Managing Pharmacy in the Post-PPACA World

1. Managing Pharmacy in the Post-PPACA World 7/13/10 Benjamin Schatzman, PharmD Vice President of Pharmacy Services Molina Healthcare, Inc Benjamin.schatzman@molinahealthcare.com

2. 87% 87% TANF TANF Business snapshot Managed care membership growth Our markets in thousands Washington 338,000 Maine* Michigan 226,000 Idaho* Utah 75,000 West Virginia Missouri 78,000 New Jersey Managed care membership profile Ohio 228,000 CHIP MEDICARE 1% AGED, BLIND & DISABLED California 353,000 5% 5% 8% 7% Louisiana New Mexico 92,000 Florida 52,000 Texas 40,000 Fee-for-service footprint (as of May 2010) Managed care footprint (members served as of Q1 2010) *The systems being designed by Molina Medicaid Solutions for the states of Idaho and Maine have not yet become operative, or “gone live,” including the actual processing of Medicaid claims by the systems. We expect that the Idaho system will begin live operations effective June 1, 2010, and that the Maine system will begin live operations effective August 1, 2010.

3. Under the PPACA*, • “A rebate agreement under this subsection shall require the manufacturer to provide, to each State plan approved under this title, a rebate for a rebate period in an amount specified in subsection (c) for covered outpatient drugs of the manufacturer dispensed after December 31, 1990, for which payment was made under the State plan for such period. Such rebate shall be paid by the manufacturer not later than 30 days after the date of receipt of the information described in paragraph (2) for the period involved‘‘, including such drugs dispensed to individuals enrolled with a medicaid managed care organization if the organization is responsible for coverage of such drugs’’. • *Patient Protection and Affordable Care Act

4. Encounters • Under the PPACA, the state Medicaid programs will collect rebates on the MCO claims. This in itself presents its own challenges: • Pharmacy encounter data formats may need to be modified to address data elements necessary for CMS rebate collection. • Medical claim encounters with a drug component will also need to be enhanced. NDC# collection is critical. • This enhanced data is needed for dates March 23, 2010 and later. • Historical claims without these data elements may be an issue.

5. Encounters, cont. • Regarding encounter data, the two most high-level changes will be: • 340b claim identification • Indian Health Service claims identification • These claims are few in number but can be difficult to capture, in particular 340b claims • Many states will ask for a “423-DN” field to be used for 340b. • NCPDP has approved a 340b enhancement, but not until Jan 2012

6. Dispute Resolution • States will ask for assistance with “dispute resolution” • As they do with MCO rebates currently, manufacturers question States on validity of certain claims submissions. States currently use lots of resources for dispute resolution. • States are going to rely on MCOs to help resolve disputes regarding MCO claims encounters that they are submitting for rebates. • Since retail pharmacy data is fairly clean, it can be expected that a large portion of dispute resolution will involve medical claims encounters. Its likely that what retail disputes there are can be handled by MCOs’ PBMs. • States will have the direct communication with manufacturers, the MCOs will provide the data necessary to help them resolve disputes.

7. MCO Rebates • MCO rebate collection will be an evolving issue: • The final version of Health Reform does not prohibit MCOs from collecting their own rebates (in fact, earlier versions actually endorsed it) • That being said, the rebates can and likely will be reduced and/or disappear in some cases. • In some situations, its possible there will be no changes at all. • Any rebate reduction and/or loss should be compensated for in an actuarial adjustment of plan premiums. • “…MCO capitation rates shall be based on actual cost experience related to rebates and subject to Federal regulations at 42 CFR 438.6 regarding actuarial soundness of capitation payments; “

8. Formulary Management • Formulary management is another unclear area: • The final version of Health Reform does not prohibit MCOs from managing closed formularies and employing utilization management techniques, as Medicaid MCOs are known for. • Like the MCO rebates, previous versions of this legislation included endorsements of this activity. • FFS Medicaid traditionally has not had as much flexibility in executing this kind of management. • CMS is reviewing the issue and may be making a ruling as to whether or not this can continue at the MCO level.

9. Carve-In / Carve-Out • CMS rebates have always been the primary reason why States in some cases have carved out all of part of the Pharmacy Benefit. • Until now, there had been an increasing carve-out trend. • The DRE serves as a disincentive for that to continue. The States get their rebates, and the MCOs can manage the drugs as they know how. • Its unlikely we will see more carve-outs. • Its more likely we will see carve-ins.

10. Take Home Messages • This is a big event that although challenging, will be one we can look back on as hopefully benefitting everyone. • Having open discussions with local regulatory agencies is essential. In some cases, they are looking to MCOs for help/advice. • Equally important is having ongoing discussions with your PBM, if applicable. Changes in rebate contracts and gaining a better understanding of claims adjudication capability and data capture are of most importance. • There are possible opportunities regarding pharmacy carve-ins. Seize the opportunity where it makes sense.

11. Contact Information Benjamin Schatzman, PharmD 562-951-1509 (w) Benjamin.schatzman@molinahealthcare.com