Corcoran et al v. CVS Health Corporation

Northern District of California, cand-4:2015-cv-03504

Exhibit J

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4 Exhibit J 4 Department of Health and Human Services OFFICE OF INSPECTOR GENERAL A COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO ACQUISITION COSTS, MEDICARE PAYMENT AMOUNTS, AND RETAIL PRICES SERVICES CES USA UMAN SE TH & HUM Daniel R. Levinson Inspector General OF HEALTH TMENT OF August 2009 OEI-03-08-00490 Wzavaid PX-0724 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 Office of Inspector General http://oig.hhs.gov The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, is to protect the integrity of the Department of Health and Human Services (HHS) programs, as well as the health and welfare of beneficiaries served by those programs. This statutory mission is carried out through a nationwide network of audits, investigations, and inspections conducted by the following operating components: Office of Audit Services The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting audits with its own audit resources or by overseeing audit work done by others. Audits examine the performance of HHS programs and/or its grantees and contractors in carrying out their respective responsibilities and are intended to provide independent assessments of HHS programs and operations. These assessments help reduce waste, abuse, and mismanagement and promote economy and efficiency throughout HHS. Office of Evaluation and Inspections The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide HHS, Congress, and the public with timely, useful, and reliable information on significant issues. These evaluations focus on preventing fraud, waste, or abuse and promoting economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI reports also present practical recommendations for improving program operations. Office of Investigations The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of fraud and misconduct related to HHS programs, operations, and beneficiaries. With investigators working in all 50 States and the District of Columbia, OI utilizes its resources by actively coordinating with the Department of Justice and other Federal, State, and local law enforcement authorities. The investigative efforts of OI often lead to criminal convictions, administrative sanctions, and/or civil monetary penalties. Office of Counsel to the Inspector General The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering advice and opinions on HHS programs and operations and providing all legal support for OIG's internal operations. OCIG represents OIG in all civil and administrative fraud and abuse cases involving HHS programs, including False Claims Act, program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG also negotiates and monitors corporate integrity agreements. OCIG renders advisory opinions, issues compliance program guidance, publishes fraud alerts, and provides other guidance to the health care industry concerning the anti-kickback statute and other OIG enforcement authorities. 4 > EXECUTIVE SUMMARY OBJECTIVES 1. To determine how Federal upper limit (FUL) amounts calculated under the current method compare to (a) pharmacy acquisition costs, (b) Medicare Part D payment amounts, and (c) retail prices under discount generic programs. 2. To estimate the financial impact on the Medicaid program of continuing to calculate FUL amounts using the current method. 3. To determine how FUL amounts calculated under the method required by the Deficit Reduction Act of 2005 (DRA) compare to the pricing points under review. BACKGROUND Federal regulations require, with certain exceptions, that each State Medicaid agency's reimbursement for a covered outpatient drug not exceed (in the aggregate) the lower of the estimated acquisition cost plus a reasonable dispensing fee or the provider's usual and customary charge to the public for the drugs. For certain drugs, States also use the FUL program or State maximum allowable cost programs in setting reimbursement. The FUL program was established to help ensure that Medicaid takes advantage of lower market prices for multiple-source drugs. However, previous Office of Inspector General (OIG) work consistently found that the published prices used to set Medicaid FUL amounts often greatly exceeded prices in the marketplace. Based in part on this work, the DRA required that, beginning January 1, 2007, FULs be based on 250 percent of the lowest average manufacturer price (AMP) rather than 150 percent of the lowest price published in national compendia. In connection with a lawsuit filed by two trade associations representing retail pharmacies, a Federal judge issued a preliminary injunction preventing the Centers for Medicare & Medicaid Services (CMS) from moving forward with AMP-based reimbursement under Medicaid. In addition, the Medicare Improvements for Patients and Providers Act of 2008 statutorily delayed the implementation of the new FUL methodology until October 2009. As a result, CMS is still basing FULS on the pre-DRA method as of August 2009. OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 4 4 4 4 4 4 4 4 4 4 APPENDIX - B Agency Comments MUMAN SPA SETH DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 04 OF tenyCHE Administrator Washington, DC 20201 JUL 9 200g DATE: GENERAL 2009 JUL 10 P4 2:25 RECEIVED TO: Daniel R. Levinson Inspector General Charlene Frizzera /S/ Acting Administrator FROM: SUBJECT: Office of Inspector General (OIG) Draft Report: "A Comparison of Medicaid Federal Upper Limit Amounts to Acquisition Costs, Medicare Payment Amounts, and Retail Prices" (OEI-03-08-00490) BER ------- Thank you for the opportunity to review and comment on the subject draft report. In this draft .. report, thc OIG-(1) Determines how the current pre-Deficit Reduction Act of 2005 (DRA, P.L. 109-171) Federal upper limit (FUL) amounts compare to pharmacy acquisition costs, Medicare Part D payment amounts, and retail prices under discount generic programs; (2) Estimates the financial impact on the Medicaid program of continuing to calculate FUL amounts using the current method, and (3) Determines how FUL amounts based on average manufacturer prices (AMPs) calculated under the method required by the DRA compare to the pricing points under review - - - The DRA required FUL amounts for multiple source drugs to be based on 250 percent of the lowest reported AMP in a FUL group: However, a preliminary injunction issued by the U.S. District Court for the District of Columbia and a moratorium in the Medicare Improvements for Patients and Providers Act of 2008 (P.L. 110-275) prevented the Centers for Medicare & Medicaid Services (CMS) from implementing the AMP-based FUL methodology until at least October 1, 2009. As a result, CMS is currently calculating FUL amounts under the pre-DRA methodology OIG Éindings Using fourth-quarter 2007 Medicaid drug utilization data, the OIG reviewed the top 50 drugs with the highest total Medicaid expenditures. The OIG found the following for the current, pre- DRA FULS. In the aggregate, the FUL amounts calculated under the current methodology were 4.32 times more than average pharmacy acquisition costs in the fourth quarter of 2007. Por almost half of the drugs under review, the FUL amounts calculated under the current methodology were at least five times greater than the average pharmacy acquisition costs in the fourth quarter of 2007. QET-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 31 4 Α Ρ Ρ Ε Ν D | X Page 2 - Daniel R. Levinson • In the aggregate, the FUL amounts calculated under the current methodology were 2.91 times higher than average Part D payment amounts in the fourth quarter of 2007. This figure does not take into account that both Medicaid and Part D usually pay a dispensing fee in addition to the ingredient cost payment. Among individual drugs, in 51 out of 335 cases the FUL amounts calculated under the current methodology were at least five times higher. In the aggregate, the FUL amounts calculated under the current methodology were 1.97 times higher than prices available through retail discount generic programs in the fourth quarter of 2007. The OIG concluded that despite the fact that States often pay less than the FUL amount for multiple source drugs, the current calculation using the pre-DRA methodology is still costing Medicaid hundreds of millions of dollars per year. The OIG notes that if Medicaid had paid for the 50 FUL drugs with the highest total expenditures under review based on the average pharmacy acquisition cost, the program would have reduced expenditures by $105 million in a single quarter. Also, if Medicaid had paid for the 572 FUL drugs under review at the average Part D payment amount, the program would have reduced expenditures by $138 million in a single quarter. Additionally, if Medicaid had paid all pharmacies for the 291 FUL drugs at the price available through retail discount generic programs, the Medicaid program would have reduced expenditures by $87 million in a single quarter. The OIG also analyzed the AMP-based FUL amounts and found that, in the aggregate, AMP- based FUL amounts were much closer to the pharmacy acquisition cost and the prices set by other programs. Specifically, the OIG found the following for the AMP-based FULs. • In the aggregate, the fourth-quarter 2007 AMP-based FUL amounts were 50 percent higher than average pharmacy acquisition costs in the fourth quarter of 2007. • In the aggregate, AMP-based FUL amounts were more than double the lowest pharmacy acquisition cost in the fourth quarter of 2007. • In the aggregate, AMP-based FUL amounts were 2 percent below average Part D payment amounts for the fourth quarter of 2007. However, given that Medicaid tends to pay higher dispensing fees than Part D, State payments to pharmacies under the AMP- based FULs may actually exceed Part D payments in the aggregate once dispensing fees are considered. In the aggregate, the AMP-based FUL amounts, including a dispensing fee, would exceed the retail prices available under the discount generic programs. Despite the aggregate numbers, the OIG has concerns that for a number of individual drugs the AMP-based FUL amounts were substantially below average acquisition costs and Part D payment amounts. The OIG contended that if this is the case, pharmacies may face difficulties in providing certain drugs to Medicaid beneficiaries. In response to CMS' previous comment that OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 32 4 Α Ρ Ρ Ε Ν D | X Page 3 - Daniel R. Levinson pharmacies will seek out the lowest cost versions of the FUL drugs, the OIG also examined the lowest acquisition costs reported by any wholesale distributor for any single version (i.e., national drug code) of a FUL drug. The OIG found that, in the aggregate, the AMP-based FUL amounts for 38 out of 50 drugs were higher than the lowest acquisition costs reported by wholesale distributors in the fourth quarter of 2007. In other words, pharmacies may have been able to purchase these versions from a particular distributor for less than the AMP-based FUL amount. The OIG also notes that if and when CMS is permitted to publicly disclose AMP data, the resulting transparency should help ensure that the AMP-based FUL amounts are a more accurate reflection of market prices. CMS Response In general, we concur with the findings in this report; however, we have concerns with certain aspects of the methodology used in the study. In reaching its conclusions, we believe the report overstates pharmacy acquisition costs by using data from distributors that failed to include price concessions, and it understates Medicaid payment rates by failing to include dispensing fees that are paid by Medicaid when prescriptions are filled. As we have responded in prior OIG reports, we agree that the current pre-DRA methodology for setting the FUL amounts substantially inflates Medicaid payments for many multiple source drugs. We also appreciate the OIG's findings that the AMP-based FUL amounts more closely align with the actual acquisition costs of these drugs to pharmacies and believe that this confirms our response to the previous OIG report on AMP-based FULs. In regard to the OIG's concern that for some individual drugs the AMP-based FULs may be below pharmacy acquisition costs and the Part D payment amounts, we recognize that the prices for certain multiple source drugs may exceed the FUL. However, we note that the FULs are calculated as an aggregate upper limit for the States and that the States have the flexibility to adjust payment amounts for any of these drugs. The fact that one drug might be above the limit does not mean that the State by paying more for that drug would not remain under the aggregate upper limit. States have broad authority under section 1902(a)(30) of the Social Security Act to establish payment rates under their State plan that are consistent with efficiency, economy, and quality of care and that are sufficient to enlist enough providers so that care under the plan is available at least to the extent that such services are available to the general population. Accordingly, States have discretion to adjust payment rates to ensure availability. We believe that FULs based on AMP data more accurately reflect pharmacy acquisition costs and prices used in other programs and that the report provides support for such AMP-based FULs. In addition, we also believe that publicly disclosing AMPs will bring transparency to these prices. such that States can adjust payment rates and pharmacies will know which versions of the drugs can be purchased within the FUL amounts. Finally, as noted previously, we have some concerns with the OIG's methodology. In obtaining acquisition cost data from the wholesalers, only two of the four responding wholesalers reported discounts and other price adjustments to their sales prices to pharmacies. Had all of the wholesalers reported such price concessions, we believe the pharmacy acquisition costs would OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 33 33 4 Α Ρ Ρ Ε Ν D | X Page 4 - Daniel R. Levinson have been lower than the estimates used in the report and that more drugs would have been obtainable at the AMP-based FUL amounts. OIG Recommendation The OIG recommends that CMS continue to work with Congress to identify strategies that would lower inflated Medicaid payments for multiple source drugs. CMS Response We concur. CMS will continue to work with Congress to find strategies to help lower inflated Medicaid payments for multiple source drugs. We appreciate the work of the OIG in this report and hope that the findings of this report will help substantiate the need to align payment amounts to pharmacy acquisition costs. OEI-03-08-00490 comunion or mesemo resa vora con amour sa mea Puomo COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 34 4 ► ACKNOWLEDGMENTS This report was prepared under the direction of Robert A. Vito, Regional Inspector General for Evaluation and Inspections in the Philadelphia regional office, and David E. Tawes, Director of the Medicare and Medicaid Prescription Drug Unit. Eric M. Biersmith served as lead analyst for this study. Other central office staff who contributed include Eddie Baker, Jr., and Scott Manley. OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 35 4 EXECUTIVE SUMMARY We compared FUL amounts calculated under the current pre-DRA method and the proposed AMP-based method to three pricing points: (1) estimated fourth-quarter 2007 pharmacy acquisition costs for the 50 FUL drugs with the highest total Medicaid expenditures in 2007, (2) average Part D pharmacy reimbursement amounts for all FUL drugs in the fourth quarter of 2007, and (3) retail pricing for any FUL drugs included in selected companies' discount generic programs. We estimated pharmacy acquisition costs based on information obtained from wholesale distributors of prescription drugs. To estimate the financial impact of continuing to base FUL amounts on the current method, we compared actual Medicaid expenditures for the FUL drugs under review to the amount Medicaid would have spent had reimbursement been set at the other three pricing points. FINDINGS The FUL amounts calculated under the current method continue to be substantially higher than other pricing points. In the aggregate, the FUL amounts were more than four times higher than average pharmacy acquisition costs in the fourth quarter of 2007. Among individual products, the FUL amount was more than double the average pharmacy acquisition cost for 46 of the 50 highest-expenditure FUL drugs (for 24 of these, the FUL amount was at least five times higher). In addition, aggregate FUL amounts in the fourth quarter of 2007 were almost three times higher than average Part D payment amounts. Among individual products, the FUL amount was more than double the average Part D payment amount for 335 of 572 drugs (for 51 of these, the FUL amount was at least five times higher). Finally, in the aggregate, the FUL amounts were two times higher than prices available through retail discount generic programs in the fourth quarter of 2007. Among individual products, the FUL amount was more than double the $4.00 retail price for a monthly supply of 129 of the 291 drugs included in these programs. Despite the fact that States often pay less than the FUL amount for multiple-source drugs, the current calculation method is still costing Medicaid hundreds of millions of dollars per year. The FUL amounts do not always represent the actual prices paid by Medicaid, because State maximum allowable cost programs as well as usual and customary charge provisions may further lower payments for OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 4 EXECUTIVE SUMMARY multiple-source drugs. Even allowing for these reductions, average Medicaid payment amounts still exceeded the other pricing points we reviewed. As a result, if Medicaid had paid for 50 high-expenditure FUL drugs based on the average pharmacy acquisition cost, the program would have reduced expenditures by an estimated $105 million in a single quarter (or more than $400 million in 1 year). Similarly, if Medicaid had paid for 572 FUL drugs at the average Part D payment amount, the program would have reduced expenditures by an estimated $138 million in a single quarter. Finally, if Medicaid had paid all pharmacies for 291 FUL drugs at the $4.00 per 30-day price available through retail discount generic programs, the program would have reduced expenditures by an estimated $87 million in a single quarter. In the aggregate, AMP-based FUL amounts were much closer to other pricing points; however, for some drugs, these FUL amounts may be below acquisition costs. For the 50 FUL drugs with the highest total Medicaid expenditures, fourth quarter 2007 AMP-based FUL amounts (not including dispensing fees) were 50 percent higher, in the aggregate, than average pharmacy acquisition costs. For 26 of these drugs, AMP-based FUL amounts were below average pharmacy acquisition costs. However, for 38 of the 50 drugs, the new FUL amounts were higher than the lowest reported acquisition costs. In other words, pharmacies would typically have been able to purchase at least one version of these drugs from a particular distributor for less than the AMP-based FUL amount. These figures do not take into account that in addition to being reimbursed by Medicaid for the cost of the drug itself (i.e., the FUL amount, the maximum allowable cost), pharmacies also receive a dispensing fee from Medicaid each time a prescription is filled. In addition, aggregate AMP-based FUL amounts (not including dispensing fees) were 2 percent below average Part D payment amounts (not including dispensing fees) in the fourth quarter of 2007. For 337 of the 542 drugs, the AMP-based FUL amount was less than the average Part D payment. Finally, approximately half of the drugs with an AMP-based FUL in the fourth quarter of 2007 were also included in at least one of the $4.00 discount generic programs under review. The AMP-based FUL amounts for a 30-day supply of these same drugs averaged $2.20, before any dispensing fees were applied. However, given that only one State had a dispensing fee that was less than $2.00 per prescription COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS OEI-03-08-00490 4 EXECUTIVE SUMMARY (New Hampshire was $1.75), aggregate Medicaid payment amounts including the dispensing fee would still exceed the retail price under the discount programs. RECOMMENDATION The findings of this report demonstrate that the current method for setting FUL amounts continues to result in substantially inflated Medicaid payments for many drugs. These FULs are frequently double (and often more than five times) other prices in the marketplace. As a result, Medicaid could be overpaying by hundreds of millions of dollars per year for these drugs. Our findings also show that AMP-based FULs calculated under the DRA-prescribed methodology significantly lessen the gap between FUL amounts and the other prices we examined. In the aggregate, the AMP-based FULs seem to cover acquisition costs, and are very similar to overall Part D reimbursement. However, despite the aggregate numbers, we have some concerns that for a number of individual drugs the AMP-based FUL amounts were substantially below average acquisition costs and Part D payment amounts. Notwithstanding these concerns, the inflated payments resulting from the pre-DRA methodology that we observed in this review once again illustrate the flaws in the current FUL calculation. We also understand that without a legislative change and the lifting of the injunction, CMS's options are limited at this time. However, it is critical that Medicaid set payment rates that are fair and appropriate to both the government and providers. Therefore, we recommend that: CMS should continue to work with Congress to identify strategies that would lower inflated Medicaid payments for multiple-source drugs. AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE CMS concurred with our recommendation. CMS also stated that our findings support the agency's belief that AMP-based FULs more accurately reflect acquisition costs and prices used in other programs. However, the agency expressed concerns with certain aspects of our methodology. OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS iv 4 EXECUTIVE SUMMARY Specifically, CMS stated that actual pharmacy acquisition costs are likely to be lower than the estimates used in our report because two of the four responding distributors failed to provide data on price concessions (i.e,. discounts, rebates, and other price adjustments). CMS noted that our findings understate Medicaid payment rates because we did not include dispensing fees that are paid when Medicaid prescriptions are filled. The agency also noted that FULs are required to be met only in the aggregate and that States have the authority to pay more than the FUL amount for certain drugs. OIG agrees that had all distributors included information on price concessions, our estimate of the number of drugs available at prices below the AMP-based FUL amounts may have increased. However, based on our data, this limitation does not fundamentally change the underlying issue surrounding the availability of individual drugs. In addition, because this study focused primarily on the costs of the drugs themselves, it would not have been appropriate to include dispensing fees in most pieces of our analysis. Finally, we agree that FULs apply only in the aggregate. However, it is important to balance the goal of lower aggregate payment levels with the need to ensure that FUL amounts cover acquisition costs for as many drugs as possible. OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS 4 ► TABLE OF CONTENTS EXECUTIVE SUMMARY.. N I. . .. . .. . . . .. . . .. . .. . .. . .. . .. . . .. . INTRODUCTION .... ... 1 FINDINO. .. .. . . . .. ... ... .. . ... ... ............. 10 FUL amounts calculated under the current method continue to be substantially higher than other pricing points. .... 16 Despite the fact that States often pay less than the FUL amount for multiple-source drugs, the current calculation method is still costing Medicaid hundreds of millions of dollars per year ...... 19 In the aggregate, AMP-based FUL amounts were much closer to other pricing points; however, for some drugs, these FUL amounts may be below acquisition costs ..... .. . . .. . .. . .. . .. . . .. . . .......... RECOMMENDATION Agency Comments and Office of Inspector General Res ponse ............................................. 27 APPENDIXES.. 9. . . A: Fifty Federal Upper Limit Drugs With Highest Total Medicaid Expenditures in 2007 ...... ......... B: Agency Comments .. 31 ...... ACKNOWLEDGMENTS ....... ........ 35 4 ► INTRODUCTION OBJECTIVES 1. To determine how Federal upper limit (FUL) amounts calculated under the current method compare to (a) pharmacy acquisition costs, (b) Medicare Part D payment amounts, and (c) retail prices under discount generic programs. 2. To estimate the financial impact on the Medicaid program of continuing to calculate FUL amounts using the current method. 3. To determine how FUL amounts calculated under the method required by the Deficit Reduction Act of 2005 (DRA) compare to the pricing points under review. BACKGROUND The FUL program was established to help ensure that Medicaid takes advantage of lower market prices for multiple-source drugs.1 However, previous Office of Inspector General (OIG) work consistently found that the published prices used to set Medicaid FUL amounts often greatly exceeded prices available in the marketplace.2 Based in part on this work, provisions of the DRA, P.L. No. 109-171, substantially changed the method for calculating FUL amounts. However, pharmacy groups have expressed concern that the new FUL amounts calculated under the DRA-based method may not adequately reimburse providers for their costs, thereby limiting access to certain drugs.3 In December 2007, in connection with a lawsuit filed by two trade associations representing retail pharmacies, a Federal judge issued a preliminary injunction preventing the Centers for Medicare & Medicaid Services (CMS) from using the DRA-based calculation method to change Medicaid reimbursement rates for retail pharmacies. Subsequently, section 203 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), P.L. No. 110-275, barred CMS from implementing Generally a drug is considered to be multiple-source if generic versions are available. 2 "Comparison of Medicaid Federal Upper Limit Amounts to Average Manufacturer Prices," OEI-03-05-00110. June 2005. See the National Association of Chain Drug Stores, "Implications of Federal Medicaid Generic Drug Payment Reductions for State Policymakers," May 2007 Issue Brief. Available online at http://www.nacds.org/user-assets/pdfs/goy affairs/issues/Medicaid/ Implications Federal MedicaidGenericDrugPaymentReductions State Policymakers.pdf. Accessed on April 17, 2009. OEI-03-08-00490 COMPARISON OF MEDICAID FEDERAL UPPER LIMIT AMOUNTS TO OTHER PRICING POINTS