LSL C.S.H.B. 1377 75(R) BILL ANALYSIS PUBLIC HEALTH C.S.H.B. 1377 By: Maxey 4-2-97 Committee Report (Substituted) BACKGROUND In the comptroller's Texas Performance Review 1996 report, "Disturbing the Peace," a recommendation was made to combine drug reimbursements for the Kidney Health Care (KHC) and Chronically Ill and Disabled Children's Services (CIDC) programs with the Vendor Drug Program (VDP). The Texas Department of Health (TDH) administers all three of these programs which offer clients reimbursements for medications. The VDP, which is a part of the Medicaid program, is the largest and most comprehensive program that reimburses pharmacies for client drug purchases. In fiscal year 1996 for example, about 700,000 clients per month used the VDP to obtain medications. VDP spent an estimated $663.6 million, which accounts for about 10 percent of the state's $6.6 billion Medicaid appropriation. The CIDC program provides medical care and services to children with special needs. In general, clients must be under 21, fall within low-income guidelines, and have one or more covered conditions, such as hemophilia, cystic fibrosis, heart problems or cancer. In fiscal 1996, CIDC projected expenditures of $45.9 million in state general revenue. The KHC program provides medical benefits for persons suffering from severe kidney disease. Treatment for such conditions is expensive and generally involves dialysis or kidney transplants. In fiscal 1996, KHC spent an estimated $17.1 million, primarily from state general revenue. One of the most expensive costs for the CIDC program involves the purchase of hemophiliafactor medications, which promote blood clotting in hemophiliacs. CIDC reimburses pharmacies 20 to 88 cents per unit of hemophilia factor. The U.S. Public Health Service Price, which is set by the federal Veterans Health Care Act, is much cheaper for this drug. Manufacturers sell hemophilia factor at these discount prices to various federally authorized pharmacies. The comptrollers's study found that VDP is considerably more streamlined and efficient than CIDC or KHC, and that Texas could accrue significant advantages by consolidating drug purchases for all three programs under VDP. This merger would also help eliminate redundant functions of claim processing and eliminate 9 FTEs. KHC and CIDC could also establish a drug rebate program similar to the VDP rebate program that allows them to receive rebates from drug manufacturers. PURPOSE HB 1377 would mandate that the KHC and the CIDC ensure that clients receiving drugs under these programs have exhausted any Medicaid benefits available. It would also mandate that the KHC and CIDC establish a drug manufacturer rebate program, including a reimbursement rate for hemophilia factor, similar to the VDP. The bill would mandate that claims processing by all three programs be streamlined. RULEMAKING AUTHORITY It is the opinion of the committee that this bill expressly grants additional rulemaking authority to TDH in Section 2 (Subchapter B, Chapter 12, Sec. 12.020(f), Health and Safety Code). SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter B, Chapter 32, Human Resources Code, by adding Sec. 32.0311, entitled "Drug Reimbursement Under Certain Programs," as follows: Sec. 32.0311. Requires TDH to require a recipient of medical assistance to exhaust drug benefits available under the Medicaid program before reimbursing the recipient, pharmacist or other health care provider for drugs purchased under the KHC or CIDC program. SECTION 2. Amends Subchapter B, Chapter 12, Health and Safety Code, by adding Section 12.020, entitled "Drug Rebates," as follows: Subsection (a) requires TDH to establish a drug manufacturer rebate program for drug purchases made by or on behalf of clients under the KHC and CIDC programs. Subsection (b) requires TDH to seek rebates in amounts established under the Medicaid drug manufacturer rebate program for drugs covered by Medicaid that are purchase by or on behalf of clients of KHC and CIDC who are not eligible for Medicaid. Subsection (c) requires TDH to consult with drug manufacturers to develop rebate amounts for the new program. Prohibits the average percentage savings from rebates for these drugs from being less than the average percentage savings from drug rebates under the Medicaid drug manufacturer rebate program. Subsection (d) stipulates that, notwithstanding Subsections (b) and (c), TDH is not required to seek or develop a rebate amount for a drug purchased at a price, as specified, that is lower than the price after rebate of the drug under the Medicaid rebate program. Subsection (e) provides that amounts recovered by TDH under the new rebate program may be appropriated only for the KHC and CIDC programs. Subsection (f) allows TDH, by rule, to require all drug manufacturers to participate in the rebate program as a condition of reimbursement. SECTION 3. Amends Chapter 35, Health and Safety Code, by adding Sec. 35.0041, to require TDH to set the reimbursement rate for hemophilia factor claims made under this chapter at the price set for hemophilia factor as specified, plus any additional amount TDH determines reasonable as a dispensing fee. SECTION 4. Subsection (a) requires TDH to consolidate the drug benefits components of KHC and CIDC with the Medicaid Vendor Drug Program (VDP) to the extent authorized by federal law. Subsection (b) requires TDH to use the VDP's claim processing, program monitoring procedures, pharmacy network and reimbursement rates for the consolidated program except as provided for by Subsection (c). Requires TDH to use the VDP's prior authorization and dispute resolution procedures and approval criteria for the consolidated program to the extent it is consistent with funding and policy considerations of KHC and CIDC. Subsection (c) requires TDH to develop reimbursement rates for drugs, not already included in the VDP's list of reimbursable drugs, which are purchased for clients in the KHC and CIDC programs. Subsection (d) requires TDH to update its computer system to facilitate the consolidation. SECTION 5. Requires TDH to implement the drug manufacturer rebate program by September 1, 1997, and to complete implementation of the consolidated program by March 1, 1999. SECTION 6. Emergency Clause. Establishes the effective date to be upon enactment. COMPARISON OF ORIGINAL TO SUBSTITUTE HB 974 by Coleman, regarding the reimbursement of hemophilia factor medication under the CIDC program, was incorporated into CSHB 1377. A new SECTION 3 is added to the substitute to set the reimbursement rate for hemophilia factor, thus incorporating provisions of HB 974. Certain drug companies requested that the alternative dispute resolution procedure, currently applicable to the VDP, be added to apply to CIDC and KHC. SECTION 4(b) of the substitute adds language to apply alternative dispute resolution procedures to the consolidated program. TDH was concerned that the timeline specified in the original bill requiring complete implementation would be difficult to meet, so the language is changed in CSHB 1377 to delete the word "complete." In addition, the following specific language is added to CSHB 1377: SECTION 2(c) is added to require that the average percentage savings from drug rebates for affected drugs not be less than the average percentage savings from drug rebates under the Vendor Drug Program. SECTION 2(d) is added to exempt certain drugs under CIDC and KHC from rebate prices. SECTION 2(e) is added to require that savings accrued as a result of the consolidated rebate program be appropriated only to KHC and CIDC. The following language from HB 1377 is deleted in CSHB 1377: SECTION 2(a) deletes the phrase "...for which rebates are not available under Medicaid." SECTION 4(d), requiring TDH to obtain drug manufacturer rebates for KHC and CIDC as specified, is deleted.