Title of Regulation: 12VAC30-80. Methods and Standards for Establishing Payment Rates; Other Types of Care (amending 12VAC30-80-40).

Statutory Authority: § 32.1-325 of the Code of Virginia; 42 USC § 1396 et seq.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: December 28, 2018.

Agency Contact: Emily McClellan, Regulatory Supervisor, Department of Medical Assistance Services, 600 East Broad Street, Suite 1300, Richmond, VA 23219, telephone (804) 371-4300, FAX (804) 786-1680, or email emily.mcclellan@dmas.virginia.gov.

Basis: Section 32.1-325 of the Code of Virginia grants to the Board of Medical Assistance Services the authority to administer and amend the State Plan for Medical Assistance. Section 32.1-324 of the Code of Virginia authorizes the Director of the Department of Medical Assistance Services (DMAS) to administer and amend the State Plan for Medical Assistance according to the board's requirements. The Medicaid authority, as established by § 1902(a) of the Social Security Act (42 USC § 1396a), provides governing authority for payments for services. Chapter 780, Item 306 OO of the 2016 Acts of Assembly and Chapter 836, Item 306 OO of the 2017 Acts of Assembly direct the agency to promulgate emergency regulations to implement a pricing methodology to modify or replace the current pricing methodology for pharmaceutical products as defined in 12VAC30-80-40 within 280 days or less from the enactment of the act. These proposed regulations follow emergency regulations, which are already in place.

Purpose: DMAS is proposing this regulatory change to 12VAC30-80-40 to meet the requirements of the Centers for Medicare and Medicaid Services (CMS) final rule and to comply with Virginia budget appropriations language that requires DMAS to implement a pricing methodology that is cost neutral or creates cost savings. In order to develop a pricing methodology that meets both the requirements of the new rule and that is cost neutral or creates cost savings, DMAS proposes to utilize the CMS national average drug acquisition cost (NADAC), which is offered by CMS to meet, in part, their definition of average acquisition cost (AAC). NADAC is based on a comprehensive national survey carried out on behalf of CMS that provides wholesale purchase prices of all covered drugs by retail community pharmacies in the United States and published weekly by CMS.

In order to establish a reasonable dispensing fee that meets the CMS definition of AAC and a "professional dispensing fee" referenced in the proposed regulation, DMAS, in collaboration with Myers and Stauffer, a nationally recognized leader in developing pricing, carried out a cost of dispensing survey in 2014. Myers and Stauffer determined that the weighted average cost of dispensing prescriptions to Virginia Medicaid members is $10.65. DMAS then carried out a fiscal impact analysis using the most recent nine months of prior pharmacy claims data and a spread of dispensing fees ranging from $10 to $10.75. This fiscal impact analysis concluded that DMAS would obtain cost savings ranging between $0.2 and $1.3 million dollars per year, in addition to saving $88,000 per year with the elimination of the Virginia maximum allowable cost (VMAC) program by using the NADAC. This action is not expected to have an effect on the health, safety, or welfare of Medicaid individuals or the citizens of the Commonwealth.

Substance: DMAS proposes to change its fee-for-service pricing methodology in 12VAC30-80-40 from the lessor of payment logic that reimburses Medicaid-enrolled pharmacies for drug ingredients based on the lowest of certain costs and a dispensing fee of $3.75 with a new pricing methodology using the NADAC and a dispensing fee that reflects the actual costs of dispensing by Virginia Medicaid pharmacies. The new pricing methodology will reimburse pharmacies for drug ingredients based on the lowest of NADAC, wholesale acquisition cost, or usual and customary charge plus a dispensing fee of $10.65. This dispensing fee was obtained utilizing a methodologically sound cost of dispensing survey carried out by Myers and Stauffer.

Current policy: In current state regulation (12VAC30-80-40), DMAS utilizes an estimated acquisition cost (EAC) methodology to pay pharmacies that is based on a "lessor of" logic that reimburses pharmacies using either the federal upper payment limit, Virginia's maximum allowable cost, Virginia's specialty maximum allowable cost, the estimated acquisition cost (EAC) or the provider's usual and customary (U&C) amount plus a dispensing fee, whichever is less. Virginia's current EAC is based on the published average wholesale price minus a percentage discount established by the Virginia General Assembly (12VAC30-80-40). The current DMAS dispensing fee is $3.75, which does not reflect actual dispensing costs and does not meet the CMS proposed definition of a "professional dispensing fee."

Issues: Current state regulations governing Virginia Medicaid fee-for-service prescription drug pricing methodology under 12VAC30-80-40 no longer comply with federal regulations. In order for the Commonwealth to comply with federal regulations that govern how Virginia reimburses drug ingredient costs under its Medicaid fee-for-service programs, DMAS is required to change its drug ingredient cost pricing methodology and dispensing fee reimbursement rate to meet the new definition of "AAC" and "professional dispensing fee."

Recommendations: DMAS is proposing regulatory changes to 12VAC30-80-40 that eliminate the lessor of pricing logic and replace it with the NADAC wholesale price survey and that reimburse Medicaid enrolled Virginia pharmacies a professional dispensing fee based on the actual cost of dispensing, which is based on a methodologically sound, statewide survey of pharmacies carried out by Myers and Stauffer. This proposed methodology meets both the federal regulatory requirements and the current Virginia appropriations language, which requires DMAS to develop a drug pricing methodology that is cost neutral or produces cost savings.

Issues: The primary advantage of this regulatory action for the public and the agency is that it will allow DMAS to comply with federal regulations. There are no disadvantages to the public, the agency, or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation The proposed action implements a Centers for Medicare and Medicaid Services (CMS) rule requiring states to pay pharmacies based on the drug's ingredient cost plus a professional dispensing fee.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. Pursuant to the federal Affordable Care Act, CMS published a final rule in the Federal Register on February 1, 2016¹ that requires states to pay pharmacies based on the drug's ingredient cost, defined as the actual acquisition cost (AAC) plus a "professional dispensing fee." Consequently, the 2016 Acts of the Assembly, Chapter 780, Item 306.OO,² and the 2017 Acts of Assembly, Chapter 836, Item 306.OO,³ directed the Department of Medical Assistance Services (DMAS) to implement a pricing methodology to modify or replace the current pricing methodology for pharmaceutical products that is cost neutral or creates cost savings. DMAS implemented the new methodology on January 9, 2017 on federal authority. The emergency regulation to that effect became effective June 16, 2017.⁴ This action permanently implements the pricing methodology.

Prior to the CMS final rule, Virginia Medicaid utilized an estimated acquisition cost (EAC) methodology to pay pharmacies that was based on "lesser of" logic that reimbursed pharmacies using the federal upper payment limit, Virginia's maximum allowable cost (MAC), Virginia specialty maximum allowable cost, the estimated acquisition cost (EAC) or the provider's usual and customary amount plus a dispensing fee, whichever was less. Virginia's EAC was based on the published Average Wholesale Price (AWP) minus a percentage discount established by the Virginia General Assembly (12 VAC 30-80-40). This methodology did not meet the requirements of the new federal rule, and the dispensing fee of $3.75 did not reflect actual dispensing costs and did not meet the CMS definition of a "professional dispensing fee."

In order to establish a reasonable dispensing fee that meets the CMS definition of AAC and a "professional dispensing fee" referenced in their proposed rule, DMAS, in collaboration with a nationally recognized consulting company in developing pricing carried out a cost of dispensing survey in 2014. The consultant determined that the weighted average cost of dispensing prescriptions to Virginia Medicaid members was $10.65. That estimate translated in 2014 to $22.6 million annual increase in dispensing fee reimbursements.⁵

DMAS also chose to utilize the CMS National Average Drug Acquisition Cost (NADAC), which is offered by CMS to meet, in part, their definition of AAC. NADAC is based on a comprehensive national survey carried out on behalf of CMS that provides wholesale purchase prices of all covered drugs by retail community pharmacies in the United States (U.S) and published weekly by CMS. When NADAC is not available, the new methodology provides reimbursement at the lowest of the wholesale acquisition cost or the provider's usual and customary charge. The new methodology was estimated in 2014 to reduce annual reimbursements for drug ingredients by $21.3 million offsetting largely the anticipated increase due to the higher dispensing fee.

DMAS reports that the new methodology has been cost neutral as expected. In addition, the new methodology has already been in effect. Thus, no significant economic impact is expected upon promulgation of this permanent regulation. The main impact is increasing reimbursements for dispensing costs while reducing reimbursements for ingredient costs. The U.S. Office of the Inspector General has repeatedly demonstrated that AWP, which the previous Virginia methodology was based on, often overstated drug prices and inflated the reimbursements.⁶ As explained above the proposed dispensing fee was based on a survey and was reflective of actual dispensing costs. Therefore, although there appears to be no significant difference in total reimbursement to pharmacies, the proposed methodology is beneficial in the sense that it reflects more accurately the actual costs of ingredients and dispensing.

Businesses and Entities Affected. The proposed amendments primarily affect how provider pharmacies are reimbursed for their costs. There are approximately 1,400 pharmacies participating in Virginia Medicaid program.

Localities Particularly Affected. The proposed changes do not disproportionately affect any locality more than others.

Projected Impact on Employment. No impact on employment is expected.

Effects on the Use and Value of Private Property. No impact on the use and value of private property is expected.

Real Estate Development Costs. No impact on real estate development costs is expected.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. Some of the 1,400 participating pharmacies are small businesses. The proposed amendments do not impose costs on small businesses. The other effects on small pharmacies are as discussed above.

Alternative Method that Minimizes Adverse Impact. No adverse impact on small businesses is expected.

Adverse Impacts:

Businesses: The proposed regulation does not have an adverse impact on businesses.

Localities: The proposed regulation does not adversely affect localities.

Other Entities: The proposed regulation does not adversely affect other entities.

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¹https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf

²https://budget.lis.virginia.gov/item/2016/1/HB30/Chapter/1/306/

³https://budget.lis.virginia.gov/item/2017/1/HB1500/Chapter/1/306/

⁴http://townhall.virginia.gov/l/ViewStage.cfm?stageid=7358

⁵A $6.90 increase for 3,272,796 claims.

⁶https://oig.hhs.gov/oei/reports/oei-03-11-00060.pdf

Agency Response to Economic Impact Analysis: The agency has reviewed the economic impact analysis prepared by the Department of Planning and Budget and concurs with this analysis.

Summary:

Item 306 OO of Chapter 780 of the 2016 Acts of Assembly (the 2016 Appropriation Act) directed the Department of Medical Assistance Services (DMAS) to implement a pricing methodology to modify or replace the current pricing methodology for pharmaceutical products as defined in 12VAC30-80-40. The amendments conform the regulation to these requirements and to the federal drug pricing regulation, which was published at 81 FR 5170, requiring states to pay pharmacies based on a drug's ingredient cost, defined as the actual acquisition cost plus a professional dispensing fee.

12VAC30-80-40. Fee-for-service providers: pharmacy.

Payment for pharmacy services (excluding outpatient hospital) shall be the lowest of subdivisions 1 through 5 of this section (except that subdivisions 1 and 2 of this section will not apply when prescriptions are certified as brand necessary by the prescribing physician in accordance with the procedures set forth in 42 CFR 447.512(c) if the brand cost is greater than the Centers for Medicare and Medicaid Services (CMS) upper limit of VMAC cost) subject to the conditions, where applicable, set forth in subdivisions 6 and 7 of this section:

1. The upper limit established by the CMS for multiple source drugs pursuant to 42 CFR 447.512 and 447.514, as determined by the CMS Upper Limit List plus a dispensing fee. If the agency provides payment for any drugs on the HCFA Upper Limit List, the payment shall be subject to the aggregate upper limit payment test.

2. The methodology used to reimburse for generic drug products shall be the higher of either (i) the lowest Wholesale Acquisition Cost (WAC) plus 10% or (ii) the second lowest WAC plus 6.0%. This methodology shall reimburse for products' costs based on a Maximum Allowable Cost (VMAC) list to be established by the single state agency.

a. In developing the maximum allowable reimbursement rate for generic pharmaceuticals, the department or its designated contractor shall:

(1) Identify three different suppliers, including manufacturers that are able to supply pharmaceutical products in sufficient quantities. The drugs considered must be listed as therapeutically and pharmaceutically equivalent in the Food and Drug Administration's most recent version of the Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book). Pharmaceutical products that are not available from three different suppliers, including manufacturers, shall not be subject to the VMAC list.

(2) Identify that the use of a VMAC rate is lower than the Federal Upper Limit (FUL) for the drug. The FUL is a known, widely published price provided by CMS; and

(3) Distribute the list of state VMAC rates to pharmacy providers in a timely manner prior to the implementation of VMAC rates and subsequent modifications. DMAS shall publish on its website, each month, the information used to set the Commonwealth's prospective VMAC rates, including, but not necessarily limited to:

(a) The identity of applicable reference products used to set the VMAC rates;

(b) The Generic Code Number (GCN) or National Drug Code (NDC), as may be appropriate, of reference products;

(c) The difference by which the VMAC rate exceeds the appropriate WAC price; and

(d) The identity and date of the published compendia used to determine reference products and set the VMAC rate. The difference by which the VMAC rate exceeds the appropriate WAC price shall be at least or equal to 10% above the lowest-published wholesale acquisition cost for products widely available for purchase in the Commonwealth and shall be included in national pricing compendia.

b. Development of a VMAC rate that does not have a FUL rate shall not result in the use of higher-cost innovator brand name or single source drugs in the Medicaid program.

c. DMAS or its designated contractor shall:

(1) Implement and maintain a procedure to add or eliminate products from the list, or modify VMAC rates, consistent with changes in the fluctuating marketplace. DMAS or its designated contractor will regularly review manufacturers' pricing and monitor drug availability in the marketplace to determine the inclusion or exclusion of drugs on the VMAC list; and

(2) Provide a pricing dispute resolution procedure to allow a dispensing provider to contest a listed VMAC rate. DMAS or its designated contractor shall confirm receipt of pricing disputes within 24 hours, via telephone or facsimile, with the appropriate documentation of relevant information, for example, invoices. Disputes shall be resolved within three business days of confirmation. The pricing dispute resolution process will include DMAS' or the contractor's verification of accurate pricing to ensure consistency with marketplace pricing and drug availability. Providers will be reimbursed, as appropriate, based on findings. Providers shall be required to use this dispute resolution process prior to exercising any applicable appeal rights.

3. The provider's usual and customary charge to the public, as identified by the claim charge.

4. The Estimated Acquisition Cost (EAC), which shall be based on the published Average Wholesale Price (AWP) minus a percentage discount established by the General Assembly (as set forth in subdivision 7 of this section) or, in the absence thereof, by the following methodology set out in subdivisions a, b, and c of this subdivision.

a. Percentage discount shall be determined by a statewide survey of providers' acquisition cost.

b. The survey shall reflect statistical analysis of actual provider purchase invoices.

c. The agency will conduct surveys at intervals deemed necessary by DMAS.

5. Maximum allowable cost (MAC) methodology for specialty drugs. Payment for drug products designated by DMAS as specialty drugs shall be the lesser of subdivisions 1 through 4 of this section or the following method, whichever is least:

a. The methodology used to reimburse for designated specialty drug products shall be the WAC price plus the WAC percentage. The WAC percentage is a constant percentage identified each year for all GCNs.

b. Designated specialty drug products are certain products used to treat chronic, high-cost, or rare diseases; the drugs subject to this pricing methodology and their current reimbursement rates are listed on the DMAS website at the following internet address: http://www.dmas.virginia.gov/Content_pgs/pharm-home.aspx.

c. The MAC reimbursement methodology for specialty drugs shall be subject to the pricing review and dispute resolution procedures described in subdivisions 2 c (1) and 2 c (2) of this section.

6. Payment for pharmacy services will be as described in subdivisions 1 through 5 of this section; however, payment for legend drugs will include the allowed cost of the drug plus only one dispensing fee per month for each specific drug. Exceptions to the monthly dispensing fees shall be allowed for drugs determined by the department to have unique dispensing requirements. The dispensing fee for brand name and generic drugs is $3.75.

7. An EAC of AWP minus 13.1% shall become effective July 1, 2011. The dispensing fee for brand name and generic drugs of $3.75 shall remain in effect, creating a payment methodology based on the previous algorithm (least of subdivisions of this section) plus a dispensing fee where applicable.

A. Payment for covered outpatient legend and nonlegend drugs dispensed by a retail community pharmacy will include the drug ingredient cost plus a $10.65 professional dispensing fee. The drug ingredient cost reimbursement shall be the lowest of:

1. The national average drug acquisition cost (NADAC) of the drug, the federal upper limit (FUL), or the provider's usual and customary (U&C) charge to the public as identified by the claim charge; or

2. When no NADAC is available, DMAS shall reimburse at the lowest of the wholesale acquisition cost plus 0%, the FUL, or the provider's U&C charge to the public as identified by the claim charge.

B. Payment for specialty drugs not dispensed by a retail community pharmacy but dispensed primarily through the mail will include the drug ingredient cost plus a $10.65 professional dispensing fee. The drug ingredient cost reimbursement shall be the lowest of:

1. The NADAC of the drug, the federal upper limit (FUL), or the provider's U&C charge to the public as identified by the claim charge; or

2. When no NADAC is available, DMAS shall reimburse at the lowest of the wholesale acquisition cost plus 0%, the FUL, or the provider's U&C charge to the public as identified by the claim charge.

C. Payment for drugs not dispensed by a retail community pharmacy (i.e., institutional or long-term care facility pharmacies) will include the drug ingredient cost plus a $10.65 professional dispensing fee. The drug ingredient cost reimbursement shall be the lowest of:

1. The NADAC of the drug, the FUL, or the provider's U&C charge to the public as identified by the claim charge; or

2. When no NADAC is available, DMAS shall reimburse at the lowest of the wholesale acquisition cost plus 0%, the FUL, or the provider's U&C charge to the public as identified by the claim charge.

D. Payment for clotting factor from specialty pharmacies, hemophilia treatment centers, and centers of excellence will include the drug ingredient cost plus a $10.65 professional dispensing fee. The drug ingredient cost reimbursement shall be the lowest of:

1. The NADAC of the drug or the provider's U&C charge to the public as identified by the claim charge; or

2. When no NADAC is available, DMAS shall reimburse at the lowest of the wholesale acquisition cost plus 0% or the provider's U&C charge to the public as identified by the claim charge.

E. Section 340B covered entities and federally qualified health centers that fill Medicaid member prescriptions with drugs purchased at the prices authorized under § 340B of the Public Health Services Act (Chapter 6A of 42 USC (42 USC § 201 et seq.)) are reimbursed no more than the actual acquisition cost for the drug plus a $10.65 professional dispensing fee. Section 340B covered entities that fill Medicaid member prescriptions with drugs not purchased under § 340B of the Public Health Services Act are reimbursed in accordance with subsection A of this section plus the $10.65 professional dispensing fee as described in subsection I of this section.

F. Drugs acquired through the federal § 340B drug price program and dispensed by § 340B contract pharmacies are not covered.

G. Facilities purchasing drugs through the federal supply schedule (FSS) or drug pricing program under 38 USC § 1826, 42 USC § 256b, or 42 USC § 1396-8, other than the § 340B drug pricing program are reimbursed no more than the actual acquisition cost for the drug plus a $10.65 professional dispensing fee.

H. Facilities purchasing drugs at nominal price (i.e., outside of § 340B or FSS) are reimbursed no more than the actual acquisition cost for the drug plus a $10.65 professional dispensing fee. Nominal price as defined in 42 CFR 447.502 means that a price is less than 10% of the average manufacturer price (AMP) in the same quarter for which the AMP is computed.

I. Payment for pharmacy services are as described in subsections A through H of this section; however, they shall include the allowed cost of the drug plus only one professional dispensing fee, as defined at 42 CFR 447.502, per member per month for each specific drug. Exceptions to the monthly dispensing fees shall be allowed for drugs determined by the department to have unique dispensing requirements. The professional dispensing fee for all covered outpatient drugs shall be $10.65. The professional dispensing fee shall be determined by a cost of dispensing survey conducted at least every five years.

J. Physician administered drugs (PADs) submitted under the medical benefit are reimbursed at 106% of the average sales price (ASP) as published by the Centers for Medicare and Medicaid Services (CMS). PADs without an ASP on the CMS reference file are reimbursed at the provider's actual acquisition cost. Covered entities using drugs purchased at the prices authorized under § 340B of the Public Health Services Act for Medicaid members shall bill Medicaid their actual acquisition cost.

K. Payment to Indian Health Service, tribal, and urban Indian pharmacies. DMAS does not have any Indian Health Service, tribal, or urban Indian pharmacies enrolled at this time. Payment for pharmacy services will be defined in a state plan amendment if such entity enrolls with DMAS.

L. Investigational drugs are not a covered service under the DMAS pharmacy program.

8. M. Home infusion therapy.

a. 1. The following therapy categories shall have a pharmacy service day rate payment allowable: hydration therapy, chemotherapy, pain management therapy, drug therapy, and total parenteral nutrition (TPN). The service day rate payment for the pharmacy component shall apply to the basic components and services intrinsic to the therapy category. Submission of claims for the per diem rate shall be accomplished by use of the CMS 1500 claim form.

b. 2. The cost of the active ingredient or ingredients for chemotherapy, pain management and drug therapies shall be submitted as a separate claim through the pharmacy program, using standard pharmacy format. Payment for this component shall be consistent with the current reimbursement for pharmacy services. Multiple applications of the same therapy shall be reimbursed one service day rate for the pharmacy services. Multiple applications of different therapies shall be reimbursed at 100% of standard pharmacy reimbursement for each active ingredient.

9. N. Supplemental rebate agreement. The Commonwealth complies with the requirements of § 1927 of the Social Security Act and Subpart I (42 CFR 447.500 et seq.) of 42 CFR Part 447 with regard to supplemental drug rebates. In addition, the following requirements are also met:

a. 1. Supplemental drug rebates received by the state in excess of those required under the national drug rebate agreement will be shared with the federal government on the same percentage basis as applied under the national drug rebate agreement.

b. 2. Prior authorization requirements found in § 1927(d)(5) of the Social Security Act have been met.

c. 3. Nonpreferred drugs are those that were reviewed by the Pharmacy and Therapeutics Committee and not included on the preferred drug list (PDL). Nonpreferred drugs will be made available to Medicaid beneficiaries through prior authorization.

d. 4. Payment of supplemental rebates may result in a product's inclusion on the PDL.