E8-25196. Notice of Hearing: Reconsideration of Disapproval of Arkansas State Plan Amendment (SPA) 07-024

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Notice of hearing.

SUMMARY:

This notice announces an administrative hearing to be held on December 9, 2008, at the CMS Dallas Regional Office, 1301 Young Street, Suite 833, Room 1196, Dallas, Texas 75202, to reconsider CMS' decision to disapprove Arkansas SPA 07-024.

CLOSING DATE:

Requests to participate in the hearing as a party must be received by the presiding officer by November 6, 2008.

FOR FURTHER INFORMATION CONTACT:

Benjamin Cohen, Presiding Officer, CMS, 2520 Lord Baltimore Drive, Suite L, Baltimore, Maryland 21244, Telephone: [phone].

SUPPLEMENTARY INFORMATION:

This notice announces an administrative hearing to reconsider CMS' decision to disapprove Arkansas SPA 07-024 which was submitted on January 18, 2008, and disapproved on August 19, 2008.

Under this SPA, the State would increase the dispensing fee from $5.51 to $8.68 for brand name prescription drugs. The dispensing fee for generic drugs would increase to $11.68, an increase from $5.51 for drugs with a maximum allowable cost (MAC) limit and from $7.51 for drugs without a MAC limit. The dispensing fee for generic drugs would be further increased to $12.68 if there is a 2.3 percent increase in the proportion of total claims dispensed as generic drugs. CMS was unable to approve this SPA because it does not comply with section 1902(a)(30)(A) of the Social Security Act (the Act) and the longstanding requirements of Federal regulations (previously codified at 42 CFR 447.331 and at 42 CFR 447.332), which specify that the State must have a reasonable dispensing fee.

Section 1902(a)(30)(A) of the Act requires that States have methods and procedures to assure that payment rates are consistent with efficiency, economy, and quality of care. Section 1902(a)(30)(A) and longstanding requirements of Federal regulations (previously codified at 42 CFR 447.331 and 42 CFR 447.332) provide that payments for drugs are to be based on the ingredient cost of the drug and a reasonable dispensing fee.

In support of its proposal, the State submitted survey findings dated February 2, 2007, performed by MENTORx that show the median dispensing cost is $9.25 for all pharmacies with a spread of $4.44 between the 20th percentile value ($7.45) and the 80th percentile value ($11.89). The study looked at the difference in dispensing costs between independent and chain pharmacies, but not between brand and generic drugs.

The hearing will involve the following issues:

• The MENTORx survey failed to present supporting evidence for the State's determination of separate dispensing fees for brand and generic prescriptions and the State has failed to provide us with sufficient evidence to demonstrate that the separate dispensing fee for brand name and generic prescription drugs is reasonable.
• MENTORx recommended the 80th percentile ($11.89) be used as the dispensing fee for all prescriptions. While the State did not follow this recommendation, it did not adequately explain why it chose the dispensing fee for brand name drugs based on the 40th percentile value ($8.68) and the initial dispensing fee for generics based slightly below the 80th percentile value ($11.89). The State's current dispensing fee of $5.51 is one of the highest in the Nation among State Medicaid programs. The proposed dispensing fee for generic drugs would be the highest in the Nation among State Medicaid programs and would be the largest variance in dispensing fees between brand and generic drugs. Accordingly, the State failed to adequately explain why a dispensing fee slightly below the 80th percentile value would not result in most pharmacies being overpaid to dispense generic drugs. Therefore, CMS did not believe that the State demonstrated why this is reasonable.
• Despite the fact that the generic dispensing fee was set at the maximum cost in the survey, the State did not adequately explain why it would further increase the generic fee above the 80th percentile to $12.68. While the State claimed that increasing the dispensing fee would be budget neutral based on a 2.3 percent increase in the proportion of total claims dispensed as generic drugs, it did not explain why a further incentive from the current $2 differential to a $4 differential was reasonable.
• In response to our formal concerns, the State indicated that data do not exist to differentiate dispensing cost of brand versus generic drugs. The State indicated that the intent of the proposed dispensing fee is to encourage the use of less costly generics, and thus avoid the higher ingredient reimbursement of a brand. However, the State failed to consider the ingredient cost of drugs as well as the cost of dispensing, to ensure that both are being paid appropriately. To increase the dispensing fee without considering the ingredient cost payment so that it accurately estimates acquisition cost results in an overall payment that is inconsistent with the requirement of the statute that payments be consistent with efficiency and economy.

Section 1116 of the Act and Federal regulations at 42 CFR Part 430, establish Department procedures that provide an administrative hearing for reconsideration of a disapproval of a State plan or plan amendment. CMS is required to publish a copy of the notice to a State Medicaid agency that informs the agency of the time and place of the hearing, and the issues to be considered. If we subsequently notify the agency of additional issues that will be considered at the hearing, we will also publish that notice.

Any individual or group that wants to participate in the hearing as a party must petition the presiding officer within 15 days after publication of this notice, in accordance with the requirements contained at 42 CFR 430.76(b)(2). Any interested person or organization that wants to participate as amicus curiae must petition the presiding officer before the hearing begins in accordance with the requirements contained at 42 CFR 430.76(c). If the hearing is later rescheduled, the presiding officer will notify all participants.

The notice to Arkansas announcing an administrative hearing to reconsider the disapproval of its SPA reads as follows:

Mr. Breck Hopkins, Chief Counsel, Arkansas Department of Human Services, P.O. Box 1437, Slot S-260, Little Rock, AR 72203-1437.

Dear Mr. Hopkins: I am responding to your request for reconsideration of the decision to disapprove the Arkansas State plan amendment (SPA) 07-024, which was submitted on January 18, 2008, and disapproved on August 19, 2008.

Under this SPA, the State proposed to increase the dispensing fee from $5.51 to $8.68 for brand name prescription drugs. The dispensing fee for generic drugs would increase to $11.68, an increase from $5.51 for drugs with a maximum allowable cost (MAC) limit and from $7.51 for drugs without a MAC limit. The dispensing fee for generic drugs would be further increased to $12.68 if there is a 2.3 percent increase in the proportion of total claims dispensed as generic drugs. I was unable to approve this SPA because it does not comply with section 1902(a)(30)(A) of the Social Security Act (the Act) and the longstanding requirements of Federal regulations (previously codified at 42 CFR 447.331 and at 42 CFR 447.332), which specify that the State must have a reasonable dispensing fee.

Section 1902(a)(30)(A) of the Act requires that States have methods and procedures to assure that payment rates are consistent with efficiency, economy, and quality of care. Section 1902(a)(30)(A) and longstanding requirements of Federal regulations (previously codified at 42 CFR 447.331 and 42 CFR 447.332) provide that payments for drugs are to be based on the ingredient cost of the drug and a reasonable dispensing fee.

In support of its proposal, the State submitted survey findings dated February 2, 2007, performed by MENTORx that show the median dispensing cost is $9.25 for all pharmacies with a spread of $4.44 between the 20th percentile value ($7.45) and the 80th percentile value ($11.89). The study looked at the difference in dispensing costs between independent and chain pharmacies, but not between brand and generic drugs.

The hearing will involve the following issues:

• The MENTORx survey failed to present supporting evidence for the State's determination of separate dispensing fees for brand and generic prescriptions and the State has failed to provide us with sufficient evidence to demonstrate that the separate dispensing fee for brand name and generic prescription drugs is reasonable.
• MENTORx recommended the 80th percentile ($11.89) be used as the dispensing fee for all prescriptions. While the State did not follow this recommendation, it did not adequately explain why it chose the dispensing fee for brand name drugs based on the 40th percentile value ($8.68) and the initial dispensing fee for generics based slightly below the 80th percentile value ($11.89). The State's current dispensing fee of $5.51 is one of the highest in the Nation among State Medicaid programs. The proposed dispensing fee for generic drugs would be the highest in the Nation among State Medicaid programs and would be the largest variance in dispensing fees between brand and generic drugs. Accordingly, the State failed to adequately explain why a dispensing fee slightly below the 80th percentile value would not result in most pharmacies being overpaid to dispense generic drugs. Therefore, we do not believe that the State has demonstrated why this is reasonable.
• Despite the fact that the generic dispensing fee was set at the maximum cost in the survey, the State did not adequately explain why it would further increase the generic fee above the 80th percentile to $12.68. While the State claimed that increasing the dispensing fee would be budget neutral based on a 2.3 percent increase in the proportion of total claims dispensed as generic drugs, it did not explain why a further incentive from the current $2 differential to a $4 differential was reasonable.
• In response to our formal concerns, the State indicated that data do not exist to differentiate dispensing cost of brand versus generic drugs. The State indicated that the intent of the proposed dispensing fee is to encourage the use of less costly generics, and thus avoid the higher ingredient reimbursement of a brand. However, the State failed to consider the ingredient cost of drugs as well as the cost of dispensing, to ensure that both are being paid appropriately. To increase the dispensing fee without considering the ingredient cost payment so that it accurately estimates acquisition cost results in an overall payment that is inconsistent with the requirement of the statute that payments be consistent with efficiency and economy.

I am scheduling a hearing on your request for reconsideration to be held on December 9, 2008, at the CMS Dallas Regional Office, 1301 Young Street, Suite 833, Room 1196, Dallas, Texas 75202, in order to reconsider the decision to disapprove SPA 07-024. If this date is not acceptable, we would be glad to set another date that is mutually agreeable to the parties. The hearing will be governed by the procedures prescribed by Federal regulations at 42 CFR Part 430.

I am designating Mr. Benjamin Cohen as the presiding officer. If these arrangements present any problems, please contact the presiding officer at [phone]. In order to facilitate any communication which may be necessary between the parties to the hearing, please notify the presiding officer to indicate acceptability of the hearing date that has been scheduled and provide names of the individuals who will represent the State at the hearing.

Sincerely,

Kerry Weems,

Acting Administrator.

Section 1116 of the Social Security Act (42 U.S.C. 1316; 42 CFR 430.18)

(Catalog of Federal Domestic Assistance program No. 13.714, Medicaid Assistance Program.)

Dated: October 16, 2008.

Kerry Weems,

Acting Administrator, Centers for Medicare & Medicaid Services.