Relates to the amount of dispensing fees paid to pharmacies in EPIC and Medicaid

Section two of the bill amends subparagraphs (i) and (ii) of paragraph (d) of subdivision 9 of section 367-a of the social services law, as amended by chapter 19 of the laws of 1998 related to the dispensing fee paid to pharmacies for every prescription filled for persons eligible to participate in the Medicaid program. The bill adds a new subparagraph (iii) related to the dispensing fee paid to pharmacies required to dispense medications in unit-of-use packaging.

Justification

The enacted 2008-2009 state budget reduces the amount allowed under Medicaid and EPIC to cover the cost of prescription medication without a counterbalancing increase in the dispensing fee paid to participating pharmacies. Other state Medicaid programs such as California pay higher dispensing fees in order to meet the "reasonableness" standard in federal statutes governing Medicaid programs. Unless the dispensing fee is adjusted prior to the enactment of the new product cost allowance on July 1, 2008, it is possible that New York will not meet this test. Moreover, given the high costs of doing business in this state, publicly-financed prescription benefit programs such as Medicaid and EPIC should not reimburse pharmacies at a rate lower than every other state that has enacted deeply discounted product reimbursement policies.

The actual cost of dispensing a prescription to a beneficiary in the New York Medicaid program ranges between $8.79 and $14.04 according to the survey conducted by Grant Thorton released in January, 2007. We apply the same survey results to dispensing fees paid under EPIC. Although the dispensing fees in this legislation are below these amounts, they are consistent with reimbursement policies that are in place in other state Medicaid programs that discount the product allowance as substantially as in the adopted NYS FY 2008-2009 budget. With the high costs of living and doing business, New York's Medicaid and EPIC programs should not reimburse pharmacies at the very lowest level in the country. Doing so may reduce the pharmacy provider network to unacceptable levels. Should that occur, both programs will fail in their primary objective, to deliver medically necessary healthcare of acceptable quality cost containment parameters.

Although the legislature has restored millions to the cuts proposed by the executive over the course of the past fourteen years, every state budget has nevertheless left pharmacy providers with less reimbursement than in the previous year. Virtually every health care provider in the Medicaid program has faced regular decreases in reimbursement, but no other provider category has been subject to the cumulative percentage reductions as have the state's pharmacies. This year's reduction of two and a half percentage points off average wholesale price actually represents a 30% reduction in gross merging, with a 60% decrease in net amounts, for example. Some pharmacy

providers have calculated the loss at $3 per prescription across all prescriptions filled in both programs.

Pharmacies that provide prescription services for residents in long-term care facilities and other forms of residential care incur additional expense associated with preparing "blister packs" and other forms of unit-of-use packaging that are required by regulation. This special packaging provides additional security against misuse or overuse and enhances patient compliance that in turn reduces unnecessary Medicaid spending associated with medication errors or inappropriate use. The differential in the legislation is also based on policies adopted by other' states.

Prior legislative history

New bill.

Fiscal implications

None. The changes proposed in this legislation are possible in the context of the funds appropriated for spending on the pharmacy benefit. First of all, national trends suggest that the rate of growth in spending for prescription drugs has slowed. The proposed 6% increase in the cost of the benefit is likely to be much lower. Second, the proposed spending on prescription drugs does not take into account the additional supplemental rebates generated by preferred drug programs. In 2006 when the PDP was first implemented, the program generated $30.5 million. Although the 2007 supplemental rebate amounts not yet available, they will be significantly higher than in the previous year when the Preferred Drug Program had just begun and the number of therapeutic categories was considerably less than it was in 2007. Third, although the dispensing fees in this bill appear to be the same for brands and generics, differences in co-payments actually provide pharmacy with a slight higher fee for dispensing generic drugs. In the past, the state Medicaid program realized $21 million in savings per year when generic utilization improved by one percent. Savings in FY 2008-2009 will be very significant as a large number of brand medications are scheduled to lose patent protection without a comparable number of new branded drugs coming into the market. The state is poised to realize the savings by virtue of two policies now in place, namely the generic mandate and the Preferred Drug Program.

Local fiscal implications

None.

Effective date

April 1, 2011.