[on the applicable DHB letterhead] Community Pharmacy Services Agreement 2012 invitation to consult on proposed funding model for Stage 4

Transcription

1 [on the applicable DHB letterhead] [insert date] 2014 [Pharmacy Name] [Pharmacy Address] Dear [ ] Community Pharmacy Services Agreement 2012 invitation to consult on proposed funding model for Stage 4 The 20-DHB Collective wishes to consult with you on proposed amendments to the CPSA 2012 to implement a funding model for Stage 4 of the Community Pharmacy Services Agreement 2012 (CPSA). The proposed start date for Stage 4 would be 1 August District Health Boards (DHBs), in consultation with the pharmacy sector agents, developed the proposal for the Stage 4 funding model. The funding model s intention is to ensure pharmacies are funded appropriately for meeting the various needs of different patients, whether they receive LTC Pharmacy Services or Core Pharmacy Services. The proposal presents a solution for the funding of core pharmacy activity that would address the variations in dispensing profiles within and between community pharmacies and incentivise a whole of patient medicines management view. This proposal delivers on the CPSA intent to shift more funding to LTC Pharmacy Services patients. Under Stage 3 of the transition, about 24% of the funding envelope, or approximately $92 million was spent on LTC Pharmacy Services. The Stage 4 proposal would see this increase to about 29%, or approximately $109 million targeted to those patients who most need pharmacy help with medicines adherence support services. The Stage 4 proposal will also deliver on the commitment under the CPSA to maintain a balance between LTC Pharmacy Services and Core Pharmacy Services funding within the Annual Funding Envelope. This letter and the appendices listed below provide an overview and supporting details of the proposed funding model on which we seek your feedback. Appendix A: Information about management of the funding envelope in Stage 4 Appendix B: Proposed Stage 4 funding model case mix service fees (LTC and Core Service) Appendix C: Proposed draft legal provisions to amend the CPSA to effect the Stage 4 proposal Appendix D: Plain English summary of key points in the draft legal provisions for Stage 4 Appendix E: Proposed amendments to the LTC Pharmacy Services Protocol. Appendix F: Timeline for consultation. If you have any questions about the proposal please contact me as your Pharmacy Portfolio Manager. Yours sincerely [sign-off]

2 Appendix A: Information about management of the funding envelope Application of Contribution to Cost Pressure to the funding envelope The funding envelope for the year will include an adjustment of the lower of either 1.5% or the nationally applied Contribution to Cost Pressure (CCP) the rate of adjustment the Government applies to its funding to DHBs whichever is applicable. As part of the proposal to the 20-DHB Collective, DHB representatives and the sector agents have recommended (through the Community Pharmacy Services Governance Group (CPSGG)) that during Stage 4, the adjustment would be applied to the initial base fees which are used in calculating Services Fees for LTC Pharmacy Services and Core Pharmacy Services. Adjustment process at year end to ensure funding envelope is paid in full to pharmacy As with earlier stages of the CPSA, the funding envelope for the year is guaranteed to be paid to community pharmacy in full. There would be an adjustment process following the end of the year to ensure that the full funding envelope for would be paid to pharmacy. To manage the payment of the full funding envelope to pharmacy, the financial modelling of the Stage 4 proposal includes a notional Payment Management Reserve Pool of 1% of the total funding envelope. Any unallocated funding at the end of the year will form the Payment Management Reserve Pool and would be applied on the weighted total dollars for all LTC Pharmacy Services and Core Pharmacy Services initials and repeats (inclusive of monthly LTC Service Fee and all Handling Fees, exclusive of negative A3 and J3). The Funding, Fee Setting and Monitoring work group will be closely monitoring the CPSA funding envelope and reporting on trends each month to the Community Pharmacy Services Operational Group. This monitoring information will continue to be available on the Funding, Monitoring, Services and Processes page on the CentralTas website. Treatment of negative A3 and J3 transactions during proposed Stage 4 funding model The 20-DHB Collective has also accepted the CPSGG recommendation on treatment of negative A3 or J3 transactions during Stage 4 so the original intent as to how these transactions would be treated under the CPSA is maintained. This will be explained in the background information on the website, in the information meetings and in the webinars. Stronger focus on monitoring of dispensing activity, and audit Monitoring of pharmacy activity will be enhanced during Stage 4 to ensure that frequency of dispensing continues to be aligned to the needs of the patient. The Funding, Fee Setting and Monitoring work group will monitor dispensing volumes closely, particularly of repeat dispensing. There will be increased emphasis on identifying pharmacists with unusual or changing patterns of activity. DHBs are committed to the development of a robust audit strategy to support the CPSA. The strategy is being developed alongside the auditing being planned by Audit and Compliance at the Ministry of Health. The new audit cycle will begin in June Stage 4 proposal is in line with strategic direction of CPSA to deliver patient-centric service model

3 DHBs and pharmacy sector agents are committed to a model for community pharmacy services that is focused around patient needs, enhanced professional satisfaction as pharmacists clinical skills are recognised and used, and a sustainable funding model. We believe the proposed funding model for Stage 4 of the CPSA is a step in the transition to patient-focused pharmacy services that can be developed further with the CPSA 2015.

4 Appendix B: Proposed Stage 4 funding model Case Mix Service Fees The Stage 4 proposal continues the journey that began in July 2012 to shift funding to patients with long term conditions that require additional medicine management adherence support. As signalled throughout the CPSA, the Transition Pool, about 33% of the envelope in Stage 3, would reduce to zero at this stage of the implementation. Case mix service fees for LTC Pharmacy Services and Core Pharmacy Services would be introduced and the interim Core Pharmacy Services Service Fee that has applied during Stage 3 of the transition period would cease. The key components of the Stage 4 funding proposal are: Service Fees for LTC Pharmacy Services would be funded through the monthly LTC Pharmacy Services Fee of $20 for each registered patient ($240 per annum) and case mix service fees. The case mix service fee provides funding that recognises the number of LTC Pharmacy Services patient visits per day and the number of items dispensed to that LTC Pharmacy Services patient on each visit. In addition a Handling Fee is paid on every item dispensed. The PHAM premium payment would cease as a separate payment. The Stage 4 funding proposal ensures there is adequate funding for the support provided to those very high-needs patients for whom the PHAM registration and payment was introduced in Stage 3. These patients would remain registered to receive LTC Pharmacy Service. Service Fees for Core Pharmacy Services would be funded through case mix service fees. The case mix service fee would provide funding that recognises the number of Core Pharmacy Services patient visits per day and the number of items dispensed to each patient on each visit. In addition a Handling Fee is paid on every item dispensed. Analysis during the development of the case mix service fees system showed that the number of initial items dispensed is a suitable proxy for the complexity of providing professional services to patients requiring multiple items and the time involved in providing service for that patient. Specific Pharmacy Services (for example, ARRC, CRC and CDOS) would continue to be funded through a multiplier of the Handling Fee as in previous stages of the CPSA. Calculation of Case Mix Service Fees (LTC and Core Service): There are two scales for the calculation of case mix service fees, one for initial items, one for repeat items. The scales are the same for an LTC Pharmacy Services patient and Core Pharmacy Services patient. Initial Items The proposed case mix service fees use a base fee for initial items of $4.30 (plus the applicable adjustment for Contribution to Cost Pressure). The calculation also uses a scale of Relative Value Unit (RVU). The value of the RVU increases with the number of initial items dispensed by that pharmacy to that patient on that day (described as IPPD in the following table). This approach rewards the synchronisation of medicines. The base fee is multiplied by the Relative Value Unit (RVU) to get a case mix service fee per initial item for that patient, as shown in the following table.

5 IPPD RVU Case Mix Fee Handling Fee Total per Initial $4.38 $1.00 $ $4.38 $1.00 $ $4.38 $1.00 $ $4.47 $1.00 $ $4.51 $1.00 $ $4.56 $1.00 $ $4.56 $1.00 $ $4.56 $1.00 $ $4.56 $1.00 $ $4.56 $1.00 $5.56 Repeat Items The proposed case mix service fees use a base fee for repeat items of $3. The calculation also uses a scale of Relative Value Unit (RVU). The value of the RVU decreases as the repeat sequence number increases. By giving less funding per item for frequent dispensing, this approach discourages unnecessary repeats and reflects the estimated clinical input with each dispensing, while recognising the costs of providing necessary repeats. The base fee is multiplied by the Relative Value Unit (RVU) to get a case mix service fee per repeat item for that patient, as shown in the following table. Suffix RVU Case Mix Fee Handling Fee Total per Repeat 2 to $3.00 $1.00 $ to $1.80 $1.00 $2.80

6 13 to $1.20 $1.00 $ $1.05 $1.00 $2.05 Case Mix Service Fees paid monthly in advance: Case mix service fees would be paid monthly in advance using an estimate of dispensing activity by using data for your pharmacy from a previous month (seasonally adjusted), and then adjusted once actual dispensing data for the relevant month is available. We had feedback supporting a real time payment mechanism. However, DHBs and sector agents want to ensure that IT developments for pharmacy are aligned with the longer term strategic developments for pharmacy and the wider health sector. A real time payment mechanism would require these to be in place. In response to feedback from the sector, the time before the advance payment is adjusted has been shortened, so pharmacy receives actual payments in a more timely way. There would be reports available in the Eligibility Assessment and Registration (EAR) portal on case mix service fees. These reports would show a summary of the data used to estimate activity for the advance payment, and a detailed report to show data used in the calculation of the adjustment. These reports would be able to be validated against the data in the pharmacy management systems. Should the 20-DHB Collective decide to proceed following consideration of your feedback, there will be education material available before 1 August to ensure pharmacies are aware of how to use the new reporting functionality in EAR.

7 Appendix C: Proposed amendments to the CPSA Clauses Schedule 1: Draft amended provisions for stage 4 Amendments related to the service specification for LTC Pharmacy Services 1. The service specification for LTC Pharmacy Services in Schedule C1 (as amended by a variation effective 1 March 2013) is amended from the date that Stage 4 Mechanism comes into effect by: (a) deleting the following paragraph in clause 1.1 of the service specification: LTC Pharmacy Services includes a sub-category called Pharmacy High Needs Adherence Management (PHAM) Services which are available to Service Users eligible to receive LTC Pharmacy Services who require an intensive level of pharmacy support to ensure medications are taken as directed, and harm is avoided. ; (b) (c) deleting clause 4.2 of the service specification; and deleting clauses 7(b) and 7(c) of the service specification. Amendments relating to the payment provisions changes to definitions in Part E 2. Clause E1.3 is amended by inserting the following new definitions in the appropriate alphabetical order: Actual Service Fee Payment means a payment which may be paid to you three months after the start of the relevant Dispensing period (being a calendar month), which is based on Claim data submitted in the month or the month immediately following the relevant Dispensing period in relation to Dispensing undertaken in that period, calculated in accordance with clause H28.4(b). Adjustment means the difference between the Advance Service Fee Payment and the Actual Service Fee Payment. Advance Service Fee Payment means a payment made to you in advance of the completion of the relevant Dispensing period (being a calendar month), prior to actual Dispensing activity for that Dispensing period being known, calculated in accordance with clause H28.4(a). Annual Payment Adjustment means the adjustment payment that may be made to you annually (in relation the most recent 1 July to 30 June year) using actual finalised Claim data, calculated in accordance with clause H30. Initial Item means a Prescription Item that is either an item with a prescription ID suffix /0 (without repeats) or the first item in an intended sequence of items with a prescription ID suffix /1 (repeats available). Repeat Item means a Prescription Item with a prescription ID suffix that is /2 or greater. Seasonal Adjuster means an adjuster to the base month data to reflect expected national Dispensing activity changes in a certain period of time due to seasonal factors and also the number of Business Days in the relevant Service Month or the time of the year. Service Month means the calendar month in which Dispensing was or is forecast to be undertaken.

8 Stage 4 Mechanism means the payment mechanism used for calculating and paying Service Fees for Core Pharmacy Services and a component part of the Service Fees for LTC Pharmacy Services, as described in clause H28 of this Agreement. Amendments relating to the payment provisions changes in Part H to include the payment mechanism for stage 4 3. Clauses H22.2(c)(i)(A), H22.2(c)(i)(C), H22.2(f)(i)(B), H22.3(b)(i)(A), H22.3(b)(ii)(A), H23.2(b), H23.2(j), H23.4(a), H23.4(b), H23.4(c), H23.6(b) and H23.6(e) are amended by replacing the phrase initial items or initial prescriptions or initial prescription item (as applicable) with Initial Item. 4. Clause H1.1(b), as amended by a variation effective 29 July 2013, is amended by deleting the existing clause and replacing it with the following clause H1.1(b): (b) You must claim for the provision of Core Pharmacy Services and/or Specific Pharmacy Services and/or for providing Pharmaceuticals that are Dispensed to Service Users receiving LTC Pharmacy Services by submitting the relevant Claim Items as part of a Claim. You may not claim for the provision of Core Pharmacy Services to Service Users who were, at the Dispensing date for which you are claiming, registered with you as receiving LTC Pharmacy Services. Notwithstanding anything else in this paragraph (b), you shall only claim for providing Pharmaceuticals that are Dispensed to Service Users receiving Core Pharmacy Services by submitting the relevant Claim Items as part of a Claim. You need not claim any Service Fee associated with providing Core Pharmacy Services, as these Service Fees will be paid to you as set out elsewhere in this Agreement. 5. Clause H12(a)(i), as subsequently amended by variations effective 1 March 2013 and 29 July 2013 is deleted and replaced with the following: (i) in respect of a Transition Payment, or in respect of Service Fees for providing Core Pharmacy Services or LTC Pharmacy Services (excluding Service Fees covered by clause H12(a)(ii)), the first Business Day of each month; 6. The following clause is inserted in the Agreement as a new clause H28 in Part H of the Agreement: H28 Stage 4 Mechanism H28.1 This Stage 4 Mechanism payment mechanism represents a further step towards our shared goal of a patient-focussed pharmacy service and funding model. In addition, Pharmacy High Needs Adherence Management (PHAM) Services have been subsumed into this Stage 4 Mechanism payment mechanism and accordingly are not funded through a separate mechanism as was previously the case. We both acknowledge that this may not be the final step. Any following step or steps will be introduced in accordance with Part L of this Agreement. H28.2 Initial Items The amount that we will pay you as a service fee for providing Core Pharmacy Services or LTC Pharmacy Services to Service Users when Dispensing Initial Items (excluding Brand-switch Fee transactions, Supply Orders, Owed Prescription Items, Prescription Items that are not subsidised, reversed Claims and rejected Claims (as such terms are described in the Procedures Manual)) to Service Users, will be calculated in accordance with the following formula: R = ((((II x C) x IRVU) x ISF) x GST)

9 where: R = the service payment (inclusive of GST) that we will pay to you for providing Core Pharmacy Services or LTC Pharmacy Services to all Service Users to whom you have Dispensed Initial Item(s) during the relevant Service Month (with R to be calculated separately for Initial Items Dispensed when providing Core Pharmacy Services and Initial Items Dispensed when providing LTC Pharmacy Services); = is used to represent the sum of each possible combination of the number of Initial Items Dispensed to a Services User on a single day (II in this formula), calculated using the formula above, in the relevant Service Month. For example, the formula above should be used separately to calculate service fees where three Initial Items are Dispensed to a Service User on a single day and service fees where five Initial Items are Dispensed to a Service User in a single day, the results of each calculation after applying the formula above are then added together to give the sum for the relevant Service Month; II = means the number of Initial Items that you have Dispensed to a Service User in a single day. For the avoidance of doubt, where a Service User presents more than one Prescription Form to you in a single day and each Prescription Form contains a number of Initial Items that you Dispense to that Service User on that same day, the number of Initial Items for the purpose of determining II would be the total number of Initial Items on all Prescription Forms that you Dispense to that Service User on the same single day. For the purpose of this calculation, where no NHI is provided when you submit an Initial Item Claim Item, that Initial Item will be counted separately as 1 (except in respect of Initial Items Dispensed when providing LTC Pharmacy Services where an NHI is required for a Claim Item to be accepted by us, which will not be counted); C = means the number of instances of an individual Service User on a single day in the relevant Service Month being Dispensed the particular number of Initial Items by you; IRVU = means the applicable relative value unit (IRVU) which corresponds with the number of Initial Items Dispensed to that Service User on that day, in accordance with the following table, as applicable depending on whether the Initial Item is Dispensed when providing Core Pharmacy Services or LTC Pharmacy Services: Table for Core Pharmacy Services: Number of Initial Items in Prescription Form(s) Dispensed to the Service User in a single day IRVU

10 Table for LTC Pharmacy Services: Number of Initial Items in Prescription Form(s) Dispensed to the Service User in a single day IRVU ISF = means the initial base service fee, which is a GST exclusive amount, being: (a) $4.38 for Core Pharmacy Services; and (b) $4.38 for LTC Pharmacy Services; and GST = 1.15 or such other amount as correctly reflects the then current GST rate. H28.3 Repeat Items The amount that we will pay you as a service fee for providing Core Pharmacy Services or LTC Pharmacy Services to Service Users when Dispensing Repeat Items (excluding Brand-switch Fee transactions, Supply Orders, Owed Prescription Items, Prescription Items that are not subsidised, reversed Claims and rejected Claims (as such terms are described in the Procedures Manual)) to Service Users will be calculated and paid to you, in accordance with the following formula: R = (((N x RRVU) x RSF) x GST) where: R = the service payment (inclusive of GST) that we will pay to you for providing Core Pharmacy Services or LTC Pharmacy Services to a Service User to whom you have Dispensed a Repeat Item (with R to be calculated separately for Repeat Items Dispensed when providing Core Pharmacy Services and Repeat Items Dispensed when providing LTC Pharmacy Services); = is used to represent the sum of each possible combination of the number of Repeat Items with a different prescription ID suffix Dispensed to Service Users during the relevant Service Month. For example, the service fees for all Repeat Items with a prescription ID suffix of 3 over the relevant Service Month should be calculated using the formula above and the formula above should then be separately used to calculate the service fees for all Repeat Items with a suffix of 6 over the relevant Service Month, the results of each calculation after applying the formula above are then added together to give the sum for the relevant Service Month; N = means the number of instances of Repeat Items being Dispensed by you during the Service Month with the particular prescription ID suffix; RRVU = means the relative value unit (RRVU) that corresponds with the prescription ID suffix for the Repeat Item Dispensed to a Service User, in accordance with the following table, as applicable depending on whether the Repeat

11 Item is Dispensed when providing Core Pharmacy Services or LTC Pharmacy Services (i.e. if this is the second time that a repeat for a single Prescription Item has been Dispensed to a Service User, the prescription ID suffix is 3 and the RRVU in the first row will apply): Table for Core Pharmacy Services: Prescription ID suffix for the Repeat Item Dispensed to that Service User to RRVU Table for LTC Pharmacy Services: Prescription ID suffix for the Repeat Item Dispensed to that Service User to RRVU RSF = means the repeat base service fee, which is a GST exclusive amount, being: (a) $3.00 for Core Pharmacy Services; and (b) $3.00 for LTC Pharmacy Services; GST = 1.15 or such other amount as correctly reflects the then current GST rate. H28.4 The amounts payable to you under clauses H28.2 and H28.3 will be calculated and paid to you on the following basis: (a) on the first Business Day of each month prior to the Termination Date you will receive an advance amount for providing Core Pharmacy Services and LTC Pharmacy Services for that Service Month, calculated by us on the basis of: (i) (ii) the forecast number of Initial Items your Pharmacy is estimated to Dispense to Service Users during that Service Month (including the forecast number of Initial Items per Service User per day your Pharmacy is forecast to Dispense); and the forecast number of Repeat Items that your Pharmacy is forecast to Dispense during that Service Month (including the prescription ID suffix that each Repeat Item is forecast to be Dispensed as for a single Pharmaceutical for a Service User), when providing Core Pharmacy Services and LTC Pharmacy Services. The forecast figures will then be used to calculate the Advance Service Fee Payment for your Pharmacy for providing Core Pharmacy Services and LTC Pharmacy Services during that Service Month using the formulas in clause H28.2 and H28.3 above;

12 (b) on the first Business Day of the third month following receipt of your Advance Service Fee Payment specified in (a) above, an Adjustment to the Advance Service Fee Payment you have already been paid (which was calculated in accordance with clause H28.4(a) above) will be calculated. The Adjustment for the relevant Service Month will be calculated by us using the: (i) (ii) actual number of Initial Items your Pharmacy Dispensed to Service Users during the relevant Service Month (including the number of Initial Items per Service User per day your Pharmacy has Dispensed) and ; actual number of Repeat Items your Pharmacy Dispensed to Service Users during the relevant Service Month (including the prescription ID suffix that each Repeat Item was Dispensed as for a single Pharmaceutical for a Service User), when providing Core Pharmacy Services and LTC Pharmacy Services, The actual figures will then be used to calculate the Actual Service Fee Payment for your Pharmacy for providing Core Pharmacy Services and LTC Pharmacy Services during the relevant Service Month using the formulas in clause H28.2 and H28.3. If the difference between the Actual Service Fee Payment calculated under this clause H28.4(b) and the amount you were paid as an Advance Service Fee Payment under clause H28.4(a) (when deducting the amount of the Advance Service Fee Payment from the Actual Service Fee Payment), being the Adjustment is: (A) a positive number, you will receive an additional payment (for the amount of the difference) payable on the first Business Day of that month, payable with the Advance Service Fee Payment for providing Core Pharmacy Services and LTC Pharmacy Services that you are receiving for the current month; (B) a negative number, we will deduct that amount from the Advance Service Fee Payment you are due to receive on the first Business Day of that month for providing Core Pharmacy Services and LTC Pharmacy Services; (c) (d) if, as a result of this agreement coming to an end, there is an Adjustment that is payable to you but Advance Service Fee Payments for providing Core Pharmacy Services and LTC Pharmacy Services are no longer paid in the manner set out in this clause H28.4, we will nevertheless pay the amount owing to you under clause H28.4(b) on the first Business Day of the month in which it would otherwise have been payable under that clause; and if, as a result of this agreement coming to an end, there is an Adjustment that is owing by you to us, but the Advance Service Fee Payments for providing Core Pharmacy Services and LTC Pharmacy Services are no longer paid in the manner set out in this clause H28.4, clause H15 will apply and that clause H15 will be deemed to continue to apply with effect after the Termination Date. H28.5 For the purpose of the forecasting carried out in accordance with clause H28.4(a), the Dispensing data we will use will be the Dispensing data for the third calendar month prior to the month that the forecast will be carried out in respect of, which will then be seasonally adjusted using a Seasonal Adjuster. For example, if a forecast is being carried out in respect of the month of August, Dispensing data for the previous month of May (with a Seasonal Adjuster applied) will be used.

13 H28.6 If your Pharmacy has undergone a change of ownership between the two months described in clause H28.5 we will use Dispensing data for the Pharmacy when it was under the ownership of the previous owner in order to determine Dispensing data for the third calendar month prior to the month that the forecast will be carried out in respect of. If your Pharmacy is a new Pharmacy and we do not have data for your Pharmacy for the third calendar month prior to the month that the forecast will be carried out in respect of, you will not receive any Advance Service Fee Payments until such time as we do have data for the applicable month that enables us to calculate Advance Service Fee Payments for your Pharmacy. H28.7 Where the applicable Service User Co-payment that applies to the Dispensing of an Initial Item Dispensed by you is an amount greater than the Standard Co-payment amount, that Initial Item will not be counted as an Initial Item for the purpose of calculating your Advance Service Fee Payment or Actual Service Fee Payment, unless: (a) the Initial Item has a prescription ID suffix of /0 and the individual transaction value for that Initial Item calculated under clause 2.3(a) or 2.4(a) of Schedule H1 is greater than $0.00; or (b) the Initial Item has a prescription ID suffix of /1. H28.8 For the avoidance of doubt, if a Claim Item relating to Dispensing undertaken in a Service Month has not been submitted to us within the time required by us to calculate your Actual Service Fee Payment for the relevant Service Month, Service Fees for the relevant Claim Item will be paid to you through the annual review process in accordance with clause H30. Any other fees relating to that Claim Item will be paid to you in accordance with the other provisions in this Agreement. H28.9 For clarity, during the period in which Stage 4 Mechanism applies, the allocation of up to 5% amount of the Annual Funding Envelope that was originally intended to be distributed as a quality incentive payment will not be paid as a separate quality incentive payment. Instead, the up to 5% of the Annual Funding Envelope has been incorporated through the levels at which the Service Fees for Core Pharmacy Services and LTC Pharmacy Services have been set while Stage 4 Mechanism is in place. Amendments relating to the payment provisions changes to Part H to add a special quarterly review and recalculation process for A3 and J3 transactions 7. The following new clause is inserted in the Agreement as a new clause H29 in Part H of the Agreement: H29 Quarterly Service Fee recalculation for A3 and J3 transactions H29.1 On a quarterly basis (with the first quarterly review process being initiated in November 2014), we will, in accordance with this clause H29, recalculate the Service Fees payable to you in respect of any Initial Item Dispensed by you when providing Core Pharmacy Services or LTC Pharmacy Services, where: (a) the applicable Service User Co-payment that applies to the Dispensing of an Initial Item is an amount greater than the Standard Co-payment amount and;

14 (b) the Initial Item has a prescription ID suffix of /0 and the individual transaction value for that Initial Item calculated under clause 2.3(a) or 2.4(a) of Schedule H1 is equal to or less than $0.00 (with negative values being treated as $0.00 for purpose of internal payment processing purposes). H29.2 Where an Initial Item that you have Dispensed is covered under clause H29.1, for the purpose of determining whether a Service Fee is payable following the quarterly review, we will recalculate the individual transaction value for that Initial Item, using the formula in clause 2.3(a) or 2.4(a) of Schedule 1 (as applicable) but using a Handling Fee of $5.30 to determine whether that Initial Item qualifies to receive a Service Fee payment. If the recalculated transaction value: (a) is $0.00 or less, you will not be paid any further Service Fees in respect of that Initial Item for that quarter; (b) greater than $0.00, you will be paid additional Service Fees calculated in accordance with clause H29.3. H29.3 Where clause H29.2(b) applies, we will calculate, in respect of each relevant Initial Item, whether a Service Fee that is owing to you for that quarter, in accordance with the following formula: R = (IRVU x ISF) x GST + RITV where: R = the service payment (inclusive of GST) that we will pay to you for providing Core Pharmacy Services or LTC Pharmacy Services to the Service User to whom you have Dispensed the relevant Initial Item; IRVU = means the applicable relative value unit (IRVU), being in this case 1.01; ISF = means the initial base service fee, which is a GST exclusive amount, being: (a) $4.38 for Core Pharmacy Services; and (b) $4.38 for LTC Pharmacy Services; GST = 1.15 or such other amount as correctly reflects the then current GST rate; and RITV = is the recalculated Transaction Sequence value which means the negative amount of the Transaction Sequence value which that Initial Item forms part of, calculated in accordance with clause 2.3(a) or 2.4(a) of Schedule H1 (as applicable), where the $1.00 Handling Fee is used in the calculation, which is inclusive of GST. H29.4 Service Fees owing to you by us, or to be recovered from you by us, will be paid or recovered (as applicable) on the next Business Day following completion of the quarterly review by us. H29.5 For the avoidance of doubt, the quarterly review and recalculation exercise will not affect any other payments that we have already made to you, nor will it mean that the IRVU that

15 was applied in relation to the Dispensing of other Initial Items that were Dispensed at the same time as an Initial Item described in clause 29.1, shall be altered during the quarterly review process. H29.6 For the avoidance of doubt, this clause H29 (and other relevant provisions required to give effect to this clause H29 (including the definitions in Part E)) shall continue to apply after the Termination Date to enable the quarterly review process to be completed in respect of any Dispensing that occurred during the Term. Amendments relating to the payment provisions changes to Part H to add an annual recalculation mechanism 8. The following new clause is inserted in the Agreement as a new clause H30 in Part H of the Agreement: H30 Annual Review and unallocated Annual Funding Envelope amount H30.1 After the end of each financial year, when the DHBs, in their discretion, are satisfied that all Claims have been received by the DHBs in respect of Dispensing undertaken by all Providers in that prior financial year, the DHBs will (through their payment agent or other representative) undertake an exercise of checking that the payments made to all Providers during that prior financial year were accurate. H30.2 Where the annual review process described under clause H30.1 identifies that you have not been paid enough during that prior financial year for the Services provided during that financial year, in accordance with the payment provisions in Part H and Schedule H1 (that were applicable at the time the Services were provided), we will notify you of this amount and will pay this additional amount to you on the next Payment Date. This amount is known as an Annual Payment Adjustment. H30.3 Where the annual review process described under clause H30.1 identifies that we have overpaid you during that prior financial year for the Services provided during that financial year, in accordance with the payment provisions in Part H and Schedule H1 (that were applicable at the time the Services were provided), clause H15 will apply. H30.4 If, after the annual review process described under clause H30.1 has been completed, it is apparent that the Annual Funding Envelope for that prior financial year was not fully distributed to Providers through the payment of Handling Fees and Services fees in respect of Dispensing undertaken in that prior financial year, the remainder of the Annual Funding Envelope for that prior financial year will be distributed to Providers based on a pro-rata share of the share of actual Handling Fees and Service Fees paid or payable in relation to Prescription Items Dispensed by you when providing Core Pharmacy Services and LTC Pharmacy Service for the relevant 12 month period, including the LTC Pharmacy Services Fee. H30.5 As part of the annual review process undertaken in accordance with this clause H30, we may recalculate Service Fees that should have been paid to you in respect of any Initial Item that was impacted, in terms of the payment calculations under H28.2 and H28.3, where: (a) you received a Service Fee for an Initial Item in accordance with clause H29; and/or (b) an Initial Item was automatically counted as an Initial Item for the purpose of calculating your Advance Service Fee Payment or Actual Service Fee Payment in accordance with clause H28.7(b), to determine what the appropriate Service Fee (if at all) for any such Initial Item should have been, assuming:

16 (c) in respect of (a), that the Initial Item was identified as an Initial Item (on the basis of using a $5.30 Handling Fee) that qualifies to receive a Service Fee payment (less the RITV defined in clause H29.3 for that Initial Item) at the time the Claim was originally processed by us, rather than at the time of the quarterly recalculation process under clause H29; and (d) in respect of (b), that: (i) if the full Transaction Sequence was known at the time the Claim was originally processed by us, it would have been known that the Initial Item formed part of a Negative A3 or J3 Transaction and as a consequence should not have qualified to receive a Service Fee payment; or (ii) the value of the Transaction Sequence related to that Initial Item is only positive on the basis of using a $5.30 Handling Fee (rather than a $1.00 Handling Fee) and as a consequence the RITV (as defined in clause H29.3) for that Initial Item should be netted from the Service Fee paid in respect of that Initial Item under clause H28.2 so that only the true value of the Transaction Sequence calculated under clause 2.3(a) or 2.4(a) of Schedule H1 (as applicable) is claimed. H30.6 As part of the annual review process undertaken in accordance with this clause H30, we may recalculate the Services Fees that we have paid to you for any Repeat Item that forms part of a Transaction Sequence where the applicable Service User Co-payment that applies to that Transaction Sequence is an amount greater than the Standard Co-payment amount, to ensure that the Service Fee paid by us for that Repeat Item is adjusted by any RIVT (or part of the RIVT) (as RIVT is defined in clause H29.3) that applies to the Transaction Sequence that has not already been deducted under clause H30.5(d)(ii). H30.7 For the avoidance of doubt, this clause H30 (and other relevant provisions required to give effect to this clause H30 (including the definitions in Part E)) shall continue to apply after the Termination Date to enable the annual recalculation process to be completed in respect of any financial year falling within the Term. Amendments relating to the payment provisions changes continue Co-dispensed Opioid Services through to stage 4 9. Clause H25(j), as included by a variation effective 29 July 2013 (where the reference to clause H25 throughout that clause should have been to clause H26) is amended by deleting that clause. 10. Schedule H1 of the Agreement is amended by adding the following clause 2.10: 2.10 Co-dispensed Opioid Services For the purpose of claiming for providing Co-dispensed Pharmaceuticals to Service Users who are registered to receive Co-dispensed Opioid Services, the claiming process in clause 2.5 of this Schedule H1 shall be used with the following clarifications: (a) Specific Pharmacy Services shall be read to include the provision of Co-dispensed Opioid Services; (b) the Handling Fee Multiplier that shall be used for the purpose of the calculation in clause 2.5(a) shall be the Handling Fee Multiplier for ARRC Pharmacy Services; and (c) the Service Fee that shall be used for the purpose of clause 2.5(f) shall be the Service Fee for ARRC Pharmacy Services.

17 Amendments relating to the payment provisions changes to Schedule H1 for stage Clause 2.2(b) of Schedule H1 is amended by deleting the table in that clause and replacing it with the following table: PU ID Services Handling Fee Multiplier PH1001 Core Pharmacy Services 1.00 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) PH1028 LTC Pharmacy Services 1.00 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) PH1029 PH1006 ARRC Pharmacy Services and CRC Pharmacy Services Class B Controlled Drug Services (including Pharmacy Services for Opioid Dependence) 5.30 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) 6.89 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) PH1010 Aseptic Pharmacy Services (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) PH1025 Sterile Manufacturing Services (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) PH1003 Special Foods Services 5.30 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) PH1008 Pharmacy Clozapine Services (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) PH1002 PH1004 PH1005 Extemporaneously Compounded Preparations Services Named Patient Pharmaceutical Assessment (NPPA) Services A Named Patient Pharmaceutical Assessment (NPPA) Services B 7.95 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) 5.30 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7) 7.95 (subject to amendment by applying the Transitional Change Mechanism provisions in clause L7)

18 12. From the date that we advise you that Stage 4 Mechanism applies, clause 2.2(c) of Schedule H1 is amended by deleting the table in that clause and by replacing it with the following table: Services Core Pharmacy Services Service Fee (while Stage 4 Mechanism applies)* Where clause 2.3(c) of Schedule H1 applies, the Service Fee shall be as set out in clause 29.1 in respect of Initial Items and as set out in clause 29.2 in respect of Repeat Items. LTC Pharmacy Services (A) Where clause 2.4(c)of Schedule H1 applies, for the purpose of clause 2.4(c)(i) of Schedule H1 the Service Fee shall be as follows: LTC Pharmacy Services Fee $20 per month (B) Where clause 2.4(c) of Schedule H1 applies, for the purpose of clause 2.4(c)(ii) of Schedule H1 and Stage 4 Mechanism, the Service Fee shall be as follows set out in clause 29.1 in respect of Initial Items and as set out in clause 29.2 in respect of Repeat Items. ARRC Pharmacy Services $0.00 CRC Pharmacy Services $0.00 Class B Controlled Drug $0.00 Services (including Pharmacy Services for Opioid Dependence) Aseptic Pharmacy Services $0.00 Sterile Manufacturing $0.00 Services Special Foods Services $0.00 Pharmacy Clozapine $0.00 Services Extemporaneously $0.00 Compounded Preparations Services Named Patient $0.00 Pharmaceutical Assessment (NPPA) Services A Named Patient $0.00 Pharmaceutical Assessment (NPPA) Services B Community Pharmacy Anticoagulation Management be claimed per month. $540 per year per Service User, one twelfth of this amount may Services * each Service Fee is subject to amendment by applying the Transitional Change Mechanism provisions in clause L7 ** per Initial Item 13. The following clause 2.3(c) is inserted in Schedule H1 and the numbering of existing clause 2.3(c) of Schedule H1 to read 2.3(d) : Page 18 of 31

19 (c) From the date that we advise you in writing that Stage 4 Mechanism shall be used to pay Service Fees for Core Pharmacy Services, we will pay you Service Fees for providing Core Pharmacy Services, in accordance with Stage 4 Mechanism. 14. The following clause 2.4(c) is inserted in Schedule H1: (c) From the date that we advise you that Stage 4 Mechanism shall be used to pay a component of the Service Fees for LTC Pharmacy Services: (i) in addition to the individual claims that will be made for Pharmaceuticals Dispensed to Service Users registered to receive LTC Pharmacy Services in accordance with the formula set out in clause 2.4(a) above, we will pay you a monthly Service Fee for providing LTC Pharmacy Services in respect of each Service User registered with your Pharmacy at the end of the month as receiving LTC Pharmacy Services for that Claim month in accordance with the following formula: R = SF x GST where: R = SF = GST = and the total payment that we will pay you for provision of LTC Pharmacy Services to Service Users registered with your Pharmacy as receiving LTC Pharmacy Services; the Service Fee, being the monthly service fee payable for LTC Pharmacy Services, per LTC Pharmacy Services Service User registered with your Pharmacy, being the Service Fee listed as LTC Pharmacy Services Fee in the Service Fee column, set out in clause 2.2(c) above, subject to the application of clause H12(c) of this Agreement: 1.15 or such other amount as correctly reflects the then current GST rate; (ii) in addition to the monthly Service Fee paid to you in accordance with clause 2.4(c)(i) above, we will pay you additional Service Fees for providing LTC Pharmacy Services, in accordance with Stage 4 Mechanism. 15. Clause 2.8(a) of Schedule H1 is amended by deleting $1,000 and replacing this with $1,600.

20 Appendix D: Plain English summary of key points in the draft legal provisions Summary of proposed changes to the CPSA This what you need to know high level summary of the proposed legal provisions may help you understand the key changes to the CPSA. Please refer to the draft legal amended provisions for more detail and for the precise wording of the provisions. The draft Stage 4 CPSA legal provisions show proposed amendments to existing provisions or new draft provisions that are required to legally reflect the service and payment provisions proposed in the funding model described in the Stage 4 proposal for change. This table provides a summary of the proposed amendments to the draft provisions. These draft provisions have been prepared in consultation with the following: your sector agents subject matter experts Ministry of Health DHB personnel Bell Gully The Community Pharmacy Services Programme team 1. Reference number in draft legal amendments Topic What is meant by the proposed amendment Clause Amendments related to the service specification for LTC Pharmacy Services PHAM The PHAM Services registration process and the separate payment will cease from the beginning of Stage 4. The new funding proposal will ensure adequate funding for the support Schedule C1 LTC Pharmacy Services service specification (clauses 1.1, 4.4 and 7). Clause H28.1 sets

21 provided to those very high-needs patients for whom the PHAM registration and payment was introduced in Stage 3. Amendments relating to the payment provisions changes to definitions in Part E 2. Payment definitions This amendment introduces new terminology relating to the payment mechanism for Stage 4. For example the term Advance Service Fee Payment means a payment made to you in advance of the completion of the relevant Dispensing period for the services you provide out the Stage 4 mechanism Clause E Payment provisions and should be read in particular with Clauses H28 and H30 3. Amendments relating to the payment provisions Changes to Part H to include the payment mechanisms for Stage 4 Initial Items Ensures consistency by referring to initial item rather than initial items or initial prescriptions or initial prescription item. Impacts many provisions in Part H 4. Payment of Service Fees for Core Pharmacy Services and LTC Pharmacy Services 5. Calculation and payment of Service Fees Stage 4 Mechanism 6. Stage 4 Mechanism for paying Services Fees for Core Pharmacy Services and LTC Pharmacy Services Provides that you do not need to claim specifically for Service Fees for Core Pharmacy Services and LTC Pharmacy Services. These fees are paid to you on a different basis as described in the agreement. Your new Service Fees for Core Pharmacy Services and LTC Pharmacy Services will be paid on the first Business Day of the month. There is a new clause required that relates to how Core Pharmacy Services and LTC Pharmacy Services Service Fees are calculated and the process for payment (which for the most part involves a two step process of calculating an amount based on likely dispensing activity and recalculating based on actual dispensing activity three months later). This relates to how the payment mechanism works in Stage 4 for the following (each of which attract a Service Fee calculated on a different Clause H1.1(b) Clause H12(a)(i) Clause H28

22 basis with some special rules around treatment of different types of Initial Items and Repeat Items): Payments for Initial items Payment of repeat items & Amendments relating to payment provisions changes to add a special quarterly review and recalculation process for A3 and J3 transactions This new cause outlines a quarterly process for recalculating Service Fees A3J3 quarterly for some A3J3 /0 Initial Item transactions that initially do not qualify to recalculation process for receive a Service Fee under clause H28 but would do if it was assumed Clause H29 some /0 Initial Items that the Handling Fee that applied to those Initial Items was $5.30 rather than $1. Amendments relating to payment provisions changes to Part H to add an annual recalculation mechanism Annual Review and Funding This new clause outlines the process used to distribute any unallocated funding envelope at the end of the financial year should any monies be available and to check that payments have been correctly calculated for all transactions during the year (once the full data set for the year is available). There are some special provisions dealing with recalculating the appropriate level of Service Fees for some A3/J3 transactions. Clause H30 Amendments relation to the payment provisions changes continue to Co-dispensed Opioid Services through to Stage 4 CDOS These provisions continue Co-dispensed Opioid Services (CDOS) in Stage 4. Amendments relation to the payment provisions changes to Schedule H1 for stage 4 Handling Fee Multiplier Stage 4 Service Fees Updated table to that sets the Handling Fee Multipliers for Stage 4 (set at the same numbers as for Stage 3) Updated Service Fee table for Stage 4 (clause 2.2(c) of Schedule H1) showing the amended CPAMS Service Fee payment, updating the LTC Pharmacy Services Fee and cross referencing to the new Stage 4 provision (new clause H28) to explain how Service Fees for Core Pharmacy Services and one portion of the Service Fees for LTC Pharmacy Services are calculated. Schedule H1 clause 2.10 & clause H25(j) Schedule H1 Clause 2.2 b Schedule H1 Clause 2.2(c)