HCFA FLOATING MAC ALTERNATIVE -- CIP -- COMBINING PHARMACIST INCENTIVE FOR GENERIC SUBSTITUTION WITH ALLOWANCE FOR USUAL AND CUSTOMARY CHARGES

Executive Summary

The Health Care Financing Administration (HCFA) is considering a Medicaid Rx drug reimbursement plan that would incorporate elements of a pharmacist incentive plan with reimbursement based on usual and customary charges at local levels. The most recent concept emerging from HCFA to replace MAC and EAC programs is called the Competitive Incentive Program (CIP). From early descriptions of the plan, it appears essentially to call for a discount rate for govt. purchases of Rx drugs and to use standard retail charges as the price from which to calculate the discount rate. In a major switch from the existing MAC program, the CIP discount plan would apply to single-source products as well as multi-source items. The CIP plan is still at an early conceptual level. HCFA has just recently begun to explain the concept to interested groups in the drug trade. The CIP plan incorporates some of the incentive features of a plan floated by HCFA last spring, the Pharmacists Incentive Program ("The Pink Sheet" June 17, p. 4). A major difference, however, is the basis for calculating govt. prices. The Pharmacists Incentive Plan (PhIP) would have set govt. price ceilings for drugs based on published Red Book prices for generics. The CIP reimbursement prices would be based on actual retail level prices to non-govt. purchasers. CIP Would Penalize Pharmacist For Dispensing Brandname Rather Than Generic, Unless "Medically Necessary" According to a brief HCFA summary of the CIP plan, it "would rely on competitive retail prices as the starting point for reimbursement, subject to a mandatory 'govt. discount' desired to save desired amounts -- probably roughly equivalent to those under PhIP and EAC." The CIP program, HCFA believes, "would automatically provide an economic incentive to pharmacists to purchase prudently and dispense less costly, therapeutically equivalent drug products." The incentive to the pharmacist to avoid brandname dispensing would take the form of larger govt. discounts for brandname products in multi-source situations." HCFA says CIP would encourage generic dispensing "by paying less than the brandname retail price for drugs which exist in three or more versions determined by FDA to be therapeutically equivalent." HCFA further explains the "paying less" concept as a penalty to the pharmacist for using a brandname in multi-source situations. HCFA says the pharmacist would receive discounted retail price from the govt. as reimbursement for generic equivalents in a multi-source situation, "but much less than the discounted retail price if the brandname product were dispensed." Consequently, HCFA reasons, "the pharmacist would almost always choose to dispense a generic product, and govt. savings would be substantial." HCFA points out in its proposal that, if an MD writes "brand medically necessary" on the face of an Rx, then the pharmacist would be reimbursed for the brand at its price minus the standard govt. discount -- without the penalty. The discount approach would permit HCFA to adapt one program for both single and multi source drugs. For single-source products, "CIP would simply pay the retail price less the govt. discount. There would be no separate dispensing fee or determination of ingredient costs," the draft states. Govt. savings off retail for such products would be "comparable in size to those under the EAC system." HCFA is floating the CIP program as a further attempt to find a MAC replacement plan which pharmacy will support. HCFA needs to get at least one strong ally from within the drug distribution trade to make headway with a renewed effort to cut govt. Rx reimbursement levels. CIP is based theoretically, HCFA notes, on a view of the Rx drug market as one of the most competitive in the health care area. "CIP depends," HCFA says, "on the market discipline provided by competitive retail markets for drugs -- Medicaid prices and hence budgetary costs would be 'set' by private payors." However, HCFA is concerned that the trend to third-party payment for drugs might change the situation. HHS Assuring Professionals All Proposals Are Tentative, Will Proceed With Notice-And-Comment Rulemaking HCFA notes that third-party payors currently "reimburse about one-fourth of all Rxs." The agency asked: "Is the market . . . sufficiently competitive and price conscious to prevent the kinds of inflationary pressures which exist in the hospital and outpatient medical markets?" The auditing and fraud protections which would be necessary to enforce a discount level based on usual and customary charges also concern HCFA. The administration points out that CIP would represent "a considerable change in reimbursement administration for states." The govt. is aware that "payment screens would require computerized systems based on millions of transactions over many thousands of drugs/dosage combinations in several geographic areas within most states." HCFA asks rhetorically: "Could sampling and statistical methods be readily devised and implemented which would handle such screens? Are such screens needed?" HCFA wants information from the trade about the feasibility of auditing to assure accurate customary and usual charges. Specifically, HCFA wants to know, "would such protections need to be more elaborate than current protections under MAC/EAC? Would computer-generated audit targets and reviews limited to a very small fraction of pharmacies in any year be sufficient?" HCFA is also soliciting more information about the PhIP plan. That plan would be set reimbursement levels for multi-source products in relation to the lowest published generic cost (such as 150% of that price). HCFA is seeking advice whether the price should be set "on the lowest priced generic or an average of the lowest several generics?" HCFA is looking for a better definition of multi-source. Is it three generics or two, the agency asks. Similarly, it states: "Should PhIP depend on generics, regardless of number, achieving a minimum market share (say, 5% or 10)?" HHS is being careful to explain that the "tentative" proposals are in the "development phase." The department is slowly rolling the plans out through a series of meetings with trade groups. For example, the department reportedly emphasized at a recent meeting that it would adhere to notice-and-comment rulemaking procedures before it tries to implement any program. Following a lawsuit by seven major pharmacy-related assns. HCFA recently was forced to withdraw a plan to require states to change drug reimbursement levels based on average whsle. prices ("The Pink Sheet" Sept. 30, p. 4). The complaint's key argument was that HCFA launched its effort without following rulemaking procedures. HHS also stressed that states would be allowed discretion in adapting to its own needs any program implemented by the federal govt. "Regardless of which option is selected, states could be permitted or indeed encouraged to make modifications -- or to administer another option of own choice -- provided that savings to be realized were equal to those of the option selected," the department said. For example, if HHS replaced PhIP for MAC for multi-source drugs and retained EAC for single-source products, a state could choose CIP instead, "setting discount levels and other parameters such that PhIP/EAC savings would be equalled," the govt. explained. "Regardless, states would remain free to require prior approval for some Rxs, or to use formularies or otherwise manage the coverage and payment of Rx drugs as at present." CIP and PhIP were explained in draft form and attached to Oct. 21 letters inviting affected assns. to a preliminary meeting, which was held Nov. 6. The organizations reportedly represented at the meeting included HCFA, the HHS Inspector General's Office, the Pharmaceutical Mfrs. Assn. the Generic Pharmaceutical Industry Assn., the Natl. Whsle. Druggists' Assn. the Natl. Assn. of Chain Drug Stores, the American Pharmaceutical Assn., the Natl. Assn. of Retail Druggists, the American Society of Hospital Pharmacists, and the American Society of Consultant Pharmacists.