An Update on Acquisition Cost Based Reimbursement Models. Jerry Brehany, PharmD, PA-C, JD AVP Pharmacy Services
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1 An Update on Acquisition Cost Based Reimbursement Models Jerry Brehany, PharmD, PA-C, JD AVP Pharmacy Services
2 Agenda Review current prescription drug pricing benchmarks Discuss new Acquisition Cost based benchmarks Understand how acquisition cost is determined Identify states that have adopted AAC pricing models Discuss changes to reimbursement structure required by this new model Review scenarios based on different pricing models Discuss positives and potential problems associated with acquisition cost based reimbursement models
3 OIG Report to Congress - Spring 2012 State Medicaid agencies lack information about pharmacies costs to purchase drugs Result: Payments to pharmacies often significantly exceed pharmacies costs for the drugs
4 Pharmacy Reimbursement Calculated Ingredient Cost Current Pricing Benchmarks Estimated Acquisition Cost Wholesale Acquisition Cost (WAC) Manufacturer to Wholesaler Direct Price (DP) Manufacturer to non-wholesaler Average Wholesale Price (AWP) Litigation First Data Bank-McKesson First Databank Massachusetts Complaint, June 2, 2005 Maximum Allowable Cost (MAC) CMS Federal Upper Limit (CMSFUL) Dispensing Fee Current dispensing fee s typically range from $0.00 to $10.00 per claim depending on product and type of fulfillment vendor
5 Average Acquisition Cost (AAC) Goal: Establish a transparent, timely and accurate pharmacy reimbursement system based on the actual cost to the pharmacy for the drug dispensed plus a statistically validated dispensing fee AAC rates are designed to maximize the cost-effectiveness of pharmacy services by setting reimbursement amounts for drug products based on the actual cost of the products Drug purchase information for both brand and generic drugs is submitted by pharmacies for the purpose of establishing, evaluating, maintaining, and updating an AAC rate schedule
6 Acquisition Cost Reimbursement Benchmarks Average Sales Price (ASP) Primarily used to determine reimbursement for physician dispensed drugs Average Manufacturers Price (AMP) New regulations still not finalized Accountable Care Act Federal Upper Limit (ACA FUL) ACA FUL based on AMP ACA FUL not implemented, CMS has delayed finalization beyond announced July 2014 date State Average Acquisition Cost (AAC) Based on individual state survey of pharmacy invoice pricing National Average Drug Acquisition Cost (NADAC) Based on national survey of pharmacy invoice pricing
7 NADAC PRICING MODEL The NADAC drug file is designed to create a national benchmark that is reflective of the prices paid by retail community pharmacies to acquire prescription and over-thecounter covered outpatient drugs States have the option to use the NADAC as a reference price when setting their reimbursement methodology. To do so, states must submit a State Plan Amendment (SPA) to CMS in accordance with state plan requirements if they decide to use NADAC as a basis for payment.
8 NADAC DATA COLLECTION Drug acquisition cost data is collected through voluntary monthly surveys of retail community pharmacy entities (independent and chain pharmacies) Specialty pharmacy data currently excluded from survey On a monthly basis, acquisition cost data from a random sample of pharmacies selected from all 50 states and the District of Columbia.
9 NADAC DATA COLLECTION Pharmacies are requested to voluntarily submit invoices on all covered outpatient drug purchases made from all wholesalers or manufacturers during the specified time period. Information requested through the survey consists of a minimum of the following: NDC Unit Price Paid Invoice Date Quantity Purchase
10 NADAC PRICING FILE Analysis suggests NADAC list covers roughly 93% 98% of submitted claims, both brand and generic. NADAC pricing provided at NDC level Public information NADAC is calculated using a simple average of invoice cost data, not a weighted average NADAC Brand Reimbursement Roughly AWP minus 18.33% or WAC minus 2% NADAC Generic Reimbursement Analysis suggests a range between AWP minus 75% and AWP minus 85% depending on utilization mix.
11 Timeline for NADAC Pricing Updates DESCRIPTION Month 1 Month 2 Date of Drug Purchase for Acquisition Costs November 1 30 December 1 31 Month of Survey Collection, Processing and NADAC Calculations December January Month of NADAC Reference File Publication January *weekly updates February *weekly updates
12 NADAC Published NADAC now published by primary national drug pricing vendors First Data Bank Wolters Kluwer (Medi-Span) Elsevier (Gold Standard)
13 States Using AAC Methodology Alabama Alaska* Colorado Delaware* Idaho Iowa Louisiana Mississippi* Oregon Pending in California and New York * States using NADAC as AAC pricing benchmark
14 Lower of Pricing All states that have adopted AAC pricing models have also incorporated or retained lower of pricing logic Submitted claims reimburse at the lower of: AAC plus state approved Dispensing Fee, or Using State proprietary AAC or NADAC Providers Usual and Customary charge to the general public
15 California AAC Status California has legislative authority to implement an AAC reimbursement structure for the state Medicaid program Original legislation required inclusion of rebates and discounts when calculating AAC pricing AB 102 Subsequent modification to the legislation attempted to remove requirement to provide rebate and discount information AB399 New Legislation submitted April 2013 AB804 Modifies AB399 further providing confidentiality of individual pharmacy pricing information May 2013 State Department of Health Care Services put a hold on going forward with choosing a vendor that would determine Cost of Dispensing and AAC pricing structure.
16 New York AAC Status NY has legislative authority to move forward with AAC pricing structure Assisted by First Data Bank and Ernst & Young New York has defined AAC as the invoice price to the pharmacy of a prescription drug dispensed to a Medicaid recipient, minus the amount of all discounts and other cost reductions attributable to such dispensed drug. AAC is considered a statistically valid averaging of acquisition cost. Completion of COD surveys and submission of invoice pricing, as well as, pricing discount information is mandatory for all Medicaid pharmacy providers Cost of Dispensing (COD) and AAC pricing surveys have been completed by pharmacies Tentative start date for AAC pricing was April 1, 2014 No current indication if or when NY will actually initiate their AAC program.
17 Differences in NY AAC process Mandatory participation of all participating providers, as opposed to voluntary participation for state AAC and NADAC process Requirement that all off-invoice wholesaler discounts be disclosed (in the aggregate), not included in other State AAC or NADAC process) AAC calculated based on weighted average as opposed to simple average used for state AAC and NADAC process.
18 PROFESSIONAL DISPENSING FEES (PDF)
19 Cost of Dispensing Surveys The objective of the survey is to calculate the average COD for a prescription by pharmacy providers participating in the State Medicaid program. Pharmacy characteristics that accounted for significant variation Affiliation Chain, Independent Geographic Urban, rural Pharmacist(s) also an owner Total prescription volume Prescriptions compounded Medicaid prescriptions delivered
20 Alabama PDF $10.64 Colorado PDF $ $14.14 Idaho PDF $11.51 $15.11 Iowa PDF $10.12 Louisiana PDF $10.51 Oregon PDF $ $14.01 Professional Dispensing Fee s States using Proprietary AAC Pricing
21 Professional Dispensing Fee s States using NADAC as AAC price Mississippi PDF $11.20 Delaware PDF $10.00 Alaska (revised ) PDF $ $21.28 In State PDF $10.76 Out of State
22 BRAND/GENERIC COST REIMBURSEMENT SCENARIOS
23 Brand Drugs
24 Generic Drugs
25 Generic Drug Illustration Generic Drug Product WAC/tablet AWP/tablet WAC Discount (AWP minus) Clopidogrel 75mg Tablet $.2437 $ % Modafanil 200mg Tablet $ $ % Montelukast 4mg Chewable Tablet $ $ % Desonide 0.05% Cream $ $ %
26 Traditional Reimbursement (B) Average Brand Prescription 30 day supply AWP = $300 WAC = $250 (AWP 16.66%) Traditional Pharmacy Reimbursement AWP minus 15% + $1.50 DF or WAC plus 2.00% + $1.50 DF $ $1.50 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $10.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $21.50
27 State AAC/NADAC Reimbursement (B) Average Brand Prescription 30 day supply AWP = $300 WAC = $250 (AWP 16.66%) State AAC/NADAC Pharmacy Reimbursement State AAC/NADAC (WAC minus 2%) + $10.50 PDF $ $10.50 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $10.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $20.50
28 CA Medicaid Reimbursement (B) Average Brand Prescription 30 day supply AWP = $300 WAC = $250 (AWP 16.66%) CA Pharmacy Reimbursement AWP minus 17% + $7.25 DF $ $7.25 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $10.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $21.25
29 NY AAC Reimbursement (B) Average Brand Prescription 30 day supply AWP = $300 WAC = $250 (AWP 16.66%) NY AAC Pharmacy Reimbursement NY AAC (WAC 6%) + $8.10 PDF $ $8.10 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $10.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $8.10
30 State Medicaid Brand Rates 9 States using AAC plus a PDF 34 States have Medicaid BRAND reimbursement rates set higher than AWP 15% plus $1.50 DF 7 States have reimbursement rates at or lower than AWP 15% plus $1.50 DF DF s range from roughly $ $8.00 with the majority of states in the $ $4.50 range Information/By-Topics/Benefits/Prescription-Drugs/State- Prescription-Drug-Resources.html Medicaid Prescription Reimbursement Information by State - Quarter Ending June 2014
31 Traditional Reimbursement (B) Average Brand Prescription 90 day supply AWP = $900 WAC = $750 (AWP 16.66%) Traditional Pharmacy Reimbursement AWP minus 18% + $1.50 DF or WAC minus 1.60% + $1.50 DF $ $1.50 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $30.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $34.50
32 State AAC/NADAC Reimbursement (B) Average Brand Prescription 90 day supply AWP = $900 WAC = $750 (AWP 16.66%) State AAC/NADAC Pharmacy Reimbursement State AAC/NADAC (WAC minus 2%) + $10.50 PDF $ $10.50 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $30.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $40.50
33 CA Medicaid Reimbursement (B) Average Brand Prescription 90 day supply AWP = $900 WAC = $750 (AWP 16.66%) CA Pharmacy Reimbursement AWP minus 17% + $7.25 $ $7.25 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $30.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $49.25
34 NY AAC Reimbursement (B) Average Brand Prescription 90 day supply AWP = $900 WAC = $750 (AWP 16.66%) State AAC/NADAC Pharmacy Reimbursement NY AAC (WAC 6%) + $8.10 PDF $ $8.10 = $ Pharmacy Cost Invoice Cost AWP minus 18.33% or WAC minus 2% = $ Additional Wholesaler Discounts 3.33% of AWP or 4% of WAC = $30.00 Net Pharmacy Cost = $ Pharmacy Profit (does not include cost of fulfillment) $ $ = $8.10
35 Pharmacy Profit Summary (based on previous brand examples) Reimbursement Model 30 day supply 90 day supply Traditional $21.50 $34.50 (AWP 18%) $61.50 (AWP 15%) AAC/NADAC $20.50 $40.50 California $21.25 $49.25 New York $8.10 $8.10
36 Traditional Reimbursement (G) Average Generic Prescription 30 day supply AWP = $150 WAC = $60 Traditional Pharmacy Reimbursement AWP 78% + $1.50DF $ $1.50 = $34.50 Pharmacy Cost Invoice Cost AWP minus 84% = $24.00 Additional Wholesaler Discounts $XX.XX Net Pharmacy Cost = $???? Pharmacy Profit (does not include cost of fulfillment) $ $24.00 = $10.50
37 State AAC/NADAC Reimbursement (G) Average Generic Prescription 30 day supply AWP = $150 WAC = $60 Traditional Pharmacy Reimbursement State AAC/NADAC (AWP 84%) + $10.50DF $ $10.50 = $34.50 Pharmacy Cost Invoice Cost AWP minus 84% = $24.00 Additional Wholesaler Discounts $XX.XX Net Pharmacy Cost = $??.?? Pharmacy Profit (does not include cost of fulfillment) $ $24.00 = $10.50
38 Potential NADAC issues Strategic Partnerships create possibility to manipulate invoice/aac pricing Walgreens/AmerisourceBergen 10 year agreement Walgreens granted right to purchase up to 23% of AB over next several years CVS-Caremark/Cardinal Health 10 year agreement Rite-Aid/McKesson 5 year agreement Upward shift in Usual & Customary pricing for low cost generic products Commercial market issues with generic drug products.
39 Vendor Pricing Comparisons Traditional Pricing Comparison Brand/Generic definitions AWP or WAC pricing for Brand Drugs MAC pricing (generics only) Dispensing Fee s AWP discount guarantee s What claims are and are not included in the guarantee s Complicated analysis using various pricing structures and contract terminology and terms AAC/NADAC Pricing Comparison Question #1 Assuming a NADAC reimbursement structure that that incorporates lower of NADAC plus Dispense Fee or U & C logic for all drugs listed on the NADAC drug file, what is your NADAC Dispensing Fee Question #2 What is your pricing structure for drugs not included on the NADAC drug file
40 Bid Comparison Vendor A NADAC Dispensing Fee $8.00 Administrative Fee $2.00 per paid claim Non-NADAC OERG Brand WAC 2% Generic AWP 80% OTC AWP 15% Brand AWP 30% Generic PDF $8.00 Vendor B NADAC Dispensing Fee $9.00 Administration Fee $1.00 per paid claim Non-NADAC OERG Brand WAC + 2 Generic AWP - 78% DF - $1.50 per claims
41 Summary States are gaining access to more accurate brand and generic drug cost data States continue to use this information to implement more aggressive unit cost pharmacy reimbursement structures States are likely to use this new pricing information to influence MCO capitation rate structures going forward CMS could move toward implementing AAC like reimbursement requirements for Medicare Part D Commercial health plans now having access to this same information and could ultimately follow suit actively soliciting PBM s to offer AAC based reimbursement options for prescription drug reimbursement
42 QUESTIONS NADAC DRUG FILE Information/By-Topics/Benefits/Prescription- Drugs/Pharmacy-Pricing.html
43 Copyright PerformRx, LLC 2014 All Rights Reserved
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