California Pharmacies Set to Suffer Retroactive Medicaid Clawbacks

California pharmacies must act now to prevent 18 months of retroactive reduction in Medicaid payments set to be collected from pharmacies in late 2018. Without taking action now, pharmacies may be unable to shoulder the burden of historical claims adjustments for all California Medicaid claims after April 1st, 2017.

In 2017, the Centers for Medicare and Medicaid Services (CMS) required state Medicaid reimbursement to transition from an Estimated Acquisition Cost model to an Actual Acquisition Cost (AAC) model. In order to satisfy this requirement, many states adopted the National Average Drug Acquisition Cost (NADAC) pricing benchmark to establish their Medicaid reimbursement rates, while other states created their own AAC pricing structure. Whether a state chose to adopt NADAC or their own AAC pricing structure, the results have remained the same—pharmacy reimbursement for Medicaid beneficiaries dramatically decreased. While the majority of retail and specialty pharmacies have already begun suffering the consequences of AAC pricing in the Medicaid program, retail and specialty pharmacies in California have, thus far, avoided the impact. However, California is slated to adopt the NADAC pricing benchmark in late 2018, and the results could be devastating to retail and specialty pharmacies.

In late 2018, California will begin reimbursing pharmacies, including specialty pharmacies, based on the lowest of: (1) NADAC; (2) when no NADAC is available WAC plus 0%; (3) FUL; or (4) the Maximum Allowable Ingredient Cost. In addition, retail and specialty pharmacies will receive a “Professional Dispensing Fee” of $13.20 for a pharmacy’s claims up to 90,000 dispensed per year. Once the pharmacy dispenses more than 90,000 claims, the professional fee is reduced to $10.05. If past is prologue, California’s implementation of NADAC will result in many retail and specialty pharmacies being reimbursed underwater on each prescription, meaning many retail and specialty pharmacies will lose money each and every time certain drugs are dispensed to a Medicaid beneficiary. Even worse, California’s amended reimbursement structure will be retroactively applied for all claims submitted by pharmacies from April 1st, 2017 to the date of implementation. Thus, both past and future claims will be subject to NADAC’s decreased reimbursement.

Retail and Specialty pharmacies, however, are not without options. Federal law requires state Medicaid programs to “ensure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan…” 42 U.S.C. §1396a(30)(A). Utilizing this law among others, Frier Levitt has developed multiple legal avenues to challenge unreasonable reimbursement rates set by state Medicaid plans. If your pharmacy has seen its reimbursement reduced to unreasonable levels in a state Medicaid program, or if you are concerned that California’s new Medicaid reimbursement model will negatively impact your pharmacy, contact Frier Levitt today.