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Budget Act of 2009 Changes to Billing Requirements and Reimbursement

September 8, 2009

In accordance with the Budget Act of 2009, reimbursement and billing requirements have changed for the following:

Pharmacy “Usual and Customary” Charge to the Public
Pharmacy providers have been required to bill Medi-Cal a price that does not exceed that charged to the general public, often referred to by pharmacy providers as the “usual and customary” price. For dates of service on or after October 1, 2009, “usual and customary” is now defined as the lesser of:

  • The lowest price reimbursed to the pharmacy by other third-party payers in California, excluding Medi-Cal managed care plans and Medicare Part D prescription drug plans.
  • The lowest price routinely offered to any segment of the general public.

Change in the Calculation of Maximum Allowable Ingredient Cost (MAIC) prices
Statute allows the Department of Health Care Services (DHCS) to base the State MAIC on the mean of the average manufacturer's price of drugs. The mean is generically equivalent to the particular innovator drug, plus a percent markup determined by DHCS to be necessary for the MAIC to represent the average purchase price paid by retail pharmacies in California. Effective October 1, 2009, if the average manufacturer’s prices are unavailable, DHCS will establish the MAIC in either of the following ways:

  • Based on the volume weighted average of wholesaler acquisition costs of drugs generically equivalent to the particular innovator drug, plus a percent markup determined by DHCS to be necessary for the MAIC to represent the average purchase price paid by retail pharmacies in California
  • Pursuant to a contract with a vendor for the purpose of surveying drug price information, collecting data and calculating a proposed MAIC

Drug Billing by Covered Entities Participating in the 340B Drug Pricing Program
Effective October 1, 2009, covered entities that purchase drugs under the 340B Drug Pricing Program (340B program) shall dispense only 340B program-purchased drugs to Medi-Cal recipients. Providers are also required to bill an amount not to exceed the entity’s actual acquisition cost for the drug, as charged by the manufacturer at a price consistent with United States Code, Section 256b, Title 42, plus the professional fee pursuant to Welfare and Institutions Code (W&I Code), Section 14105.45 or the dispensing fee pursuant to W&I Code, Section 14132.01.

Additional Clarification for Covered Entities
DHCS worked with the California Primary Care Association (CPCA) to identify questions related to the implementation of the 340B program drug-billing requirement. The following questions and answers have been developed to assist covered entities:

  1. Q: Our facility currently is not enrolled in the 340B program. Does this change in this statute now require our facility to enroll?
    A: This change does not require an eligible covered entity to enroll in the 340B program. An eligible entity may continue to be reimbursed for non-340B program drugs dispensed to Medi-Cal recipients. The covered entity will need to maintain documentation that it is not enrolled in the 340B program. If a provider appears on the Health Resources and Services Administration’s Office of Pharmacy Affairs (OPA) covered-entity database as a participant, DHCS will consider the provider enrolled in the 340B program. Providers are encouraged to verify that facility information on the OPA database is correct.
  2. Q: When do Medi-Cal providers have to comply with changes in the statute?
    A: Compliance will not be required until October 1, 2009, unless DHCS issues a notice that extends the implementation date.
  3. Q: Our facility currently is not enrolled in the 340B program. How do we enroll?
    A: Eligible entities can find information on the 340B program at the OPA Web site.
  4. Q: Our facility does not bill drugs on a fee-for-service basis, but receives a bundled payment. Are we required to use 340B program drugs?
    A: Covered entities do not have to dispense 340B program drugs for which a payment is made to a covered entity as part of a bundled, composite or all-inclusive rate. Reimbursement will be based on applicable rates for the services rendered.
  5. Q: Does this change apply to both Medi-Cal fee-for-service and Medi-Cal Managed Care?
    A: The requirement to dispense 340B program drugs applies to the Medi-Cal fee-for-service program and rebate-eligible County Organized Health System (COHS) plans. Reimbursement is based on the applicable contract rates with the individual plans.
  6. Q: What is meant by “actual acquisition cost”?
    A: In determining actual acquisition cost, DHCS considers any reasonable method utilized by the covered entity to determine the acquisition cost. Acquisition cost can include shipping and handling charges actually incurred by the covered entity in connection with the purchase of 340B program drugs. The covered entity shall reduce its incurred cost by any discounts, rebates, refunds, price reductions or credits actually received by the covered entity, and that are directly attributable 340B program drugs. Costs of the covered entity that are incurred during the dispensing of a drug shall not be used to determine the acquisition cost of a drug.
  7. Q: If providers use a contract pharmacy to dispense 340B program drugs, can the contract pharmacy dispense non-340B program drugs to Medi-Cal recipients and bill Medi-Cal fee-for-service directly?
    A: A 340B program, contract pharmacy may dispense non-340B program drugs to Medi-Cal recipients, even if the beneficiary is considered a “patient” of the covered entity. The pharmacy can bill for such non-340B program drugs under the billing requirements in W&I Code, Section 14105.455. This applies to Medi-Cal fee-for-service and rebate eligible COHS plans. Please review question #9 for detailed information.
  8. Q: Can a covered entity bill a Medi-Cal managed care plan at a rate higher than acquisition cost plus a fee?
    A: A covered entity using a 340B program contract pharmacy may arrange with the contract pharmacy to dispense 340B program drugs to Medi-Cal managed care recipients, and may bill for such 340B program drugs at the contract rate negotiated with the plan (excluding drugs dispensed to members of rebate-eligible COHS plans). Please review question #9 for detailed information.
  9. Q: Can providers direct all of our patients to the 340B contract pharmacy?
    A: No. Recipients can choose to go to any pharmacy they wish. As stated in the official 340B program guidance:

    “The covered entity health care provider will inform the patient of his or her freedom to choose a pharmacy provider. If the patient does not elect to use the contracted service, the patient may obtain the prescription from the covered entity and then obtain the drug(s) from the pharmacy provider of his or her choice. When a patient obtains a drug from a retail pharmacy other than the entity contract pharmacy, the manufacturer is not required to offer this drug at 340B program pricing.”

Providers should refer to the CMS-1500 Claim Form Completion section in the appropriate Part 2 provider manual for instructions on how to submit a claim for a drug purchased through the 340B program.