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PAAS National®, Inc. Expert Third-Party Contract and Audit Advice 160 Business Park Circle • Stoughton, WI 53589 • 608-873-1342 • Fax: 608-873-4009

WhitepaperReport

CMSPharmacyAcquisitionCostSurveysofRetailPrescriptionPrices

By Edward Heckman, R.Ph. President

PAAS National®

June 18, 2012

This whitepaper is a resource to aid readers in understanding the CMS pricing surveys. PAAS National® used their best efforts to assemble a valuable resource of information but makes no warranties and assumes no liability of the consequences for any person or entity that employs any guidance contained herein. This whitepaper is a compilation and summary, paraphrased from many resources and represents the author’s interpretations and opinions. This whitepaper is not an official CMS publication and should not be construed as such. Readers are advised to consult other reference sources in making their own independent decisions regarding any actions related to the subject matter herein. Copyright© PAAS National® 2012 2 CMS Survey of Retail Prices 2012‐06 (PAAS)

WhitepaperReportonCMSSurveysofRetailDrugPrices

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CONTENTS1.0 Overview .............................................................................................................................. 4

1.1 Checklist for Paper Hard‐Copy Submission .......................................................................... 5

1.2 Checklist for Electronic Submission ..................................................................................... 6

2.0 Explanation of the CMS Surveys of Retail Prices Program .................................................. 7

2.1 Background ....................................................................................................................... 7

2.2 Part I—Retail Community Pharmacy Consumer Prices.................................................... 8

2.3 Part II—Retail Community Pharmacy Ingredient Costs ................................................... 8

2.4 Importance to community pharmacies ............................................................................ 9

2.5 History behind NADAC ..................................................................................................... 9

2.6 The Process ..................................................................................................................... 11

2.7 Will Medicaid use NADAC information? ........................................................................ 17

3.0 What community pharmacies need to know .................................................................... 18

3.1 Notify PAAS National® immediately ............................................................................... 18

3.2. Participation is Voluntary ............................................................................................... 18

3.3 Scope of survey—Invoices ONLY .................................................................................... 18

3.4 Should you participate? ................................................................................................. 18

3.5 How will my invoice purchase information be used? .................................................... 18

3.6 Confidentiality ................................................................................................................ 19

3.7 Limitations on the use of data ....................................................................................... 19

3.8 Non‐Disclosure Agreement ............................................................................................ 19

3.9 Additional Information—Updates .................................................................................. 20

3.10 Who is Myers & Stauffer LC? ...................................................................................... 20

4.0 Considerations if you decide to respond ........................................................................... 20

4.1 Confidentiality and Non‐Disclosure ............................................................................... 20

4.2 Request a Non‐Disclosure Agreement (NDA) ................................................................ 20

5.0 INSIGHTS, IMPLICATIONS, OPINIONS, PREDICTIONS ......................................................... 21

5.1 Where is CMS heading? ................................................................................................. 21



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5.2 Ultimate Impact on Pharmacy ....................................................................................... 21

5.3 Taxpayer costs of NADAC and NARP Surveys ................................................................ 21

5.4 Will NADAC replace AMP‐based FULs? .......................................................................... 21

5.5 States will flock to NADAC .............................................................................................. 21

5.6 Government History of Flawed Conclusions .................................................................. 22

5.7 Potential of skewed NADAC values ................................................................................ 22

5.8 Potential for perverse incentives ................................................................................... 22

5.9 Potentially anticompetitive ............................................................................................ 23

5.10 Brand reality check ..................................................................................................... 23



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ReportonCMSPharmacyAcquisitionCostSurveysofRetailPrescriptionPrices June 25, 2012 by Edward Heckman 1.0 OVERVIEW This whitepaper is provided to the member pharmacies of PAAS National® located in all 52 states across the country. This paper personifies our mission as an industry‐leading advocate of community pharmacies helping steer them away from trouble and toward compliance of rules and regulations. It is a resource to aid your understanding of the CMS pricing surveys. It represents a compilation and summary of information available on this topic. Readers are encouraged to consult other reference sources, call PAAS with questions and check with us for updates of this whitepaper.

CMS has initiated national Pharmacy Acquisition Cost Surveys of retail prescription prices. This whitepaper explains the key details of this new process. The first critical point of information for you to understand is that participation in the surveys is voluntary, your option, you may decline. If you are reading this whitepaper because your pharmacy has been selected and received notice of the survey, you are probably a bit anxious and want to know what steps to take and decision to make right away. As helpful quick start guidance, a checkbox list of action items is provided to help you make sure you hit the key steps. If you chose to participate you have the option to submit hard‐copy paper data or electronic data.

• If you decide to submit by paper, GO TO 1.1. • If you plan to submit electronically, GO TO 1.2.



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1.1 CHECKLISTFORPAPERHARD‐COPYSUBMISSION 1. Contact the PAAS National® call center immediately upon receipt of notice.

608‐873‐1342 [email protected]

2. Before submitting information, request a NDA from CMS (see 3.8) 3. Before submitting information, request a NDA from Myers & Stauffer (see 3.8) 4. Locate invoices for the requested time period. 5. Double check to make sure the invoices submitted are within the time frame requested. 6. Provide only the required data fields:

11‐digit NDC Invoice price Quantity purchased Purchase date Black‐out any other data fields

7. Print the word “CONFIDENTIAL” on every page (see 3.6) 8. Make sure to include the goldenrod cover sheet provided 9 Before submitting retain an exact copy for your records. 10. Mail with proof of delivery to:

Myers & Stauffer, LC Attention: CMS Pharmacy Survey 9265 Counselors Row, Suite 200 Indianapolis, IN 46240‐6419

11. Obtain the proof of delivery and add to your records copy.



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1.2 CHECKLISTFORELECTRONICSUBMISSION 1. Contact the PAAS National® call center immediately upon receipt of notice.

608‐873‐1342 [email protected]

2. Before submitting information, request a NDA from CMS (see 3.8) 3. Before submitting information, request a NDA from Myers & Stauffer (see 3.8) 4. Run an electronic purchase history report from your wholesaler(s) with the following

criteria: For the requested date range, include only these data fields: 11‐digit NDC Invoice price Quantity purchased Purchase date

5. Export and save the report (recommend Excel format). 6. Build a header into the report containing:

Pharmacy Name Pharmacy Address Pharmacy NCPDP number Add the word CONFIDENTIAL in all caps

7. Save a final copy for your records. 8. Send via email to:

[email protected] Subject: CMS Pharmacy Survey Request a Delivery Receipt Request a Read Receipt



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2.0 EXPLANATIONOFTHECMSSURVEYSOFRETAILPRICESPROGRAM 2.1 BACKGROUND On June 1, 2012 CMS selected 2,500 retail community pharmacies to receive the first wave of CMS monthly surveys to collect purchase invoices that will be used to calculate pharmacy acquisition costs of prescription drugs. The randomly selected pharmacies are requested to voluntarily submit their last month’s (in this case May 2012) invoices for their purchases of prescription and OTC drugs. The survey of pharmacy ingredient costs is actually Part II of a two‐phased federal government program. Part II—Retail Pharmacy Ingredient Cost Survey, is designed to focus on retail community pharmacy drug acquisition costs. The result will be a new pricing index titled National Average Drug Acquisition Cost (NADAC). Part I—Retail Community Pharmacy Consumer Price Survey has yet to commence. That project will focus upon collecting, determining and reporting average retail community pharmacy consumer prices on prescriptions that will be called National Average Retail Price (NARP). The government states that their motivation behind the pharmacy ingredient cost survey is to address the need to find a benchmark pricing replacement for AWP. They state “their plan is to establish an accurate, honest measure of pharmacy acquisition costs.” They feel the best method to accomplish this is by collecting many community pharmacy purchase prices for drugs and then aggregate them in order to establish a baseline price. Aggregated (not pharmacy specific) results of the monthly surveys will be published and updated on the www.Medicare.gov website. In 2011 CMS entered into a multi‐year contract with the accounting firm Myers & Stauffer, LC to perform these surveys. One of the many objectives of this program is to generate publically available prescription pricing reference files. Another objective is for these files to arm State Medicaid agencies with information they will use as a method to consider adjusting their payments to retail community pharmacies. At this time the surveys are limited to retail community pharmacies—chain and independent—and exclude long‐term care pharmacies as well as specialty pharmacies. In addition Myers & Stauffer will annually request backend price information from pharmacies—rebates, discounts, charge backs, free goods and others, from a smaller sample of pharmacies. While the government has not stated their specific purpose or how they will use the discount and rebate information, CMS has said that Myers & Stauffer will examine the effects of off‐invoice price concessions on the accuracy of NADAC values. CMS only seeks to understand the impact of how off‐invoice discounts operate at the pharmacy level.



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2.2 PARTI—RETAILCOMMUNITYPHARMACYCONSUMERPRICES CMS intends to create a new reference value, National Average Retail Price (NARP) as a benchmark of the prices consumers pay retail pharmacies for prescriptions. NARP will be based on actual, monthly market transactions and will be publicly posted on the www.Medicaid.gov website. CMS is developing their methodology to determine statistically valid consumer prices for outpatient drugs. CMS reports that NARP will be a unit price calculated by 11‐digit NDC and averaged to arrive at the NARP value for a drug. The NARP value will consist of a statistically weighted average from three payment sources. Those sources are cash consumers, patients with commercial prescription benefits and Medicaid prescriptions. At this point it is unclear what is specifically meant as “consumer prices.” It is likely that what CMS will ask for is the total reimbursed values of prescriptions, including copay plus sponsor payment. Part I also includes reporting by the States (Medicaid) of the payment and utilization rates of the 50 most widely used drugs. In addition a new drug report will be published monthly showing new to market single source drugs. Part I has yet to get off the ground. 2.3 PARTII—RETAILCOMMUNITYPHARMACYINGREDIENTCOSTS Part II focuses upon collecting information on retail community pharmacy ingredient costs. Initially this effort will consist of monthly surveys sent to 2,500 randomly selected pharmacies across the United States requesting them to voluntarily submit a month of invoices. The data from the surveys will be compiled to create CMS’s new drug acquisition cost benchmark, National Average Drug Acquisition Cost (NADAC) for all covered prescription drugs and OTCs. CMS believes that their NADAC reference values will become accepted industry wide as the new pricing benchmark to replace AWP for valuing the cost of drugs dispensed in retail community pharmacies. NADAC values will be updated monthly and weekly. A draft methodology titled “Part II: Draft Methodology for Calculating the National Average Drug Acquisition Cost (NADAC)” was released by CMS for review and comment in May 2012. This document spells out in detail how values will be calculated and adjusted. This document is available for download on the www.Medicaid.gov website or you can click the link below. http://www.google.com/url?sa=t&rct=j&q=Part+II%3a++Draft+Methodology+for+Calculating+the+National+Average+Drug+Acquisition+Cost&source=web&cd=1&ved=0CFMQFjAA&url=http%3A%2F%2Fmedicaid.gov%2FMedicaid‐CHIP‐Program‐Information%2FBy‐Topics%2FBenefits%2FPrescription‐Drugs%2FDownloads%2FNADACDraftMethodology.pdf&ei=v5LXT_b2FMXY2AXt6t2ODw&usg=AFQjCNFm5nTTwl4iL9EJxcXEO416yCkY4Q

The surveys will be stratified by a number of variables that are described in detail in other areas of this report.



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2.4 IMPORTANCETOCOMMUNITYPHARMACIES At this point in time it is difficult to understand the full impact of the surveys upon retail community pharmacies. They are likely to impact retail pharmacy reimbursement methodologies in the future, most likely Medicaid and or Medicare Part D first and then commercial drug plans may adopt NADAC as their benchmark. Because the surveys are voluntary, a pharmacy owner must decide if they will supply information or decline. And pharmacies that cooperate must understand their responsibilities and risks associated with any information they provide to the government as a result of these requests. 2.5 HISTORYBEHINDNADAC The history leading up to the start of the survey program is important to help a person gain an understanding of how we got to where we are at today. Key historical milestones and the role they play are discussed below. 2.5.1 Deficit Reduction Act of 2005

The Deficit Reduction Act of 2005 (DRA) amended Section 1927(f) of the Social Security Act by creating the authority for CMS to survey retail pharmacy prices, State payment and utilization rates and performance rankings. The details in the law establishes the criteria for the “determination on a monthly basis of retail survey prices for covered outpatient drugs that represent a nationwide average of consumer purchase prices for such drugs, net of all discounts and rebates.” The DRA also provides requirements for a competitive bidding process to select a contractor to provide these services.

2.5.2 The death decline of AWP

In 2005, class action litigation was filed against McKesson, First Databank and later Medi‐Span; alleging that the defendants colluded to form a deception that resulted in artificially inflating the AWP mark‐up of WAC values of 1,442 NDCs in 2001 and 2002. The protracted litigation resulted in a settlement approved by the court in 2009. One of the stipulations in the settlement rolled back the inflated AWP mark‐ups. First Databank and Medi‐Span took an even more drastic approach and on September 26, 2009, they rolled back the mark‐up factor on all brand name drugs by 4% across the board. Another stipulation attempted to phase out the publishing of AWP values. While First Databank discontinued publishing AWP values, Medi‐Span and the other pricing compendia reference sources did not and continue to publish and update these values.



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Although AWP continues to be published, and is still widely used as a pricing benchmark of brand name drugs, CMS proclaimed AWP dead and eulogized it by citing the need to find a replacement.

2.5.3 The great race to replace AWP Given the short timeframe after the settlement of the lawsuit and the pending extinction of AWP, a competitive race was created by pharmacy stakeholders to find and replace AWP with a benchmark that favored by their constituents. Stakeholders coalesced behind various industry associations. NCPDP assembled a task force to address the selection of a replacement for AWP and unofficially supported Wholesale Acquisition Cost (WAC) for brands and MACs for generic drugs. The NCPDP workgroup produced a draft whitepaper stating their opinions and recommendations. However, NCPDP made a decision not to finalize or publish their whitepaper. Meanwhile the National Association of State Medicaid Directors (NASMD) got behind an initiative started by Alabama Medicaid to establish a new price benchmark—Average Actual Acquisition Cost, calculated from invoice surveys of Alabama community pharmacies. Alabama conducted their first invoice surveys and also commissioned a cost of dispensing study. They were encouraged by the results and applied to CMS for a Special Plan Amendment (SPA) waiver to change to the average actual acquisition cost model. In June 2010 NASMD published their whitepaper entitled “Post AWP Pricing and Reimbursement” (http://hsd.aphsa.org/home/doc/SummaryofWhitePaper.pdf ) containing their recommendation to establish the NADAC pricing benchmark. CMS granted Alabama their waiver in fall 2010 and Alabama began using the survey results (Average Actual Acquisition Cost) to establish reimbursements to pharmacies. As a result of the cost‐of‐dispensing study, the pharmacy prescription dispensing fee was adjusted upwards to $10.64. Subsequently – Oregon received a similar SPA waiver from CMS. The key difference from Alabama is that Oregon established a different benchmark for chains than independents.

2.5.4 CMS initiates process to develop National Price Surveys

As a follow up to the DRA of 2005 and the perceived success of the NASMD initiative, in the summer of 2010 CMS circulated a request for proposal (RFP) to select an outside contractor to handle the survey program. In 2011 Myers & Stauffer, LC, an accounting firm based in Indianapolis, was awarded the multi‐year contract. In July 2011 the OIG published an analysis report, “Replacing Average Wholesale Price: Medicaid Drug



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Payment Policy” which set the table to justify the national approach to price surveys and establishing a national benchmark for prescription drug pricing. Following is a link to this study. http://www.google.com/url?sa=t&rct=j&q=Replacing+Average+Wholesale+Price%3a++Medicaid+Drug+Payment+Policy&source=web&cd=1&ved=0CFsQFjAA&url=http%3A%2F%2Fwww.oig.hhs.gov%2Foei%2Freports%2Foei‐03‐11‐00060.pdf&ei=05jXT_KkGIfM2gWO4_yYBA&usg=AFQjCNEmatUwGRvUr3HwCz90d_jsqcQjPg

2.6 THEPROCESS 2.6.1 Methodology Part I—NARP Survey Retail Community Pharmacy Consumer Prices

At this point CMS has not published the details of how Part I surveys will be used and the methods of calculating NARP. In fact at this time it is difficult to ascertain what the CMS definition is of consumer prices. As reported previously in this whitepaper, what we know is: • Surveys will be monthly. • NARP will be a unit price calculated by 11‐digit NDC. • The NARP value will consist of a statistically weighted average from three

payment sources. • The payment sources are cash consumers, patients with commercial prescription

benefits and Medicaid prescriptions. • A new drug report will be published monthly. • The States (Medicaid) will report the payment and utilization rates of the 50

most widely used drugs. • CMS will request State Medicaid agencies to annually submit information on

prescription drug payment and utilization rates. • States will be ranked according to their payment rates compared to NARP.

2.6.2 Methodology Part II—NADAC Survey Retail Community Pharmacy Ingredient Costs

2.6.2.1 Survey Notice and Random Sampling Each month survey requests will be sent to a random and representative sample of 2,000 to 2500 community pharmacies. Pharmacies will be requested to supply their last 30 days of invoices. CMS requests pharmacies to respond within 14 days. At this time long‐term care and specialty pharmacies are excluded. CMS estimates the universe of retail community pharmacies at 61,629. Pharmacies will be randomly selected from all 50 states. Therefore in any given month between 3.2% and 4.0% of the community pharmacy population will be selected. Pharmacies previously selected



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are not exempt from future months; their name immediately goes back into the hat—therefore a pharmacy could be selected in two or more consecutive months. The probability for a pharmacy to be selected is once every 25 to 31 months. CMS states there is a 5% chance of being selected twice in the same year. CMS stratifies random sampling in two ways to assure that the sampling distribution is representative of both numbers of pharmacies within States and pharmacy types—chain or independent.

To explain this process, the percent of pharmacies within a State of the total pharmacies in the U.S. should result in a similar percentage of pharmacies selected for the survey in the sample from that State. For instance in Michigan there are 2,339 independent and chain retail pharmacies. The Michigan pharmacies represent 3.80% of the total in the USA. The June CMS sample selected 99 Michigan pharmacies which calculate to 3.96% of the 2,500, well within the acceptable distribution range to be accepted as representative. There are 32,526 urban chain pharmacies in the U.S. or 53% of the total. In the June sample 1,317 urban chain pharmacies were selected which is 53% of the sample. The distribution is identical to the total population and therefore representative.

2.6.2.2 Submission of Data Pharmacies will have the option to supply information in hard copies (photocopies of invoices) or electronically in one of several formats or the pharmacy may request their drug wholesaler to forward the information on their behalf. Chain headquarters may respond on behalf of their stores. If a pharmacy buys from several sources they have a more complex problem. It is unclear if part of the information (example: Wholesaler A) could be submitted electronically and the remainder (Wholesaler B) in hard‐copy; or, If multiple wholesalers of the same pharmacy will each be able to submit data independent of each other on behalf of the pharmacy. The data in a response must include “copies” of all wholesaler, distributor or manufacturer invoices, reflecting all brands, generic and OTC drug purchases transacted. The time period is the prior calendar month (example: June 1, 2012 letters request invoices from May 1, 2012 through May 31, 2012). Data will be directly submitted to Myers & Stauffer and then aggregated by them. It is unclear as to the lag time between submission and publication, but the assumption is at least a two month lapse before results are released. Barring a few



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exceptions, each drug will be aggregated independent of package size, with the resulting value the same whether a drug is purchased in 100s, 500s or 1000s. Exceptions may include situations with drugs that have unusual price discrepancies—such as small and large sizes of topicals, or unique packaging—such as Azithromycin unit of therapy packs compared to bottled tablets. Submitted information will not be returned to the pharmacy. Survey responses will be stored in a secure and confidential manner by Myers & Stauffer. Hard‐copy files will be stored in a locked environment and eventually returned to CMS or destroyed. Note that CMS does not state that electronic responses will be stored in an encrypted format. When Myers & Stauffer reports the results it is unclear whether the information will be totally aggregated, stratified down to the maximum number of options or partially stratified somewhere in between. We do know that information will be collected such that the following characteristics could be stratified and isolated.

A. Brand vs. generic drugs B. Chains vs. independents C. Urban vs. rural pharmacies D. State Medicaid rates vs. NARP vs. NADAC

2.6.2.3 Required invoice data CMS instructs pharmacies that invoice price means “drug ingredient costs” and other unrelated costs will be removed from the calculations. CMS will remove such items as shipping, storage, warehousing, administrative costs and internal markups. In addition 340B purchases should be excluded. The required data elements to be submitted are:

• NDC number • Invoice price • Quantity purchased • Purchase date

2.6.3 Processing submitted data

Data submitted in electronic format will be downloaded into the database. Hard‐copy submissions will be manually entered into the database. The invoice data will be reviewed and scrubbed prior to moving the data to the next step, the actual calculations of NADAC. Any of the following occurrences will disqualify data and it will be removed from the calculations.

• Data entry errors



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• Missing or incomplete information • Prices > AWP • Data that does not come from a surveyed pharmacy • Purchase dates outside of the designated calendar month • Invalid or inactive NDCs • Drugs not on the CMS covered out‐patient drug list (exceptions for new

to market drugs) • DESI drugs

In addition only one cost (invoice price) per NDC per pharmacy is recorded. In the event of multiple purchases that have two or more invoice prices, the value associated with the latest date of purchase is used for the entire month’s purchases of that drug.

2.6.4 Calculating and updating NADAC values

2.6.4.1 Drug Grouping/Drug Category/Pharmacy Type NADAC values will be calculated for each instance of drug grouping/drug category/pharmacy type. • Drug Grouping. Will be based on active ingredients, dosage form, strength, and

route of administration and in isolated instances package size. • Drug Category. Supplied from the most recent quarterly CMS covered

outpatient drug product file. Drugs are classified as: S – single source I – innovator multiple source N – non‐innovator multiple source One NADAC value will be calculated for S/I drugs and a different NADAC for N drugs. Within the world of the federal government the S/I/N designations relate to a drug’s rebate (Medicaid) status. Some State programs may treat or designate a drug differently from CMS. In those instances there will be an override process to make sure the calculation of a NADAC value closely reflects reimbursement methodologies.

• Pharmacy Entity Type. Refers to Chain (C) or Independent (I) pharmacies. There will be a unique NADAC value calculated for each. The pharmacy entity type is self‐reported by pharmacies and a national pharmacy compendia file (assumption NCPDP) will be used to identify individual pharmacy characteristics. And while CMS states there are two pharmacy types, their examples of survey



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stratification by pharmacy type included franchises in addition to chain and independent. And the pharmacy type sample is further stratified to urban and rural—so stratification by pharmacy type splits into six possible combinations.

2.6.4.2 Calculation methodology For each drug group/drug category/pharmacy type the NADAC value is calculated as the average per‐pricing unit, weighted by submitted acquisition costs.

NOTE: it is unclear from the information provided whether the weighted average is based upon the quantity or number of occurrences of prices at each value, or the number of units purchased at each reported value.

At this point the data is given another sanity check and outliers greater than 2 standard deviations are removed as well as values that are not “reasonable.” The NADAC is then recalculated from the remaining data points. S/I values are combined to calculate a NADAC value and a separate NADAC is calculated for N values. There will be some exceptions for drugs with large variances in unit values for different package sizes. A good example is ointments and creams in small tubes compared to large jars. In addition exceptions may be made in situations where identical multiple innovator products greatly differ in pricing per unit. A minimum number of reported drug costs for each drug grouping/drug category/pharmacy type will be required before a NADAC value can be calculated. That minimum number is yet to be determined. Prior to publication, changes in NADAC values will be made to reflect relative changes in published drug prices (manufacturer price increases). And because the CMS covered drug file is only reviewed quarterly, a process will also be developed to add new to market drugs.



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2.6.4.3 Updating NADAC Once a baseline NADAC value is established for a drug, it will be subject to weekly and monthly updates as outlined below.

Weekly Updates Monthly Updates N – Adjusted based upon inquiries to the

NADAC Help Desk N – Existing NADACs replaced by updated

values with the following exceptions: If a NADAC cannot be calculated the existing value remains in effect until the earlier of: 1. A month that a NADAC can be calculated or 2. 12 months in which event the NADAC value is removed from the reference file

S/I – Adjusted based upon published price changes to match the relative percentage increase adjusted based upon research initiated by pharmacy inquiries

S/I – Adjusted in a similar fashion as N monthly updates with the following exceptions: The updated NADAC will be compared to the previous month to determine if the difference is enough to merit a change The example provided by CMS states that anything less than 2% is not enough to change the NADAC value.

2.6.5 Publication and distribution of NADAC values

The NADAC values will be posted at www.Medicare.gov weekly. There will be a full file replacement every week. The layout of the electronic NADAC file will meet the following criteria:

• Option of a fixed length text file or an Excel file • The database will be sorted by NDC number ranked in ascending order • The file will contain the following fields

1. 11‐digit NDC 2. Drug Name



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3. NADAC value 4. Pharmacy entity type (C/I) 5. NADAC date 6. Any NDC attributes

2.6.6 NADAC Help Desk Myers & Stauffer will support a NADAC Help Desk. It will be staffed by an array of CPhTs, analysts and pharmacists. The Help Desk will ONLY address the following:

• Survey Support. Questions related to the survey or survey questions. • Drug Price Changes. Notification of price changes not reflected in NADAC values.

Research performed on individual inquiries will NOT be reported back to inquiring pharmacies. The Help Desk will NOT address inquiries of specific States or claims reimbursement concerns.

NADAC Help Desk Contact information: Phone 855‐457‐5264 [email protected] Fax 317‐816‐4134

2.7 WILLMEDICAIDUSENADACINFORMATION? Federal regulations for Medicaid reimbursement require States to reimburse for ingredient costs of drugs based upon their best estimate of EAC (Estimated Acquisition Cost), from the most widely used package size. And the Feds set maximum payment limits of not greater than usual and customary price and generic drugs must be capped at Federal Upper Limit prices. On brand drugs most States are AWP based and a few WAC based. Alabama and Oregon are exceptions to both and use their calculated average actual acquisition costs—similar to NADAC. It is a safe assumption that State Medicaid programs will be very interested in reviewing NADAC values. Speculation is that States will either take their own actions to file for a SPA to base Estimated Acquisition Costs (EAC) on NADAC or that CMS will eventually require it. At present if a state desires to use NADAC data to set Medicaid reimbursements they must file a Special Plan Amendment (SPA) with CMS to request a State Medicaid Waiver. CMS will require or at least strongly encourage states to conduct cost of dispensing studies to request dispensing fee adjustments to “fair” dispensing fees. CMS understands that pharmacies purchase drugs for less than the EACs they are reimbursed by Medicaid programs, thereby creating a markup. They also understand that



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dispensing fees are typically far less the actual cost of dispensing a prescription. CMS believes that NADAC will be more accurate and therefore closer to actual acquisition costs leaving little or no markup. To be fair CMS is taking the position that dispensing fees need to be adjusted to more closely reflect true values when a State moves to NADAC. Keep in mind that a State may request in their SPA an amount factored at less than NADAC values as their method to calculate EAC. CMS believes they are establishing a pricing benchmark that is an index and not necessarily a price that any pharmacy pays to procure a drug and similar to AWP, a State Medicaid program could apply a discount factor against NADAC. As an example: A state might request in their SPA a scenario where brand drugs (N) are reimbursed at 99% of the NADAC value and generic drugs (S/I) at 95% of their NADAC values. 3.0 WHATCOMMUNITYPHARMACIESNEEDTOKNOW3.1 NOTIFYPAASNATIONAL®IMMEDIATELY

When a PAAS National® Member is selected to participate in the CMS survey, they should notify PAAS National® immediately. Call 608‐873‐1342 or email [email protected]. 3.2. PARTICIPATIONISVOLUNTARY

If your pharmacy is selected, your participation in the survey is voluntary, you are not required nor legally bound to supply invoice information to CMS. But a word of caution, do not confuse the CMS requests with other State mandated activities. There are several states with the authority to conduct pharmaceutical price surveys that mandatorily require a response. Members will need to pay attention to differentiate one from the other. 3.3 SCOPEOFSURVEY—INVOICESONLY

The requests will be for invoices for the previous 30‐days (prior calendar month) and no additional information such as rebates or other discounts. This information can be submitted via paper, fax or electronically. 3.4 SHOULDYOUPARTICIPATE?

The big question is should you participate and submit invoices or should you decline? At this time it is PAAS National®’s position that each member pharmacy must make their decision whether to cooperate or choose not to participate in a survey. 3.5 HOWWILLMYINVOICEPURCHASEINFORMATIONBEUSED?



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CMS has clearly stated that their initial purpose of collecting community pharmacy purchase invoice information is to establish and maintain their new NADAC pricing benchmark. However, CMS has not stated that use of invoices will solely be for this activity and nothing else. CMS has not said that use of your information will be limited to NADAC. 3.6 CONFIDENTIALITY

Printing the word “CONFIDENTIAL” on each page of invoices submitted offers some although probably minimal protections of your information. You can avoid another person from obtaining copies of your invoices submitted through a citizen Freedom of Information Request (FOIA) if the word “CONFIDENTIAL” is printed on each invoice page.

At a stakeholder meeting hosted by CMS and Myers & Stauffer on August 4, 2011 they

advised “Nondisclosure Agreements between pharmacies, the government or Myers & Stauffer are not necessary because ‘confidential’ information is exempt under FOIA.” If avoiding disclosure of specific pharmacy invoice prices through a Freedom of Information Act request (FOIA) were your only concern we might agree with this advice. However there are a hundred other places that a pharmacy’s invoice price information could go and the word “confidential” stamped on each page may not limit the release. 3.7 LIMITATIONSONTHEUSEOFDATA

CMS states that information submitted will remain under control of CMS and will only be used to calculate NADAC values. Pharmacy data will remain secure to the extent provided by law. CMS and Myers & Stauffer state that neither will release invoice information or pharmacy identification—as long as a pharmacy identifies the information submitted as proprietary, with the exception as required by law. These commitments are published in CMS informational documents and not found in any contract or non‐disclosure agreement with the pharmacy. 3.8 NON‐DISCLOSUREAGREEMENT

Before providing any information we believe a Member should require CMS (and Myers and Stuaffer) to provide a bona fide nondisclosure agreement limiting the use or distribution of the data collected to only the purpose of calculating and reporting the aggregated NADAC values. The objective is to incorporate limits on the scope and use of the information supplied to avoid any surprises at a later date. At present, under voluntary disclosure, even with the word “confidential” printed on each page – there are no restrictions on how the government could use your information.



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3.9 ADDITIONALINFORMATION—UPDATESwww.Medicaid.gov

3.10 WHOISMYERS&STAUFFERLC? Myers & Stauffer LC is an accounting firm out of Indianapolis who specializes in pharmacy audits and surveys. They have a long history of winning contracts with State Medicaid programs. Their contact information is:

Myers & Stauffer LC 9265 Counselors Row Suite 200 Indianapolis, IN 46240‐6419 NADAC Help Desk 855‐457‐5264 Fax 317‐816‐4134 Email [email protected]

4.0 CONSIDERATIONSIFYOUDECIDETORESPOND4.1 CONFIDENTIALITYANDNON‐DISCLOSURE

Make sure the word “CONFIDENTIAL” is printed on every page of every invoice. Include the gold‐colored coversheet provided by CMS to identify your information as proprietary. While CMS does not explain how to designate electronically submitted invoices as proprietary and confidential, one strategy is add the word “CONFIDENTIAL” to the electronic document’s header. 4.2 REQUESTANON‐DISCLOSUREAGREEMENT(NDA)

Before submitting data request a NDA from both Myers & Stauffer and CMS. There is no guarantee if either will comply with your requests. Without bona fide NDAs some pharmacies may judge the risks of disclosing pricing information to be too great to participate in the survey.



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5.0 INSIGHTS,IMPLICATIONS,OPINIONS,PREDICTIONS5.1 WHEREISCMSHEADING? Consider the fact that CMS is asking for price information because they plan to use it. Our prediction is that eventually off‐invoice price concessions will be factored into NADAC values. CMS probably plans for their pricing surveys of invoices to evolve into obtaining enough information to net purchases after all rebates, allowances and related expenses. 5.2 ULTIMATEIMPACTONPHARMACY It is unclear at this point of the full impact and ramifications of NADAC upon pharmacies. But it is reasonable to conclude that CMS believes NADAC will replace AWP as a prescription pricing reference index. If this prediction comes true, NADAC will change the pharmacy business model. 5.3 TAXPAYERCOSTSOFNADACANDNARPSURVEYS At this point it is unknown what the full costs or financial magnitude of the Myers & Stauffer contract but it is speculated to be substantial – EIGHT FIGURES. This is not surprising considering the amount of work required – survey up to 2,500 pharmacies per month – 30 days of invoices each. The numbers of personnel required to conduct the surveys is great and the education, certifications and skill levels are high. This is a new and very expensive burden to taxpayers at a time when our country needs to spend less. 5.4 WILLNADACREPLACEAMP‐BASEDFULS? It is likely that NADAC values will come into play before CMS has all the bugs out of AMP‐based FULS. And the history of developing AMP‐based FUL prices is a long one going back to the Deficient Reduction Act of 2005. The government has invested huge amounts of taxpayer dollars into this project and it appears that is may be for naught. 5.5 STATESWILLFLOCKTONADAC CMS will not require a state to transition to NADAC – at least initially. Our long term prediction is – if CMS is pleased with the results generated by the surveys and believe the values are close approximations of AACs – there will be a stronger mandate placed upon states to use NADAC. The references to the “States” throughout CMS NADAC related documents and reports would lead us to believe that NADAC is a forgone conclusion. Expect States to apply for SPAs to



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transition to NADAC. Once States receive approval for their waiver to implement NADAC, current EAC methodology will be replaced. In addition, keep in mind it is possible that a Medicaid plan might request to factor or discount NADAC values. 5.6 GOVERNMENTHISTORYOFFLAWEDCONCLUSIONS Government entities have a long history of publishing studies and reports written by staff and consultants who do not fully understand the pharmacy business model and as a result misinterpret data and reach invalid assumptions and interpretations. Using the information collected as a result of such work could have devastating effects on community pharmacists. Such an example is an OIG report released July 2011 titled “Replacing Average Wholesale Price: Medicaid Drug Payment Policy” (OEI‐03‐11‐00060) http://www.oig.hhs.gov/oei/reports/oei‐03‐11‐00060.pdf . The analytics presented in the report were geared to justify the retail price survey approach to develop a new prescription price reference index to replace AWP. While the information presented is factual – their conclusions represent an incomplete picture and is taken out of context. 5.7 POTENTIALOFSKEWEDNADACVALUES Given the level of participation of pharmacy stakeholders (those who cooperate and those who elect not to participate), the accuracy could be potentially skewed. This might be particularly true if higher percentages of certain pharmacy types of stakeholders elect not to participate. While it would seem logical that large drug chains have the lowest prices, we do not make any assumption that chains will report lower prices than independents. In the case of Alabama’s pilot project – we believe that warehousing chains reported higher prices on generic drugs than independents. Chains will be asked to report invoice purchases of individual pharmacies and not the entire chain, and not chain warehouse acquisition costs. 5.8 POTENTIALFORPERVERSEINCENTIVES NADAC could ultimately create perverse incentives that will lead to complacency on the part of purchasers and eventually higher prices. Any purchase advantages negotiated by pharmacies from chain headquarters or GPOs could be factored into net‐NADAC values and used against retail pharmacies. Therefore, there is less incentive to negotiate a better deal as any advantage will be destroyed or vastly reduced, ultimately removing any incentive.



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5.9 POTENTIALLYANTICOMPETITIVE The collection and reporting of manufacturer specific information on generic drugs could ultimately have anti‐competitive implications. This same statement may also prove to be true for the new AMP‐based Federal upper limit values. There is likelihood that this strategy will result in something akin to the government setting price controls on generic drugs. If this occurs the motivation of the industry will be to find methods to increase prices. 5.10 BRANDREALITYCHECK For brand drugs it is not clear how NADAC would or should materially differ from WAC. Most retail pharmacies purchase nearly all their brand name drugs from their wholesaler at negotiated discounts off WAC. Therefore, the NADAC calculated values should show some consistency across the board and be the aggregated average discount off WAC. If in fact there ends up to be a wide array of variance from one brand drug to the next, the accuracy of the calculated NADAC values would be highly suspect and should be questioned.

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