1. National Hemophilia Foundation 13th Annual Insurance and Reimbursement Conference
Medicaid Drug Reimbursement Methodology
Renaissance Baltimore Harborplace Hotel
September 29th, 2016
Michael Sharp, R.Ph.

2. Disclaimer
The views and opinions expressed in this presentation are those of Michael Sharp, R.Ph. and do not necessarily represent the views and opinions of the Centers for Medicare and Medicaid Services or any State Medicaid program.

3. Discussion Topics Medicaid Basics
Financing/Rules/State Plan Amendments
Delivery Systems
CMS “Covered Outpatient Drug” Final Rule 2345-FC
Clotting Factor Payment Requirements/Approaches
340B
Non 340B
Perspectives Moving Forward

4. Medicaid Basics Financing
Federal/State Partnership
Federal Matching Funds (FMAP/FFP)
Rule Promulgation and State Plan Amendments (SPAs)
Delivery Systems
Fee for Service (FFS)
Direct payments to providers from State
Managed Care (MCO)
Capitated payments from State. MCO pays providers.

5. Centers for Medicare and Medicaid Services “Covered Outpatient Drugs” Rule 2345-FC
Proposed rule released in February 2012
Over 425 commenters submitted input
Final rule with comment published February 1st, 2016
Addressed many pharmacy related program provisions including drug rebate changes and covered outpatient drug reimbursement
States must comply with an effective date no later than April 1st, State Plan Amendment must be submitted to CMS no later than June 30th, 2017.
Rule left many reimbursement areas open for interpretation, CMS has provided subsequent guidance to states, which has been beneficial

6. Centers for Medicare and Medicaid Services “Covered Outpatient Drugs” Rule 2345-FC
Re-defines Medicaid Estimated Acquisition Cost (EAC) to Actual Acquisition Cost (AAC) for Retail Community Pharmacy payment
Modifies Dispensing Fee to Professional Dispensing Fee
Requires states to outline 340B payment methodology. Must pay no more than 340B ceiling price for covered outpatient drugs dispensed by Retail Community Pharmacies
Requires states to document payment methodologies for physician administered drugs, specialty pharmaceuticals primarily distributed through the mail and clotting factor

7. Medicaid Estimated Acquisition Cost (EAC) to Actual Acquisition Cost (AAC)
CMS desires transparency in drug ingredient price reimbursement and professional dispensing fees
States (Fee-for-Service) delivery systems will be required to move away from Average Wholesale Price (AWP) and Wholesale Acquisition Cost (WAC) as a primary basis of Retail Community Pharmacy claims payment for brand and generic drugs.
Markup programs over cost such as state MAC (SMAC) programs will not be allowed as a primary method of paying for generic drugs.

8. Medicaid Estimated Acquisition Cost (EAC) to Actual Acquisition Cost (AAC)
Primary drivers of the change:
Pharmaceutical manufacturer AWP litigation
First DataBank and McKesson AWP litigation
National Association of State Medicaid Directors (NASMD) AWP white paper calling for transparent pricing benchmark

9. National Average Drug Acquisition Cost (NADAC)
CMS has contracted with Myers and Stauffer, LC to produce a weekly pricing file which has been implemented for nearly 4 years
Represents the national average invoice price derived from Retail Community Pharmacies for brand and generic drug products based on invoices from wholesalers and manufacturers. Based on actual market transactions.
Based on invoice prices voluntarily reported by 500-
600 pharmacies across the U.S. each month
It does not reflect off-invoice discounts or rebates
Updated weekly representing pricing for over 24,000 National Drug Codes (NDCs)
Covers 93% of all Medicaid brand claim submissions
Covers 98% of all Medicaid generic claim submissions

10. Medicaid Estimated Acquisition Cost (EAC) to Actual Acquisition Cost (AAC)
State pathways for migrating from EAC to AAC
CMS National Average Drug Acquisition Cost (NADAC), currently utilized by AK, DE, TX, NC, NV. Several others in planning stages. Majority of states are going to utilize the NADAC.
State-level Average Acquisition Cost (AAC), currently utilized by AL, OR, CO, ID, IA, MT
Fallback benchmark for drugs without an AAC based rate
States required to establish Professional Dispensing Fee
Recent in-state cost of dispensing (COD) study
New in-state COD study
Neighboring state’s COD study
Conduct ongoing dispensing fee surveys every 2-3 years
Represents actual pharmacy cost of transferring the covered outpatient drug to the Medicaid beneficiary

11. CMS State Plan Requirements 2345-FC Clotting Factor

12. State Medicaid Director/Pharmacy Director Considerations
Access to quality services and clotting factor at a reasonable price
Best reimbursement practices utilized by other programs
Budgetary pressure
Clotting factor budget impact ~6% of total pharmacy expenditures
Average claim ~22,000 units at $28,000 payment
Managed care capitation rates and rebate considerations
Reliability and transparency of available pricing benchmarks
Stakeholder input and recommendations
Compliance with CMS State Plan requirements
Specialty Pharmacy/State Patient Access Coalition
Dobson DaVanzo cost of dispensing for clotting factor ~ $998.19

13. Clotting Factor Pricing Comparison
Clotting Factor Product Group Name ↓
Average Pharmacy Cost per Unit (non-340B)
WAC
WAC Equivalence to AAC
AWP
AWP Equivalence to AAC
AWP - 16%
AWP-16% Equivalence to AAC
Medicare Allowable (ASP+6% per unit)
Medicare Allowable Equivalence to AAC $ $
-33.80% $
-44.71% $
-34.18% $
-14.79% $ $
-28.16% $
-40.24% $
-28.85%
N/A $ $
-36.05% $
-46.71% $
-36.56% $
-23.79% $ $
-48.69% $
-57.13% $
-48.97% $
-39.69% $ $
-14.78% $
-28.99% $
-15.46% $
-13.72% $ $
-14.51% $ $ $
-27.65% $ $
-3.24% $
-19.17% $
-3.77% $
-8.45% $ $
-25.23% $
-37.69% $
-25.82% $
-4.78% $
-20.83%
-34.14%
-21.59% $
-17.46% $ $
-25.64% $
-37.98% $
-26.17% $
-15.51% $ $
-39.44% $
-49.42% $
-39.79%
-24.62% $ $
-39.62% $
-49.81% $ $
-16.69% $ $
-33.84% $ $ $
-22.28% $ $
-22.85% $
-35.86% $
-23.64%
-21.15% $ $
-29.66% $
-41.34% $
-30.16% $ $
-51.62%
-59.79% $
-52.13%
-38.27% $ $
-41.68% $
-51.34%
-42.08%
-27.90% $ $
-35.49% $
-46.41% $
-36.20%
-27.73% $ $
-25.33%
-37.62% $
-25.73%
-15.56% $
-39.01%
-49.18% $
-39.50% $
-27.76% $ $
-22.59% $ $
-23.21% $
-18.52% $ $
-14.12% $
-28.41% $
-14.77% $ $
-30.17% $
-41.80% $
-30.72%
-31.14% $
-25.57%
-37.80%
-25.95% $
-31.74%
-43.05%
-32.20% $ $
-49.67% $
-58.06% $
-50.07% $
-32.96% $
-36.90%
-47.30%
-37.26% $
-19.93%
DRAFT
Pricing as of 4/1/2016

14. Clotting Factor Medicaid Payment Scenarios 340B
Pre CMS 2345-FC
Post CMS 2345-FC
340B Acquisition Cost or 340B Ceiling Price plus Dispensing Fee per unit or per prescription
340B Acquisition Cost or 340B Ceiling Price plus Professional Dispensing Fee per unit or per prescription. Related supplies billed separately.
ASP+6% plus Dispensing Fee
ASP+6% plus Professional Dispensing Fee, Medicare Part B Furnishing Fee not recognized by Medicaid
State maximum allowable cost (variable mark-ups on cost) plus Dispensing Fee
State maximum allowable cost rate plus Professional Dispensing Fee
WAC(+/-) or AWP(-) plus Dispensing Fee
WAC +/- or AWP +/- plus Professional Dispensing Fee
340B eligible covered entities can carve out or carve in Medicaid from 340B dispensations
Some states may not allow 340B dispensations in any delivery system (MCO or FFS).
Medication Therapy Management (MTM) Programs/Payment

15. Clotting Factor Medicaid Payment Scenarios non 340B
Pre CMS 2345-FC
Post CMS 2345-FC
Average acquisition cost plus Professional Dispensing Fee per unit or per prescription. Related supplies billed separately.
ASP+6% plus Dispensing Fee. Furnishing fee has been applied in one state.
ASP+6% plus Professional Dispensing Fee, Medicare Part B Furnishing Fee not recognized by Medicaid
State maximum allowable cost (variable mark-ups on cost) plus Dispensing Fee
State maximum allowable cost (variable mark-ups on cost) plus Professional Dispensing Fee
WAC(+/-) or AWP(-) plus Dispensing Fee
WAC +/- or AWP +/- plus Professional Dispensing Fee
Submitted cost
Submitted cost?
Non 340B not allowed. All clotting factor claims pass through a single 340B provider
ASP+20%
ASP+20%? plus Professional Dispensing Fee
Specialty Pharmacy Procurement-Pennsylvania Model through Freedom of Choice Waiver
Medication Therapy Management (MTM) Programs/Payment

16. Perspectives
CMS will continue to pursue transparent ingredient pricing and professional dispensing fee initiatives for Fee-for-service (FFS) Medicaid Programs. NADAC and AAC will be rapidly implemented up to the required deadline.
CMS and states will continue to become more knowledgeable regarding non 340B acquisition costs and 340B acquisition costs for specialty drugs including clotting factor. AAC (340B and non 340B) programs will likely be the primary basis for payment in the future.
Impact on specialty pharmacy only drugs (including clotting factor) to be determined as CMS evaluates best practices for specialty pharmacy reimbursement. Anticipate CMS best practice guidance or rule addressing specialty pharmacy /clotting factor in 2017/2018.
Specialty pharmacy will be a continued area of intense focus for all payers. Commercial PBMs, including those owned by MCOs, will continue to direct specialty dispensations to their own specialty pharmacies.

17. Perspectives
CMS will require FFS Medicaid Programs to pay no more than the 340B ceiling price plus a professional dispensing fee for 340B drugs dispensed by Retail Community Pharmacies. Many states will require 340B acquisition cost or ceiling price billing for clotting factor even though not required by the rule.
Risk based Medicaid managed care will continue to expand and include the most vulnerable patient populations. Some states will not allow any 340B billing in FFS and MCO Medicaid or tightly control how much is paid to protect from rebate losses.
The 340B program will undergo significant changes to regulate and ensure the original program intent. Contract pharmacies and covered entity profit will be an area of focus.
Medicaid Preferred Drug Lists and Supplemental Rebate Programs will continue to evolve and likely include clotting factor classes in the near future.

18. Questions/Discussion
Contact Information: Michael Sharp, R.Ph. C