Hern�ndez, |
| |Lowenthal, Maienschein, |
| |Mansoor, Mitchell, |
| |Nazarian, Nestande, |
| |V. Manuel P�rez, Wagner, |
| |Wieckowski, Wilk |
| | |
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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.
FISCAL EFFECT : None
COMMENTS : According to the author, as required by AB 102
(Budget Committee), 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
AB 804
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information be protected for obvious competitive reasons.
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 Average Wholesale Price (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 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 (Budget Committee), 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
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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 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.
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097
FN: 0000324