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Executive Summary

NARD SAYS HCFA HEARING OFFICER IGNORED LOUISIANA testimony regarding "bottom-line" savings in Medicaid drug purchases made possible by the state's use of published AWP as the basis for reimbursements. NARD submitted a brief to the Health Care Financing Administration on Jan. 23 in support of the association's "exceptions" to the HCFA hearing officer's "recommended decision" to reject Louisiana's use of AWP. As a "friend of the court" in the case, NARD maintained that the state's existing, AWP-based Medicaid payment "plan has resulted in Louisiana drug costs which are below the average drug ingredient costs for state Medicaid drug programs." Consequently, NARD said, "the hearing officer's decision defies logic even from the standpoint of bottom-line economics." NARD's brief also notes that Medicaid regulations adopted last year "expressly permitted states to continue to use existing reimbursement formulas but encouraged increased state flexibility in developing total drug reimbursement programs." Therefore, the brief states, the rejection by HCFA and the hearing officer of the Louisiana plan, based on the state's use of published AWP "without consideration of the effect. . . on actual payments under the plan, indicates the arbitrary and capricious nature of the decision." The association objected to Hearing Officer Albert Miller's "recommended findings" and "proposed decision" on Dec. 29. Miller found that HCFA properly disapproved Louisiana's Medicaid plan, which relies on published AWPs as a "best estimate" of drug acquisition costs. In its "exceptions" to the hearing officer's conclusions, NARD contended that Miller ignored the state's use of "various forms of controls. . . which result in its average drug costs being lower than a number of states and the fact that the Louisiana MAC program is among the largest in the country." In addition, the association said, "nothing in the recommended decision explains how, after the applicable regulations had been amended to provide states with increased flexibility and to ensure administrative ease, practices which had for 20 years been deemed lawful, could now be deemed unlawful." "Given the record concerning past and present approvals of plans using the same methodology, the recommended decision fails to explain how the Administrator's action is not arbitrary and capricious or an effort to change the rules for reimbursement without engaging in notice-and-comment rulemaking," NARD maintained. In a Jan. 23 letter to HCFA attorney advisor Anthony Tirone, NARD General Counsel John Rector said the association filed the exceptions and supporting brief "on behalf of independent retail pharmacy" and "in conjunction with the National Association of Chain Drug Stores and the American Pharmaceutical Association." Rector wrote that the groups "urge you to forego the recommendations of the hearing officer and advise the HCFA administrator to approve" the Louisiana Medicaid drug reimbursement plan. In a Jan. 20 submission to HCFA, NACDS noted that that HCFA's 1987 Medicaid regulations encourage states to exercise "maximum flexibility" and restrict state plans by stipulating only that prescription drug payments must not exceed an "aggregate upper limit." NACDS said the hearing officer's decision "is seriously flawed since it focused exclusively on the EAC tather than on the aggregate payment." Furthermore, the association contended, "the hearing officer chose to ignore the other side of the equation . . . which showed the state's dispensing fee to be significantly less than the amount necessary to reasonably compensate pharmacies for the services being performed."

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