[Federal Register Volume 73, Number 205 (Wednesday, October 22, 2008)]
[Notices]
[Pages 62997-62999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-25196]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS)

Centers for Medicare & Medicaid Services


Notice of Hearing: Reconsideration of Disapproval of Arkansas 
State Plan Amendment (SPA) 07-024

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Notice of hearing.

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SUMMARY: This notice announces an administrative hearing to be held on 
December 9, 2008, at the CMS Dallas Regional Office, 1301 Young Street, 
Suite 833, Room 1196, Dallas, Texas 75202, to reconsider CMS' decision 
to disapprove Arkansas SPA 07-024.

CLOSING DATE: Requests to participate in the hearing as a party must be 
received by the presiding officer by November 6, 2008.

FOR FURTHER INFORMATION CONTACT: Benjamin Cohen, Presiding Officer, 
CMS, 2520 Lord Baltimore Drive, Suite L, Baltimore, Maryland 21244, 
Telephone: (410) 786-3169.

SUPPLEMENTARY INFORMATION:
    This notice announces an administrative hearing to reconsider CMS' 
decision to disapprove Arkansas SPA 07-024 which was submitted on

[[Page 62998]]

January 18, 2008, and disapproved on August 19, 2008.
    Under this SPA, the State would increase the dispensing fee from 
$5.51 to $8.68 for brand name prescription drugs. The dispensing fee 
for generic drugs would increase to $11.68, an increase from $5.51 for 
drugs with a maximum allowable cost (MAC) limit and from $7.51 for 
drugs without a MAC limit. The dispensing fee for generic drugs would 
be further increased to $12.68 if there is a 2.3 percent increase in 
the proportion of total claims dispensed as generic drugs. CMS was 
unable to approve this SPA because it does not comply with section 
1902(a)(30)(A) of the Social Security Act (the Act) and the 
longstanding requirements of Federal regulations (previously codified 
at 42 CFR 447.331 and at 42 CFR 447.332), which specify that the State 
must have a reasonable dispensing fee.
    Section 1902(a)(30)(A) of the Act requires that States have methods 
and procedures to assure that payment rates are consistent with 
efficiency, economy, and quality of care. Section 1902(a)(30)(A) and 
longstanding requirements of Federal regulations (previously codified 
at 42 CFR 447.331 and 42 CFR 447.332) provide that payments for drugs 
are to be based on the ingredient cost of the drug and a reasonable 
dispensing fee.
    In support of its proposal, the State submitted survey findings 
dated February 2, 2007, performed by MENTORx that show the median 
dispensing cost is $9.25 for all pharmacies with a spread of $4.44 
between the 20th percentile value ($7.45) and the 80th percentile value 
($11.89). The study looked at the difference in dispensing costs 
between independent and chain pharmacies, but not between brand and 
generic drugs.
    The hearing will involve the following issues:
     The MENTORx survey failed to present supporting evidence 
for the State's determination of separate dispensing fees for brand and 
generic prescriptions and the State has failed to provide us with 
sufficient evidence to demonstrate that the separate dispensing fee for 
brand name and generic prescription drugs is reasonable.
     MENTORx recommended the 80th percentile ($11.89) be used 
as the dispensing fee for all prescriptions. While the State did not 
follow this recommendation, it did not adequately explain why it chose 
the dispensing fee for brand name drugs based on the 40th percentile 
value ($8.68) and the initial dispensing fee for generics based 
slightly below the 80th percentile value ($11.89). The State's current 
dispensing fee of $5.51 is one of the highest in the Nation among State 
Medicaid programs. The proposed dispensing fee for generic drugs would 
be the highest in the Nation among State Medicaid programs and would be 
the largest variance in dispensing fees between brand and generic 
drugs. Accordingly, the State failed to adequately explain why a 
dispensing fee slightly below the 80th percentile value would not 
result in most pharmacies being overpaid to dispense generic drugs. 
Therefore, CMS did not believe that the State demonstrated why this is 
reasonable.
     Despite the fact that the generic dispensing fee was set 
at the maximum cost in the survey, the State did not adequately explain 
why it would further increase the generic fee above the 80th percentile 
to $12.68. While the State claimed that increasing the dispensing fee 
would be budget neutral based on a 2.3 percent increase in the 
proportion of total claims dispensed as generic drugs, it did not 
explain why a further incentive from the current $2 differential to a 
$4 differential was reasonable.
     In response to our formal concerns, the State indicated 
that data do not exist to differentiate dispensing cost of brand versus 
generic drugs. The State indicated that the intent of the proposed 
dispensing fee is to encourage the use of less costly generics, and 
thus avoid the higher ingredient reimbursement of a brand. However, the 
State failed to consider the ingredient cost of drugs as well as the 
cost of dispensing, to ensure that both are being paid appropriately. 
To increase the dispensing fee without considering the ingredient cost 
payment so that it accurately estimates acquisition cost results in an 
overall payment that is inconsistent with the requirement of the 
statute that payments be consistent with efficiency and economy.
    Section 1116 of the Act and Federal regulations at 42 CFR Part 430, 
establish Department procedures that provide an administrative hearing 
for reconsideration of a disapproval of a State plan or plan amendment. 
CMS is required to publish a copy of the notice to a State Medicaid 
agency that informs the agency of the time and place of the hearing, 
and the issues to be considered. If we subsequently notify the agency 
of additional issues that will be considered at the hearing, we will 
also publish that notice.
    Any individual or group that wants to participate in the hearing as 
a party must petition the presiding officer within 15 days after 
publication of this notice, in accordance with the requirements 
contained at 42 CFR 430.76(b)(2). Any interested person or organization 
that wants to participate as amicus curiae must petition the presiding 
officer before the hearing begins in accordance with the requirements 
contained at 42 CFR 430.76(c). If the hearing is later rescheduled, the 
presiding officer will notify all participants.
    The notice to Arkansas announcing an administrative hearing to 
reconsider the disapproval of its SPA reads as follows:

Mr. Breck Hopkins, Chief Counsel, Arkansas Department of Human 
Services, P.O. Box 1437, Slot S-260, Little Rock, AR 72203-1437.

    Dear Mr. Hopkins: I am responding to your request for 
reconsideration of the decision to disapprove the Arkansas State 
plan amendment (SPA) 07-024, which was submitted on January 18, 
2008, and disapproved on August 19, 2008.
    Under this SPA, the State proposed to increase the dispensing 
fee from $5.51 to $8.68 for brand name prescription drugs. The 
dispensing fee for generic drugs would increase to $11.68, an 
increase from $5.51 for drugs with a maximum allowable cost (MAC) 
limit and from $7.51 for drugs without a MAC limit. The dispensing 
fee for generic drugs would be further increased to $12.68 if there 
is a 2.3 percent increase in the proportion of total claims 
dispensed as generic drugs. I was unable to approve this SPA because 
it does not comply with section 1902(a)(30)(A) of the Social 
Security Act (the Act) and the longstanding requirements of Federal 
regulations (previously codified at 42 CFR 447.331 and at 42 CFR 
447.332), which specify that the State must have a reasonable 
dispensing fee.
    Section 1902(a)(30)(A) of the Act requires that States have 
methods and procedures to assure that payment rates are consistent 
with efficiency, economy, and quality of care. Section 
1902(a)(30)(A) and longstanding requirements of Federal regulations 
(previously codified at 42 CFR 447.331 and 42 CFR 447.332) provide 
that payments for drugs are to be based on the ingredient cost of 
the drug and a reasonable dispensing fee.
    In support of its proposal, the State submitted survey findings 
dated February 2, 2007, performed by MENTORx that show the median 
dispensing cost is $9.25 for all pharmacies with a spread of $4.44 
between the 20th percentile value ($7.45) and the 80th percentile 
value ($11.89). The study looked at the difference in dispensing 
costs between independent and chain pharmacies, but not between 
brand and generic drugs.
    The hearing will involve the following issues:
     The MENTORx survey failed to present supporting 
evidence for the State's determination of separate dispensing fees 
for brand and generic prescriptions and the State has failed to 
provide us with sufficient evidence to demonstrate that the separate 
dispensing fee for brand name and generic prescription drugs is 
reasonable.
     MENTORx recommended the 80th percentile ($11.89) be 
used as the dispensing

[[Page 62999]]

fee for all prescriptions. While the State did not follow this 
recommendation, it did not adequately explain why it chose the 
dispensing fee for brand name drugs based on the 40th percentile 
value ($8.68) and the initial dispensing fee for generics based 
slightly below the 80th percentile value ($11.89). The State's 
current dispensing fee of $5.51 is one of the highest in the Nation 
among State Medicaid programs. The proposed dispensing fee for 
generic drugs would be the highest in the Nation among State 
Medicaid programs and would be the largest variance in dispensing 
fees between brand and generic drugs. Accordingly, the State failed 
to adequately explain why a dispensing fee slightly below the 80th 
percentile value would not result in most pharmacies being overpaid 
to dispense generic drugs. Therefore, we do not believe that the 
State has demonstrated why this is reasonable.
     Despite the fact that the generic dispensing fee was 
set at the maximum cost in the survey, the State did not adequately 
explain why it would further increase the generic fee above the 80th 
percentile to $12.68. While the State claimed that increasing the 
dispensing fee would be budget neutral based on a 2.3 percent 
increase in the proportion of total claims dispensed as generic 
drugs, it did not explain why a further incentive from the current 
$2 differential to a $4 differential was reasonable.
     In response to our formal concerns, the State indicated 
that data do not exist to differentiate dispensing cost of brand 
versus generic drugs. The State indicated that the intent of the 
proposed dispensing fee is to encourage the use of less costly 
generics, and thus avoid the higher ingredient reimbursement of a 
brand. However, the State failed to consider the ingredient cost of 
drugs as well as the cost of dispensing, to ensure that both are 
being paid appropriately. To increase the dispensing fee without 
considering the ingredient cost payment so that it accurately 
estimates acquisition cost results in an overall payment that is 
inconsistent with the requirement of the statute that payments be 
consistent with efficiency and economy.
    I am scheduling a hearing on your request for reconsideration to 
be held on December 9, 2008, at the CMS Dallas Regional Office, 1301 
Young Street, Suite 833, Room 1196, Dallas, Texas 75202, in order to 
reconsider the decision to disapprove SPA 07-024. If this date is 
not acceptable, we would be glad to set another date that is 
mutually agreeable to the parties. The hearing will be governed by 
the procedures prescribed by Federal regulations at 42 CFR Part 430.
    I am designating Mr. Benjamin Cohen as the presiding officer. If 
these arrangements present any problems, please contact the 
presiding officer at (410) 786-3169. In order to facilitate any 
communication which may be necessary between the parties to the 
hearing, please notify the presiding officer to indicate 
acceptability of the hearing date that has been scheduled and 
provide names of the individuals who will represent the State at the 
hearing.
    Sincerely,
Kerry Weems,
Acting Administrator.

    Section 1116 of the Social Security Act (42 U.S.C. 1316; 42 CFR 
430.18)

(Catalog of Federal Domestic Assistance program No. 13.714, Medicaid 
Assistance Program.)

    Dated: October 16, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
[FR Doc. E8-25196 Filed 10-22-08; 8:45 am]
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