Re: Objection to Texas Medicaid State Plan Amendment Transmittal Number 15-005

DATE: July 18, 2016

Dear Deputy Administrator Wachino:

The Texas Health and Human Services Commission (HHSC) submitted a proposed State Plan Amendment (SPA)1 (Transmittal Number 15-005) in May 2016 as a response to the final CMS Covered Outpatient Drug Rule (CMS-2345-FC)2 that went into effect this April. Under the rule, states must evaluate the sufficiency of both the ingredient cost reimbursement and the professional dispensing fee reimbursement when proposing changes to either of these components. Upon review of HHSC’s proposed SPA and the Myers and Stauffer analysis3 used to determine the new proposed reimbursement rates, the undersigned 77 organizations, which represent a cross section of pharmacy- related interest groups at both the state and federal level, have significant concerns with the proposal and its likely aftermath for long-term care pharmacies and patients. We believe that the Texas proposal: (1) is based on questionable survey data, (2) uses an inappropriate NADAC formula to set reimbursement, (3) violates the final CMS Covered Outpatient Drug Rule and goes against Part D conditions of participation, and (4) creates an incentive to dispense brand name drugs over generic drugs. In light of this information, which we will expand upon below, we hope that CMS will reject the Texas proposal.

HHSC’s Proposal is based on questionable survey data

HHSC hired Myers and Stauffer to survey pricing among pharmacies in the state in order to implement the final CMS Covered Outpatient Drug Rule. The Myers and Stauffer analysis used random sampling to survey 2,000 of the 4,333 pharmacies in the state; of those, they surveyed only 75 long-term care pharmacies (LTCPs) and just 44 responded. The 44 respondents represent a small fraction of pharmacies serving long-term care (LTC) beneficiaries, which means that any analyses using this data are likely to be fundamentally inaccurate and not a representative sample. Furthermore, the survey design neglects to include those pharmacies that are both retail and LTCPs, which further underrepresents the industry. HHSC and CMS should not draw conclusions for state (and possibly federal) policies that may adversely affect the healthcare of their beneficiaries and the pharmacies that serve them based on a non- representative sample of 44 pharmacies.

HHSC uses an inappropriate NADAC formula to set rates

In addition to the problematic Myers and Stauffer survey design, HHSC proposes an inappropriate reimbursement structure for LTC and specialty pharmacies. In its proposal, Myers and Stauffer recommended that HHSC adopt a reimbursement methodology using the national average drug acquisition cost (NADAC) for drug ingredient reimbursement and wholesale acquisition cost (WAC) minus a percentage for brand and generic drugs for those drugs that do not have a NADAC rate. HHSC used the report findings to adopt two new acquisition costs that are based on NADAC: long-term care pharmacy acquisition cost (LTCPAC) and specialty pharmacy acquisition cost to set the reimbursement for drug claims submitted by both LTC and specialty pharmacies. Specifically, the novel reimbursement methodology that HHSC proposes is NADAC-2.4%, or WAC-3.4% for drugs without a NADAC rate, for LTCPs, and NADAC – 1.7% or WAC – 8.0% for specialty pharmacies.4 The proposed professional dispensing fee is calculated at $7.93 plus 1.96% of the ingredient cost of the drug. The NADAC formula, however, is a voluntary system in which retail pharmacy invoices are aggregated and computed into a basis for reimbursement and in this case does not adequately represent long-term care pharmacy.

The inappropriate NADAC formula is contrary to CMS intent

CMS does not anticipate or propose to allow states to develop pharmacy reimbursement methodologies such as the one HHSC proposes. In the final CMS Covered Outpatient Drug Rule, 5 CMS establishes clear requirements for states when submitting plan amendments:

The State plan must describe comprehensively the agency’s payment methodology for prescription drugs, including the agency’s payment methodology for drugs dispensed by all of the following:

(i) A covered entity described in section 1927(a)(5)(B) of the Act.

Therefore, according to the regulation, HHSC would be obligated to disclose its methodology for arriving at the NADAC pricing estimate. The SPA, however, does not fulfill the requirement because it references NADAC as the established reimbursement rate for LTCPs without any methodological explanation.

Furthermore, HHSC links the professional dispensing fee to drug acquisition cost, which is counter to federal statute. CMS requires6 dispensing fees to include “pharmacy costs associated with ensuring that possession of the appropriate covered outpatient drug is transferred to a Medicaid beneficiary,” and Myers and Stauffer clearly indicated that if a differentiated drug ingredient cost reimbursement was implemented by the state, it may require differentiated dispensing fees by pharmacy provider type.7 These professional dispensing costs are independent of the cost of the drugs, except in the case where the drug itself may require special handling. Establishing professional dispensing fees for LTCPs that are less than those established for retail completely ignores the obligations of these pharmacies to provide specialized packaging, routine and emergency delivery to LTC facilities, and 24-hour pharmacist availability to respond to urgent requests. The proposed professional dispensing fee, which is calculated as ingredient cost of $7.93 plus 1.96% of the ingredient cost sets a lower dispensing fee for LTCPs because it does not factor in the additional services provided. Furthermore, the inclusion of the 1.96% of the ingredient cost will be calculated for LTCPs using NADAC-2.4%, which will be lower than retail, where reimbursement will be set at NADAC only. This would create a lower dispensing fee for LTCPs, which is counter to the CMS Final rule for State Plan Amendments.

CMS already recognizes the important services provided by the LTCPs in the context of Medicare Part D by establishing a comprehensive list of services for LTC residents that must be made available by Medicare Prescription Drug Plans.8 These services are already in statute because of the positive impact they have in providing safe and effective patient care. These required services, which lead to higher costs to dispense for LTCPs, would be equally applicable to Medicaid recipients in nursing facilities, include:

  1. Comprehensive inventory and inventory capacity – Network Long-Term Care Pharmacies (NLTCPs) must provide a comprehensive inventory of plan formulary drugs commonly used in the LTC setting.
  2. Pharmacy operations and prescription orders – NLTCPs must provide the services of a dispensing pharmacist to meet the requirements of pharmacy practice for dispensing prescription drugs to LTC residents, including but not limited to the performance of drug utilization review.
  3. Special packaging – NLTCPs must have the capacity to provide specific drugs in units of use packaging, bingo cards, cassettes, unit dose or other special packaging commonly required by LTC facilities.
  4. IV medications – NLTCPs must have the capacity to provide IV medications to the LTC resident as ordered by a qualified medical professional. NLTCPs must have access to specialized facilities for the preparation of IV prescriptions (clean room).
  5. Compounding/alternative forms of drug composition – NLTCPs must be capable of providing specialized drug delivery formulations as required for some LTC residents.
  6. Pharmacist on-call service – NLTCPs must provide on-call service, 24 hours a day, seven days a week with a qualified pharmacist. This pharmacist must be available to handle calls after hours and to dispense medication during emergencies, on holidays, and after normal hours of operation.
  7. Delivery service – NLTCPs must provide for delivery of medications to the LTC facility up to seven days each week (up to three times per day) and in between regularly scheduled visits. Emergency delivery service must be available 24 hours a day, seven days a week.
  8. Emergency boxes – NLTCPs must provide “emergency” supply of medications as required by the facility in compliance with state requirements.
  9. Emergency log books – NLTCPs must provide a system for logging and charging medication used from emergency/first-dose stock. Further, the pharmacy must maintain a comprehensive record of a resident’s medication order and drug administration.
  10. Miscellaneous reports, forms and prescription ordering supplies – NLTCPs must provide reports, forms, and prescription ordering supplies necessary for the delivery of quality pharmacy care in the LTC setting.

HHSC’s recommendation may incentivize dispensing of brand over generic medications

The LTCP industry has been working with CMS and other payers to increase the percentage of generic medications dispensed as compared to branded medications, in order to offer the most cost effective healthcare for seniors and Medicaid beneficiaries. The Myers and Stauffer study found that LTCPs’ average acquisition cost for brand medications was 2.4% lower than retail pharmacies, while the average acquisition cost for generic medication was 5.4% higher than retail pharmacies.9 Further, the Myers and Stauffer survey shows only 72% of medications dispensed by LTC pharmacies for Medicaid fee for service beneficiaries are generic.10 By contrast, the LTC pharmacy industry reports much higher generic drug dispensing rates at 87%.11 Taken together, the HHSC proposal ignores both the higher acquisition cost and higher utilization of generic medications by LTCPs by applying the NADAC -2.4% for both generic and brand medications. This structure has the potential to financially incentivize branded medication utilization, which is contrary to the LTCP industry and CMS goal of reducing overall drug spending.

Recommendation

We appreciate ongoing efforts of CMS to reduce program costs, but believe the HHSC proposed SPA will inappropriately reduce LTCP reimbursement for the vital additional services they provide to specific patient populations. HHSC based its proposal on questionable, statistically inadequate data and an inappropriate, misaligned reimbursement formula, which ultimately oversteps CMS’ intent in the final Covered Outpatient Drug Rule. We urge CMS to reject the HHSC proposal and enforce federal regulations pertaining to the calculation of professional dispensing fees under the state Medicaid program.

We appreciate your attention to our concerns and look forward to working with you to resolve this important problem.

Click here to download the letter.

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