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The Pricing and Distribution of Repackaged Drugs: Cost Effects to the California Workers' Compensation System, Payers and Providers

Matthew Gitlin, Pharm.D. and Leslie Wilson, Ph.D.

[email protected], [email protected], Department of Clinical Pharmacy, University of California, San Francisco, San Francisco 94143

BACKGROUND

California Workers' Compensation Pharmacy Fee Schedule in 2002 Reimbursement Rate: Brand: (AWP*1.1)+ $4.00 Generic: (AWP*1.4)+ $7.00 No Formulary: - All NDCs Accepted - Physician dispensing permitted by state law 60% of NDCs Not Priced Under Medi-Cal Reimbursement rates* California Workers' Compensation Pharmacy Fee Schedule in 2004 Reimbursement Rate: Medi-Cal Pharmacy Fee Schedule Formulary Based: - Medi-Cal Utilized NDCs (No NDCs for repackaged drugs) - Physician dispensing called into question

PRICE & DISTRIBUTION MODEL

RESULTS

Potential Costs Savings with Alternative Reimbursement Rates

Pre 2004 California Workers' Compensation Rates: 2002 Actual Costs Brand: 110%*AWP + $4.00 Generic:140%*AWP + $7.00 (Total Pharmacy Costs = $38,968,233) Manufacturer Packaged Grand Total Anti-Axnxiety/Sleep Aids Antidepressants Anti-Ulcer Agents Schedule II narcotics Schedule III or greater narcotics NSAIDS Skeletal Muscle Relaxant/Anticonvulsants $30,473,935 $1,495,071 $2,579,394 $1,060,677 $6,888,848 $5,646,744 $9,890,367 $2,912,834 Repackaged *** (Percentage of Total Pharmacy Costs) $8,494,298 (21.8%) $22,555 (1.49%) $25,050 (0.96%) $2,831 (0.27%) $2,389 (0.03%) $1,748,605 (23.64%) $3,434,563 (25.78%) $3,258,305 (52.8%) Post January 2004 to Pre October 2004 and Proposed Repackaged Drug Rates: Manufacturer Packaged: 2002 Medi-Cal Published Costs§ Repackaged: AWP-17% + $7.25 (Total Pharmacy Costs = $24,599,497) Repackaged *** Manufacturer (Percentage of Total Packaged Pharmacy Costs) $19,164,376 $780,269 $1,587,539 $693,860 $4,775,828 $3,404,154 $6,297,786 $1,624,941 $5,435,121 (22.15%) $11,800 (1.49%) $17,269 (1.08%) $1,356 (0.05%) $1,584 (0.03%) $1,485,946 (31.13%) $1,327,551(17.02%) $2,589,614 (61.44%) Percent Change and Significance for Repackaged Pharmaceuticals Between Pre 2004 and Proposed Fee Schedule Costs

(t-test and p-value)***

36.01% (t =4.87; p<0.0001) 47.68% (t=3.08; p=0.004) 31.06% (t=2.62; p=0.01) 52.08% (t=1.91; p=0.1) 33.7% (t =1.77; p=0.14) 15.02% (t=6.40; p<0.000)1 61.35% (t=3.68; p=0.0003) 20.52% (t=3.29; p=0.001)

·Nonequivalency due to repackaged dispensed drugs ·For 2 years, legislation and regulation reforms have been proposed to resolve the inconsistency between MediCal and Workers' Compensation Reimbursement ·Currently, no legislation has been passed to the resolve pricing of repackaged drugs ·SB 292 attempted to reprice repackaged drugs based on underlying manufacturer NDCs (legislation not passed)

*Pre 2004 Pharmacy fee Schedule: Generic drugs: (AWP x 1.4) + $7.50 dispensing fee, Brand name drugs: (AWP x 1.1) + $4.00 dispensing fee **MediCal Estimated Acquisition Cost (EAC): (0.83 * AWP) + $7.25 dispensing fee ***Selected cost reductions which are statistically significant between pre and post 2004 fee schedules for repackaged pharmaceuticals= p<0.05

Mean Cost Per Pill Using Alternative Reimbursement Rates:

$5.00 $4.50 $4.00 $3.50 $3.00 $2.50 Total Brand/Generic Total Brand O nly Total Generic

WHAT IS A REPACKAGED DRUG?

·A pharmaceutical product that is removed from the original manufacturer container with an original NDC and put into a new container with new quantities, therefore requiring a new NDC, with a new repackaging company label and price for the medication ·It is of interest to determine who dispenses repackaged drugs to determine the value provided ·Repackaged pharmaceuticals are provided through a company that may be referred to as a repackager, distributor (wholesaler), manufacturer, or retailer (pharmacy) making it difficult to define or identify repackaging companies ·To repackage a pharmaceutical, a company at a minimum must be licensed as a manufacturer

$2.00 $1.50 $1.00 $0.50 Pre 2004 California WC Rates: 2002 Actual Costs Brand: 110%*AWP + $4.00 Post January 2004 to Pre October 2004 Rates: Manufacturer: 2002 Medi-Cal Post January 2004 to Pre October 2004 and Proposed Repack Rates: Post October 2004 Estimated Medi-Cal Rate: AWP-17% + $7.25 Total Pharmaceutical Total Average C osts Per Pill Per N DC Pre 2004 California WC Rates: 2002 Actual Costs Brand: 110%*AWP + $4.00 Post January 2004 to Pre October 2004 Rate: 2002 Medi-Cal Published Costs§ Post October 2004 Estimated Medi-Cal Rate: AWP-17% + $7.25 Pre 2004 California WC Rates: 2002 Actual Costs Brand: 110%*AWP + $4.00 $0.00 Proposed Rate: AWP-17% + $7.25 Proposed Rate: AWP-10% + $7.25 Proposed Rate: AWP-10% + $8.75

RESULTS

Repackaged Pharmaceutical Characteristics

Total Pain and Pain Related Pharmacy Costs ($) Pain and Pain Pain and Pain Percentage of Number of Pain Percentage of Number of Pain Percentage of and Pain Related Total Pain and and Pain Related Total Pain and Related Total Pain and Related Manufacturer Pain Related Repackaged Repackaged Pain Related Pain Related Repackaged Packaged NDC's that are Pharmaceutical Prescriptions Pharmaceutical Pharmacy Costs that are Pharmaceutical Pharmaceutical Repackaged Costs ($) Prescriptions that are Repackaged NDCs Costs ($) Repackaged $38,968,233 $30,473,935 $8,494,298 21.80% 727 55.29% 128,148 27.77% $8,714,227 $8,638,047 $76,180 0.87% 120 43.96% 1,501 3.46% $44,425 $403,117 $1,529,384 $27,086 $540,749 $821,488 $414,052 $18,355 $4,400,160 $80,557 $434,854 $16,728,704 $4,870,023 $23,414 $398,309 $401,712 $664,266 $678,698 $4,586,712 $607,856 $724,219 $1,902,544 $696,863 $1,174,089 $13,525,302 $300,045 $3,807,100 $784,490 $33,328 $80,279 $3,983,641 $477,929 $3,413,701 $36,383 $607,119 $1,287 $44,425 $402,883 $1,529,384 $22,895 $537,050 $798,447 $414,052 $14,307 $4,398,101 $73,100 $403,402 $15,778,703 $4,387,545 $0 $398,268 $375,208 $662,408 $670,206 $4,318,037 $607,856 $724,219 $1,779,070 $693,507 $1,162,379 $6,057,185 $288,268 $1,129,230 $258,399 $32,998 $70,774 $2,984,561 $477,929 $766,744 $36,383 $11,567 $332 $0 $234 $0 $4,192 $3,699 $23,041 $0 $4,047 $2,059 $7,458 $31,452 $950,001 $482,478 $23,414 $40 $26,505 $1,858 $8,492 $268,674 $0 $0 $123,475 $3,356 $11,710 $7,468,117 $11,777 $2,677,870 $526,091 $330 $9,505 $999,080 $0 $2,646,957 $0 $595,552 $955 0.00% 0.06% 0.00% 15.47% 0.68% 2.80% 0.00% 22.05% 0.05% 9.26% 7.23% 5.68% 9.91% 100.00% 0.01% 6.60% 0.28% 1.25% 5.86% 0.00% 0.00% 6.49% 0.48% 1.00% 55.22% 3.93% 70.34% 67.06% 0.99% 11.84% 25.08% 0.00% 77.54% 0.00% 98.09% 74.22% 0 4 0 12 10 34 0 18 4 7 31 168 28 21 1 19 5 7 35 0 0 28 7 17 439 17 55 52 2 4 142 0 120 0 40 7 0.00% 40.00% 0.00% 85.71% 50.00% 48.57% 0.00% 69.23% 8.33% 41.18% 91.18% 69.71% 82.35% 100.00% 14.29% 90.48% 35.71% 50.00% 67.31% 0.00% 0.00% 90.32% 35.00% 80.95% 54.81% 26.67% 58.59% 75.00% 14.29% 18.18% 54.46% 0.00% 54.01% 0.00% 90.91% 77.78% 0 6 0 145 39 490 0 80 14 243 484 13,240 6,013 263 1 704 15 82 3,283 0 0 2,686 38 155 113,407 238 20,234 11,799 3 60 28,715 0 36,856 0 15,488 14 0.00% 0.26% 0.00% 16.22% 1.30% 3.39% 0.00% 31.01% 0.12% 11.67% 9.42% 8.05% 13.73% 100.00% 0.05% 10.12% 0.43% 1.46% 7.30% 0.00% 0.00% 10.48% 0.80% 1.07% 44.72% 4.23% 43.64% 61.07% 0.92% 11.67% 23.90% 0.00% 72.45% 0.00% 98.00% 77.78%

Manufacturer Packaged Pharmaceuticals Total Average C osts Per Pill Per NDC

Repackaged Pharmaceuticals Total Average Costs Per Pill Per N DC

§ 2002 MediCal published rates obtained from MediCal drug utilization files * Only cost/pill of oral capsules and tablets of the selected pain and pain related medications (1,210 of 1,315 total NDCs)

Grand Total Total Brand/Generic* Alprazolam Carisoprodol Fentanyl Cyclobenzaprine Fluoxetine Hydrocodone Morphine Naproxen Oxycodone Propoxyphene Relafen Total Brand Only Celecoxib Gabapentin Lansoprazole Metaxalone Omeprazole Paroxetine Rofecoxib Sertaline Tizaidine Tramadol Venlafaxine Zolpidem Total Generic** Alprazolam Carisoprodol Cyclobenzaprine Fentanyl Fluoxetine Hydrocodone Morphine Naproxen Oxycodone Propoxyphene Relafen

OBJECTIVE

·The purpose of this paper is to assess costs, potential savings with alternative pricing systems, and model predictors of repackaged pain and painrelated pharmaceutical costs ·In addition, we describe the distribution of repackaged pharmaceuticals through the U.S. drug distribution system

METHODS

·Data Source and Sample ·Nonprofit research organization data from 2002 representing ~13% of all California WC pharmacy claims ·Pain and painrelated pharmaceutical claims of Insured employers ·Utilization and Cost Analysis (SAS Version 8.02) ·Mean costs, utilization, and characteristics ·Cost savings with alternative reimbursement rates: ttests ·Cost per analysis of manufacturer vs. repackaged drug costs with alternative reimbursement rates ·Log Ordinary Linear Regression (OLS) and Generalized Linear Model (Proc GenMod in SAS) ·Model to explain cost per pill of repackaged drugs

·The majority, but not all NDCs that did not have a MediCal equivalent cost are repackaged pharmaceuticals (55.3%) ·Generic medications accounted for the majority of repackaged costs (88%) ·Companies most commonly associated with repackaged pharmaceutical costs were Southwood Pharmaceuticals (33.1%) and Pharma Pac (31.7%) · Total repackaged pharmaceutical costs could be reduced by 36% ($3,059,177) using an alternative formula based on MediCal formulae (AWP17% + $7.25) · On a per prescription basis, repackaging costs an additional $20 when compared to a MediCal pharmacy dispensed medications ·Alternative rates: reductions on a cost per pill basis vary between 36%40% ·AWP10%+ $7.25 (5.5% greater than the EAC) and ·AWP10% + $8.75 (13.4% greater than the EAC) ·Regression Analysis: Variables that were significantly predictive of increasing total average repackaged costs per NDC included: · Generic medications (p=0.005) and time on market < 7yrs (p=0.006)

Repackaged Pharmaceutical Sources

St. Mary's MPP Southwood Repackaged Pharmaceutical Sources Phys Tot Care Pharma Pac PD-RX Pharm NuCare Medvantx Heartland GSMS DHS Inc. Caremark, Inc. 1 Cardinal Allscripts $1.00 $10.00 $100.00 $1,000.00 1 19 $65.15 2,640 9,097 $10,000.00 $100,000.00 $99,499.49 $415,051.64 $1,000,000.00 $10,000,000.00 10 24 $50.00 $1,003.96 129 $697.30 $1,036.54 Total Number of Repackaged Pharmaceutical Prescriptions Total Repackaged Pharmaceutical Costs 3,135 $12,677.32 241 5,690 58,680 $23,170.55 48,481 $132,977.86 $2,693,302.44 $217,465.36 $4,897,300.04

CONCLUSIONS

·If the workers' compensation legislation reimbursement rate is set too low ·This could lead to patient access problems affecting overall patient care ·Varying the dispensing fee may allow the dispenser such as a physician to keep more of the payment than if the AWP alone is changed; depending on negotiations made with pharmaceutical repackagers and insurers, mitigating potential access limitations ·To avoid access problems, stepwise reductions in reimbursement rates are appropriate ·Future studies should examine if the added price is worth the increased access that repackaged pharmaceuticals afford and what cost and value are acceptable for pricing repackaged drugs

Total Pain and Pain Related Pharmacy Costs (Log Scale)

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