BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 399
AUTHOR: Bonnie Lowenthal
AMENDED: March 5, 2012
HEARING DATE: June 20, 2012
CONSULTANT: Bain
SUBJECT : Medi-Cal: pharmacy providers: drug reimbursement.
SUMMARY : Makes a number of changes to the Department of Health
Care Services (DHCS) Medi-Cal pharmacy reimbursement provisions.
These changes include: 1) eliminating the requirement that the
pharmacy rate be reduced to a level that meets the 10 percent
savings target if, after the transition to the Average
Acquisition Cost (AAC) is fully implemented, the target has not
been met; 2) repealing the requirement that pharmacy providers
submit information on rebates, discounts and refunds for the
purpose of establishing the AAC; 3) requiring retail pharmacies
to be paid the professional dispensing fee determined by a
survey when DHCS implements AAC; and 4) excluding from the
definition of "usual and customary charge" the lowest price
reimbursed by other third-party payors in California.
1.Background.
This bill makes a number of changes to DHCS' Medi-Cal pharmacy
reimbursement provisions related to the implementation of AAC
for drug ingredient costs, the amount of the dispensing fee paid
to pharmacies, a 10 percent Medi-Cal provider rate reduction and
the definition of "usual and customary charge."
Medi-Cal reimbursement to pharmacies consists of two components:
(a) a professional dispensing fee and (b) payment for drug
ingredient costs. The dispensing fee is currently $7.25 per
prescription and $8 per prescription for drugs dispensed to
beneficiaries in skilled nursing and intermediate care
facilities.
DHCS reimburses for the drug ingredient cost of most dispensed
prescriptions based on Average Wholesale Price (AWP). However,
AWP is not an independently verified price and has been likened
to a sticker price that is inflated over the price that
pharmacies actually pay to purchase medication. Because AWP is
an inflated figure, third-party payors (including Medi-Cal)
reduce AWP reimbursement by a specified percentage. In Medi-Cal,
Continued---
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the reduction is AWP minus 17 percent.
Because AWP is not a reliable or valid price and was anticipated
to no longer be available because publishers of AWP would cease
publishing AWP due to litigation, the Governor's May Revision to
the 2011-12 budget proposed shifting the AWP pharmacy drug
ingredient cost reimbursement to Average Acquisition Cost (AAC)
to more closely approximate the actual acquisition cost paid for
drugs by Medi-Cal pharmacies. Prior to the implementation of an
AAC methodology, DHCS is required to collect data through a
survey of pharmacy providers for purposes of establishing a
professional fee for dispensing. These changes were included in
the health budget trailer bill enacted in June 2011, AB 102
(Committee on Budget), Chapter 29, Statutes of 2011.
Prior to the enactment of the AAC-related provisions, in March
2011, the Legislature adopted the Governor's budget proposal to
reduce specified Medi-Cal provider rates (including pharmacies)
by 10 percent in AB 97 (Committee on Budget) Chapter 3, Statutes
of 2011. This rate reduction has been blocked by court action.
This bill is jointly sponsored by California Retailers
Association, the National Association of Chain Drug Stores, and
the California Pharmacists Association to makes several Medi-Cal
pharmacy-related changes to implementation of the AAC, the data
used to determine AAC, the 10 percent Medi-Cal rate reduction,
dispensing fees for pharmacy services, and the definition of
"usual and customary charge." This analysis takes each major
policy area affected by this bill, describes existing state law,
the proposed change to state law, background on existing law (if
necessary), and the sponsors' rationale for the proposed change.
This is the first policy committee hearing on the changes made
by this bill. This bill originally dealt with the Department of
Corrections and Rehabilitation pharmacy services program, and it
was gutted and amended in June 2011, but not heard at that time.
2.Dispensing fee.
Existing law :
� Establishes a professional dispensing fee of $7.25 per
dispensed prescription.
� Requires DHCS, prior to the implementation of an AAC
methodology, to collect data through a survey of pharmacy
provider for purposes of establishing a professional fee for
dispensing in compliance with federal Medicaid requirements.
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� Requires, if DHCS determines that a change in dispensing fee
is necessary, DHCS to establish the new dispensing fee through
the budget process.
This bill :
� Requires the survey to include specific data from pharmacy
providers that dispense specialty drugs, and would require a
professional fee for dispensing specialty drugs in compliance
with federal Medicaid requirements.
� Prohibits DHCS from implementing an AAC methodology without
adjusting and implementing the pharmacy professional
dispensing fee pursuant to the survey.
Existing law : Prohibits any adjustment to the dispensing fee
from exceeding the aggregate savings associated with the
implementation of the AAC methodology.
This bill : Repeals this provision.
Background: According to DHCS, effective October 1, 2004,
California's Medi-Cal dispensing fee became $7.25 per claim.
From 1986 until August 31, 2004, California's pharmaceutical
dispensing fee was $4.05. A 2007 survey of dispensing and
acquisition costs of pharmaceuticals in California conducted on
behalf of DHCS found that the Medi-Cal pharmacy dispensing fee
of $7.25 is below the average cost of dispensing prescriptions.
The survey also found that there was sufficient evidence in the
study of pharmacy acquisition cost to suggest DHCS' AWP minus 17
percent ingredient cost reimbursement provides for adequate
reimbursement in excess of pharmacies' actual acquisition cost.
The survey found the statewide average cost of dispensing,
weighted by Medi-Cal volume, was $10.81 per prescription.
Purpose: The sponsors argue any move to AAC should be linked to
a corresponding increase in dispensing fees based on the
dispensing fee survey. The sponsors state the federal Centers
for Medicare and Medicaid Services (CMS) has required this
change in other states (such as Alabama, Oregon and Idaho), and
has stressed the importance of looking at the overall
reimbursement methodology-consisting of both drug cost and
dispensing components-in its recent regulations.
The sponsors indicate having a survey requirement specific to
specialty drugs is needed because specialty drugs are much more
costly to dispense. The sponsors indicate the purpose of this
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change is to recognize this distinction and to ensure pharmacy
providers receive the appropriate dispensing fee for dispensing
these types of drugs.
1.Ten percent Medi-Cal rate reduction
Existing law :
� Requires, with specified exceptions, Medi-Cal payments to be
reduced by 10 percent for Medi-Cal fee-for-service (FFS)
benefits for dates of service on and after June 1, 2011.
� Requires the payment reductions and adjustments provided for
to be implemented only if the DHCS Director determines that
the payments that result from the application of the 10
percent reduction will comply with applicable federal Medicaid
requirements and that federal financial participation (FFP)
will be available.
� Requires adjustments to pharmacy drug product payments under
the 10 percent Medi-Cal rate reduction provision to no longer
apply when:
DHCS determines that the AAC methodology has been fully
implemented; and
DHCS' pharmacy budget reduction targets, consistent with
payment reduction levels under the 10 percent rate
reduction provision, have been met.
This bill : Eliminates the requirement that the pharmacy rate be
reduced to a level that meets the 10 percent savings target, if
after full implementation of the AAC, the target has not been
met.
Background: The AAC provisions in AB 102 were enacted into law
in June 2011 following the 10 percent Medi-Cal provider rate
reduction enacted by AB 97 in March 2011. AB 102 makes the 10
percent Medi-Cal provider rate reduction inoperative for
pharmacy services when DHCS determines the AAC has been fully
implemented and DHCS pharmacy budget reduction targets from the
10 percent payment reduction have been met.
This provision was included in AB 102 to ensure that the state
received the equivalent amount of savings from the 10 percent
reduction in the event AAC did not generate the same amount of
savings as the 10 percent rate reduction. DHCS indicates its
interpretation of this provision is that if AAC results in
savings of 6 percent (instead of 10 percent), it would further
reduce rates by 4 percent to achieve the budget savings figure.
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Implementation of the 10 percent Medi-Cal rate reduction has
been blocked due to court action.
Purpose: The sponsors' rationale for this change is the state
should not be allowed to make further cuts when Medi-Cal drug
ingredient cost reimbursement to pharmacies has moved to AAC
(which moves the reimbursement closer to the actual product
cost) and a professional dispensing fee that is based on the
cost to dispense as determined by a study. Additionally,
proponents argue additional cuts would likely lead to problems
in beneficiaries' ability to access care, which they argue would
violate federal law. Finally, the sponsors argue the language
being stricken was included by the Department of Finance late in
the AB 102 negotiations to ensure the 10 percent provider rate
budget target was met with AAC adoption. The sponsors argue this
language is problematic as CMS indicates states cannot use a
budget target to determine pharmacy reimbursement.
1.Information used to determine AAC.
Existing law :
� 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.
� Requires the information submitted by pharmacy providers to
include, but not be limited to, invoice prices and 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.
This bill :
� Deletes 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. This bill would instead
require the submission of the invoice prices known to the
provider on the date of delivery as the acquisition cost of
the drug products purchased.
� Requires pharmacy invoice information to be considered
confidential, and exempts it from public disclosure under the
California Public Records Act (PRA).
Background: The AAC is intended to arrive at the true and actual
acquisition cost to the pharmacy to procure the prescription
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medication. The policy rationale for requiring pharmacy
providers to submit the requested information on discounts and
rebates for all purchased items is to allow DHCS the ability to
calculate an acquisition cost that truly reflects the final cost
of the product to the purchaser.
Purpose: The sponsors argue pharmacies cannot meaningfully
comply with the existing law requirements as they are currently
structured because the reporting of rebates and discounts for
drugs dispensed to Medi-Cal beneficiaries is not possible as
rebates and discounts received by a pharmacy occur well after
reporting requirements. In addition, the sponsors argue
discounts and rebates are based on a pharmacy's entire book of
business and are not broken down by payor (Medi-Cal, private
insurance, etc.). The sponsors also argue that the limited
number of states that have implemented AAC do not incorporate
rebates and discounts in determining AAC. The sponsors conclude
that, because Medi-Cal obtains the "best price" under federal
Medicaid law and supplemental rebates directly from drug
manufacturers, the actual fiscal impact of this change should be
minimal.
The sponsors state the reason this bill exempts pharmacy invoice
information from public disclosure under the PRA is this is
proprietary information and is not meant to be public.
1.Definition of usual and customary charges.
Existing law :
� 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:
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
The lowest price routinely offered to any segment of the
general public.
� Requires reimbursement to Medi-Cal pharmacy providers for
prescription drugs from exceeding the lowest of either of the
following:
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The estimated acquisition cost of the drug plus a
professional fee for dispensing; or
The pharmacy's usual and customary charge.
This bill : Redefines the "usual and customary charge" by
deleting the lowest price reimbursed to the pharmacy by other
third-party payers in California. Instead defines "usual and
customary price" to be the lowest price routinely offered to any
segment of the general public.
Background: This provision is known as the "Upper Billing Limit"
and was enacted by AB X4 5 (Evans), Chapter 5, Statutes of 2009,
as a cost-containment measure. This provision requires pharmacy
providers to bill Medi-Cal the lowest reimbursement price
accepted by the pharmacy provider from other third-party payors.
DHCS indicates third-party payor contracted reimbursement rates
are generally lower compared to Medi-Cal FFS reimbursement
rates. Implementation of this provision has been blocked by
court action.
Purpose: The sponsors indicate the language requiring the lowest
price reimbursed to the pharmacy by other third-party payors is
being deleted because the prices that pharmacies contractually
receive from commercial plans should not be considered part of
usual and customary price. The sponsors state the language in
this bill reflects the historical definition for "usual and
customary charge" that has been used for decades but never
codified.
1.Authority of DHCS to require submission of data by pharmacies.
Existing law : 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 AWP to a methodology
based on AAC.
This bill : Repeals 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 that is
specified in law.
Purpose: This provision provides a specific list of data that
DHCS can collect so that pharmacies, manufacturers and
wholesalers have a reasonable expectation of what will be
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collected, to ensure that the data being collected remains
germane to the implementation of AAC, and to prevent DHCS from
collecting inappropriate data.
2.Validation of AAC.
Existing law : Exempts pharmacy warehouses from the survey
process, but requires they provide drug cost information upon
audit by DHCS for the purpose of validating individual pharmacy
provider acquisition costs.
This bill : Deletes the requirement that pharmacy warehouses
provide drug cost information upon audit by DHCS for the purpose
of validating individual pharmacy provider acquisition costs.
Purpose: The sponsors indicate this change requires DHCS use the
stores' invoice prices, and DHCS can audit the pharmacy to
verify the pharmacy acquisition cost.
3.Timing of submission of drug price information.
Existing law : Requires pharmacy providers that fail to submit
drug price information to DHCS or the vendor to receive notice
that if they do not provide the required information within five
working days, they are subject to suspension from Medi-Cal.
This bill : Changes 5 working days to 15 business days, and
instead states that DHCS may (instead of shall) subject the
pharmacy provider to suspension for failure to submit drug price
information to DHCS or the vendor.
Purpose: The sponsors indicate this change allows sufficient
time for pharmacies to provide information, as not all
pharmacies keep records in a way that is easily retrievable, and
many may need more time, particularly because the penalty makes
the pharmacy subject to suspension from the Medi-Cal program.
4.Updates to AAC.
Existing law : Requires DHCS, when DHCS implements AAC, to update
actual acquisition costs at least every three months and to
notify Medi-Cal providers at least 30 days prior to the
effective date of any change in actual acquisition cost.
This bill : Requires the DHCS updates to AAC to be based on
average acquisition costs determined by surveys of pharmacy
invoices collected in the prior three-month period.
Purpose: This change ensures that DHCS updates AAC based on the
information that was collected by pharmacies and ensures that
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pharmacy providers know when changes are made to AAC.
5.Provider requested changes to AAC.
Existing law : Requires DHCS to establish a process for providers
to seek a change to a specific AAC when the providers believe
the AAC does not reflect current available market prices.
Existing law authorizes DHCS, if it determines an AAC change is
warranted, to update a specific average acquisition cost prior
to notifying providers.
This bill : Requires, instead, DHCS to update the AAC within one
week of receipt of reasonable information justifying that the
AAC does not reflect current available market prices.
Purpose: The sponsors this change provides a mechanism for
updating AAC based on market factors that may result in rapidly
changing drug prices. The sponsors further indicate this type of
change occurs when alternative manufacturers of generic drugs
leave the market, or when drug supplies become scarce due to
U.S. Food and Drug Administration action or other market
factors.
6.DHCS data collection related to AAC.
Existing law : Prohibits the AAC provisions from being construed
to require DHCS to collect cost data, to conduct cost studies,
or to set or adjust a rate of reimbursement based on cost data
that has been collected.
This bill : Repeals this provision.
Purpose: The sponsors indicates the intent of deleting this
language is to require DHCS to collect cost data, conduct cost
studies and to set or adjust reimbursement rates based on cost
data collected. The sponsors argue it would be irresponsible to
shape AAC based upon budget needs, and CMS would require the use
of this data.
7.Availability of AWP.
Existing law : Authorizes DHCS, if the AWP ceases to be listed by
DHCS' primary price reference source, to direct the Medi-Cal
fiscal intermediary (FI) to establish a process with the primary
price reference source vendor to temporarily report the AWP
consistent with the definition of AWP in existing law. Requires,
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if this process is established, it be limited in scope and
duration and to cease when DHCS has fully implemented the AAC
methodology.
This bill : Deletes the reference to the AWP ceasing to be
"listed" and replaces it with the AWP ceases to be "updated and
current" and requires DHCS to make the AWP readily available to
pharmacy providers if the FI establishes a process to
temporarily report the AWP.
Purpose: The sponsors indicate this provision makes the AWP list
publicly available to pharmacies.
8.Use of provider bulletins to implement AAC methodology and to
define usual and customary price.
Existing law : Allows DHCS to implement, interpret, or make
specific the AAC provisions and the definition of "usual and
customary price" by means of a provider bulletin or notice,
policy letter, or other similar instructions, without taking
regulatory action under the Administrative Procedure Act (APA).
This bill : Deletes the authority for DHCS to interpret or make
specific the AAC provisions or the "usual and customary charge"
definition through a provider bulletin or notice, policy letter,
or other similar instruction without taking regulatory action
under the APA.
Purpose: The sponsors indicate this change provides Medi-Cal
pharmacy providers with predictability as California moves away
from AWP reimbursement to the AAC drug pricing benchmark by
limiting DHCS' discretion on AAC implementation and instead
requiring DHCS to implement the new reimbursement formula in
accordance with the terms of the federally approved Medicaid
State Plan Amendment (SPA) and California law.
9.Definition changes and updates to current prices.
Existing law : Defines AWP as the price for a drug product listed
as the AWP in DHCS' primary price reference source
This bill : Includes 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.
Existing law : Defines wholesaler acquisition cost (WAC) as the
price for a drug product listed as the wholesaler acquisition
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cost in DHCS' primary price reference source.
This bill : Includes within the definition of WAC a requirement
that this price reflect current prices pursuant to regular
updates and ongoing maintenance.
Background: DHCS indicates First Data Bank (FDB) ceased
publishing AWP as of September 2011, necessitating a move to a
new pricing benchmark. Beginning March 2012, FDB began reporting
to California a customized AWP pricing file to use as the
primary pricing benchmark to determine pharmacy reimbursement.
The contract between the state and FDB requires the state to use
the pricing file for claims processing and not publish it
publically. DHCS indicates it did not have access to updates to
AWP values for drug products, between September 2011 and March
2012, but this is no longer the case and it has instituted an
erroneous payment correction process to remedy all inaccurately
paid claims that occurred during that period of time.
Purpose: The sponsors indicate the definition changes to AWP and
WAC ensure that AWP and WAC are updated regularly so that the
prices that DHCS use to reimburse pharmacies is current and
updated so pharmacy reimbursement is fair. The sponsors state
AWP has been frozen for about eight months.
In addition, this change ensures that pharmacies have access to
the drug list. Because DHCS is using a custom AWP file purchased
from FDB, pharmacies do not have access to this list, and the
sponsors argue they should be able to see these prices. The
sponsors state that in every other state, this information is
made available to pharmacies, and it is important for prices to
be available to pharmacies as this is the only means for
pharmacies to know the basis of their reimbursement.
FISCAL EFFECT : This bill, in this version, has not been
analyzed by a fiscal committee.
PRIOR VOTES : Not relevant.
COMMENTS :
1.Author's statement. In order for the AAC benchmark to be
accurate and reflect the true cost of dispensing drugs, the
AAC should be retail pharmacy specific. In addition, while AB
102 authorized DHCS to conduct a cost of dispensing study
prior to implementing the AAC, there is no requirement that
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DHCS consider the results of that study in developing the new
dispensing fee for providers. AB 399 revises the AAC pricing
structure for Medi-Cal pharmacy reimbursement to ensure that
the new pricing benchmark accurately accounts for the true
cost of dispensing prescriptions for community retail
pharmacies.
2.Medi-Cal and Medicaid pharmacy background. DHCS developed a
baseline assessment of the current state of pharmacy access in
the Medi-Cal FFS program paper in conjunction with its
proposed SPA to reduce Medi-Cal rates for pharmacy services.
In that assessment, DHCS found that 87 percent of retail
pharmacies participated in Medi-Cal in 2009, down from 90
percent in 2007.
A March 2011 Kaiser Family Foundation study found that Medi-Cal
had the third-highest discount off of AWP in those states that
use AWP (meaning lower reimbursement to pharmacies) but the
fifth-highest dispensing fee (meaning higher reimbursement to
pharmacies).
A 2005 federal Office of Inspector General (OIG) report found
that published prescription drug prices used as a basis for
reimbursement are higher than prices based on actual sales.
Average Manufacturer Price (AMP), which is calculated based on
statute and actual sales transactions, is substantially lower
than either of the published prices (AWP and WAC). OIG stated
that generic drugs exhibit the largest differences between AMP
and the published prices (California's Medi-Cal preferred drug
lists contains more brand drugs than other third-party payors
because of supplemental rebates). OIG states, as a result,
states' estimates of pharmacy acquisition costs, which are
based on AWP and WAC, are also substantially higher than AMP,
and these differences are greatest for generic drugs. OIG
concluded that the substantial disparities between AMP and the
published prices currently being used indicate that changing
the basis of Medicaid reimbursement could have a significant
impact on Medicaid expenditures.
3.Federal law and Medicaid state plan requirements. Medi-Cal
reimbursement is governed by state and federal law. Federal
law allows a state to qualify for federal Medicaid matching
funds only if it designs its program within specific federal
requirements. These include eligibility for specific
population groups, coverage for certain medical services and
medical providers, and adherence to specific rules relating to
payment methodologies, payment amounts, and cost sharing for
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Medicaid beneficiaries.
To qualify for federal Medicaid matching funds, a state must
obtain approval of its Medicaid State Plan (State Plan) from
the federal Department of Health and Human Services and CMS.
The State Plan is the contract between the federal government
and the state, which spells out the terms and conditions under
which the state will receive federal Medicaid matching funds.
Each change in eligibility for beneficiaries, change in
coverage of services or change in methodology of reimbursement
in a state's Medicaid program requires a SPA that must be
approved by CMS.
CMS reviews SPA reimbursement methodologies for services
provided under the State Plan for consistency with Section
1902(a)(30)(A) of the Social Security Act and other applicable
federal statutes and regulations. This provision of federal
Medicaid law requires that states "assure that payments are
consistent with efficiency, economy and quality of care" and
are sufficient to enlist enough providers so that care and
services are available under the plan at least to the extent
that such care and services are available to the general
population in the geographic area." These requirements are
known as the "quality of care" and "equal access" provisions
of the Medicaid statute.
In recent years, the state budget (through health budget
trailer bills) has contained Medi-Cal rate reductions for
various providers, including pharmacists. However,
implementation of these Medi-Cal provider rate reductions for
prescription medication dispensed by pharmacies has been
blocked by court action.
4.Status of AAC implementation. DHCS indicates several steps
must be undertaken and completed to implement the AAC pricing
methodology. These include the following:
a. Completion of a survey of pharmacy dispensing and
acquisition costs,
b. Federal CMS approval of a SPA; and
c. Changes to the Medi-Cal Management Information System
necessary to process claims based on the AAC pricing
benchmark
DHCS indicates it is currently developing a Request for
Proposal to procure a vendor to implement the pharmacy
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dispensing and acquisition cost survey in 2012. Other
considerations which will impact the ultimate implementation
date include whether this new pricing methodology will be
implemented within the existing claims processing system, or
will be included as part of the new system.
5.Support. The sponsors state this bill is meant to address many
elements of AB 102 that continue to be very concerning to
pharmacy providers that were not resolved to the sponsors'
concern following the May Revision in last year's budget. One
issue of concern addressed by this bill is the existing law
provision that requires the collection of data from a broad
array of entities. The sponsors argue this is problematic
because these other entities often purchase drugs at a
significantly greater discount than what pharmacies may
receive, and collecting information from these other entities
would skew the data that DHCS uses to calculate AAC in a
manner that would disadvantage pharmacies and could result in
inaccurate AAC reimbursement. The sponsors also argue the
reporting of rebates and discounts for drugs dispensed to
Medi-Cal beneficiaries is problematic because any rebates and
discounts that a pharmacy receives may occur well after the
pharmacy is required to report to DHCS, and rebates and
discounts are based on a pharmacy's entire book of business
and are not disaggregated based on which patients the drugs
were dispensed to. The sponsors argue this could distort AAC
because there is no practical way to calculate a meaningful
number to report to DHCS.
This bill also guarantees that the results from DHCS'
dispensing fee study will be used in establishing the
dispensing fee. The sponsors argue that it is critical that
the dispensing fee fully covers the true costs of dispensing,
not just so that pharmacies are paid fairly, but also to
ensure that the SPA receives approval from CMS. The sponsors
state that other states, such as Alabama and Oregon, which
have successfully transitioned to the AAC benchmark, are good
examples of states that did it right and enacted a new
dispensing fee based on an industry-accepted survey that
reflected all costs to a pharmacy, and the sponsors believe
that their increased dispensing fee was an important part of
their success with receiving CMS approval. The sponsors
conclude that last year's budget trailer bill that created the
path to AAC was pushed through hastily, and this bill would
provide the necessary infrastructure for Medi-Cal patients to
continue to receive access to prescription drugs by assuring
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effective and successful implementation of the AAC.
6.Policy issues.
a. Information used to determine AAC. This bill would
delete 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. The sponsors of this
measure argue pharmacies cannot meaningfully comply with
the existing law requirements as they are currently
structured because the reporting of rebates and discounts
for drugs dispensed to Medi-Cal beneficiaries is not
possible as rebates and discounts received by a pharmacy
occur well after reporting requirements, and that others
states that implemented AAC have used the invoice price.
It is unclear how this existing law provision can be
effectively implemented under current business
arrangements. However, deleting the discounts, rebates and
refunds from the calculation of the AAC would adversely
affect DHCS' ability to arrive at the true acquisition cost
in determining the AAC. Excluding this information results
in an incomplete examination of the actual acquisition
cost, could inflate AAC, and could increase the potential
for gaming the invoice price based on rebates and discounts
provided separately from AAC.
b. Ability of DHCS to verify AAC. This bill would delete
the requirement that pharmacy warehouses provide drug cost
information upon audit by DHCS for the purposes of
validating individual pharmacy provider acquisition costs.
However, deleting this existing law provision could
adversely affect the ability of DHCS to validate whether
pharmacies are accurately reporting their AAC and that the
number is not subject to artificial inflation similar to
what occurred with AWP.
c. Change to "usual and customary charge." In the health
budget trailer bill in 2009, the Legislature adopted the
Governor's May Revised proposal to establish an Upper
Billing Limit to obtain savings of $22.5 million. This
provision requires pharmacy providers to bill Medi-Cal the
lowest reimbursement price accepted by the pharmacy
provider from other third party payers. However,
implementation of this change was blocked by court action,
and the Governor's May revision to the 2011-12 budget
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assumed additional state expenditures of $30 million GF
because this provision was not implemented. This issue is
currently the subject of mediation. Given that this issue
is currently the subject of mediation, should this change
be made?
d. Changes made by this bill and GF spending. This bill
addresses an important issue in that provider payment rates
in Medi-Cal are a key factor in beneficiaries' ability to
access program services and the ability of pharmacies to
continue to provide services to Medi-Cal beneficiaries.
However, this bill contains provisions that will likely
affect General Fund spending, such as requiring the results
of the dispensing fee study to be implemented. Given the
state's current fiscal constraints, should the Legislature
make changes to Medi-Cal pharmacy reimbursement rates that
will impact state GF spending?
SUPPORT AND OPPOSITION :
Support: California Pharmacists Association (co-sponsor)
California Retailers Association (co-sponsor)
National Association of Chain Drug Stores (co-sponsor)
Oppose: None received.
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