Monday, April 04, 2011

Update: CA Medi-Cal Backs Away from Cost-Plus

As you may recall, California was on the verge of shifting the pricing benchmark for Medi-Cal pharmacy reimbursement to average acquisition cost (AAC). See California Medi-Cal Joins the Cost-Plus Revolution for the background. California would have become the third state (after Alabama and Oregon) to alter the basis on which pharmacies are reimbursed for Medicaid prescriptions.

Governor Brown just signed Assembly Bill 97, which stripped all of the proposed language out of the bill. I'm not sure what went on behind closed doors, but the bill now only offers an intent for unspecified future legislation by August 1, 2011. See the relevant text below.

Once again, we see the challenges of controlling health care costs. Bending the cost-curve always means that someone somewhere gets less money.

There are only four months until August 1. Cry 'Havoc,' and let slip the dogs of lobbying!

Here's the relevant text from California AB 97. (See page 33.)
SEC. 97.5. Section 14105.451 is added to the Welfare and Institutions
Code, to read:

14105.451. (a) (1) The Legislature finds and declares all of the following:

(A) The United States Department of Health and Human Services has identified the critical need for state Medicaid agencies to establish pharmacy reimbursement rates based on a pricing benchmark that reflects actual acquisition costs.

(B) The Medi-Cal program currently uses a methodology based on average wholesale price.

(C) Investigations by the federal Office of Inspector General have found that average wholesale price is inflated relative to average acquisition cost.

(2) Therefore, it is the intent of the Legislature to enact legislation by August 1, 2011, that provides for development of a new reimbursement methodology that will enable the department to achieve savings while continuing to reimburse pharmacy providers in compliance with federal law.

(b) The department may require providers, manufacturers, and wholesalers to submit any data the director determines necessary or useful in preparing for the transition from a methodology based on average wholesale price to a methodology based on actual acquisition cost.


  1. Thanks for the update. More reliable than Friday's news!

  2. I was going to suggest you go w the flow chart from Office Space ("Planning to Plan") as the picture but I couldn't find a screen cap.

  3. Make no mistake Adam, the discussion behind the scenes have not changed. The California Department of Health Care Services is fully intent on moving AAC forward. We continue to proactively engage them to ensure that any proposed methodologies take AAC drug pricing in concert with an appropriate dispensing fee - a notion that the Department has been unwilling to commit to thus far.

    Jon Roth
    Chief Executive Officer
    California Pharmacists Assn.

  4. Jon: Thanks for the update. I presume that this will be a key sticking point.

    And to the Office Space fan: Perhaps they don't have a Jump To Conclusions mat.


  5. Looks like someone will have a case of the Mondays, though perhaps in August or later. It's good that CPhA is proactively engaging on the dispensing fee issue, but experience in AL and OR shows that the complete methodology should be scrutinized -- cost to dispense AND the establishment, publication, and correction of AAAC values, plus the agreed rate for non-AAAC items. The methodology in OR is a black box. CPhA should work to see that the AAAC inputs and calculations are well-defined, transparent, and accurate, and should also be sure that the State and the contractor (Myers & Stauffer in AL and OR) are responsive on corrections. On the df, as Jon says, a dispensing fee that covers cost to dispense is critical (and should include some reasonable return), so a fee study is a must, and that study, too, should be transparent and should account for differences in pharmacy settings (retail, LTC, SRx, mail). The delay in CA, partly due to the Supreme Court review of earlier cuts, may be long enough that CMS beats the State to the punch when it nationalizes AAAC.

  6. As a taxpayer in the state of California, I object to Mr. Roth's use of the terminology of "appropriate" dispensing fee. When you are living off the state (by accepting government reimbursements), you don't get to demand the rate you would like to be paid or what you deem as "fair". This is a matter for publicly elected representatives to decide (via policy making agencies). If you and your pharmacies don't like what the taxpayers have to offer, stop accepting patients.

  7. Jon: Thanks for the update. I presume that this will be a key sticking point.

    And to the Office Space fan: Perhaps they don't have a Jump To Conclusions mat.


  8. anon indy rphAugust 17, 2011

    I appreciate your response, but as an independent pharmacist myself, if we dont accept Medical (Medicaid) patients, you will not have access to drugs, important treatment alternatives in todays healthcare environment.....


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