RULES AND REGULATIONS
Title 55--PUBLIC WELFARE
DEPARTMENT OF PUBLIC WELFARE
[55 PA. CODE CH. 1121]
Pharmaceutical Services; Revisions to the State Maximum Allowable Cost for Pharmaceutical Services
[35 Pa.B. 4727] The Department of Public Welfare (Department), under the authority of sections 201(2), 403(b), 443.4 and 454 of the Public Welfare Code (code) (62 P. S. §§ 201(2), 403(b), 443.4 and 454), as amended by the act of July 7, 2005 (P. L. 177, No. 42) (Act 42), amends §§ 1121.2 and 1121.56 (relating to definitions; and drug cost determination) to read as set forth in Annex A.
Omission of Proposed Rulemaking
Act 42 amended the code by adding section 454. Section 454 of the code specifies that until December 31, 2005, notwithstanding any other provision of law, the Department must promulgate regulations to establish provider payment rates under section 204(1)(iv) of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. § 1204(1)(iv)), known as the Commonwealth Documents Law (CDL). That section authorizes an agency to omit or modify notice of proposed rulemaking when the regulation relates to Commonwealth grants or benefits. In addition, section 454 of the code expressly exempts provider payment rates from review under the Regulatory Review Act (71 P. S. §§ 745.1--745.15), and from review by the Attorney General under section 205 of the CDL (45 P. S. § 1205) and section 204(b) of the Commonwealth Attorneys Act (71 P. S. § 732-204(b)). Finally, section 454(a) and (b) of the code provides that the regulations shall specify the effective date for provider payment rates.
The Department is adopting this final-omitted rulemaking in accordance with section 454 of the code because the final-omitted rulemaking relates to provider payment rates. The final-omitted rulemaking also provides for the effective date for the provider payment rates.
Purpose
The purpose of this final-omitted rulemaking is to:
1. Amend the current Medical Assistance (MA) fee-for-service (FFS) methodology in Chapter 1121 (relating to pharmaceutical services) for determining the State maximum allowable cost (MAC) for multisource brand name and generic drugs. The Department will determine the State MAC at the lower of the following:
(i) The upper payment limit established by the Centers for Medicare and Medicaid Services (CMS).
(ii) Provided that the generic product is available at the price established by the Department from at least two wholesalers:
(a) If the generic product is available from more than one manufacturer, the base price of 150% of the lowest acquisition cost for the generic product, unless 150% of the lowest acquisition cost is not at least 120% of the second lowest acquisition cost, in which case the base price will be set at 120% of the second lowest acquisition cost.
(b) If the generic product is available from only one manufacturer, the base price of 120% of the acquisition cost for the generic product.
2. Amend the current MA FFS methodology in Chapter 1121 to provide the time frames for updating the State MAC.
3. Amend the current MA FFS methodology in Chapter 1121 to clarify the package size to be used for determining the product cost for nonbreakables.
Background
The Pennsylvania MA Program assures the availability of a wide array of medically necessary healthcare services, supplies and equipment to approximately 1.8 million indigent and disabled persons. Prescription drugs are among the healthcare services that the Commonwealth has opted to include in the MA benefit package. The prescription drug benefit contains two types of drugs: 1) drugs available from only one manufacturer that holds or held the patent for the drug, commonly referred to as single-source brand name drugs; and 2) drugs available from multiple manufacturers and distributors, commonly referred to as multisource drugs. A multisource drug typically includes both the brand name and the generic versions of the drug.
Under Federal law, the drug cost component of pharmacy reimbursement is based on the Estimated Acquisition Cost (EAC), which is defined as the state Medicaid ''agency's best estimate of the price generally and currently paid by providers for a drug marketed or sold by a particular manufacturer or labeler in the package size of the drug most frequently purchased by providers.'' See 42 CFR 447.301 (relating to definitions). Before August 10, 2005, the Department calculated the EAC for all drugs at the lower of the average wholesale price (AWP) minus 10% and has paid the lower of the EAC or the State MAC plus a $4 dispensing fee. See 25 Pa.B. 3978 (September 23, 1995). Yet, the MA Program continued to have one of the highest payment rates for prescription drugs in this Commonwealth.
States across the country are struggling to maintain their Medicaid programs as healthcare costs are increasing at a faster rate than state revenues, while the caseload of persons eligible for the program continues to grow. Rising drug costs play a major, if not the primary, role in escalating Medicaid costs. All three of these trends are affecting the Pennsylvania MA Program. The MA Program caseload is projected to increase by 5.9% in State Fiscal Year 2005-2006. MA costs for the State fiscal year are projected to increase by 6.7% while projected State revenues for the same period are projected to increase by only 2.8%. Expenditures for pharmaceutical services increased from $730,090,896 in calendar year 2002 to close to $1 billion in calendar year 2004, an increase of almost 37%.
The MA Program has responded to these challenges by implementing a number of initiatives designed to improve the efficiency and cost-effectiveness of the program while maintaining access to quality care for MA recipients. See 35 Pa.B. 4309 (August 6, 2005). Notwithstanding the savings associated with the success of these initiatives, in the face of ever-skyrocketing pharmacy expenditures, the Department cannot ignore the trends occurring in other state Medicaid programs and private third-party plans or the payment rates accepted by pharmacies in this Commonwealth, which show that the Department's pharmacy payment rates for both brand name and generic drugs were higher than those of virtually any other payor in this Commonwealth and many comparable Medicaid programs. The Pharmaceutical Assistance Contract for the Elderly (PACE) Program was the only publicly funded prescription drug program in this Commonwealth whose payment rates for drugs were as generous as those of the MA Program. The payment rates established by the Pennsylvania Employee Benefits Trust Fund and nearly all of the commercial third-party prescription drug programs in this Commonwealth, as well as the HealthChoices managed care organizations (MCOs) under contract to the Department to provide services to some 65% of the MA population, were significantly lower than those in the FFS delivery system.
In setting payment rates for pharmacy services in the MA Program, the Department seeks to assure that high quality pharmacy services are available to MA recipients to the same extent as to the general population in the same geographic area at the best possible price. As a prudent buyer of medical care for its recipients, the Department must be able to obtain rates similar to those extended to other third-party payors and other state Medicaid agencies. Pharmacy providers generally complain that the lower payment rates offered by third-party payors are unfair to them and have an adverse impact on recipient access. The pharmacy industry has on two occasions in the past voiced a similar complaint to the Department, predicting that reduced payment rates would restrict recipient access and diminish the quality of care: in 1995, when the Department revised the pharmacy payment methodology from AWP to AWP minus 10%, and again in 1998 when the HealthChoices MCOs lowered their pharmacy payment rates to below AWP minus 10%. At neither time did the revised payment rates result in less access for MA recipients to pharmacy services of high quality anywhere in this Commonwealth; they certainly did not result in less access than that enjoyed by the general public.
For all of these reasons, effective August 10, 1995, the Department revised its calculation of the EAC for both brand name and generic drugs. See 35 Pa.B. 4309. The Department had announced its intention to revise the methodology for determining the State MAC for multisource drugs at the same time. See 35 Pa.B. 3268 (June 4, 2005). After receiving comments in response to the public notice published at 35 Pa.B. 3268, the Department delayed implementation of a revised State MAC to allow for additional public comment after publishing more specific details regarding the proposed methodology for determining the State MAC. See 35 Pa.B. 4264 (July 30, 2005). Having considered the comments received in response to the public notice published at 35 Pa.B. 4264, the Department is revising the methodology for determining the State MAC as described in the public notice. The revised methodology will apply to those generic drugs that have received an ''A-rating'' from the United States Food and Drug Administration (FDA) and their brand name counterparts unless a State MAC price cannot be established. In those cases, the Department will pay the EAC as explained in the final-omitted rulemaking published at 35 Pa.B. 4309.
Generic versions of brand name drugs are reviewed and approved by the FDA using the same strict guidelines and inspections used to evaluate and approve brand name drugs. Generic drugs that meet the same standards for strength, quality and purity as the brand name drugs are given an ''A rating'' by the FDA and are considered to be equivalent to the brand name counterparts. Generically equivalent drugs contain the same active ingredients and come in the same strengths and dosage forms as the brand name counterparts. Therefore, the FDA assures that all ''A-rated'' generically equivalent drugs can be substituted for the brand name drug with the full expectation that the generic product will produce the same clinical effect and safety profile as the brand name product.
Equally safe and ''A-rated'' generically equivalent drugs are today available for many brand name drugs at a lower cost. The State MAC is the upper payment limitation that the Department sets on certain multisource drugs for which both the brand name product and at least one A-rated generically equivalent product is available. The State MAC sets a drug cost payment limit on each drug when the generic product has the same active ingredients, is in the same strengths and the same dosage form and is given by the same route of administration as the brand name product. The main purpose of a State MAC is to take advantage of the price differentials between the brand name product and the less expensive equivalent generic drugs.
Currently in the MA Program, the State MAC is comprised of: 1) drugs for which the Federal government has established a Federal upper limit; and 2) several other multisource drugs that do not have Federal upper limits (FUL).
The Federal upper limit is the maximum Medicaid payment limit established by the CMS on multiple source drugs that are listed as therapeutically equivalent to the brand name or single source drug in the most recent version of ''The Approved Drug Products with Therapeutic Equivalence Evaluations'' (known as the ''Orange Book''), and for which at least three suppliers list the ''A-rated'' drug as available for sale Nationally. Within each generic formulation, the Federal upper limit is set at 150% of the lowest-priced generic drug as listed in the three nationally recognized pricing services. See 42 CFR 447.332 (a)(1)(i)--(iii) and (b) (relating to upper limits for multiple source drugs).
For drugs that do not have FUL, the Department sets the State MAC for these other multisource drugs at the baseline price as determined using the drug price listed in available Nationally recognized pricing services such as FirstData Bank, Medi-Span and Micromedic. See § 1121.56(d)(1). The baseline price is defined as the recalculated mean average for a multisource drug product using only the prices within one standard deviation of the original mean average. See § 1121.2.
Many new generically equivalent products have become available on the marketplace for which the Federal government has not yet assigned a Federal upper limit and the Department has not yet established a baseline price. Therefore, no State MAC has been established, and the Department had been paying for these drugs at AWP minus 10%, even though the drugs were available at considerably lower cost. For this reason, the Department established a separate EAC for brand name and generic drugs, effective August 10, 2005. See 35 Pa.B. 4309. Even the revised EAC for generic drugs does not enable the Department to take full advantage of the prices that are reported to be currently available.
For example, in September 2002, the Office of the Inspector General of the United States Department of Health and Human Services (OIG) issued a report on actual acquisition pricing, entitled Medicaid Pharmacy-Additional Analysis of the Actual Acquisition Cost of Prescription Drug Products (Report #A-06-02-00041) available on the OIG's website at www.oig.hhs.gov/oas/reports/region6/60200041.htm. The objectives of this report were to develop estimates of the discount below AWP available for single-source drugs, all drugs without FUL, multisource drugs without FUL and multisource drugs with FUL. With respect to multisource drugs, the OIG concluded that pharmacies were able to purchase multisource drugs with FUL at an estimated discount of 72.1% below AWP and multisource drugs without FUL at an estimated discount of 44.2% below AWP.
In December 2004, the Congressional Budget Office (CBO) issued a report on Medicaid FFS reimbursement to pharmacies for prescription costs from 1997 to 2002, available on the CBO's website at www.cbo.gov/showdoc.cfm?index=6038&sequence=0. As explained in the report:
One of the main factors behind high markups for some types of drugs was Medicaid's reimbursement system. That system relies on the published list prices of drugs (which are largely set by manufacturers) to determine pharmacies' reimbursements, instead of using the actual cost of the drugs to the pharmacies. States reimburse pharmacies using formulas that are typically based on the average wholesale price (AWP) of a drug, which (like the sticker price on a car) is a published list price that few purchasers actually pay. For example, a state might reimburse a pharmacy 85 percent to 90 percent of the average wholesale price of a drug plus a fixed dollar amount of $3 to $5 (as a dispensing fee) to cover the pharmacy's other costs. By relying on list prices, Medicaid's reimbursement formulas lead to large markups on drugs that have large differences between their list price and the price that the pharmacy actually pays . . . .Especially in the case of a newer generic drug, manufacturers have an incentive to set a high list price but to make the drug available to pharmacies at a significantly lower price. A relatively high markup on a generic drug gives a pharmacist an incentive to substitute that drug for another generic or brand-name drug. When a new generic drug becomes available, manufacturers can compete for the pharmacy's business partly by setting a high list price and a low actual price for the pharmacy . . . .www.cbo.gov/showdoc.cfm?index=6038&sequence=0. The report noted that an incentive to maintain high list prices diminishes over time, largely because the States' payment rates become subject to the FUL. www.cbo.gov/showdoc.cfm?index=6038&sequence=0. As also observed in the report, however, there is sometimes a delay before CMS establishes a Federal upper limit. www.oig.hhs.gov/oei/reports/oei-03-02-00670.pdf.
Many private, commercial third-party payors previously used the FUL to establish the size and pricing of their MACs. Almost all have adopted an expanded MAC list, including more generic drugs than on the Federal upper limit list. Public third-party payors such as HealthChoices MCOs and the Pennsylvania Children's Health Insurance Programs (CHIP), as well as other state Medicaid agencies are also adopting expanded MAC lists. See the report on the CBO's website at www.cbo.gov/showdoc.cfm?index=6038&sequence=0.
Like these other payors, the Department will revise the methodology to determine the State MAC to take advantage of the prices that are now available.
Before selecting a new State MAC methodology, the Department reviewed the state MAC Programs of other state Medicaid programs and the impact those programs have on recipient access to drugs. That review revealed that some MAC methodologies were so aggressive that they prompted legitimate concerns about whether pharmacists could buy the drugs at the established prices, thereby presenting a barrier to access. Taking the lessons learned from those state Medicaid programs, the Department's methodology encompasses not only a quantitative pricing calculation but also ongoing monitoring to assure that drugs are in fact available at the State MAC.
Based on its review of existing reports addressing the cost of multisource drugs as well as the MAC programs of other States, the Department is revising its MAC methodology both by subjecting all eligible drugs to the same methodology and by changing the pricing calculation.
Rather than applying the Federal upper limit to all drugs for which the CMS has established limits, the Department will set the State MAC for all multisource brand name and generic products at the lower price of the Federal upper limit or the State MAC calculation. The State MAC calculation borrows from the methodology that the CMS uses to establish the FUL, but the Department has included additional safeguards in the methodology to assure that the drug is available at the established price. In addition, the Department will also consider the financial impact of the Federal rebate before subjecting a newly approved generic drug to State MAC pricing. In some cases, primarily for a period of time after a branded drug loses patent protection, it might be more advantageous for the Department to pay the brand name product and receive the Federal rebate than to pay the State MAC price for the generic product.
In summary, the Department will establish the State MAC for brand name and ''A-rated'' therapeutically equivalent generic multisource drugs at the lower of the following:
1. The upper payment limit established by the CMS.
2. Provided that the generic product is available at the price established by the Department from at least two wholesalers:
(a) If the generic product is available from more than one manufacturer, the base price of 150% of the lowest acquisition cost for the generic product, unless 150% of the lowest acquisition cost is not at least 120% of the second lowest acquisition cost, in which case the base price will be set at 120% of the second lowest acquisition cost for the generic product.
(b) If the generic product is available from only one manufacturer, the base price of 120% of the acquisition cost.
The purpose of including a separate base price in those situations where the generic product is available from only one manufacturer is to recognize the two primary pharmacy markets, chains and independents, as well as rural versus urban locations, and their respective purchasing options. This State MAC provision takes into account additional market forces, such as the costs related to the carrying of inventory, which is not considered a component of the dispensing fee.
In calculating the State MAC, the MAC price will be calculated based on the typical use of 100-count bottles, or smaller sizes if 100-count bottles are not manufactured. An exception to this requirement is where standard practice patterns preclude this requirement, for example the situation where oral contraceptives are packaged only in a 28-day supply. Larger bottle sizes may be used to calculate the MAC price based on typical pharmacy stocking patterns if, for example, a particular product is typically purchased in 1,000-count bottles. In no case, however, will the MAC price be calculated using repackaged drugs.
The Department, in establishing the State MAC, has included additional safeguards. The Department will require the use of a National database of wholesaler information to ensure that only those products that are readily available will be used to develop the MAC price points. The generic product must have no manufacturing problems or shortages. The Department will monitor and verify drug shortage information through pharmacies, National drug wholesalers and public information as well as the National pricing services. Even after a MAC price is established for a drug, the Department will suspend the drug from the State MAC if these conditions are not met.
The revised EAC for the drug cost component of generic drugs, published as final-omitted rulemaking at 35 Pa.B. 4309 and the revised State MAC methodology enacted through this amendment, aligns the Department's payment methodology for generic drugs with those of other public payors and more closely approximates the cost of generic drugs, as reported by both the OIG and the CBO. These measures enable the Department to purchase generic drugs at the best possible price and provide access to pharmaceutical services to MA recipients.
The Department is also making two additional revisions to the State MAC payment methodology relating to the timeframes for updating of the State MAC and clarifying the package size to be used for determining the product cost for nonbreakables.
The Department currently updates the State MAC based on two timeframes:
(1) The time frame established by the CMS when CMS issues the FUL.
(2) For multisource drugs not subject to the CMS FUL, every 6 months.
The Department will retain the current CMS FUL timeframe for multisource drugs where the price has been established at the CMS FUL. However, to ensure that the Department is able to respond to and benefit from the frequent pricing changes occurring in pharmacy pricing the Department has revised the timeframe for updating all other multisource drug State MAC pricing to every 3 months as opposed to every 6 months.
In addition, the Department has made a technical revision to the package sizes the Department will use for the purpose of determining the product cost as it relates to nonbreakables, for example, ointments and creams. The Department will use the smallest size available. The use of the smallest size will provide for a price that will help ensure availability of the product as there are instances where manufacturers do not produce the nonbreakables in larger sizes.
Requirements
Section 1121.2 is amended to delete the definition of ''BaseLine price.'' Section 1121.56 is amended to revise the methodology for calculating the State MAC for multisource drugs, clarification of common package sizes and the timeframe for updating the State MAC.
Affected Individuals and Organizations
Pharmacies and other providers that dispense prescription drugs to MA recipients will be affected by this final-omitted rulemaking, which revises the methodology for determining the State MAC for brand name and generic multisource drugs.
Accomplishments and Benefits
This final-omitted rulemaking aligns the Department's pharmacy payment rates within those of other private third-party payors in this Commonwealth as well as comparable or contiguous state Medicaid programs by expanding the State MAC methodology to include more multisource drugs. The final-omitted rulemaking enables the MA Program to take advantage of all available generic drug pricing opportunities and potential savings while maintaining recipient access to medically necessary drugs.
Fiscal Impact
This final-omitted rulemaking will result in reduced payments to pharmacies enrolled in the MA Program. The Commonwealth will realize $22.353 million ($10.279 million in State funds) in savings in Fiscal Year 2005-2006.
Paperwork Requirements
No new or additional paperwork requirements result from the adoption of this final-omitted rulemaking.
Public Process
The Department published an advance public notice at 35 Pa.B. 3268 announcing its intent to revise the payment methodology for both brand name drugs and generic drugs. The Department invited interested persons to comment on the proposed changes. In response to comments received, the Department published a second advance public notice at 35 Pa.B. 4264 describing the proposed State MAC methodology in greater detail and inviting additional public comment on the proposed methodology. Five commentators, including two trade associations, provided additional comment.
Before publishing the public notice at 35 Pa.B. 3268, the Department presented a copy of the proposed regulation, including the revised State MAC pricing methodology for multisource drugs, at the Medical Assistance Advisory Committee (MAAC) meeting on December 9, 2004. In addition, the Department discussed the revised payment methodology for both brand name and multisource drugs at the MAAC meeting on February 24, 2005, and shared an advance copy of the public notice announcing the proposed revision to the pharmacy payment methodology for brand name and multisource drugs at the May 26, 2005, MAAC meeting. The Department received no comments from the MAAC.
At the MAAC meeting on July 28, 2005, the Department informed the MAAC that it would publish a new public notice to allow for additional comment and provided the email address to which comments could be sent in addition to the usual mailing address.
Discussion of Comments
Most of the comments received in response to the public notice published at 35 Pa.B. 4264 were duplicative of those received in response to the notice issued at 35 Pa.B. 3268, which were addressed at the final-omitted rulemaking at 35 Pa.B. 4309. Following is a summary of the comments received that were not addressed in the final-omitted rulemaking and the Department's response to those comments.
Comment
Three commentators complained that pharmacies have to cover copayments if an MA recipient cannot pay, with one commentator requesting that the Department should be liable for any copayments that recipients cannot pay.
Response
The Department has required recipient copayment since September 1, 1984, and has informed providers, as set forth in § 1101.63(b)(5) (relating to payment in full), that the amount of the copayment will be deducted from the Commonwealth's payment to the provider. In addition, as set forth in § 1101.63(b)(8), the Commonwealth has informed providers of their responsibility to provide services even if the MA recipient is unable to pay the copayment amount as well as their right to attempt to collect the copayment amount.
The amendments to the recipient pharmacy copayment liability will be mitigated to the extent recipients will accept generic drugs.
Comment
One commentator observed that reducing the payment rates for generic products does not encourage the use of generics and suggested that the Department should support pharmacies that dispense generic medications.
Response
While the commentator provided no specifics, the Department has already implemented pharmacy changes to encourage the use of generics. Among these changes are mandatory substitution requirements and specific drug prior authorization criteria. In addition, through planned revisions to pharmacy copayments, the Department intends to raise the recipient copayment for brand name drugs and either will maintain or decrease the copayment for generic drugs. Thus, the Department will provide an incentive for prescribing and dispensing of generic drugs. These changes will be implemented in a future rulemaking.
Comment
One commentator suggested that the Department should have taken into consideration the budget effect of 250,000 dual eligible recipients transferring to the Medicare Part D Drug Program on January 1, 2006, as well as the savings from the prior authorization of Proton Pump Inhibitors (PPI), before revising the pharmacy payment rates.
Response
The Department continues to review any potential savings as a result of the implementation of the Part D pharmacy benefit for dual eligibles. The review, taking into consideration the required State phase-down contributions under Medicare Part D, currently projects no net savings to the Department.
The Department has benefited from savings through the prior authorization of PPI. However, while generating certain savings to the Department, this prior authorization's primary purpose was to bring the Department in line with current industry pharmacy standards from both a quality of care and fiscally prudent standpoint.
Comment
One commentator repeated concerns submitted to the Department on July 22, 2005, asking the Department to specify how the Department will establish the State MAC and to request a delay until there is a ''study'' of the pharmacy payment proposals. The commentator also alleged that when North Carolina implemented a similar state MAC, it experienced operational issues.
Response
The Department, in response to comments regarding the public notice published at 35 Pa.B. 3268, thereafter published the methodology to establish the State MAC at 35 Pa.B. 4264. The commentator did not raise specific concerns regarding the actual methodology proposed by the Department.
As to the request that the Department perform a ''study'' prior to implementing pharmacy payment changes, the Department, as previously stated, has already performed studies and has reviewed studies regarding pharmacy pricing conducted by other agencies. For example, the OIG's report, entitled ''Medicaid Pharmacy-Additional Analysis of the Actual Acquisition Cost of Prescription Drug Products,'' issued September 2002, found that pharmacies were able to purchase multisource drugs, without Federal upper limits, with an estimated discount of 44.2% below AWP. The Department also reviewed the pharmacy pricing methodologies of other states' Medicaid programs, as well as other third-party payors in this Commonwealth. The Department determined that the revised State MAC methodology will align its payment policies with those of other payors. Regarding the statement that the Department did not comply with the obligation of section 2213-A of The Administrative Code of 1929 (71 P. S. § 581-13), the Department has previously addressed this issue. See 35 Pa.B. 4309.
In regard to the MAC Program in North Carolina, which is similar to that being implemented in this Commonwealth, the Department contacted the contractor administering the state MAC as well as North Carolina State staff to discuss their experience in implementing the MAC. North Carolina staff reported that there have been no significant administrative issues and that no additional staff was needed to address complaints.
Regulatory Review Act
Under section 454 of the code, this final-omitted rulemaking is not subject to review under the Regulatory Review Act.
Findings
The Department finds that:
(1) Notice of proposed rulemaking is omitted in accordance with section 204(1)(iv) of the CDL and 1 Pa. Code § 7.4(1)(iv) because the final-omitted rulemaking relates to Commonwealth grants and benefits.
(2) Adoption of this final-omitted rulemaking in the manner provided by this order is necessary and appropriate for the administration and enforcement of the code.
Order
The Department, acting under the code, orders that:
(a) The regulations of the Department, 55 Pa. Code Chapter 1121, are amended by amending §§ 1121.2 and 1121.56 to read as set forth in Annex A.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel for approval as to legality and form as required by law.
(c) The Secretary of the Department shall certify and deposit this order and Annex A with the Legislative Reference Bureau as required by law.
(d) This order takes effect on August 22, 2005.
ESTELLE B. RICHMAN,
SecretaryFiscal Note: 14-499. No fiscal impact; (8) recommends adoption. Implementation of the notice will generate savings to the General Fund beginning in Fiscal Year 2005-2006 of $10.279 million.
Annex A
TITLE 55. PUBLIC WELFARE
PART III. MEDICAL ASSISTANCE MANUAL
CHAPTER 1121. PHARMACEUTICAL SERVICES
GENERAL PROVISIONS § 1121.2. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
AWP--The average wholesale price for a drug as found in the Department's pricing service publication.
Brand name--A registered trade name commonly used to identify a drug.
Compounded prescription--A prescription that is prepared in the pharmacy by combining two or more ingredients and involves the weighing of at least one solid ingredient which shall be a compensable item or a legend drug in a therapeutic amount.
Department's pricing service--A Nationally recognized pricing guide currently under contract with the Department, selected by competitive bids consistent with the Commonwealth procurement practices, which can supply the Department with services needed to maintain the drug reference file under this chapter.
DESI drug--A drug product for which Federal Financial Participation (FFP) is not available under 42 CFR 441.25 (relating to less than effective drugs).
Experimental drug--A drug or product currently being investigated under licensure by the Food and Drug Administration (FDA) to determine its safety and effectiveness.
Federal upper limit--The per unit amount set for a multisource drug which is established by the HCFA under 42 CFR 447.331--447.333 (relating to upper limits for multisource drugs).
HCFA--The Health Care Financing Administration.
HCFA multisource drug--A multisource drug identified by the HCFA for which FFP is limited under 42 CFR 447.331--447.333.
Legend drug--A drug or product that under Federal law or State law can be dispensed only upon the order of a physician.
Licensed prescriber--A person currently licensed under the law of a state to order medication.
Multisource drug--A drug marketed or sold by two or more manufacturers or labelers or a drug marketed or sold by the same manufacturer or labeler under two or more different proprietary names or both under a proprietary name and without such a name.
Nonlegend drug--A drug or product that can be purchased without a prescription.
OBRA '90--The Omnibus Budget Reconciliation Act of 1990 (Pub. L. No. 101-508, 104 Stat. 1388).
State MAC--The maximum allowable cost established for a multisource drug.
Usual and customary charge--The pharmacy's lowest net charge an MA recipient would pay for a prescription as a non-Medicaid patient at the time of dispensing for the same quantity and strength of a particular drug or product, including all applicable discounts, such as special rates to nursing home residents, senior citizens, or other discounts extended to a particular group of patients. This lowest net price does not apply to special in-store rates or discounts extended to charitable organizations, religious groups, store employees and their families, nonprofit organizations, members of the medical profession or other similar non-Medicaid groups.
PAYMENT FOR PHARMACEUTICAL SERVICES § 1121.56. Drug cost determination.
(a) The Department will base its drug cost for compensable legend and nonlegend drugs on the lower of:
(1) The Estimated Acquisition Cost (EAC) established by the Department as the current AWP found in the Department's pricing service for the most common package size of that product minus 10%.
(2) The State MAC established by the Department.
(b) The Department will update the EAC for individual drugs on a monthly basis as it appears in the Department's pricing service.
(c) HCFA establishes lists that identify and set Federal upper limits for the HCFA multisource drugs and provides the listing of these drugs and revisions to the list to the Department through Medicaid manual transmittals on a periodic basis.
(d) The Department will determine the State MAC by one of the following methods:
(1) For multisource drugs, the Department will set the State MAC at the lower of the following:
(i) The upper payment limit established by the CMS.
(ii) Provided that the generic product is available at the price established by the Department from at least two wholesalers:
(A) If the generic product is available from more than one manufacturer, the base price of 150% of the lowest acquisition cost for the generic product, unless 150% of the lowest acquisition cost is not at least 120% of the second lowest acquisition cost, in which case the base price will be set at 120% of the second lowest acquisition cost.
(B) If the generic product is available from only one manufacturer, the base price is 120% of the acquisition cost for the generic product.
(2) For disposable insulin syringes, the Department will set the State MAC at the amount listed in the MA Program Fee Schedule.
(e) The Department will update the State MAC:
(1) If the State MAC for a multisource drug is set at the Federal upper payment limit established by CMS, the Department will apply the Federal upper limits for CMS multisource drugs to be effective on the date established by CMS and will describe the update to each pharmacy enrolled in the MA Program when it is available.
(2) The Department will apply the price for all other State MAC multisource drugs every 3 months, and will distribute the update to each pharmacy enrolled in the MA Program.
(f) With the exception of the HCFA multisource drugs, the Department will make further additions to the list of State MAC drugs after consultation with the Medical Assistance Advisory Committee as to whether the application of a State MAC is cost effective to the Department for a particular multisource drug. The Department will add the HCFA multisource drugs to the State MAC list effective as of the effective date established by HCFA.
(g) With the exception of disposable insulin syringes, the State MAC does not apply if the conditions are met as described in § 1121.53(b)(1) and (2) (relating to limitations on payment).
(h) The most common package size for the purposes of determining the product cost is one of the following:
(1) For capsules, tablets and liquids available in breakable package sizes:
(i) The listed package size if only one package size is listed.
(ii) The 100 or pint package size if more than one package size is listed.
(iii) The next smaller package size from the 100 or pint size, excluding a drug company's unit-dose package size, if more than one package size is listed other than the 100 or pint package size.
(iv) The package size closest to the 100 or pint package size, excluding a drug company's unit-dose package size, if the next smaller package is the unit-dose package size.
(2) The listed package size for all dosage forms available for all nonlegend drug products.
(3) The smallest package size for all dosage forms available in nonbreakable packages.
[Pa.B. Doc. No. 05-1561. Filed for public inspection August 19, 2005, 9:00 a.m.]
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