August 7, Dear Mr. Helgerson:

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1 August 7, 2014 Chain Pharmacy Association of New York State New York Chapter, American Society of Consultant Pharmacists New York State Council of Health System Pharmacists Pharmacists Society of the State of New York Mr. Jason Helgerson Deputy Commissioner, Office of Health Insurance Programs Medicaid Director New York State Department of Health Corning Tower Empire State Plaza Albany, NY Dear Mr. Helgerson: We write as a follow-up to the July 28 th stakeholder meeting held by Janet Zachary- Elkind and her team. We were pleased to receive an update following the July meeting stating that you will be participating in the next meeting with pharmacy stakeholders that is scheduled for Monday, August 25 th. July 28 th was the second in a series of meetings scheduled by the Department of Health (DOH) requesting the participation of stakeholders to discuss pharmacy reimbursement policies in the Medicaid program, per language included in the final state budget. Please note that our discussions in these meetings fall within the anti-trust parameters by which association members are bound, namely that discussions around payment methodologies take place at the State s request, and associations and individual participants are prohibited from discussing or referring to individual business decisions. Concerns with DOH s Continued Use of and References to AAC/COD Data The purpose of this letter, as well as the previous letter dated July 15 th, is to highlight and clarify key points of the discussion from stakeholders point of view and to suggest additional topics for the Department s consideration. We view these written communications to be part of the ongoing dialogue and in this context bring your attention to the attached letter dated April 4, 2014 from the National Association of Chain Drug Stores and the National Community Pharmacists Association requesting that the Department discontinue the use of and delete from the DOH website the Average Acquisition Cost (AAC) and Cost of Dispensing (COD) findings in accordance with the adopted state budget. Please note in addition that language authorizing the Department to set generic reimbursement rates was modified in the budget document to include the words: provided that the methodology used by the Department to establish a maximum acquisition cost shall not include average acquisition cost as determined by Department surveys, This statement underscores the legislature s complete rejection of surveys conducted by the Department as the method by which pharmacy reimbursement policies are to be determined.

2 Concerns with DOH s Implied Motivation to Further Cut the State s Pharmacies It is clear that our scheduled stakeholder meetings follow recommendations made in the specific language of the SFY budget. In removing the Department s authority to conduct further surveys, we believe the goal of these meetings is to develop an improved reimbursement methodology that is appropriate and reliable and also budget/cost neutral which does not further cut pharmacy providers. Concerns with DOH s Plan to Apply Reimbursement Developed by Workgroup to Medicaid Managed Care In a similar vein, pharmacy reimbursement mechanisms that we develop jointly should apply only to fee-for-service (FFS). The notion that a new FFS pharmacy reimbursement methodology could be applied to managed care (MC) and thereby provide a rationale for cutting payments to health plans was also firmly rejected during the budget negotiations. In fact, the recent July 18 th announcement by BlueCross BlueShield of Western New York that it will discontinue participation in Medicaid managed care in a number of additional counties suggests that MC payment rates in place today are not sufficient to cover the cost of care. Perhaps more to the point, the amount that health plans receive in premiums has no relationship whatsoever to how pharmacies are paid by pharmacy benefit managers (PBMs) under contract with Medicaid Managed Care plans. Furthermore, the Department has stated that it does not have any information about how pharmacies are paid under Medicaid managed care, and therefore no basis on which to conclude that pharmacies are being over-paid or under-paid. Not only does the Department lack the authority to set payment rates for providers under managed care, it clearly lacks information leading to the logical conclusion that pharmacies could withstand lower payments and continue to dispense the covered medications. The pharmacy claims data to which the Department has access show what health plans pay for the drugs, but not what pharmacies are actually paid. Ironically, the Department mandated full disclosure of all costs from Medicaid FFS pharmacy providers but has stated that it lacks information about costs associated with PBM operations and what pharmacies are actually being paid. Apparently and ironically, despite the Department s quest for transparency in pharmacy pricing, the Department has no interest in determining the actual spread between what it is paying Medicaid Managed Care plans to administer the pharmacy benefit and how much is actually paid to the pharmacy for the actual services to ensure that patients are receiving their medications. Under managed care, two management entities control the flow of the state s Medicaid dollars to pharmacy providers, namely health plans and pharmacy benefit managers. From the discussion at the meeting it appears that nothing is known about additional costs built into the system by PBMs. Does the Department review contracts between PBMs and health plans? Does the Department have access to data showing actual payments made to pharmacies under managed care? These questions could be resolved quite simply: pharmacies participating in Medicaid managed care plans should be paid the same dollar amount that PBMs charge health 2

3 plans for each drug NDC. Such a new policy would create full transparency in the actual cost of the benefit, provided it was well enforced. An additional and important benefit is that any administrative fees paid by health plans to PBMs would not artificially inflate drug costs. As a result the Department could accurately track actual drug spending net of manufacturer rebates. The OBRA 90 rebates were intended to do just that, to bring Medicaid costs to the lowest price point, guaranteed. Such a policy provides a mechanism that reflects the market but does not interfere or constrain. It would not add cost. DOH Pharmaceutical Rebates and Savings Data During the July meeting, DOH staff provided and discussed two charts related to estimated savings from the shift of the overwhelming majority of Medicaid patients to managed care and the estimated manufacturer rebates that the State receives through its prescription drug program. To re-state what was shared with stakeholders, DOH estimates that it saved $470 million for the State Fiscal Year This is the first time that we have seen in writing that the State is saving nearly a half a billion dollars a year from the carve-in of the pharmacy benefit into managed care under Medicaid. Further, when sharing information on how DOH calculated the estimated managed care pharmacy savings it admitted to basing this savings on only one indicator: a 13% increase in the use of generics by Medicaid patients since the shift which has resulted in a 13% decrease in per member per month expenditures. In response, we asked DOH to provide additional data on what other key indicators they can look at beyond generic dispensing which we submit would result in an even greater savings figure than the $470 million cited by DOH. We would respectfully ask that this additional calculation be made prior to the next meeting and such information to be shared with stakeholders at that time. Finally, the State shared that the estimated amount of what the State receives in manufacturer rebates under Medicaid is approximately the same pre- and post-carve in of the pharmacy benefit into managed care. Therefore, approximately 50 cents on every $1 spent by Medicaid for prescription drugs is returned to the State through such rebates. The conclusion we reach from this is that not only is New York saving nearly half a billion dollars per year from the pharmacy carve into managed care but it is continuing to receive nearly the same amount in manufacturer rebates for its drug spend. Based on this we continue to question DOH s motivations to try to further reduce pharmacy reimbursement under Medicaid and to do the same under Medicaid Managed Care when clearly the intended savings from this major shift is being realized by the State. Next Steps By mutual agreement, the agenda for the next stakeholder meeting will include a discussion about pharmacists professional services beyond prescription drug dispensing that are consistent with the Department s overall objective of lowering healthcare costs overall and improving clinical outcomes on an on-going basis. Our intention is to provide models that work in terms of both service and payment structure, including but not limited to medication therapy management, medication adherence and pay for performance. 3

4 As a reminder, at the meeting we also requested written notice indicating when the 0.33% across the board pharmacy reduction would be terminated and whether the elimination of this cut when implemented will be retroactive to April 1, Further, at the Department s request we agreed to research and review possible alternative benchmarks to those currently used by New York Medicaid FFS and make recommendations in this regard at the scheduled September stakeholder meeting. Clarification on AWP and WAC We would also like to take this opportunity to refute some of the Department s negative comments about the reliability of Average Wholesale Price (AWP) and Wholesale Acquisition Cost (WAC) as existing reimbursement benchmarks. In fact, both are widely used in the buying and selling of prescription drugs by State Medicaid programs and commercial plans, they are published and therefore visible and transparent, and, in the case of AWP, always discounted. It must be noted that the 2009 decision of the US District Court for Massachusetts mandated that the value of AWP was to be recalibrated for 8,000 drug products to offset the manipulation by non-pharmacy entities that had been uncovered for 1,356 drugs. As a result, the value of published AWPs was lowered across-the-board by four percentage points effective September 26, 2009 resulting in a significant, immediate decrease in what pharmacies were paid by New York Medicaid (a sizable savings to the program). It is also important to note that for pharmacy stakeholders in New York, 2009 was a watershed year because the court s ruling significantly lowered reimbursement rates in September of 2009 when in April of that same year the budget also changed Medicaid FFS reimbursement from AWP-14% to AWP-16.25% for brand name drugs. In general, what is important about this for the purposes of our recent stakeholder discussions with the Department is that the court ruled that AWP must be a constant 120% of WAC, thereby establishing WAC as the court s own drug pricing benchmark. WAC is defined in federal statute as representative of the manufacturer s list price for a drug to wholesalers or other direct purchasers. In checking the CMS website, for the quarter ending March, states use WAC as the primary or default reimbursement benchmark. WAC is published, used widely and moves with the market. Clarification on Medicaid FFS Brand Name Drug when Less Expansive than Generic Program Finally, during the July meeting we discussed in some detail the current Medicaid FFS policy that maximizes manufacturer rebates by increasing the dispensing rate for certain brands. This policy is beneficial to the state because the net cost of the brand becomes lower than the net cost of the generic. We reviewed forty-one products on the July 3 rd list on the DOH website and found that many have had generic equivalents on the market for some time (i.e. Lovenox, Toprol XL, Wellbutrin and Wellbutrin XL). Relatively few fell 4

5 within the 180-day new to market category. What is important for our discussion is that this Medicaid FFS policy requires pharmacies to carry more costly brand inventory than DOH website and found that many have had generic equivalents on the market for some it would otherwise, thereby increasing their expense burden for FFS Medicaid. The policy could also alter the FFS generic dispensing rate for the individual pharmacy as well as for the Medicaid FFS program. We thank you for considering this additional feedback from the second Stakeholder meeting and again reiterate our appreciation for the time that Janet Zachary-Elkind and her team have committed to these ongoing discussions. We look forward to seeing you on August 25 th and eagerly await written responses to our letters. Sincerely, Michael Duteau R.Ph. President, Chain Pharmacy Association of New York State Kelly Flynn R.Ph. President, NYS chapter of the American Society of Consultant Pharmacists Elizabeth Shlom PharmD, BCPS President, New York State Council of Health-system Pharmacists Charles Catalano R.Ph. President, Pharmacist Society of the State of New York Cc: Acting Health Commissioner Zucker Senate Co-Majority Leader Skelos Senate Co-Majority Leader Klein Senate Democratic Leader Stewart-Cousins Assembly Speaker Silver Assembly Republican Leader Kolb Senate Health Committee Chair Hannon Assembly Health Committee Chair Gottfried 5