Senate Bill S7997

2009-2010 Legislative Session

Defines estimated acquisition cost of prescription drugs for pharmacy reimbursement

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Archive: Last Bill Status - In Senate Committee Health Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Date of Action	Assembly Actions - Lowercase Senate Actions - UPPERCASE
May 28, 2010	referred to health

co-Sponsors

2009-S7997 (ACTIVE) - Details

See Assembly Version of this Bill:: A11378
Current Committee:: Senate Health
Law Section:: Social Services Law
Laws Affected:: Amd §367-a, Soc Serv L

2009-S7997 (ACTIVE) - Summary

Defines estimated acquisition cost of prescription drugs for pharmacy reimbursement.

2009-S7997 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:S7997

TITLE OF BILL:
An act to amend the social services law and the elder law, in relation
to prescription drug pricing for pharmacy reimbursement

PURPOSE OR GENERAL IDEA OF BILL:
This bill would amend the social services and elder law to introduce an
alternative reimbursement benchmark for brand drugs and to adjust the
pharmacy reimbursement rate for brand drugs so as to restore the payment
levels that were enacted by the legislature in the SFY 08-09 budget for
independent pharmacies and to adjust the payment levels for chain phar-
macies and specialized HIV pharmacies. Regarding generic reimbursement,
the bill sets payment at either the state maximum allowable cost or the
specific federal upper payment limit whichever is higher unless the
pharmacy's usual and customary price charged to the general public is
lower than either of these.

SUMMARY OF SPECIFIC PROVISIONS:
Section 1 of the bill amends social services law to restate pharmacy
reimbursement for brand-name prescription drugs using either Average
Wholesale Price or Wholesaler Acquisition Cost as the pricing benchmark.
For independent pharmacies, the payment level authorized in the SFY
2008-2009 budget is maintained. For chain pharmacies, the re-stated
reimbursement mechanism maintains the current payment level. Specialized
HIV pharmacies are reimbursed as independents. The proposed reimburse-

ment methodologies are mathematically equivalent and are therefore
presented as alternatives. Pharmacy reimbursement for generic drugs is
set at either the Federal Upper Limit or the State Maximum Allowable
Cost, whichever is higher, eliminating the reference to Average Whole-
sale Price as a benchmark. The bill makes more transparent the methodol-
ogy by which the state establishes the Maximum Allowable Cost for gener-
ics. When the pharmacy's usual and customary price charged to the
general public is lower for either brands or generics, the Medicaid
program will continue to pay at the pharmacy's usual and customary price
charged to the general public.
Section 2 of the bill makes the same pharmacy reimbursement changes in
the EPIC program.
Section 3 of the bill adds Wholesaler Acquisition Cost to pharmacy
reimbursement in Elder Law.
Section 4 of the bill establishes September 26, 2009 as the effective
date.

EXISTING LAW:
Current law sets pharmacy reimbursement at "estimated acquisition cost"
which is defined to be the same for independents as for chains. For
brand drugs, it is Average Wholesale Price minus 16.25%. Although state
law did not change in September, 2009, payments to pharmacies dropped
drastically when the value of AWP fell. On September 26, 2009, the
benchmark value of published Average Wholesale Prices dropped by four
percentage points thereby significantly reducing pharmacy payments for

brand drugs under the Medicaid, Family Health Plus, Child Health Plus,
EPIC and the AIDS Drug Assistance Programs. Existing law allows the
state to develop maximum allowable costs (MAC) for generics using the
same methodology that the federal government uses to calculate its
federal upper limits (FUL). When pharmacies charge the general public a
lower price for either a brand or a generic drug, then the state's
public programs will also reimburse at the pharmacy's usual and custom-
ary price.

JUSTIFICATION:
On September 26, 2009, First Data Bank and Medi-Span, the publishers of
prescription drug price lists, agreed to lower every published Average
Wholesale Price (AWP) by approximately four percentage points on nearly
eight thousand prescription drug products in order to settle a federal
case brought in 2001 in Massachusetts challenging published prices of
1,400 brand-name drug products. In addition to the lowering of AWP,
another result of the settlement is that AWP will no longer be published
after 2011. It is therefore unreliable as the basis for pharmacy
reimbursement. The alternative reimbursement proposed is based on Whole-
saler Acquisition Cost (WAC), and the conversions proposed from AWP-ba-
sis to WAC-basis are mathematically equivalent.

Many states have adopted WAC as an alternative reimbursement benchmark,
and the Congressional Budget Office considers WAC to be a more transpar-
ent estimate of the price pharmacies pay for prescription drugs. Addi-
tionally, the court based the recalculation of A WP on the more reliable
WAC. For this reason, WAC as a reimbursement metric is increased by a
percentage while AWP is always decreased by a percentage. Based on
current values, AWP minus 12.25% is the same as WAC + 4.68% and
AWP-16.25% is the same as WAC+.5%.

It is important to note that in the federal case the charges were
against the publishers and a pharmacy wholesaler and did not include any
pharmacies. A letter from the National Medicaid Directors sent to the
states in September mistakenly claimed that pharmacies had been "unjust-
ly enriched" under AWP reimbursement formulas since 2001, but a closer
examination of the court documents reveals that the court never ruled on
this issue. In fact, in the years between 2001 and 2008, New York
consistently took discounts from AWP (thirteen times in fifteen years)
that would have more than offset any possible "enrichment" as did the
private insurance market.

In New York, pharmacies are paying a steep price for the federal settle-
ment because it operationally reduced pharmacy reimbursement by four
percentage points, the steepest one-time drop in history, without any
offsetting decrease in inventory costs. Pharmacies were already reeling
from the budget cut that had gone into effect a year earlier on July 1,
2008, which was at that time the steepest decrease ever enacted.

When compared to pharmacies in other states, those in New York are in a
uniquely vulnerable position. The "carve-out" policy puts every
prescription into 'fee-for-service' Medicaid reimbursement that includes

Family Health Plus and Child Health Plus as well as EPIC and the AIDS
Drug Assistance Program, translating to one in five prescriptions filled
in the state.  In an added blow, the prescription benefit manager of the
NYS Insurance Plan recently lowered its payment rates to near Medicaid
levels, broadening the impact of marginal or below-cost reimbursement to
one in every three prescriptions dispensed in this state because it now
includes prescription filled for state and local employees and retirees.

The most urgent cry for relief from the current low payment levels comes
from independently owned and operated pharmacies. Unlike large chains,
independents rely almost entirely on the revenue generated from the sale
of prescription drugs. Since the beginning of2008, more than three
hundred independents have closed. Many more are on the brink of closing.
Wholesalers report that since the fall more independents have fallen
behind in their payments to wholesalers, and credit terms cannot be
further extended. Quite simply, the present payment levels are not
sustainable for independent pharmacies. Nearly half of the pharmacies in
New York are independents, a very high percentage when compared to other
states. Their presence provides clear value to the state - a more
diverse statewide market and access to medicines and support services
for New Yorkers living in rural communities and minority neighborhoods.

For these reasons, this bill establishes a higher reimbursement for
independent pharmacies than for chains. At A WP-12.25% or WAC+4.68%, an
independent pharmacy would be at the level of payment that went into
effect July 1, 2008. This payment level for brand-name prescription
products is still extremely low when compared to other states, especial-
ly in the context of very low dispensing fees and co-payments. For
chains, the bill maintains present payment level at A WP-16.25% or its
equivalent WAC+.5%.

For generics, the bill would reimburse all pharmacies the same, but it
introduces a modest change in the formula. Current law authorizes the
New York State Health Department to establish a State Maximum Allowable
Cost (SMAC) for generics using the same methodology that the federal
centers for Medicaid and Medicare use to calculate Federal Upper Limits
(FUL).  Because DOH relies on a contractor in Michigan to calculate SMAC
prices and because the methodology cannot be independently verified, the
SMAC value for certain generics is below cost. As a result of unrealis-
tically low reimbursement for generics, the state has unintentionally
created a financial incentive for pharmacies to have a preference for
dispensing branded drugs that can cost the state three or four times as
much as generics. By providing greater transparency in calculating SMAC
and allowing for payment at either SMAC or FUL whichever is higher, the
bill sets the stage for a more reasonable payment rate for generics.
This reform is designed to promote the dispensing of generic drugs, a
stated goal of the Medicaid program as well as a sound cost-containment
strategy for a state in financial crisis.

Without the reform and relief in this legislation, the number of pharma-
cies that remain viable businesses is likely to decline further. From
the state's perspective, the question is not whether independently owned

businesses survive, but rather maintaining adequate access to medica-
tions through a viable network of pharmacies in locations throughout New
York.  When access is compromised, health declines, quality of life
diminishes and health care options become more limited and healthcare
costs escalate. Both independent and chain pharmacies across the state
have consistently provided important services that hold other health
care spending in check. As local businesses that hire locally, pharma-
cies have also helped to stabilize communities by providing good and
steady jobs. The financial relief this bill provides is therefore
reasonable from either perspective.

PRIOR LEGISLATIVE HISTORY:
This is a new bill.

FISCAL IMPLICATIONS:
To be determined.

EFFECTIVE DATE:
Immediate and shall be deemed to have been in full force and effect on
or after September 26, 2009.

2009-S7997 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  7997

                            I N  S E N A T E

                              May 28, 2010
                               ___________

Introduced  by  Sen.  KLEIN  -- read twice and ordered printed, and when
  printed to be committed to the Committee on Health

AN ACT to amend the social services law and the elder law,  in  relation
  to prescription drug pricing for pharmacy reimbursement

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Paragraphs (b), (c) and (e) of  subdivision  9  of  section
367-a of the social services law, paragraph (b) as amended and paragraph
(e)  as  added by section 3 of part C of chapter 58 of the laws of 2004,
subparagraph (i) of paragraph (b) as amended by section 10 and  subpara-
graph (ii) of paragraph (b) as amended by section 4 of part C of chapter
58  of the laws of 2008, subparagraph (iii) of paragraph (b) as added by
section 29 of part E of chapter 63 of the laws of 2005 and paragraph (c)
as amended by chapter 19 of the laws of 1998,  are  amended  and  a  new
paragraph (j) is added to read as follows:
  (b) for drugs dispensed by pharmacies:
  (i)  [if the drug dispensed is a multiple source prescription drug for
which an upper limit has been set by the federal  centers  for  medicare
and medicaid services, the lower of: (A) an amount equal to the specific
upper  limit  set  by  such  federal  agency  for  the  multiple  source
prescription drug; (B) the estimated acquisition cost of  such  drug  to
pharmacies  which,  for  purposes  of  this subparagraph, shall mean the
average wholesale price of a prescription drug based on the package size
dispensed from, as reported by the  prescription  drug  pricing  service
used  by the department, less twenty-five percent thereof; (C) the maxi-
mum acquisition cost, if any, established pursuant to paragraph  (e)  of
this  subdivision;  or (D) the dispensing pharmacy's usual and customary
price charged to the general public, and
  (ii)] if the drug dispensed is a multiple source prescription drug  or
a  brand-name  prescription  drug  for which no specific upper limit has
been set by such federal agency, the lower of the estimated  acquisition
cost  of such drug to pharmacies, or the dispensing pharmacy's usual and
customary price charged to the general public.  For  sole  and  multiple
source  brand  name  drugs, estimated acquisition cost means the average

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.

                                                           LBD14703-06-0

S. 7997                             2

wholesale price of a prescription  drug  based  upon  the  package  size
dispensed  from,  as  reported  by the prescription drug pricing service
used by the  department,  less  [sixteen]  TWELVE  and  twenty-five  one
hundredths  percent  OR THE WHOLESALE ACQUISITION COST OF A PRESCRIPTION
DRUG BASED UPON THE PACKAGE SIZE DISPENSED  FROM,  AS  REPORTED  BY  THE
PRESCRIPTION  DRUG PRICING SERVICE USED BY THE DEPARTMENT, PLUS FOUR AND
SIXTY-EIGHT HUNDREDTHS PERCENT  thereof,  and  updated  monthly  by  the
department;  or, for a specialized HIV pharmacy, as defined in paragraph
(f) of this subdivision, acquisition cost means  the  average  wholesale
price of a prescription drug based upon the package size dispensed from,
as reported by the prescription drug pricing service used by the depart-
ment,  less  twelve [percent thereof, and updated monthly by the depart-
ment] AND TWENTY-FIVE ONE-HUNDREDTHS PERCENT OR THE  WHOLESALE  ACQUISI-
TION  COST  OF A PRESCRIPTION DRUG BASED UPON THE PACKAGE SIZE DISPENSED
FROM, AS REPORTED BY THE PRESCRIPTION DRUG PRICING SERVICE USED  BY  THE
DEPARTMENT,  PLUS  FOUR  AND SIXTY-EIGHT HUNDREDTHS PERCENT THEREOF, AND
UPDATED MONTHLY BY THE DEPARTMENT; OR FOR A CHAIN PHARMACY,  AS  DEFINED
IN PARAGRAPH (J) OF THIS SUBDIVISION, ACQUISITION COST MEANS THE AVERAGE
WHOLESALE  PRICE  OF  A  PRESCRIPTION  DRUG  BASED  ON  THE PACKAGE SIZE
DISPENSED FROM LESS SIXTEEN AND TWENTY-FIVE ONE HUNDREDTHS PERCENT THER-
EOF OR THE WHOLESALE ACQUISITION COSTS OF THE PRESCRIPTION DRUG BASED ON
THE PACKAGE SIZE DISPENSED FROM PLUS FIVE TENTHS OF ONE PERCENT THEREOF,
AND UPDATED MONTHLY BY THE DEPARTMENT.    For  multiple  source  generic
drugs, estimated acquisition cost means [the lower of the average whole-
sale  price  of  a prescription drug based on the package size dispensed
from, as reported by the prescription drug pricing service used  by  the
department,  less  twenty-five percent thereof, or] the maximum acquisi-
tion cost, if any, established pursuant to paragraph (e) of this  subdi-
vision; [or, for a specialized HIV pharmacy, as defined in paragraph (f)
of  this  subdivision,  acquisition  cost means the lower of the average
wholesale price of  a  prescription  drug  based  on  the  package  size
dispensed  from,  as  reported  by the prescription drug pricing service
used by the department, less twelve  percent  thereof,  or  the  maximum
acquisition  cost, if any, established pursuant to paragraph (e) of this
subdivision] OR THE SPECIFIC UPPER LIMIT SET BY THE FEDERAL CENTERS  FOR
MEDICARE  AND  MEDICAID SERVICES, WHICHEVER IS HIGHER. IF THE DISPENSING
PHARMACY'S USUAL AND CUSTOMARY PRICE CHARGED TO THE  GENERAL  PUBLIC  IS
LOWER  THAN  EITHER  OF  THESE,  PAYMENT  SHALL BE MADE AT THE USUAL AND
CUSTOMARY PRICE.
  [(iii)] (II) notwithstanding [subparagraphs (i) and (ii)] SUBPARAGRAPH
(I) of this paragraph and paragraphs (d) and (e) of this subdivision, if
the drug dispensed is a drug that has been purchased from a manufacturer
by a covered entity pursuant to  section  340B  of  the  federal  public
health  service  act  (42  USCA  S 256b), the actual amount paid by such
covered entity pursuant to such section, plus the reasonable administra-
tive costs, as determined by the commissioner, incurred by  the  covered
entity  or  by  an  authorized  contract pharmacy in connection with the
purchase and dispensing of such drug and the  tracking  of  such  trans-
actions.  For  purposes  of  this subparagraph, a "covered entity" is an
entity that meets the requirements of paragraph four of  subsection  (a)
of  such  section, that elects to participate in the program established
by such section, and that causes claims for payment for drugs covered by
this subparagraph to be submitted to  the  medical  assistance  program,
either  directly  or through an authorized contract pharmacy. No medical
assistance payments may be made to a covered entity or to an  authorized
contract  pharmacy  of  a covered entity for drugs that are eligible for

S. 7997                             3

purchase under the section 340B program and are dispensed on  an  outpa-
tient  basis  to  patients  of  the covered entity, other than under the
provisions  of  this  subparagraph.  Pharmacies  submitting  claims  for
reimbursement  of drugs purchased pursuant to section 340B of the public
health service act shall notify the department that the claim is  eligi-
ble  for  purchase  under  the  340B  program,  consistent with claiming
instructions issued by the department to identify such claims.
  (c) [Notwithstanding subparagraph (i) of paragraph (b) of this  subdi-
vision,  if] IF a qualified prescriber certifies "brand medically neces-
sary" or "brand necessary" in his or her own handwriting directly on the
face of a prescription for a multiple source drug for which  a  specific
upper limit of reimbursement has been established by the federal agency,
in  addition  to writing "d a w" in the box provided for such purpose on
the prescription form, payment under this title for such  drug  must  be
made under the provisions of subparagraph [(ii)] (I) of such paragraph.
  (e)  For  a  multiple  source generic drug for which no specific upper
payment limit has been established by the federal centers  for  medicare
and  medicaid services, the commissioner of health may establish a maxi-
mum acquisition cost for such drug which shall be effective  until  such
time  as a specific federal upper payment limit has been established for
such drug. The department shall use a similar methodology in  establish-
ing  such  an interim price as that utilized by the centers for medicare
and Medicaid services in establishing the federal  upper  payment  limit
AND  MAKE AVAILABLE UPON REQUEST BOTH THE METHODOLOGY AND THE COST BASIS
UTILIZED FOR ANY INDIVIDUAL MULTIPLE SOURCE GENERIC DRUG SO AS TO VERIFY
THAT THE PRODUCT IS AVAILABLE IN PHARMACIES LOCATED IN THE STATE.    For
this purpose, the department is authorized to enter into a contract with
an entity to provide technical and administrative support to the commis-
sioner of health.
  (J)  FOR PURPOSES OF THIS SECTION, A CHAIN PHARMACY IS DEFINED AS FIVE
OR MORE PHARMACIES UNDER THE SAME CORPORATE ENTITY.
  S 2. Subparagraph 1 of paragraph (b) of subdivision 1 of  section  250
of the elder law, as amended by section 1 of part A of chapter 58 of the
laws of 2008, is amended to read as follows:
  (1)  Average  wholesale price discounted by [sixteen] TWELVE and twen-
ty-five one hundredths percent OR WHOLESALE ACQUISITION COST  PLUS  FOUR
AND  SIXTY-EIGHT HUNDREDTHS PERCENT, plus a dispensing fee as defined in
paragraph (c) of this subdivision, or FOR A CHAIN PHARMACY AS DEFINED IN
PARAGRAPH (J) OF  SUBDIVISION  NINE  OF  SECTION  THREE  HUNDRED  SIXTY-
SEVEN-A  OF  THE SOCIAL SERVICES LAW, AVERAGE WHOLESALE PRICE DISCOUNTED
BY SIXTEEN AND TWENTY-FIVE ONE HUNDREDTHS PERCENT OR WHOLESALE  ACQUISI-
TION  COST  PLUS  FIVE  TENTHS  OF ONE PERCENT, PLUS A DISPENSING FEE AS
DEFINED IN PARAGRAPH (C) OF THIS SUBDIVISION, OR
  S 3. Subdivision 2 of section 250 of the elder law is amended to  read
as follows:
  2. For purposes of determining the amount of reimbursement which shall
be  paid to a participating provider pharmacy, the panel shall determine
or cause to be determined, through a  statistically  valid  survey,  the
quantities  of  each covered drug that participating provider pharmacies
buy most frequently. Using the result of  this  survey,  the  contractor
shall  update  every thirty days the list of average wholesale prices OR
WHOLESALE ACQUISITION COSTS upon which such reimbursement is  determined
using  nationally  recognized  and  most  recently revised sources. Such
price revisions shall be made available to  all  participating  provider
pharmacies.  The  pharmacist  shall  be reimbursed based on the price in
effect at the time the covered drug is dispensed.

S. 7997                             4

  S 4. This act shall take effect immediately and  shall  be  deemed  to
have  been  in  full  force  and effect on and after September 26, 2009;
provided, however, that the amendments to subdivision 9 of section 367-a
of the social services law made by section one of  this  act  shall  not
affect  the expiration of such subdivision and shall be deemed to expire
therewith.

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Senate Bill S7997

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Archive: Last Bill Status - In Senate Committee Health Committee

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co-Sponsors

2009-S7997 (ACTIVE) - Details

2009-S7997 (ACTIVE) - Summary

2009-S7997 (ACTIVE) - Sponsor Memo

2009-S7997 (ACTIVE) - Bill Text download pdf

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Sponsored By

Jeffrey D. Klein

Archive: Last Bill Status - In Senate Committee Health Committee

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co-Sponsors

Brian X. Foley

George D. Maziarz

William T. Stachowski

2009-S7997 (ACTIVE) - Details

2009-S7997 (ACTIVE) - Summary

2009-S7997 (ACTIVE) - Sponsor Memo

2009-S7997 (ACTIVE) - Bill Text download pdf

Comments