ARIZONA STATE SENATE
Phoenix, Arizona
prescription
medication; rebates; cards
Allows Arizona Health Care Cost Containment System (AHCCCS) health plans to negotiate rebates and discounts with pharmaceutical manufacturers and labelers for the AHCCCS program. Establishes a board to develop a formulary of drugs with rebate agreements and creates a program allowing eligible persons to purchase drugs on the formulary at discounted prices.
In order to receive federal funding for outpatient drugs dispensed to Medicaid patients, pharmaceutical manufacturers are required to pay state Medicaid agencies a quarterly rebate on drugs. The rebate program also applies to drug repackagers and labelers. As of January 1, 1996, the rebate for innovator drugs is equal to the larger of 15.1 percent of the drug’s average manufacturer price or the manufacturer’s best price, plus an additional rebate if the price of the drug has risen faster than the rate of inflation; the rebate for generic and over-the-counter drugs is 11 percent of the average manufacturer’s price.
“Best price” is defined as the manufacturer’s lowest price available during a rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity or government agency excluding certain agencies that receive larger discounts such as the Department of Defense, the Department of Veterans Affairs and the Public Health Service. Since Medicaid is entitled to the best price or better, the Medicaid net price may be as good or better than the manufacturer’s best price.
The federal Medicaid rebate law also allows states to limit coverage of drugs through the use of formularies for drugs with rebate agreements and prior authorization procedures for non-formulary drugs. According to the federal Centers for Medicare and Medicaid Services, approximately 500 pharmaceutical companies participate in the Medicaid rebate program. AHCCCS does not participate in the federal Medicaid rebate program because Medicaid managed care organizations are exempt from the rebate program. Thus, each contracting health plan is responsible for providing prescription drugs.
S.B. 1091 allows the AHCCCS health plans to negotiate discount prices and supplemental rebates for drugs with manufacturers and labelers. This legislation also establishes the Arizona Formulary Review Board to develop a formulary of drugs under a rebate agreement
and procedures for the prior authorization of non-formulary drugs. Additionally, S.B. 1091 creates a prescription card program on January 1, 2003 to provide access to drugs on the formulary at discounted prices to residents who are either Medicare eligible or have income at or below 300 percent of the federal poverty level ($25,770 for a household of one).
A fiscal note has been requested from the Joint Legislative Budget Committee.
1. Requires contracting AHCCCS health plans to negotiate discount prices or rebates for drugs from manufacturers and labelers.
2. Allows pharmaceutical manufacturers or labelers to negotiate: (a) supplemental rebates for AHCCCS above rebates prescribed in the Medicaid drug rebate program; and (b) discount prices or rebates for the prescription card program and other State prescription drug programs.
3. Requires, when negotiating rebate terms, the health plans and manufacturers or labelers to consider the federal Medicaid rebate program, the federal rebate percentage available to federally defined covered entities and other information on drug prices, discounts and rebates.
4. Requires AHCCCS to initiate a review by the Arizona Formulary Review Board on the placement of drugs on a prior authorization list for AHCCCS and other State prescription drug programs if: (a) the health plan and manufacturer or labeler fail to reach a rebate agreement or a rebate or discount for the prescription card program; and (b) the discounts or rebates result in higher prices than the federal rebate percentage available to federally defined covered entities.
5. Requires prior authorization procedures to meet federal requirements.
6. Requires AHCCCS to adopt rules for implementing the rebate and discount agreements.
7. Requires AHCCCS to release to the public the names of manufacturers and labelers that do not enter into rebate agreements.
8. Requires, as of January 1, 2003, AHCCCS to establish a prescription drug program to provide participants discounts on drugs on the formulary.
9. Requires AHCCCS to use the rebates to deliver discounted prices to participants through contracts with wholesalers and participating retail pharmacies.
10. Requires, on a quarterly basis, AHCCCS to calculate the discounts which must be approximately equal to the rebate less reasonable administrative costs.
11. Specifies residents who are Medicare beneficiaries or have income at or below 300 percent of the federal poverty level are eligible for the prescription card program except for persons who are AHCCCS eligible or have prescription drug coverage.
12. Requires AHCCCS to establish procedures for enrollment and provide outreach efforts.
13. Authorizes AHCCCS to charge participants an annual fee.
14. Requires AHCCCS to adopt rules requiring participating retail pharmacies to disclose to participants the amount of savings due to the program. Requires the rules to protect proprietary information.
15. Requires, on a monthly basis, participating retail pharmacies to verify the amounts charged to participants and to provide AHCCCS with utilization data for calculating rebates.
16. Requires AHCCCS to reimburse wholesalers and participating retail pharmacies on a quarterly basis.
17. Requires AHCCCS to protect the confidentiality of information that is protected under state and federal law.
18. Prohibits AHCCCS from imposing transaction charges on wholesalers or participating retail pharmacies.
19. Allows AHCCCS to require wholesalers and participating retail pharmacies to segregate drugs for the prescription card program and other drug stock and to maintain separate acquisition and disposition records.
20. Establishes a resolution process for disputes and discrepancies regarding claims and rebates.
21. Requires AHCCCS to submit a report on the prescription card program, including the savings from the supplemental rebates, by November 15 each year to the Governor, the President of the Senate and the Speaker of the House of Representatives.
22. Requires AHCCCS to combine drug pricing negotiations if it determines it is beneficial to the prescription card program and other State programs.
23. Allows AHCCCS to seek federal waivers to implement the prescription card program.
24. Establishes the Arizona prescription discount fund consisting of annual fees and rebates and specifies monies in the fund are for the prescription card program, continuously appropriated and nonlapsing.
25. Establishes the Arizona Formulary Review Board (Board) consisting of the following members:
a. two licensed physicians who are appointed by the Governor.
b. two licensed pharmacists who are appointed by the Governor.
c. one representative of a senior citizen coalition who is appointed by the Governor.
d. the Administrator of AHCCCS or the Administrator’s designee.
26. Requires the Board to: (a) develop a formulary for all drugs under a rebate agreement; (b) develop procedures for prior authorization of non-formulary drugs; and (c) comply with federal regulations regarding formulary and prior authorization requirements.
27. Prescribes staggered three-year terms for public members.
28. Specifies public members are ineligible for compensation but are eligible for reimbursement of subsistence and travel expenses.
29. Requires AHCCCS to provide administrative support to the Board.
30. Allows AHCCCS to recoup implementation costs from rebates and annual fees in the first quarter of operation.
31. Provides definitions.
32. Provides for a general effective date except as specified for the prescription card program.
Prepared by Senate Staff
February 15, 2002