06-1647. Notice of Hearing: Reconsideration of Disapproval of Iowa State Plan Amendments 05-003

AGENCY:

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

ACTION:

Notice of hearing.

SUMMARY:

This notice announces an administrative hearing to be held on April 13, 2006, at the Richard Bolling Federal Building, 601 E. 12th Street, Room 235, Kansas City Conference Room, Kansas City, MO 64106-2898, to reconsider CMS’ decision to disapprove Iowa State plan amendment 05-003.

Closing Date: Requests to participate in the hearing as a party must be received by the presiding officer by March 13, 2006.

FOR FURTHER INFORMATION CONTACT:

Kathleen Scully-Hayes, Presiding Officer, CMS, Lord Baltimore Drive, Mail Stop LB-23-20, Baltimore, Maryland 21244, Telephone: [phone].

SUPPLEMENTARY INFORMATION:

This notice announces an administrative hearing to reconsider CMS’ decision to disapprove Iowa State plan amendment (SPA) 05-003 which was submitted on March 29, 2005. This SPA was disapproved on November 23, 2005. Under SPA 05-003, Iowa sought to simplify its State plan provisions on drug pricing, reflecting the implementation of State supplemental rebates and preferred drug list.

This amendment was disapproved because it did not comport with the requirements of the Federal regulations at 42 CFR 447.331(c) and sections 1902(a)(54) and 1927 of the Social Security Act (the Act) and implementing regulations.

Specifically, Iowa failed to demonstrate that SPA 05-003 is consistent with the Federal upper limit (FUL) regulations at 42 CFR 447.331(c). This regulation provides that the upper limit for payment for multiple source drugs for which a specific limit has been established does not apply if a physician certifies in his or her own handwriting that a specific brand is medically necessary. The State asserted that the physician certification provision (regarding the medical necessity of a brand name drug) need not be followed as part of the State's drug reimbursement methodology because the net cost, after rebates, of these brand name drugs will not exceed the FUL. The State, however, failed to demonstrate how this assertion is consistent with the plain language of the regulation which provides for an FUL based on State payment rates for prescription drugs (without regard to manufacturer rebates), and an FUL exemption based on physician certification.

The State also failed to demonstrate compliance with sections 1902(a)(54) and 1927 of the Act, which provide for the calculation of rebates for covered outpatient drugs, based on payment that was made under the State plan. Section 1927(b)(1)(B) of the Act provides for an offset against medical assistance to account for such rebates. Such an offset would not be necessary if the reference to “payment” was intended to be a net payment and include rebates that are eventually provided under section 1927. The State did not demonstrate that its methodology is consistent with sections 1902(a)(54) and 1927 of the Act which are not intended to change State payment rates for prescription drugs and which, as noted previously, provide for calculation of rebates based on State payment.

For the reasons cited above, and after consultation with the Secretary, as required by the Federal regulations at 42 CFR section 430.15(c)(2), Iowa SPA 05-003 was disapproved.

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 Iowa announcing an administrative hearing to reconsider the disapproval of its SPA reads as follows:

Mr. Daniel W. Hart, Assistant Attorney General, Counsel to the Iowa Department of Human Services, Regents and Human Services Division, 1305 E. Walnut Street, Des Moines, IA 50319-0109.

Dear Mr. Hart:

I am responding to your request for reconsideration of the decision to disapprove the Iowa State plan amendment (SPA) 05-003, which was submitted on March 29, 2005, and disapproved on November 23, 2005.

Under SPA 05-003, Iowa was seeking to simplify its State plan provisions on drug pricing, reflecting the implementation of State supplemental rebates and the preferred drug list.

This amendment was disapproved because it did not comport with the requirements of the Federal regulations at 42 CFR 447.331(c) and sections 1902(a)(54) and 1927 of the Social Security Act (the Act) and implementing regulations.

Specifically, Iowa failed to demonstrate that SPA 05-003 is consistent with the Federal upper limit (FUL) regulations at 42 CFR 447.331(c). This regulation provides that the upper limit for payment for multiple source drugs for which a specific limit has been established does not apply if a physician certifies in his or her own handwriting that a specific brand is medically necessary. The State asserted that the physician certification provision (regarding the medical necessity of a brand name drug) need not be followed as part of the State's drug reimbursement methodology because the net cost, after rebates, of these brand name drugs will not exceed the FUL. The State, however, failed to demonstrate how this assertion is consistent with the plain language of the regulation which provides for an FUL based on State payment rates for prescription drugs (without regard to manufacturer rebates), and an FUL exemption based on physician certification.

The State also failed to demonstrate compliance with sections 1902(a)(54) and 1927 of the Act, which provide for the calculation of rebates for covered outpatient drugs, based on payment that was made under the State plan. Section 1927(b)(1)(B) of the Act provides for an offset against medical assistance to account for such rebates. Such an offset would not be necessary if the reference to “payment” was intended to be a net payment and include rebates that are eventually provided under section 1927. The State did not demonstrate that its methodology is consistent with sections 1902(a)(54) and 1927 of the Act which are not intended to change State payment rates for prescription drugs and which, as noted previously, provide for calculation of rebates based on State payment.

For the reasons cited above, and after consultation with the Secretary, as required by 42 CFR 430.15(c)(2), Iowa 05-003 was disapproved.

I am scheduling a hearing on your request for reconsideration to be held on April 13, 2006, at the Richard Bolling Federal Building, 601 E. 12th Street, Room 235, Kansas City Conference Room, Kansas City, MO 64106-2898, to reconsider the decision to disapprove SPA 05-003. 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 at 42 CFR Part 430.

I am designating Ms. Kathleen Scully-Hayes 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,

Mark B. McClellan, M.D., Ph.D.

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

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

Dated: February 13, 2006.

Mark B. McClellan,

Administrator, Centers for Medicare & Medicaid Services.