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The Deficit Reduction Act its Impact on Pharmacy

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The Deficit Reduction Act its Impact on Pharmacy

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    1. The Deficit Reduction Act & its Impact on Pharmacy

    2. Honesty and Ethical Ratings* of People in Different Professions, 2006 Gallup Poll

    3. Ohio Pharmacy Infrastructure There are about 2,157 pharmacies in Ohio 1,695 chain pharmacies; and 462 independent pharmacies. Ohio chain and independent pharmacies: employ about 109,180 full- and part-time workers, including about 6,270 pharmacists; and pay over $1.46 billion in state taxes annually.

    4. Breakdown of Average Pharmacy Prescription Reimbursement Average Medicaid Reimbursement in 2005 = $64.86

    6. Medicaid Reimbursement Has Two Components Medicaid Reimbursement = Product Cost (AWP minus / WAC plus / FUL / MAC) PLUS Dispensing Fee (to pay for services)

    7. Pharmacy’s Costs to Provide Prescription Drugs & Pharmacy Services Prescription Drug Costs + Related Costs Purchasing the drug from the manufacturer or wholesaler (invoice price) Storage, warehouse, inventory, distribution/transportation of drug to individual pharmacy Cost of maintaining drug inventory investment Compliance with federal and state regulations governing handling of controlled substances (i.e., DEA, state licensing) Cost of returned goods Pharmacy Services + Related Costs “Pharmacy costs associated with ensuring that possession of the appropriate covered outpatient drug is transferred to the patient” 42 CFR 447.502 Preparing and dispensing the prescription Checking on patient coverage at POS Prescription packages, labels, paper Compounding the Rx (if necessary) Special packaging (including unit doses, blister packs, bingo cards) and special supplies (syringes, inhalers) Delivery to beneficiary Compliance with federal & state regulations governing Medicaid, HIPAA, etc. Overhead (salaries, utilities, rent) Equipment maintenance Assuring proper use of medication Drug utilization review Preferred drug list compliance Counseling patient Consulting with physician Medication therapy management Continuing education and training

    8. Growing Costs, Shrinking Profits Staff pharmacist wages have doubled in the last 10 years Support staff wages, rent, utilities, and delivery costs have increased Gross margins have decreased 5.5% in the last 10 years OBRA 90 mandates patient counseling Waiving of co-payment mandates when recipient demonstrates the inability to pay Increased prior authorization burden on pharmacist resulting in additional time and transmissions costs

    9. CMS Explanation of Federal Statutory Requirements re Adequate Reimbursement Federal Medicaid law requires that provider payments be: consistent with efficiency, economy, and quality of care; and sufficient to enlist providers to the same extent that they are available to the general population in the same geographic area. August 12, 1994 letter to CMS regional offices said states are expected to: establish a reasonable dispensing fee level; document support for those fees through activities such as: audits and surveys of operational costs; compilation of data regarding professional salaries and fees; and analysis of compiled data regarding pharmacy overhead costs, profits, etc...

    10. State Medicaid Reimbursement Formulas are Multi-Faceted Pharmacies are paid for brand-name product at lesser of: AWP/WAC product cost + dispensing fee, OR Pharmacy’s “usual and customary” charge. Pharmacies are paid for “multi-source” (generic) product at lesser of: AWP/WAC product cost + dispensing fee, OR usual and customary charge, OR “Federal Upper Limit (FUL)” or State “maximum allowable cost (MAC)” rates. AWP is the manufacturer’s suggested list price for a wholesaler to charge a pharmacy for a drug. WAC is the price paid by the wholesaler for drugs purchased from the wholesaler’s suppliers (manufacturers).

    11. Medicaid Pharmacy Reimbursement Before the DRA Medicaid programs express product cost in terms of prices listed in price compendia: Discount off “average wholesale price (AWP minus x%),” OR Markup of “wholesale acquisition cost (WAC plus x%).”

    12. Medicaid Rx Payment Components: 1980 to 2004 (Current Dollars)

    13. Medicaid Drug Product & Dispensing Fee Payments as % of Rx Payments: 1990-2004

    14. Dispensing Fees Are Well Below the Cost to Dispense Ohio Medicaid Dispensing Fee: $3.70 Last increase to Medicaid Dispensing Fee: 20 cents, from $3.50 in 1998 1986 Fee: $3.12 National average Medicaid Dispensing Fee: $4.50 Average Cost to Dispense in Ohio: $10.23

    15. New Federal Upper Limits Under DRA Until now: Federal law has limited state Medicaid reimbursement for generic drugs, setting upper limits (FULs) based by federal agency CMS on the lowest price listed for all equivalent products. FULs set only after two generic copies enter market. Under DRA, beginning 2nd Qtr 2007: FULs to be set based on the lowest “average manufacturer price (AMP)” among equivalent products. No wholesale markup included. Discounts included (PBM, mail) not available to retailers. Use of lowest AMP as the basis for generic drug reimbursement significantly underpays pharmacies and threatens Medicaid beneficiary access to pharmacies FULs will be calculated as soon as first generic hits market.

    17. Advantages of Generics Average cost of generic under Medicaid nationally ˜ 1/6 average cost of brand name product Average generic/brand cost ratio in Ohio Medicaid: 1/8 Average Ohio Medicaid generic: $15 Average Ohio Medicaid brand: $117.50 Seven new generic versions in 2006 of: Ambien – Wellbutrin XL Lexapro – Zocor Mobic – Zoloft Pravachol (Total 5.3 percent of Ohio Medicaid drug spend) Coming soon in 2007: Generic Norvasc

    18. Impact of AMP-Based FULs Because public disclosure of AMP has been legally prohibited until now, exact impact of AMP-based FULs still unknown, but NACDS estimated impact on pharmacy (calculated using data published in federal reports): Reduction in pharmacy reimbursement for generic product: 50% to 70% on average Reduction in total reimbursement for generic prescriptions after including dispensing fees: approximately 25%

    19. DRA Impact for Ohio Pharmacies Projected total national impact on pharmacy 2006 to 2010: $3.6B. CMS projected total national impact 2007 to 2011: $8B. GAO Projection: AMP-based FULs will be 36% below pharmacies cost to acquire the drugs, 65% below cost of more expensive generics. NACDS Projected OH impact per generic prescription: $4.30 per prescription. NACDS Projected total loss over 12 months for OH pharmacies: $63.22 million.

    20. Grant Thornton Cost of Dispensing Study Grant Thornton, LLP, and MPI were engaged by the Coalition for Community Pharmacy Action (CCPA) on behalf of the National Association of Chain Drug Stores (NACDS) and the National Community Pharmacists Association (NCPA). The 2006 Cost of Dispensing (COD) Report focused on overall COD and Medicaid COD for prescriptions filled during the period of March 2006 through August 2006. Purpose of the study was provide a comparative analysis of dispensing costs across all states and types of payers. Data was gathered from both independent and chain retail pharmacies using electronic and paper surveys.

    21. COD Survey was Nationwide Information was collected from: 832 million prescriptions dispensed by 23,152 pharmacies in all 50 states, the District of Columbia, and Puerto Rico. Data was analyzed to calculate: Nation-wide cost of dispensing on a per-prescription basis Nation-wide cost of dispensing on a per-store basis (that is, every store is counted equally, regardless of its prescription volume) Cost of dispensing for prescriptions filled by stores in rural locations and in urban locations Cost of dispensing by state

    22. COD Survey Findings

    23. BASIC FACTS Ohio Medicaid dispensing fees are ˜ 35 percent the cost to dispense. With implementation of AMP-based FULs, Ohio Medicaid will reimburse for generic drug products at 36 to 65 percent below cost of those products to pharmacy. OHIO PHARMACIES ARE BEING ASKED TO PARTICIPATE IN MEDICAID AT AN AVERAGE PER SCRIPT LOSS OF = 35 PERCENT!

    24. Impact of AMP-Based FULs & Unchanged Dispensing Fees Ohio’s Medicaid pharmacies may have to: Reduce hours Reduce staff Reduce services Worst case scenario: Close doors in low-income communities REDUCING OR CUTTING OFF PHARMACY ACCESS TO MEDICAID AND NON-MEDICAID PATIENTS Below-cost reimbursement for generics will create disincentives for Ohio pharmacies to encourage doctors and patients to use low-cost generics: 6-Fold increase in Medicaid Drug Costs?

    26. Ohio’s Pharmacies Seek … Increased dispensing fees for generic drugs Short term: Amount sufficient to offset losses under DRA ($4.30 plus $3.70 = $8.00) Using $25.5M savings to State from implementation of DRA plus 59.66 percent Federal match Long term: Amount sufficient to cover $10.23 dispensing costs and provide reasonable profit

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