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Pharmacy Fee-For-Service Reimbursement Changes Begin February 23, 2019

January 28, 2019

As has been published in previous Medi-Cal Updates, pursuant to California's State Plan Amendment 17-002, and as approved by the Centers for Medicare & Medicaid Services (CMS) on August 25, 2017, the Department of Health Care Services (DHCS) is implementing a new fee-for-service reimbursement methodology for covered outpatient drugs. The associated system changes are targeted for completion on February 23, 2019. The new reimbursement methodology is described below.


In the months following system implementation, DHCS will make retroactive adjustments for impacted claims with dates of service between the policy effective date of April 1, 2017, and the target date of February 23, 2019. DHCS will communicate with stakeholders in the upcoming months with regard to how these claim adjustments will be rolled out.

Drug Ingredient Reimbursement Based on Actual Acquisition Cost (AAC)
CMS'ss National Average Drug Acquisition Cost (NADAC) is adopted as the basis for AAC for drug ingredient reimbursement. The NADAC is a national drug-pricing benchmark determined by a federal survey representing the national average invoice price for drug products based on invoices from wholesalers and manufacturers submitted by retail community pharmacies. Wholesaler acquisition cost (WAC) plus 0 percent is used as the basis for reimbursement when a NADAC is not available. The NADAC and WAC benchmarks replace the average wholesale price (AWP) minus the 17 percent benchmark in the existing drug ingredient cost reimbursement methodology. The new methodology will reimburse the lower of the NADAC, WAC, federal upper limit (FUL), maximum allowable ingredient cost (MAIC) or the pharmacy's usual and customary charge.

Although the MAIC, as authorized by Welfare and Institutions Code (W&I Code), Section 14105.45(b)(4), is part of the “lowest of” formula for drug ingredient reimbursement, DHCS has elected to discontinue all MAICs effective for dates of service on or after April 1, 2017, and to not implement any new MAICs for the time being. Providers will be notified a minimum of 30 days in advance if and when DHCS chooses to implement any new MAICs. Therefore, all products associated with a MAIC prior to April 1, 2017, no longer have an assigned MAIC effective April 1, 2017.

DHCS reminds providers that it is their responsibility to monitor the published NADAC pricing on the CMS Pharmacy Pricing website. Providers may use the NADAC Request for Medicaid Reimbursement Review form to request a rate review. The NADAC Help Desk will research inquiries and evaluate them for potential NADAC updates based upon invoice data collected from the provider initiating the review, additional pharmacy inquiries and other market factors such as compendia price changes.

Professional Dispensing Fee
The current professional dispensing fee structure ($7.25 for retail and $8 for Long Term Care pharmacies) is replaced with the implementation of a two-tiered professional dispensing fee based upon a pharmacy's total (both Medicaid and non-Medicaid) annual claim volume as follows:

  • Less than 90,000 claims per year equals $13.20 (requires annual provider self-attestation)
  • 90,000 or more claims per year equals $10.05

As has been published in previous Medi-Cal Updates, provider attestations for calendar year reporting periods 2016 and 2017 are complete. Attestations for calendar year 2018 began in mid-January 2019, and will be accepted until 11:59 p.m. on February 28, 2019. For additional information regarding the self-attestation process, providers can refer to the Pharmacy Provider Self-Attestation FAQs.

Because of the changes in the pharmacy professional dispensing fee structure, there are two specific areas that may require action on the part of impacted providers to ensure proper professional dispensing fee reimbursement:

  • 340B providers: Beginning February 23, 2019, 340B covered entities and their contract pharmacies shall include the appropriate professional dispensing fee for 340B claims consistent with the new structure bulleted above and supported by the individual provider self-attestation results, pursuant to W&I Code, Section 14105.46.
  • California Children’s Services (CCS) providers: There are updated documentation requirements associated with the billing of HCPCS code Z5999 for the products listed below. Refer to the upcoming CCS Information Notice for more detail:
    • Investigational non-FDA approved drugs
    • Non-benefit diabetic test strips/lancets
    • Non-benefit dietary supplements, vitamins, minerals, amino acids, active pharmaceutical ingredients, thickeners

Providers should refer to the Pharmacy Reimbursement Project page on the DHCS website for access to additional project resources, including the General Project FAQs. DHCS strongly encourages the Medi-Cal pharmacy fee-for-service provider community to closely monitor upcoming Medi-Cal Update pharmacy bulletins for additional information regarding any future updates.