P.O.

Box 10841
Eugene, Oregon 97440
p/f: 541.257.8878
info@t1df.org
April 20, 2019
www.t1df.org

The Honorable Andrea Salinas

Chair, House Committee on Health Care via email
State Capitol
900 Court Street NE, Room 453
Salem, OR 97301

RE: Senate Bill 9A: Expanded and annotated version of public comment delivered before
the House Committee on Health Care, April 16, 2019

Dear Senator Courtney and members of the Committee:

My name is Charles Fournier. I represent the Type 1 Diabetes Defense Foundation (T1DF). On
behalf of T1DF and Oregonians with type 1 diabetes, I want to thank you for the opportunity
to state our support for Senate Bill 9A—and I would like to suggest two critical improvements
to this stopgap emergency refill bill.1

First, we should make emergency refills available for a broader range of life-saving medicines
—not just insulin. At a minimum, the bill should include glucagon kits, the emergency injection
kits used to treat life-threatening insulin-induced severe hypoglycemia. 2 But patients with

1 Any state located in the vicinity of the Cascadia Subduction Zone needs a more comprehensive
approach to emergency access to life-saving pharmaceuticals. The written comment of Ms. Lorentz
submitted to this committee regarding SB 9 also illustrates the many inadequacies of our
pharmaceutical dispensing and disaster planning regulatory frameworks. Individuals with life-
threatening medical conditions such as type 1 diabetes can die in a matter of days if they don’t have
access to their life-saving pharmaceuticals. The 2013 Resilience Plan documented that it would take at
least 18 months to restore critical healthcare infrastructure—far longer than the target state of recovery.
The Plan does not address non-structural disruptions to the pharmaceutical supply chain. However, the
Transportation section clearly indicates that the highway’s 60% operational milestone would not be
reached in the Willamette Valley until at least 6 months after event. It would take more than a month to
restore the Eugene airport to working condition—assuming construction equipment and crews can
reach it. Without access to emergency supplies, all Lane County residents with type 1 diabetes would
be condemned to certain death.
2Glucagon is not covered by this bill, as it is neither a device nor a supply. It is also not an insulin but a
different legend drug, also an essential life-saving medication, not available over the counter.

Page 1 of 7
asthma and severe food allergies, people with opioid-use disorder, and other individuals with
severe chronic conditions also need emergency access to life-saving pharmaceuticals. No
Oregonians’ lives should be jeopardized for merely administrative reasons. An emergency
refill bill should embrace as many acute medical needs and treatments as possible.

Second, the bill completely sidesteps the current primary barrier to insulin access, which is
cost. The measure requires health benefit plans and medical assistance programs to provide
payment for emergency refills of insulin and associated insulin-related devices and supplies—
but does not specify the basis of these reimbursements nor address the impact on uninsured
and underinsured Oregonians of inflated list prices now driven by deep discounts negotiated
by payers. As acknowledged by Sen. Linthicum in this committee and vividly described by
countless Oregonians,3 there are far more people in Oregon every year who don’t fill an
insulin prescription because they can’t afford to do so than people who have the money to
pay but don’t have a current prescription.

We can easily fix this.

For example, a true emergency refill bill could require that the fill be made available to
uninsured and underinsured Oregonians at a low price pegged to the average net price

3Every person speaking before this committee in an individual capacity regarding SB 9 raised the issue
of insulin cost in no uncertain terms.

Page 2 of 7
negotiated by the Oregon Prescription Drug Program (OPDP) for PEBB plans.4 Uninsured and
underinsured Oregonians would be automatically enrolled in OPDP’s Discount Card Program,
and the difference between the pharmacy acquisition cost and the drug’s low net price would
be charged back by the pharmacy to OPDP. (300,000 “lives” in the OPDP discount card

4 OPDP and the Northwest Drug Pricing Consortium negotiate manufacturers’ rebates on behalf of all
OPDP members. The OPDP administrator’s responsibilities include: “[n]egotiate price discounts and
rebates on prescription drugs with prescription drug manufacturers” ORS 414.312(3)(a)(Emphasis
added); “[a]dopt and implement a preferred drug list for the program” ORS 414.312(3)(e); and
“[d]evelop a system for allocating and distributing the operational costs of the program and any
rebates obtained to participants of the program.” ORS 414.312(3)(f)(Emphasis added). OHA
interpreted this requirement under Rule 431-121-2000(17) to mean that drug prices offered to OPDP
members, individuals and groups, must be net of all applicable manufacturers discounts and rebates.
Accordingly, Moda’s 5th Restated Contract (OHA #133419) appointed Moda as the Discount Card’s
agent “for the purpose of negotiating and arranging, either directly or indirectly, pharmaceutical
manufacturer Rebates and other incentives in connection with prescription drugs dispensed to
Members under the Participating Program Agreement.” (Attachment 1, Section 15(E) on p. 22.) Under
Moda’s contract, “rebates” means “retrospective payments or discounts, including promotional or
volume-related refunds, incentives or other credits however characterized, pre-arranged with
pharmaceutical companies on certain Prescription Drugs, which are paid to or on behalf of Contractor,
and are directly attributable to the utilization of certain drugs by Members… ‘Rebate’ includes all
rebates, discounts, payments or benefits (however characterized) generated by Participating Program’s
Prescription Drug Claims, or derived from any other payment or benefit for the dispensing of
Prescription Drugs or classes or brands of drugs within Participating Program or arising out of any
relationships Contractor has with pharmaceutical companies.” (Attachment 6, p.131) Participating
programs include the Discount Card Program (Attachment 6, p. 128). Every two weeks, Moda Health
invoices each participating program “based on the Contractor’s actual net cost of the specific Covered
Drug.” (Attachment 5, Contract Costs and Financial Guarantees, Section 4(G) p. 110 – emphasis added.)
Rebate Program Management is addressed in Section 2 of Moda Health’s Statement of Work
(Attachment 3). The Contract also provides for an audit of the rebate program for each participating
program, including the audit of all manufacturer rebate contracts. (Attachment 1, Section 13(D)(iv) on
p. 20.) If performing any or all of these statutory, regulatory and contractual requirements is the only
way to achieve the program’s stated purpose, i.e. to “[m]ake prescription drugs available at the lowest
possible cost to participants in the program as a means to promote health,” (ORS 414.312(2)(b)), then
OHA and Moda Health must explain why OPDP’s TPA Moda Health has failed to perform those tasks.
With manufacturer rebates on analog insulins now reported at 70% of list price and greater, an
unrebated per-vial price of $270 is manifestly not “lowest possible cost.”

Page 3 of 7
program are part of OPDP’s negotiations with manufacturers.)5 The same low net prices
would be offered to uninsured out-of-state residents and the cost offset by the large
manufacturer rebates OPDP already negotiates with insulin manufacturers.

For the insured, cost sharing would be based on net price actually paid by insurers (less than
$65 per 10ml vial of analog insulin)6 when taking into consideration all discounts and rebates
paid by manufacturers to any plan, subsidiary or holding company controlled by the carrier.
OPDP would act as the payer of last resort and coordination of benefits would be handled as
on the Medicaid model.7 OPDP would actively pursue COB collection activities, i.e. collect
and retain all monies available from all available resources for the full amount of OPDP
liabilities, after deduction of all manufacturer discount and rebate entitlement under OPDP/
Northwest Prescription Drug Consortium (NPDC) rebate contracts — but only if the transaction
volume justifies the fixed COB collection costs.8

5 The Competitive Marketplace Assessment (“2016 Market Check”) performed by The Burchfield Group
for Northwest Prescription Drug Consortium/Moda Health assessed the performance of OPDP/WPDP
based on its overall adjusted lives (discount card and groups). As of June 2017, discount card lives
were ‘normalized’ based on utilization (14 discount card lives assumed to equal 1 non-discount card
life), for an adjusted lives total of 462,811.
6 Peter Loftus, “As Political Scrutiny Mounts, Eli Lilly Divulges New Insulin Pricing Data,” The Wall Street
Journal, March 24, 2019. Available at: https://www.wsj.com/articles/as-political-scrutiny-mounts-eli-lilly-
divulges-new-insulin-pricing-data-11553436000?
fbclid=IwAR22zRWZpLuo7jICFJ4sQRCJVWViV0WPX2FPAVIFr03YGcNq_ngpocX14JM.
7 Net cost accounting in state plans is required by Oregon insurance regulations for the purpose of
ranking pharmaceuticals. OAR836-053-0473(2)(l)(B). See the final rule establishing the Oregon
Prescription Drug Price Transparency Program, available at: https://dfr.oregon.gov/laws-rules/
Documents/id02-2019_rule-order.pdf. Price offset accounting on the GAAP model in Medicare Part D
should be effective in January 2020. Net cost accounting is already required in the Federal Employees
Health Benefits Program in order to comply with the statutory mandate that all rates “reasonably and
equitably reflect the cost of the benefits provided.” Public Employees Health Benefits Program Act of
1959, Public Law 86-382, Section 6(h). Price offset accounting will likely also be required in subsidized
ACA plans after January 2020, under new safe harbor jurisprudence governing manufacturer rebates.
8 The volume of transactions under the proposed emergency refill bill is likely to be extremely low and
may not justify the cost of awarding COB collection contracts. Similarly, the additional cost incurred
from out-of-state uninsured is likely to be de minimis. Rebated brand drugs such as analog insulins
have very low net prices. It may be more cost-effective for the state to provide emergency insulin fills at
a figure pegged to OPDP’s negotiated net cost and then write off the expense, rather than seeking
reimbursement from out-of-state entities or third-party payers.

Page 4 of 7
This innovative use of OPDP would require that Moda Health, OPDP’s third party
administrator (TPA), end the practice of swapping manufacturer rebates between its Discount
Card Program and the other government and union plans serviced by OPDP. The Discount
Card Program is OPDP’s largest program, but all manufacturer rebates earned by discount
card transactions are currently diverted to subsidize other programs. This practice must end.9

Rebate pass-through in OPDP is the only hurdle. OPDP’s third party administrator contract
already needs to be renegotiated to implement the June 2017 recommendations of the
Burchfield Group.10 Chargeback transactions between pharmacies and OPDP11 and rebate
pass-through in Oregon State plans could be implemented tomorrow. In fact, these could
have been implemented ten years ago.

How do I know this?

9 Throughout 2018, T1DF communicated with the Office of Governor Brown and the HB 4005 Task
Force regarding OPDP’s failure to deliver on its legislative mandate. See, e.g., https://www.t1df.org/
news/2018/6/7/t1df-asks-oregon-gov-kate-brown-to-deliver-lowest-possible-cost-to-opdp-discount-
card-holders and https://www.t1df.org/news/2018/5/21/t1df-statement-to-oregons-joint-interim-task-
force-on-fair-pricing-of-prescription-drugs. Oregon Health Authority responded that OPDP discount
card program does not earn any manufacturer rebates. OHA has provided no evidence in support of
its public acknowledgement that OPDP is in breach of both the letter and intent of its statute and, to
our knowledge, no audit of OPDP has been initiated. OHA has not officially performed any meaningful
audit of the OPDP rebate program since 2006. The unsigned OHA response (posted in meeting
documents for the HB 4005 Task Force) has been attributed to Dana Hargunani, MD, Chief Medical
Officer and Director of the Office of Delivery Systems Innovation.
10OPDP is still using an antiquated rebate negotiation framework that incentivizes spread pricing. To
reduce OPDP’s net costs for brand drugs, the Burchfield Group recommended in their June 2017
report “eliminating the effective rate guarantee over all specialty drugs and obtaining drug-by-drug
pricing,” with reimbursement to pharmacy networks based on acquisition cost plus fee.
11OPDP would be de facto acting as a manufacturer switch/clearinghouse or third-party chargeback
administrator, on the model of the Medicare Part D Transaction Facilitator function currently contracted
to Relay Health/Change Healthcare, a McKesson company.

Page 5 of 7
As a member of Work Groups 7 (manufacturer rebates) and 9 (government programs) of the
National Council for Prescription Drug Programs (NCPDP),12 I joined the small task force that
for several weeks assessed the technical implementation of the chargeback scheme
proposed by HHS Secretary Azar for Medicare Part D, and I participated in drafting NCPDP’s
comments on the proposed rule. 13 That process required evaluating the feasibility of point-of-
sale net pricing within NCPDP’s Telecommunication Standard (Rev. D.0). It is also common
industry knowledge that NCPDP telecommunication standards for POS transactions have
supported rebate pass-through in government programs and private plans since at least Rev
D.0 issued in 2007 (but only fully implemented in January 2012) and possibly since Rev 5.1
issued in 199914 and named by CMS for ePrescribing in its Part D Final Rule issued in 2005.

Please do not hesitate to contact T1DF if your committee needs further assistance with these
matters.

Thank you.

12 The National Council for Prescription Drug Programs (NCPDP) is a not-for-profit, multi-stakeholder,
ANSI-accredited standards development organization providing healthcare solutions. NCPDP
standards are named in federal legislation, including HIPAA, MMA, HITECH and Meaningful Use
(MU). CMS mandated NCPDP D.0 as standard for point-of-service pharmacy benefits management
(X12 835 applied to related payment and remittance advice transactions between trading partners).
The deadline for industry-wide transition to full use of NCPDP Telecommunication Standard vD.0 was
delayed to 2012. NCPDP also maintains a voluntary Manufacturer Rebate Standard for rebate payment
transactions, audit and reconciliation between Medicaid programs, manufacturers and private payers.
The current version of the Manufacturer Rebate Standard is 7.02. Rev. 3.02 was issued in November
2003. NCPDP Manufacturer Rebate Standard v1.0 was first issued in February 1995.
13Comment from NCPDP in response to Proposed Rule OIG-0936-P: “Fraud and Abuse: Removal of
Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe
Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and
Certain Pharmacy Benefit Manager Service Fees.” NCPDP’s comments are available at: https://
www.regulations.gov/document?D=HHSIG-2019-0001-19807.
14The Manufacturer Rebate Standard v3.01 and its associated Utilization, Plan, Formulary, and Market
Basket Flat File Standard were approved in January 2002 to support NCPDP Telecommunication
Standard v5.0. These EDI standards provided the technical certainty regarding the feasibility of point-
of-sale pharmacy claims adjudication based on net prices required to support the Medicare Part D
negotiated price scheme in the MMA of 2003. Part D’s effective date of 2006 provided sufficient time
to trading partners for coding, business case testing and implementation — about 3 years.

Page 6 of 7
Attachment:

A. NCPDP Letter to HHS Office of Inspector General Re: Proposed Rule (file code OIG–
0936–P) entitled “Fraud and Abuse; Removal of Safe Harbor Protection for Rebates
Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for
Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain
Pharmacy Benefit Manager Service Fees”.

About T1DF. The Type 1 Diabetes Defense Foundation is a nonpartisan Oregon-based

nonprofit 501(c)(3) dedicated to advancing equal rights and opportunities for all people with
type 1 and other forms of insulin-dependent diabetes. We focus on the significant social
impact of living with a condition that requires patients to make constant dosing decisions with
a drug that, without careful management and constant monitoring, can kill them. T1DF strives
to improve the regulatory, legal and social ecosystem essential to development and adoption
of new technologies and therapies, with an explicit commitment to inclusive policies that will
deliver for all Americans with diabetes, insured and uninsured, equal access to standard-of-
care pharmaceuticals and equipment. T1DF accepts no funding from the pharmaceutical,
pharmacy benefit management, or insurance industries.

Page 7 of 7
April 8, 2019

Mr. Aaron Zajic

Office of Inspector General
Department of Health and Human Services
330 Independence Avenue SW
Washington, DC 20201

Re: OIG-0936-P

Dear Mr. Zajic:

The National Council for Prescription Drug Programs (NCPDP) is a not-for-profit ANSI-accredited Standards
Development Organization (SDO) consisting of more than 1,600 members interested in electronic
standardization within the pharmacy services sector of the healthcare industry. NCPDP provides a forum
wherein our diverse membership can develop solutions, including ANSI-accredited standards, and
guidance for promoting information exchanges related to medications, supplies, and services within the
healthcare system.

NCPDP submits these comments in response to the Office of Inspector General (OIG), Department of
Health and Human Services (HHS) Proposed Rule (file code OIG–0936–P) entitled “Fraud and Abuse;
Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of
New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals
and Certain Pharmacy Benefit Manager Service Fees”. Specifically, NCPDP is submitting comments on the
following topic areas:
I. Program and Legal Requirements – NCPDP Supported Transactions
II. Approaches to support the proposed definition of a chargeback
III. Applicability of the proposed safe harbor to claims with 100% beneficiary cost sharing and other
types of claims that might raise additional questions
IV. NCPDP Registry of Pharmacies
V. Estimates of implementation burden in the Regulatory Impact Analysis

I. Program and Legal Requirements – NCPDP Supported Transactions

The OIG and HHS solicit comments on how the proposed changes to certain safe harbors would relate
to existing program and legal requirements:
To address the Department’s concerns with the current rebate system, the Department proposes
to eliminate safe harbor protection for manufacturer reductions in price on prescription
pharmaceutical products to Medicare Part D plans operating under section 1860D–1 et seq. of
the Act, and Medicaid MCOs, as defined under section 1903(m) of the Act. In conjunction with
this amendment, the Department is proposing a new safe harbor that would protect manufacturer
point-of-sale reductions in price on prescription pharmaceutical products to a plan sponsor under
Medicare Part D, a Medicaid MCO, or a PBM acting under contract with either, that would be
 applied at the point-of-sale to benefit the beneficiary, the plan, and, by extension, the
Government. Finally, the Department is proposing a new safe harbor to protect certain fixed
service fees that pharmaceutical manufacturers pay to PBMs. We are interested in and solicit
comments on how these proposals, individually and/or collectively, would align or conflict with
program requirements and any legal requirements (e.g., antitrust laws) that may apply to
affected parties.[Emphasis added]

Among the program and legal requirements that Part D sponsors and Medicaid Managed Care
Organizations (Medicaid MCOs) must comply with are those of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). HIPAA requires the adoption of standards for certain electronic
healthcare transactions between covered entities, including claims transmission; payment and
remittance advice; claim status; patient eligibility: premium payments; enrollment, and
disenrollment; and referral certification and authorizations.

Under HIPAA, the National Committee on Vital and Health Statistics (NCVHS) must recommend
standards and operating rules to the Secretary of HHS, following review and approval of standard
updates from the applicable Designated Standards Maintenance Organizations (DSMO). The DSMO
for retail pharmacy transactions is NCPDP. Thus, industry stakeholders convene at NCPDP meetings
to establish the industry standards used to adjudicate claim transactions at the point-of-sale. The
current version of the NCPDP standard approved by HHS is the Telecommunication Standard Version
D.0, and any changes in business models must be able to be transacted in accordance with this
version. This means only certain limited types of modifications may be made in the near-term,
following due process and consensus agreement, including reasonable timeframes for
implementation. By near-term we mean the changes do not require a new version of the NCPDP
Telecommunication Standard, but additional expedited code values are required.

The following comments represent NCPDP’s interpretation of the proposed rule and how price
reductions negotiated between manufacturers and applicable plan sponsors/PBMs could be both
applied at the point-of-sale and reimbursed to dispensing pharmacies consistent with the current
approved standard with or without certain modifications. In the interest of clear communication, we
have utilized the same terminology as in the NPRM. Appendix A was also included to portray the same
information utilizing NCPDP format and field names.

II. Approaches to support the proposed definition of a chargeback within the claim adjudication
process
The OIG and HHS solicit comments on the proposed definition of a “chargeback” that would meet the
second criterion of a new safe harbor:
Second, the reduction in price could not involve a rebate, as defined in 42 CFR 1001.952(h), unless
the full value of the reduction in price is provided to the dispensing pharmacy through a
chargeback or a series of chargebacks, or the rebate is required by law. We propose to define a
‘‘chargeback’’ as a payment made directly or indirectly by a manufacturer to a dispensing
pharmacy so that the total payment to the pharmacy for the prescription pharmaceutical product
is at least equal to the price agreed upon in writing between the Plan Sponsor under Part D, the
Medicaid MCO, or a PBM acting under contract with either, and the manufacturer of the
prescription pharmaceutical product. For example, when a pharmacy dispenses a drug to a
beneficiary that is reimbursed by a particular Part D plan or Medicaid MCO, the total payment to
the pharmacy (i.e., cost-sharing from the beneficiary, payment from the Part D plan or Medicaid
MCO, and any chargeback) will be at least equal to the price agreed upon between the

2
 manufacturer of that drug and the Part D Plan or Medicaid MCO, or a PBM acting under contract
with either. We solicit comments on this definition.

NCPDP has reviewed the proposed rule specifically as it relates to new safe harbor for price reductions
on prescription pharmaceutical products that meet certain new proposed criteria. We outline two
“approaches” representing three “methods” for point-of-sale transactions we believe may be
consistent with the conditions of this proposed safe harbor rule. NCPDP is also submitting comments
on the OIG’s terminology and intent regarding the definitions of total payment and chargeback as
they relate to the NCPDP Telecommunication Standard Version D.0. The approaches being proposed
by NCPDP are based on assumptions outlined in this document.

Of the three methods outlined below, two itemize the chargeback amount in point-of-sale
transactions, (allowing visibility to the discount for administration purposes) and one method does
not. One of these three methods allow an entity other than the PBM to administer the chargeback.
Two methods will require certain near-term modifications to the standard. One method requires no
modification to the standard but requires the PBM to be the chargeback administrator and does not
itemize the discount amount in point-of-sale transactions.

If the proposed rule is finalized and if these approaches are consistent with the finalized definition of
chargeback, these approaches would allow for either the plan sponsor or its contracted PBM or a
third-party entity (or entities) to pay the dispensing pharmacies (indirectly) on behalf of the
manufacturer relying on calculations performed and reported in the claim generated at the point-of-
sale.

Approach 1: PBM administered

• Approach 1/Method 1: This method would be used if the plan (or its PBM) functions as the
chargeback administrator, responsible for the full payment of the chargeback to the
dispensing pharmacy. The pharmacy would receive one payment and remittance from the
plan (combined but separately identifiable (benefit liability amount plus chargeback
amount)). This method will require the addition of new pricing qualifiers to the existing HIPAA
named standard. This is a near-term standards modification process.

• Approach 1/Method 2: This method would function similarly to the first method, having one
payment to the dispensing pharmacy by the PBM for both the benefit liability and the
chargeback amount in the point-of-sale transaction. However, unlike Method 1 the
chargeback amount would not be visible to the pharmacy. This method will not require any
modifications to the existing HIPAA named standard.

Approach 2: Non-PBM administered:

• Approach 2/Method 3: This method would be used if an entity other than the plan (or its
PBM) functions as the chargeback administrator responsible for administering the chargeback
payment to the dispensing pharmacy. In this method, the pharmacy would receive two
remittances, one from the plan (benefit liability amount) and one from the chargeback
administrator (chargeback amount). This method will require the addition of new pricing
qualifiers to the existing HIPAA named standard. This is a near-term standards modification
process.

In all three methods, the final cost sharing of the beneficiary reflects the result of the chargeback
amount being applied as proposed in the rule. In the current NCPDP Telecommunication Standard

3
Version D.0, there are no pricing fields to communicate to the beneficiary the cost sharing difference
as a result of the chargeback amount being applied.

NCPDP requests OIG and HHS review these methods and provide guidance in any final rule confirming
whether these methods would support the proposed definition of a chargeback and satisfy the
proposed criteria for the new safe harbor. Such guidance may avoid the need for over 1,000 Part D
and Medicaid MCO plan sponsors, pharmacy benefit managers, manufacturers or potential
intermediaries to individually seek opinions from the OIG.

In the following discussion, we use these terms:

• “PBM” to mean the entities contracted to administer pharmacy benefits.
• “Chargeback” to mean a reduction in price from a manufacturer that meets the three
proposed criteria under the new safe harbor: that is,
o (1st) it is fixed (not variable in relation to list price) and disclosed in advance in writing;
o (2nd) the full value of the reduction in price is provided to the dispensing pharmacy;
and
o (3rd) is completely reflected in the price the dispensing pharmacy charges to the
beneficiary at the point-of-sale.
• “Chargeback amount” to refer to the fixed amount that meets the definition of a chargeback
and is the negotiated reduction in price.
• “Net Cost” in the same manner that HHS employs on page 2341 of the proposed rule, i.e., the
PBM contracted rate with the pharmacy (including ingredient cost, dispensing fee and other
components that attribute to contracted rate) minus the negotiated discount (chargeback)
amount.

Approach 1/Method 1: PBM functions as Chargeback Administrator/chargeback amount is visible

HHS seems to suggest that the pharmacy can adjust the cost sharing on its own. (“For example, if the
discounted rate is set in advance, at the time of dispensing the pharmacy would have the necessary
information to appropriately charge a beneficiary who owes coinsurance, even if the manufacturer
ultimately tenders the dispensing pharmacy a payment through a chargeback to reflect this negotiated
price with the payor.” [p.2349]). However, this is not the case. While the chargeback amount may be
fixed in advance, the cost sharing is not. Cost sharing must be calculated by the PBM at the time of
adjudication based on its contracted rate with the pharmacy and the beneficiary’s applicable
formulary, benefit design and level of benefit accumulators at that point in time. Only the PBM has
the information necessary to perform this calculation.

NCPDP’s assumption is that in order for manufacturer discounts to be fully reflected in the price on
which the beneficiary’s cost sharing is calculated (3rd criterion), the PBM must adjudicate the claim
based on the net cost of the drug product. When the benefit design includes a deductible or
coinsurance, the net cost of the drug would be used as the basis for the calculations, not the list price
as occurs today. This would reduce beneficiary coinsurance and the total cost reported by the plan
sponsor to the Part D program.

It is NCPDP’s understanding that plan designs not based solely on coinsurance may not reduce
beneficiary cost sharing at the point-of-sale. NCPDP seeks confirmation of this understanding.

NCPDP’s assumption is that in order to meet the 2ndcriterion of a chargeback, which is to provide the
full value of the discount to the pharmacy, the total amount due must also include the full chargeback

4
 amount within the paid claim response to the pharmacy (and the subsequent remittance). This will
be true even when there is no adjudicated plan liability for the drug at net cost. NCPDP believes this
would satisfy the proposed requirement “total payment to the pharmacy for the prescription
pharmaceutical product is at least equal to the price agreed upon in writing between the Plan Sponsor
under Part D, the Medicaid MCO, or a PBM acting under contract with either, and the manufacturer
of the prescription pharmaceutical product”. NCPDP seeks confirmation that this interpretation is
consistent with the OIG’s intent.

We note this chargeback amount can be included in the total amount paid to the pharmacy without
affecting the beneficiary calculations to meet the 3rd criterion, that the price the pharmacy charges
to the beneficiary at the point-of-sale is based on adjudication of the benefit at net cost. In this case,
the chargeback is paid to the pharmacy by the PBM serving as the chargeback administrator, and the
chargeback amount is included in the claim response transaction as a separately identifiable
component of the payment fields. This delineates the amount the pharmacy will receive that is part
of the benefit liability from the chargeback amount. Thus, in this method the discount amount is both
included and explicitly itemized in the claim at the point-of-sale (and becomes a chargeback amount
due) separate, and distinct from the plan amount due which is based on the net cost of the drug.
Because it is separately identified in the claim response at the point-of-sale, the chargeback amount
due can be tracked by the pharmacy for claim reconciliation, financial accounting, coordination of
benefits (COB) with downstream payers, and any audit or program integrity purposes. A simplified
example is shown below.

Exhibit 1. Approach 1/Method 1: PBM functions as Chargeback Administrator/chargeback amount is

visible

COINSURANCE EXAMPLE CURRENT STATE FUTURE STATE

Pricing Component Status Quo Formula Old Calc Approach 1, New
Method 1 Change Calc
in Formula

WAC $100.00 $100.00

Wholesaler acquisition cost WAC minus 2% $98.00 WAC minus 2% $98.00
1
Pharmacy acquisition cost WAC $100.00 WAC $100.00

1.2x WAC minus 15% 1.2x WAC minus

Plan/PBM Contracted Rate with + $2.00 dispensing 15% + $2.00
pharmacy fee $104.00 dispensing fee $104.00
Rebate (current state) 30% WAC $30.00
Chargeback administered by Plan/PBM
(future state) Per unit x #units $30.00

PBM contracted
Net drug cost to Payer/PBM at point of rate with pharmacy
sale NA NA less chargeback $74.00
25% of pharmacy POS 25% of net drug
Patient Pay (Coinsurance) payment $26.00 cost $18.50

1
Total WAC for the prescription

5
 Benefit - patient pay Benefit - patient
(75% of negotiated pay (75% of net
Plan liability (based on benefit only) price) $78.00 drug cost) $55.50
Pharmacy POS payment (all payors) $104.00 $104.00
PAYMENT SOURCES TO PHARMACY
Plan liability +
Plan payment Plan liability only $78.00 chargeback $85.50
Patient Pay $26.00 $18.50
Non-Plan payment $0.00 $0.00
Total payment $104.00 $104.00
*Note: Based on a 30-unit example/prescription

It is presumed when the PBM functions as the chargeback administrator, PBMs and manufacturers
continue to use the existing processes, modified as needed, to seek reimbursement of the chargeback
funds from the manufacturers in accordance with trading partner agreements. This process is
somewhat analogous to the current Part D coverage gap discount program financial flows, but with
PBMs rather than CMS handling the reimbursement request process. However, with the coverage gap
discount, that amount is not separately identifiable from the plan benefit liability, whereas in this
method, the chargeback is separately identifiable.

This method will require the addition of new values to uniquely identify chargeback amounts, so they
can be tracked and handled appropriately. In accordance with NCPDP procedures, the expedited
standards development process could be initiated but only upon issuance of a final rule establishing
the urgency. If the outlined approaches meet the needs as defined in the final rule, NCPDP estimates
a minimum of 10-12 months from the date of a final rule for the ANSI-accredited process to be
completed and the official NCPDP documents to be published. Additional time will be needed for
modification of industry operations to support disclosure of the chargeback amount in financial
transactions. These changes impact all entities using the NCPDP Telecommunication Standard.

The following chart identifies high-level impacts of Approach 1/Method 1:

Implementation considerations Impact?
Requires changes to the NCPDP Telecommunication Yes
Standard Version D.0
Timeframe for standards changes Near-term 2
The chargeback amount is available in claim Yes
response
Ability for non-PBM administration No
Impact to financial fields in the NCPDP Yes
Telecommunication Standard Version D.0
Impact to sales tax basis if based on ingredient cost Yes, State dependent, e.g., Illinois
Harmonization of code sets between NCPDP and TBD. Although Pharmacy receives one remittance
other HIPAA named standards development advice for one claim, NCPDP has not assessed the
organizations to clearly identify chargeback impact of the proposed changes on all standards that
amounts in the remittance advice

2
Changes do not require a new version of the NCPDP Telecommunication Standard, but additional expedited code
values are required.

6
 may be necessary to conduct business under the
proposed safe harbor.

Approach 1/Method 2: PBM Functions as Chargeback Administrator/chargeback amount is not

visible on the claim
As described under Method 1, the Part D or Medicaid MCO claim must initially be processed by the
PBM. In order for the manufacturer discount to be completely reflected in the price the pharmacy
charges to the beneficiary at the point-of-sale (3rd criterion), the PBM must adjudicate the benefit
(cost sharing) at the net cost of the drug product. When the benefit design includes a deductible or
coinsurance, the 100% or lower coinsurance percentage would be applied to the net cost of the drug,
rather than to the full Plan/PBM contracted rate with the pharmacy as occurs today. This would
reduce the beneficiary coinsurance and the gross cost of the drug to the plan sponsor and the Part D
program.

Method 2 does not include a discrete field for the chargeback amount for point-of-sale visibility to
this value. However, the chargeback amount will still be transferred to the dispensing pharmacy along
with the plan payment due based on the net cost of the claim. The plan sponsor/PBM combines the
full amount of the discount and the benefit liability in a single field in the paid response to the
pharmacy (and the subsequent remittance) without affecting the adjudication of the benefit at net
cost. We assume this will continue to satisfy the 2ndcriterion to provide the full value of the discount
to the pharmacy, as the transaction incorporates that amount in the paid response to the pharmacy
and the subsequent remittance without affecting the adjudication of the benefit at net cost.

Since the chargeback amount is not reported in a discrete field, there is no need to modify the
standard. All adjustments to compute the differences in payment responsibility among plan, patient
and manufacturer are managed by the PBM back-end systems. The absence of the discrete
chargeback field reduces the risk of reverse engineering proprietary contractual pricing. Since changes
are not required to the standard for Method 2, this would be the quickest standard implementation
approach.

Exhibit 2. Approach 1/Method 2 – PBM Functions as Chargeback Administrator/chargeback amount

is not visible on the claim

COINSURANCE EXAMPLE CURRENT STATE FUTURE STATE

Pricing Component Status Quo Old Calc Approach 1, New
Formula Method 2 Change Calc
in Formula
WAC* $100.00 $100.00
Wholesaler acquisition cost WAC minus 2% $98.00 WAC minus 2% $98.00
3
Pharmacy acquisition cost WAC $100.00 WAC $100.00

1.2x WAC minus 1.2x WAC minus

15% + $2.00 15% + $2.00
Plan/PBM Contracted Rate with pharmacy dispensing fee $104.00 dispensing fee $104.00
Rebate (current state) 30% WAC $30.00

3
Total WAC for the prescription

7
 Chargeback administered by Plan/PBM
(future state) Per unit x #units $30.00
PBM contracted
rate with pharmacy
less chargeback.
Note: Amount not
itemized in claim
but included here
Net drug cost to Payer/PBM at point of sale NA NA for illustration. $74.00
25% of pharmacy 25% of net drug
Patient Pay (Coinsurance) POS payment $26.00 cost $18.50

Benefit - patient Benefit - patient

pay (75% of pay (75% of net
Plan liability (based on benefit only) negotiated price) $78.00 drug cost) $55.50
Pharmacy POS payment (all payors) $104.00 $104.00

PAYMENT SOURCES TO PHARMACY

Plan liability +
Plan payment Plan liability only $78.00 chargeback $85.50
Patient Pay $26.00 $18.50
Non-Plan payment $0.00 $0.00
Total payment $104.00 $104.00
*Note: Based on a 30-unit example/prescription

The following chart identifies high-level impacts of Approach 1/Method 2:

Implementation considerations Impact?
Requires changes to the NCPDP No
Telecommunication Standard Version D.0
Timeframe for standards changes Immediate 4
The chargeback amount is available in claim No
response
Ability for non-PBM administration No
Impact to financial fields in the NCPDP None
Telecommunication Standard Version D.0
Impact to sales tax basis if based on ingredient None
cost
Harmonization of code sets between NCPDP and TBD. Although Pharmacy receives one remittance
other HIPAA named standards development advice for one claim, NCPDP has not assessed the
organizations to clearly identify chargeback impact of the proposed changes on all standards that
amounts in the remittance advice. may be necessary to conduct business under the
proposed safe harbor.

4
No additional changes to code sets are required.

8
 Approach 2/Method 3 Non-PBM Entity Functions as the Chargeback Administrator
As described under Approach 1, in order for the manufacturer discount to be fully applied to claims
for Part D and Medicaid MCO beneficiaries at the point-of-sale (3rd criterion), the PBM must adjudicate
the claim based on the net cost of the drug product. When the benefit design includes a deductible
or coinsurance, the net cost of the drug would be used as the basis for the calculations, not the list
price as occurs today. This would reduce the beneficiary cost sharing and the gross cost of the drug to
the plan sponsor and the Part D program.

It is NCPDP’s assumption that subsequent payment of the chargeback amount to the dispensing
pharmacy may be administered and/or paid by a third party acting on the manufacturer’s behalf. In
this case, the chargeback is paid indirectly by the manufacturer via a third-party intermediary and
represents a second payment source to the pharmacy.

Approach 2 assumes an entity functioning as the chargeback administrator is utilized to meet the 2nd
criterion of a chargeback and enables the provision of the full value of the discount to the pharmacy.
The PBM must also itemize the chargeback amount in the paid response to the pharmacy. Thus, in
contrast to Approach 1, the itemized chargeback amount would not be included in the financial
amount due from the PBM, and the pharmacy provider must account for a separate receivable from
the chargeback administrator. The pharmacy provider must receive payment from the chargeback
administrator and then reconcile the payment with the original claim. The amount can be conveyed
in a separate field on the claim that establishes the chargeback amount due from the chargeback
administrator on behalf of the manufacturer. The outstanding chargeback must then be separately
tracked by the pharmacy for appropriate claim reconciliation, financial accounting (in particular the
establishment of a second separate receivable balance from the manufacturer), COB, and any audit
or program integrity purposes.

To enable full tracking by the pharmacy, we request the final rule require the chargeback
administrator to furnish along with the chargeback payments, electronic remittance advices in the
NCPDP Pharmacy Reference Guide to the X12/005010X221 Health Care Claim Payment/Advice (835)
document with all chargeback amounts detailed at the claim level including the claim reference
number.

NCPDP did not evaluate the full impact to the HIPAA named X12 835 transaction. However, we
recognize the possibility that X12 may require time to adapt their 835 transaction to accurately
reflect the chargeback amount paid.

Exhibit 3. Approach 2/Method 3 Non-PBM functions as Chargeback Administrator

COINSURANCE EXAMPLE CURRENT STATE FUTURE STATE
Pricing Component Status Quo Old Calc Approach 2/ New
Formula Method 3 Change Calc
in Formula
WAC* $100.00 $100.00
Wholesaler acquisition cost WAC minus 2% $98.00 WAC minus 2% $98.00
5
Pharmacy acquisition cost WAC $100.00 WAC $100.00

5
Total WAC for the prescription

9
 1.2x WAC minus 1.2x WAC minus
15% + $2.00 15% + $2.00
Plan/PBM Contracted Rate with pharmacy dispensing fee $104.00 dispensing fee $104.00
Rebate (current state) 30% WAC $30.00
$
Chargeback administered by Manufacturer Per unit x #units 30.00

PBM contracted
rate with pharmacy
Net drug cost to Payer/PBM at point of sale NA NA less chargeback $74.00
25% of pharmacy 25% of net drug
Patient Pay (Coinsurance) POS payment $26.00 cost $18.50

Benefit - patient Benefit - patient

pay (75% of pay (75% of net
Plan liability (based on benefit only) negotiated price) $78.00 drug cost) $55.50
Pharmacy POS payment (all payors) $104.00 $104.00

PAYMENT SOURCES TO PHARMACY

Plan liability only

(chargeback from
Plan payment Plan liability only $78.00 another source) $55.50
Patient Pay $26.00 $18.50
Non-Plan payment $0.00 chargeback $30.00
Total payment $104.00 $104.00
*Note: Based on a 30-unit example/prescription

Similar to the Method 1, Approach 2/Method 3 requires the addition of new values to uniquely
identify chargeback amounts, so they can be tracked and handled appropriately. In accordance with
NCPDP procedures, the expedited standards development process can be initiated, but only upon
issuance of a final rule establishing the urgency. If the outlined approaches meet the needs as defined
in the final rule, NCPDP estimates a minimum of 10-12 months from the date of the final rule for the
ANSI-accredited process to be completed and the official NCPDP documents to be published.
Additional time is needed for modification of industry operations to support disclosure of the
chargeback amount in financial transactions and incorporate a multi-payer remittance process. In
addition, trading partner agreements may need to be modified to support accountability for the new
payment flows. It is important to note these changes to the standard impact all covered entities.

The following chart identifies high-level impacts of Approach 2/Method 3:

Implementation considerations Impact?
Requires changes to the NCPDP Yes
Telecommunication Standard Version D.0
Timeframe for standards changes Near-term 6

6
Changes do not require a new version of the NCPDP Telecommunication Standard, but additional expedited code
values are required.

10
 The chargeback amount is available in claim
response
Ability for non-PBM administration
Impact to financial fields in the NCPDP
Telecommunication Standard Version D.0
Impact to sales tax basis if based on ingredient
cost
Harmonization of code sets between NCPDP and
other HIPAA named standards development
organizations to clearly identify chargeback
amounts in the remittance advice.
Yes
Yes
Yes
Yes, State dependent, e.g., Illinois
Yes, pharmacy receives two remittance advices for a
single claim. One from the payer/PBM and one from
the manufacturer’s chargeback administrator.

III. Applicability of the proposed safe harbor to 100% cost sharing claims, and other types of claims that
raise additional questions
100% Cost-Sharing Claims: Claims that result in a beneficiary cost sharing of 100% due to a deductible
phase or coinsurance benefit design, would not need special treatment under the approaches
outlined above. This is because the discount will be fully applied during the adjudication of the claim
to arrive at the net cost, therefore, the coinsurance and claim amount will be fully reduced by the
discount amount. Referring to the examples in the previous illustrations, if the claim is in the
deductible phase under the status quo, the 100% cost sharing would be $104. Under either of the
approaches outlined above, the cost sharing would be based on the net cost of the drug, or $74 and
the pharmacy reimbursement would include the discount amount.

Usual & Customary (U&C) Claims: Because the discount will be fully applied in the adjudication of the
claim to arrive at the net cost, the coinsurance and relevant claim amounts will be fully reduced by
the chargeback amount and the pharmacy reimbursement would include the discount amount..

Paper Claims - Direct Member Reimbursement (DMR)/Universal Claim Form (UCF): None of the
methods outlined in these comments would apply in the case of a paper claim since the discount was
not applied during the adjudication process.

Claims where the ingredient cost is less than the rebate:

This business case has not yet been thoroughly evaluated by NCPDP to determine all potential
impacts. NCPDP requests the OIG recognize the patient liability amount after application of the
chargeback, cannot be a negative value. A negative patient liability amount would result in the
pharmacy refunding monies to the patient before they have been collected from the PBM or
chargeback administrator as well as compromising downstream payers. NCPDP’s assumption is if the
value of the chargeback exceeds the amount of the ingredient cost this excess value would not be
covered under safe harbor. NCPDP seeks confirmation of this understanding.

IV. NCPDP Registry of Pharmacies

As a service to its members, NCPDP maintains and publishes a registry of pharmacies and providers
which is used throughout the healthcare industry to support the adjudication of claims. If the
chargeback administrator is an entity other than the PBM, this registry could be expanded to include
chargeback entity information at the pharmacy level similar to the manner in which payment
addresses are maintained.

11
V. Estimates of implementation burden in the Regulatory Impact Analysis
NCPDP believes the resources, time and burden identified in the NPRM are significantly under-stated.
Approach1/Method 1 and Approach 2/Method 3 require changes to financial fields in the standard
and associated calculations, which typically require greater implementation resources than would
Approach 1/Method 2.

In closing, these comments represent NCPDP’s interpretation of the proposed rule and how three
methods consistent with the current adopted HIPAA standard can support arrangements permissible
under the new point-of-sale safe harbor. NCPDP wishes to emphasize that the ordering of the three
methods is arbitrary and not intended to convey preference or priority.

NCPDP appreciates the opportunity to provide input on this important rulemaking. We stand ready to
assist HHS and the OIG in understanding the impact of the proposed rule on HIPAA standard transactions
and to efficiently support the implementation of the final rule when issued. Please contact us if you have
questions or require further clarification.

For direct inquiries or questions related to these comments, please contact:

Margaret Weiker, Director, Standards Development
National Council for Prescription Drug Programs
NCPDP
Email: mweiker@ncpdp.org

Sincerely,

Lee Ann Stember

President & CEO
NCPDP
9240 East Raintree Drive
Scottsdale, AZ 85260
(480) 477-1000, ext. 108
(602) 321-6363 cell
lstember@ncpdp.org

cc: NCPDP Board of Trustees

12
Appendix A. View of Financial Fields within the NCPDP Transaction Layout
Current Day Approach 1/Method 1 Approach 1/Method 2 Approach 2/ Method 3
(Single Payer) (Single Payer) (2 Payers)

5Ø5-F5 Patient Pay Amount $20.80 $14.80 $14.80 $14.80

5Ø6-F6 Ingredient Cost Paid $102.00 $72.00 $102.00 $72.00
5Ø7-F7 Dispensing Fee Paid $2.00 $2.00 $2.00 $2.00
563-J2 Other Amount Paid
Count
564-J3 Other Amount Paid XX - Manufacturer XX - Manufacturer
Qualifier Chargeback Amount Chargeback Amount
Paid Payment Pending
565-J4 Other Amount Paid $30.00 $30.00
5Ø9-F9 Total Amount Paid $83.20 $89.20 $89.20 $89.20
522-FM Basis of Reimbursement 01-AWP XX -Contract Rate - 01-AWP XX -Contract Rate -
Determination Chargeback Amount Chargeback Amount
572-4U Amount of Coinsurance $20.80 $14.80 $14.80 $14.80
POS Sell Price Amount $104.00 $104.00 $104.00 $104.00

Items in red represent near-term NCPDP Telecommunication Standard changes and the field where the chargeback amount would be conveyed.

13