Review of Community Pharmacy Payments for 2012/13

Transcription

1 Review of Community Pharmacy Payments for 2012/13 Corporate Finance March 2014

2 Contents Glossary of Terms 1 1. Executive Summary 3 2. Introduction 6 3. CPSA Overview 7 4. Annual Adjustment Summary Specific Issues 16 Appendix 1: Monthly Payment Calculations 47 About Deloitte 48

3 Glossary of Terms Adjustment payment: Monthly Adjustment Payment based on actual claims data three months after the date of dispensing Annual Adjustment/ wash-up: the annual adjustment payment Annual Funding Envelope: The National Funding Envelope for Pharmacy. The FY13 Annual Funding Envelope for Pharmacy is 370,500,000 Brandswitch: Forecast payments for brand switching Budget Pool: The Monthly Funding envelope less Brandswitch and CPAMs monthly budgets Central TAS: TAS Central Region s Technical Advisory Services Limited CPAMs: Forecast payments for Community Pharmacy Anti-Coagulation Management Services CPSA/Agreement: Community Pharmacy Services Agreement CPSGG: Community Pharmacy Services Governance Group Current Providers List: List of current providers sent by Sector Services each month DHBs: District Health Boards DR Sub-Group: The Dispensing Ratio Sub-Group DHB Collective: The 20 DHBs February 2014 Snapshot: A year to date extract from Pharmhouse that contains all transactions from July 2012 to February 2014 Forecast payment: Forecast Monthly Transition Payment Forecast Monthly Transition Pool: The pool for Forecast Monthly Transition Payments across all pharmacies FFSM: Funding Fee Setting and Monitoring FY13: The period 1 July 2012 to 30 June 2013 FY12 New Pharmacies: Pharmacies established between 1 July 2011 and 30 June 2012 FY13 New Pharmacies: Pharmacies established after 1 July 2012 Review of Community Pharmacy Payments for 2012/13 1

4 Late Claims: Any claims where payments have occurred after the calculation of the Monthly Adjustment Payment LTC: Forecasted service fees for registered patients with long term conditions Monthly Funding Envelope: The Annual Funding Envelope is divided into monthly amounts. The value of the Monthly Funding Envelope is based on seasonally adjusted percentages such that each month has a different funding allocation Out-of-cycle payments: Items claimed for in one month but where payments made by Sector Services related to that claim occur in a later month Pharmacy: Community Pharmacy Residual Amounts: The four remaining Monthly Adjustment Payments after closure that are withheld and paid within the Annual Adjustment Payment SQL: Structured Query Language Submissions out of time: Claims that are accepted up to six months after the date of dispensing under exceptional circumstances YTD: Year to date % of Annual Pool: The percentage of the Annual Budget for Dispensing Activity for each month Review of Community Pharmacy Payments for 2012/13 2

5 1. Executive Summary Deloitte was asked to undertake a review of payments calculated by Central TAS under the CPSA for FY13. Our Report provides an overview of the CPSA payment mechanisms and the practicalities of calculating payments under the Agreement. Overall we consider the calculation of the Annual Adjustment to be consistent with the CPSA and that Central TAS analysts have applied reasonable and consistent methodology to all monthly transition pool calculations. The Annual Adjustment Payment has been calculated to be -$1.542 million, that is to say the Funding Envelope was overspent by this amount through payments made during FY13. Central TAS was able to identify specific contributing factors totalling $1.529 million leaving approximately $13,000 of unexplained differences. These contributing factors are summarised in the table below and explained in detail within this Report: Breakdown of contributing factors in Annual Adjustment Payment (including Negative R) $ (excl GST) Basis for Original Transition Allocation / Payments Budget made in FY13 Actuals used in calculation of Annual Adjustment Difference remedied by Annual Adjustment Funding Envelope 370,500, ,500, ,500, Less: Brandswitch (4,000,000.00) (4,000,000.00) (2,807,170.26) 1,192, Less: CPAMs (1,500,000.00) (463,319.98) (503,636.96) (40,316.98) Pool available for dispensing activity 365,000, ,036, ,189, ,152, Less: Handling fees (104,432,792.07) (105,348,560.33) (915,768.26) Less: LTC & PHAM service fees (4,164,735.67) (5,466,691.89) (1,301,956.22) Transition Pool 257,439, ,373, (1,065,211.72) Less: Actual Transition Payment Amounts not in calculation model but paid by Sector Services 1 (428,861.02) (428,861.02) Adjusted Transition Pool 257,439, ,945, (1,494,072.74) Less: Negative R Effect (1,456,597.98) (1,492,151.57) (35,553.59) Transition pool (including Negative R) 255,982, ,452, (1,529,626.33) Unexplained differences (13,041.59) Total Annual Adjustment Payment (1,542,667.92) 1 Identified by reconciling Sector Services transition payment data held in Oracle to the DHB Shared Services Transition Payment records Review of Community Pharmacy Payments for 2012/13 3

6 We consider the CPSA payment mechanism, in its current form and that employed throughout FY13, to contain a very high degree of complexity. During our review we have witnessed and documented the processes undertaken by Central TAS analysts tasked with calculating payments under the CPSA. The complexity of the mechanism combined with inherently large data volumes resulted in Central TAS analysts regularly encountering undefined or unexpected nuances within the payment components that either required further guidance from FFSM or assumptions to be made on the intention of the CPSA contract. A large proportion of the complications involved in the calculation of payments under the Funding Envelope appear to stem from the ability of Pharmacies to make claims after the calculation of the Monthly Adjustment Payment (three months after the date of dispensing). The CPSA currently states that Pharmacies must submit claims within three months after the date of Dispensing. We understand that there was a waiver in place in FY13 that allows Pharmacies to submit claims up to four months, or 120 days, after the date of dispensing. We define in this report Late Claims as any claim made after the Monthly Adjustment Payment is calculated, approximately 80 days after month of service completes. These claims are not considered in the calculation of the transition pool for each respective Monthly Adjustment Payment. However, handling fees associated with these claims are still ultimately paid out of the Funding Envelope. We recommend that the calculation and payment of Monthly Adjustment Payments occur at least one month after the time limit for submitting claims. The respective timing of this is a matter for FFSM to consider. Whether it be for example (i) a three month cut-off for late claims and four months for the Monthly Adjustment Payment or (ii) retaining the current waiver of four months and calculating Monthly Adjustment Payments after five months. We appreciate that the concepts of fairness and equality are paramount in the distribution of the Funding Envelope. However, there is a risk that perceptions of the fairness and equality of outputs can be clouded by overly complex mechanisms and ultimately deemed black box processes by stakeholders. The time required for us to adequately understand and document the mechanism and the associated nuances, even with first hand access to Central TAS analysts, give us cause for concern. We have endeavoured to make this report as understandable as possible, however, we still consider there is a high likelihood that there are operators and administrators within the Sector who will struggle to fully comprehend the complexities of CPSA payment mechanism. Review of Community Pharmacy Payments for 2012/13 4

7 The scope for our review has been largely limited to identifying errors and providing process improvement recommendations within the current payment calculations. However, we have recommendations for the implementation of future stages and iterations of the CPSA: 1. A comprehensive testing programme should precede the implementation of any further stages of the CPSA using the current database frameworks. Our impression of the current payment process is that it went live without any comprehensive testing of the practicalities involved in the sourcing and processing of monthly data. The process appears to have evolved over time as analysts have become more familiar with the process and improvements have been made to increase efficiency. Testing of future iterations of the CPSA should be conducted using actual data available and calculated in parallel to the prevailing CPSA process at the time. Complexities and barriers to practical implementation should be documented and consulted upon prior to going live. 2. The documentation and file management of payment process calculations used by Central TAS is inadequate. A significant proportion of our time was spent witnessing the process first hand in order to understand how components within the payment process were sourced and calculated. Many of the procedures used are institutional knowledge held by the analysts without formal documentation. We appreciate that the time pressures faced by Central TAS to implement the CPSA and the lack of testing meant that putting a documented payment process in place was challenging. The wash-up of a wash-up aspect of the Annual Adjustment Payment is inefficient but nonetheless it has been helpful in remedying errors in past calculations. In future Central TAS will need to document all procedures within a single understandable source document, including references to subsequent approvals gained regarding clarifications and variances made to the CPSA. References to SQL code and some of the more complex aspects of the payment process should be included in appendices to aid understanding but not confuse higher-level principles under-pinning the calculations. Central TAS Internal Audit Advisory function makes similar, more detailed recommendations for improvements in documentation in its Transition Payments Process Review, November We also endorse the documentation recommendations made by Central TAS Internal Audit Advisory. Any calculation documentation should be made available to wider stakeholder groups and future reviews should reference this document as a baseline. 3. Central TAS should continue to form a closer more collaborative working relationship with Sector Services. Information should be requested by Central TAS and made available by Sector Services in a format that increases efficiencies and reduces discrepancies in data held by the two agencies. Review of Community Pharmacy Payments for 2012/13 5

8 2. Introduction Deloitte was asked to undertake a review of payments calculated by Central Region s Technical Advisory Services Limited ( Central TAS ) under the Community Pharmacy Services Agreement ( CPSA or the Agreement ) for the period 1 July 2012 to 30 June 2013 ( FY13 ) Purpose and Scope The purpose of this report (the Report ) is to outline our understanding of how payments under the CPSA were intended to be calculated and the process employed by Central TAS to calculate payments. In order to assess the appropriateness of Central TAS processes the scope of our Report included: Confirming that the Funding Envelope will have been paid out in full once the Annual Adjustment payment process for FY13 is completed; Reviewing the process and methodology used for completing the FY13 transition payments to Community Pharmacies, and addressing the specific issues discussed in Section 5; Ascertaining whether the FY13 transition payment methodology is consistent with the most current CPSA contract, the proposed amendments, the negative A3/J3 transactions Statement of Intent and the negative A3/J3 Transaction Principles ; and Advising on any potential improvements in the process to calculate Annual Adjustment payment. New funding components introduced after 30 June 2013 were outside of the scope of our engagement (for example, the Interim Core Service Fee payments). Review of Community Pharmacy Payments for 2012/13 6

9 3. CPSA Overview This section provides a high level summary of how the payment process is intended to function and ensure the entire Funding Envelope is paid 3.1. Background to the Community Pharmacy Services Agreement The Community Pharmacy Services Agreement 2012 ( CPSA ) is a national agreement developed between individual District Health Boards ( DHBs ) and community pharmacies. The CPSA sets out the funding model for pharmacy services based on a patient-centred model, as opposed to the previous funding model that was based on reimbursements per dispensing. This new funding model is being implemented in stages and is expected to take approximately three years to completely implement: Stage One of the implementation began on 1 July 2012; Stage Two began on 1 March 2013; and Stage Three began on 1 August The Community Pharmacy Services Governance Group ( CPSGG ) provide a governance role to oversee the implementation of the new community pharmacy model during the transition period. CPSGG will make recommendations to DHBs on the timing of Stage Four with implementation due in Our report reviews funding payments made under the CPSA in the first full financial year of operation, from 1 July 2012 to 30 June 2013 (FY13) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec CPSA - Stage 1 Phase 1 CPSA - Stage 2 Phase 2 CPSA - Stage 3 Phase 3 Deloitte Review Period FY13 Review of Community Pharmacy Payments for 2012/13 7

10 3.2. Overview of the Annual Funding Envelope Community Pharmacy ( Pharmacy ) funding comes from the 20 DHBs (the DHB Collective ) that allocate part of their respective annual budgets to the National Funding Envelope for Pharmacy (the Annual Funding Envelope ). The FY13 Annual Funding Envelope for Pharmacy is $370,500,000. This section provides a high level overview of our understanding of how the mechanism is intended to function base on Part H. Payment for Services and Pharmaceuticals, claiming procedure and payment terms of the CPSA Allocation of the Annual Funding Envelope The Annual Funding Envelope is divided into monthly amounts ( Monthly Funding Envelope ). The value of the Monthly Funding Envelope is based on seasonally adjusted percentages such that each month has a different funding allocation Allocation of the Monthly Funding Envelope The Monthly Funding Envelope is further divided into two elements: A forecast payment ( Forecast Monthly Transition Payment ); and An adjustment payment ( Monthly Adjustment Payment ) based on actual claims data. Any funds not distributed under the Monthly Funding Envelope are held and distributed in a final adjustment payment that is calculated after the financial year has completed and once all actual valid claims data has been received ( Annual Adjustment Payment ). Review of Community Pharmacy Payments for 2012/13 8

11 The timing of these payments for FY13, illustrated in the diagram below, is as follows: The Forecast Monthly Transition Payment is made on the first day of each respective month between July 2012 and June 2013; The Monthly Adjustment Payment is made on four months after the Forecast Monthly Transition Payment, the first for FY13 occurring on 1 November 2013 and the last occurring on 1 October 2013; and The Annual Adjustment Payment is a single payment intended for payment on 31 March PAYMENT DATE MONTHLY FORECAST MONTHLY ADJUSTMENT ANNUAL ADJUSTMENT 1 July August September 2012 July 2012 August 2012 September October 2012 October November December 2012 November 2012 December 2012 July 2012 August October 2013 June March 2014 ANNUAL Number of payments The diagram below further illustrates the timing of payments using July 2012 as an example: 2012 July August November December JULY 2012 Forecast Monthly Transition Payment NOVEMBER 2012 Forecast Monthly Transition Payment JULY 2012 Total paid on 1 November 2012 Monthly Adjustment Payment Review of Community Pharmacy Payments for 2012/13 9

12 The Forecast Monthly Transition Payment for July 2012 is made on 1 July 2012; The Monthly Adjustment Payment for July 2012 is paid four months later on 1 November Overview of the Forecast Monthly Transition Payment The pool for Forecast Monthly Transition Payments across all pharmacies (the Forecast Monthly Transition Pool) is calculated by subtracting the following items from the Monthly Funding Envelope: Forecast payments for brand switching ( Brandswitch ); Forecast payments for Community Pharmacy Anti-Coagulation Management Services ( CPAMs ); Forecast handling fees for various service types; and Forecasted service fees for registered patients with long term conditions (LTC); The remainder of the Monthly Funding Envelope, the Forecast Monthly Transition Pool, is paid to each respective pharmacy based on a forecast market share calculation. The allocation of the Transition Pool is discussed in further detail in section Forecasts are based on three months of previous dispensing data and assumed growth rates Overview of the Monthly Adjustment Payment An Actual Monthly Transition Pool is calculated by subtracting the same components as the Monthly Forecast Payment except each component is now based on actual valid claims data rather than forecasts. This Actual Monthly Transition pool is then allocated to Pharmacies using the same market share methodology use to allocation the Forecast Transition pool discussed further in Section The Monthly Adjustment Payment for each respective Pharmacy is calculated by subtracting the Forecast Monthly Transition Payment from that respective Pharmacy s allocation of the Actual Monthly Transition Pool. Monthly Adjustment Payment = allocation of Actual Monthly Transition Pool Forecast Monthly Transition Payment Review of Community Pharmacy Payments for 2012/13 10

13 Central TAS, when calculating the Actual Monthly Transition Pool for each month, captures actual claims data encompassing a period up to 3 months after the last date of dispensing in a month. The calculation of the Monthly Adjustment Payment is usually completed approximately 80 days after the last date of dispensing to ensure the Monthly Transition Payment is made on the first day of the next month (i.e. the first day of Month 4 shown in the diagram below). However, Pharmacies have up to 120 days after the date of dispensing to submit claims so some Late Claims are received after the calculation of the Actual Monthly Transition Pool takes place: Claims periods (months) Month of service Claim data used calculation 1 Monthly Adjustment Payment made Period for submitting valid claims Up to 3 months after the last date of dispensing 120 days after date of dispensing Late claims not included in calculation 1 1 Calculation of Actual Monthly Transition Pool this calculation is completed up to 3 months after the last date of dispensing the month of service, usually after approximately 80 days. Late Claim data is captured in the Annual Adjustment Payment process. The following diagram shows how the Monthly Adjustment Payment is calculated from the Monthly Funding Envelope. The example shown is where the actual payment data combined with the Forecast Transition Payment led to an underpayment of the Monthly Funding Envelope with the Monthly Adjustment Payment representing the remainder of the envelope: JULY 2012 Monthly Adjustment Payment Actual Brandswitch Actual CPAMS MONTHLY FUNDING ENVELOPE Actual Handling Fees Actual LTC & PHAMS NOVEMBER 2012 Forecast Transition Payment Review of Community Pharmacy Payments for 2012/13 11

14 Allocation of the Transition Pool to Individual Pharmacies The allocation of the Transition Pool, both through the Forecast Transition Payment and the Monthly Adjustment Payment is done by calculating each respective Pharmacy s market share. The market share is based on the number of initial items dispensed in the month multiplied by a fixed allocated dispensing ratio (average total volumes/ average initial volumes) multiplied by $1 to estimate a market value for a pharmacy: Once a market share is calculated for all pharmacies, the sum of these values is used to establish a total market value. An individual pharmacy s market share is derived by dividing its market value by the total market value (depicted by the blue segment with x%). An individual pharmacy s transition payment will then be calculated based off the market share that has been calculated multiplied by the transition pool. A final adjustment was made to the Transition Payment for Negative R in months prior to February This adjustment was only directly applied to an individual pharmacy s transition payment and did not affect the size of the total transition pool. Review of Community Pharmacy Payments for 2012/13 12

15 4. Annual Adjustment Summary 4.1. Total Transition Payments made in FY13 The table below shows the total amount paid in Forecast Monthly Transition Payments and Monthly Adjustment Payments during FY13: Annual Summary - Amounts Paid $ (excl GST) FY13 Transition payments made during FY13 Forecast Monthly Transition Payments 252,080, Monthly Adjustment Payments 4,344, A. Total Transition Payments made in FY13 256,424, A monthly breakdown of all payments presented in this Section is provided in Appendix Annual Adjustment Calculation The table on the following page shows a breakdown of the components used to calculate the Annual Adjustment Payment. The Total Transition Payments made in FY13 (Figure (A.) presented in Section X.1 above and shaded green) is deducted from the Actual Adjustment Transition Pool (Figure (B.) and shaded green below) to calculate the Annual Adjustment Payment (C.) for FY13 of -$50, The total Annual Adjustment Payment including Negative R for FY13 is -$1,542, (Figure (D.) shaded blue). Central TAS are awaiting the outcome of the consultation period on the A3/J3 Statement of Intent before finalising whether Non-Qualifying A3/J3 Handling Fees will be added back to the Annual Adjustment. If Non-Qualifying A3/J3 Handling Fees are added back the Annual Adjustment Payment has been calculated to be -$814, Further background and supporting analysis for the A3/J3 Handling Fee impact is provided in Section 5.8. Review of Community Pharmacy Payments for 2012/13 13

16 Annual Summary -Annual Adjustment Calculation $ (excl GST) FY13 Calculation of Transition Pool for Annual Adjustment Funding Envelope 370,500, Allocation of spent Brandswitch 1 (2,807,170.26) Allocation of spent CPAMs 1 (503,636.96) Actual Pool Available for Dispensing Activity 367,189, Actual handling fees expense (105,348,560.33) Actual LTC & PHAM service fees (5,466,691.89) B. Annual Adjustment Transition Pool 256,373, Less: Total payments made in FY13 (A) (256,424,456.91) C. Annual Adjustment Payment for FY13 (A - B) (50,516.35) Annual Adjustment Payment including Negative R and A3/J3 Effects C. Annual Adjustment Payment for FY13 (50,516.35) Less: Effect of Negative R (1,492,151.57) D. Annual Adjustment Payment (incl Neg R) (1,542,667.92) Plus: Non-Qualifying A3/J3 Handling Fees 728, E. Annual Adjustment Transition Pool (incl Neg R & A3/J3) (814,414.76) 1 Background and analysis of the calculation of the Brandsw itch and CPAMs payments are provided in Section 5.1 Review of Community Pharmacy Payments for 2012/13 14

17 4.3. Contributing factors to the Annual Adjustment Payment A number of contributing factors to the Annual Adjustment Payment of $1.543 million have been identified and quantified. The effect of these factors are summarised in the table below: Breakdown of contributing factors in Annual Adjustment Payment (including Negative R) $ (excl GST) Basis for Original Transition Allocation / Payments Budget made in FY13 Actuals used in calculation of Annual Adjustment Difference remedied by Annual Adjustment Funding Envelope 370,500, ,500, ,500, Less: Brandswitch (4,000,000.00) (4,000,000.00) (2,807,170.26) 1,192, Less: CPAMs (1,500,000.00) (463,319.98) (503,636.96) (40,316.98) Pool available for dispensing activity 365,000, ,036, ,189, ,152, Less: Handling fees (104,432,792.07) (105,348,560.33) (915,768.26) Less: LTC & PHAM service fees (4,164,735.67) (5,466,691.89) (1,301,956.22) Transition Pool 257,439, ,373, (1,065,211.72) Less: Actual Transition Payment Amounts not in calculation model but paid by Sector Services 1 (428,861.02) (428,861.02) Adjusted Transition Pool 257,439, ,945, (1,494,072.74) Less: Negative R Effect (1,456,597.98) (1,492,151.57) (35,553.59) Transition pool (including Negative R) 255,982, ,452, (1,529,626.33) Unexplained differences (13,041.59) Total Annual Adjustment Payment (1,542,667.92) 1 Identified by reconciling Sector Services transition payment data held in Oracle to the DHB Shared Services Transition Payment records Overall, $1,529, of the $1,542, Annual Adjustment Payment can be traced back to identifiable contributing factors. Amounts not in the calculation model but paid by Sector Services relate to discrepancies in transition payment records held by Central TAS and Sector Services. Central TAS did not take into account $428, of out of cycle payments paid by Sector Services at the request of DHBs in calculating the transition pool. Review of Community Pharmacy Payments for 2012/13 15

18 5. Specific Issues 5.1. Unspent Brandswitch $4.0 million of the $370.5 million Funding Envelope for FY13 was set aside for Brandswitch payments the Brandswith budget ). Brandswitch payments actually paid in FY13 totalled $2,807,170.26, leaving $1,192, unspent out of the Brandswitch budget. We were asked to review Annual Adjustment Payment calculations to ensure that this unspent amount was correctly included such that the entire budget for FY13 is paid. From our review we were able to confirm that the Annual Adjustment payment calculated by Central TAS will result in the entire Brandswitch budget for FY13 being paid. Further detail on how the Brandswitch budget was allocated and paid during FY13 is provided in the following subsections: 1. Brandswitch applied to Monthly Forecast and Adjustment payments -- An explanation of how Brandswitch is applied in the calculation of Forecast Monthly Transition payments and Monthly Adjustment payments. 2. Monthly allocation of unspent Brandswitch An explanation of how the $1,192, of unspent Brandswitch is allocated to each month s transition pool in the Annual Adjustment payment Brandswitch applied to Monthly Forecast and Adjustment payments The Brandswitch budget is allocated across the 12 months using the same respective seasonality factors used to calculate Monthly Funding Envelopes. Each month the monthly budgeted Brandswitch allocation is subtracted from the Monthly Funding Envelope to calculate the Forecast Monthly Transition Payment. Central TAS runs a Brandswitch query to the Pharmhouse database each month that pulls the actual Brandswitch fees paid to individual pharmacies by Sector Services into an excel file. This actual monthly data is not applied in the calculation of the Monthly Adjustment Payment, all Forecast and Adjustment payments throughout the year are based only on the budgeted monthly Brandswitch spend. Because actual data is not used to calculate the Monthly Adjustment Payment there are no complications associated with late payments and credits and resubmits. Review of Community Pharmacy Payments for 2012/13 16

19 At the end of the year the actual Brandswitch payments from Sector Services are used to calculate the Annual Adjustment payment. The amount unspent within the Brandswitch budget of $1,192, is allocated to each month within the Annual Adjustment payment, the process for this allocation is further explained in the next subsection Monthly allocation of unspent Brandswitch The previous section provided the actual amount of Brandswitch payments during the year as $2,807,170.26, therefore $1,192, of the Brandswitch budget remains unpaid for FY13. The calculation of the Annual Adjustment includes an allocation of this unspent Brandswitch budget amount to each respective month s transition pool. The process used by Central TAS to allocate unspent Brandswitch budget to each month is the same as that used for CPAMs and includes the following steps that are discussed in further detail: 1. Removal of both Brandswitch and CPAMs monthly budgets from each respective Monthly Funding Envelope to calculate the Budget Pool for Dispensing Activity. Then, using each monthly Budget Pool for Dispensing Activity, calculate the percentage of the Annual Budget for Dispensing Activity for each month ( % of Annual Pool ); 2. Deducting actual annual Brandswitch and CPAMs payments from the Annual Funding Envelope to calculate the annual Actual Pool for Dispensing Activity; 3. Applying the % of Annual Pool to the Actual Pool for Dispensing Activity to calculate the monthly allocation. 1. Calculation of the percentage of the Annual Budget for Dispensing Activity for each month The budgets for Brandswitch ($4.0 million) and CPAMs ($1.5 million) are deducted from the Annual Funding Envelope of $370.5 million to calculate an annual Budget Pool for Dispensing Activity of $365.0 million. Review of Community Pharmacy Payments for 2012/13 17

20 Central TAS then calculate the monthly phasing of this Budget Pool for Dispensing Activity based on the monthly budgets for CPAMs and Brandswitch. The following table summarises the calculation of this phasing: Monthly Budget Pool for Dispensing Activity $ (excl GST) Total Envelope less: CPAMs Budget less: Brandswitch Budget Budget Pool for Dispensing Activity % allocation of Annual Pool July ,120, (130,058.00) (346,823.00) 31,643, % August ,590, (127,888.00) (341,036.00) 31,121, % September ,760, (128,571.00) (342,855.00) 31,288, % October ,074, (129,856.25) (346,283.11) 31,598, % November ,244, (130,543.58) (348,115.99) 31,765, % December ,220, (122,349.25) (326,264.46) 29,771, % January ,964, (117,265.77) (312,708.52) 28,534, % February ,166, (109,986.46) (293,297.03) 26,763, % March ,577, (119,745.49) (319,321.09) 29,138, % April ,997, (125,494.33) (334,651.33) 30,536, % May ,864, (137,102.91) (365,607.51) 33,361, % June ,921, (121,138.96) (323,036.96) 29,477, % TOTAL 370,500, (1,500,000.00) (4,000,000.00) 365,000, % 2. Calculation of the annual Actual Pool for Dispensing Activity The actual amount of Brandswitch and CPAMs paid during the year was $2,807, and $503, respectively. Deducting these amounts from the Annual Funding Envelope results in $367,189, being available for the annual Actual Pool for Dispensing Activity. 3. Monthly allocation of Actual Pool The annual Actual Pool for Dispensing Activity is then allocated to each month based on the budgeted % allocation of Annual Pool calculated in the previous table. Review of Community Pharmacy Payments for 2012/13 18

21 The calculation of the annual Actual Pool and monthly allocation of the Actual Pool are summarised in the table below: Monthly Actual Pool for Dispensing Activity $ (excl GST) Total Envelope less: CPAMs Actual less: Brandswitch Actual Actual Pool for Dispensing Activity % allocation of Actual pool Allocation of annual Actual Pool July ,120, % 31,832, August ,590, % 31,307, September ,760, % 31,476, October ,074, % 31,787, November ,244, % 31,956, December ,220, % 29,950, January ,964, % 28,705, February ,166, % 26,923, March ,577, % 29,312, April ,997, % 30,720, May ,864, % 33,561, June ,921, % 29,653, TOTAL 370,500, (503,636.96) (2,807,170.26) 367,189, % 367,189, These calculations increase the actual pool for dispensing activity by $2,189, ($1,192, $996,363.04), an amount equal to the unspent Brandswitch and CPAMs and therefore confirming that the methodology employed by Central TAS will result in the entire Brandswitch funding envelope being distributed to Pharmacies. We understand that the above method for allocating unspent Brandswitch using seasonality factors was agreed by the Funding, Fee Setting and Monitoring Group ( FFSM ). The allocation of unspent CPAMs is discussed in further detail in Section 5.6. Whilst the Brandswitch calculation methodology presented above also results in the entire CPAMs budget being paid there was not similar approval given to allocate the unspent CPAMs amount based on seasonality factors. We have used our understanding of the CPSA to provide an alternative suggestion for the monthly allocation unspent CPAMs in Section Review of Community Pharmacy Payments for 2012/13 19

22 5.2. Late Claims and Out-of-cycle Payments Under the CPSA a Pharmacy must make a dispensing claim within three months after the date the pharmaceuticals were dispensed 1. We understand that there is currently a waiver to this clause of the CPSA and Pharmacies are currently allowed up to 120 days to make a claim after the date of dispensing. A small number of claims are accepted up to six months after the date of dispensing but only under exceptional circumstances ( Submissions out of time 2 ). Monthly Adjustment Payments are calculated approximately 80 to 90 days after the end of each respective month. This timing results in a number of actual claims not being received prior to the Monthly Adjustment calculation taking place as Pharmacies have up to 120 days to claim (or longer in exceptional circumstances), leaving at least 30 to 40 days where claims have not been included in the adjustment calculation. In this context we refer to any claims where payments have occurred after the calculation of the Monthly Adjustment Payment as Late Claims. We have been asked to review and confirm that the Annual Adjustment correctly adjusts for any payments made for transactions claimed in FY13 after the corresponding Monthly Adjustment Payment had occurred (i.e. Late Claims). Through our review we were able to confirm that the Annual Adjustment calculations used by Central TAS use all claims data up to February 2014 and therefore capture the effect of any Late Claims that were not available when calculating Monthly Adjustment Payments. The level of i) complexity created by; and ii) uncertainty associated with Late Claims in the calculation of Monthly Adjustment Payments is significant. We consider the issue of Late Claims to be the most inefficient aspect of the current payment process. The timing inconsistency between the calculation of the Monthly Adjustment Payment and the time limit for receiving claims significantly increases complexity in the process. The Monthly Adjustment Payment is intended to fully allocate the Monthly Funding Envelope based on actual claims; however, in all cases the current Monthly Adjustment process uses an incomplete data set in each respective month. The Annual Adjustment then becomes a wash-up of a wash-up that must retrospectively adjust for data received after the date of each Monthly Adjustment. This wash-up of a wash-up aspect creates uncertainty regarding the size of the Annual Adjustment. Until the Annual Adjustment is calculated it is unknown the extent to which the Funding Envelope has incorporated all available claims data. A secondary issue to Late Claims is that of out-of-cycle payments. Out-of-cycle payments relate to items claimed for in one month but where payments made by Sector Services related to that claim occur in a later month. Further detail on out-of-cycle payments included in section CPSA H9.1(a) 2 CPSA H9.2 Review of Community Pharmacy Payments for 2012/13 20

23 The table below provides a monthly breakdown of the contribution Late Claims from handling fees make to the Annual Adjustment Payment: Reconciliation of Monthly Adjustment data to February 2014 Snapshot Adjustment month Handing Fees July , August 2012 (576.09) September , October , November , December , January , February , March , April , May , June 2013 (169,948.16) TOTAL 915, Further detail on the background to the Late Claim issue and how it has been resolved is provided in the following subsections: 1. Issues created by Late Claims Outline of what components in the Adjustment calculations are affected by Late Claims. 2. Impact of Late Claims & Monthly Adjustment calculation errors on the Annual Adjustment calculation An explanation of how the Annual Adjustment payment process incorporates Late Claims and rectifies errors in the Monthly Adjustment Payment calculation. 3. Out-of-cycle adjustments An explanation of a change in process in August 2013 that improved the accuracy of the Monthly Adjustment Payment 4. Recommended improvements to process Suggestions for improving the payment process and reducing the effect of Late Claims. Review of Community Pharmacy Payments for 2012/13 21

24 Issues created by Late Claims Late Claims affect transition pool payments in two ways through: 1. Payments by Sector Services related to Late Claims (including CPAMs, handling fees and fees for other specific services) - these payments are paid by Sector Services but, because information is not available at the time of calculation, not deducted from the Monthly Envelope by Central TAS when calculating the transition pool for Monthly Adjustment Payments; and 2. Market share calculation The market share for each Pharmacy must be adjusted to account for Late Claims. The market share calculation needs to be adjusted to include the count of late dispensing s of core (PH1001) and LTC (PH1028) initial items in the appropriate month of service (excluding negative A3/J3) Impact of Late Claims & Monthly Adjustment calculation errors on the Annual Adjustment calculation The Annual Adjustment payment adjusts the transition pool for each respective month to account for Late Claims. The Annual Adjustment calculation for FY13 uses a year to date ( YTD ) extract from Pharmhouse that contains all transactions from July 2012 to February 2014 (the February 2014 Snapshot ). The number of claims in the February 2014 Snapshot for a respective month is compared to the number of claims used to calculate the Monthly Adjustment Payment for the same respective month in FY13. The reconciling difference in script counts between the two files is taken to be the number of Late Claims net of credits and resubmits. We were shown and provided access to the twelve claims files used to calculate Monthly Adjustment Payments for each month in FY13 and to the Annual Adjustment calculator that reconciles those monthly claims files to the February 2014 Snapshot. This process, through the use of i) a complete actual claims dataset; and, ii) consistent end of year process across months, also rectifies any other errors in process that may have occurred in the calculation of Monthly Adjustment Payments. Review of Community Pharmacy Payments for 2012/13 22

25 The table below shows the number of Late Claim scripts identified using this process for each month net of credits and resubmits. Central TAS also used the same process to identify differences in Handling Fees used to calculate the Monthly Adjustment Payment and the record of all actual Handling Fees paid for each respective month as recorded in the February 2014 Snapshot, this difference is presented in the table below: Reconciliation of Monthly Adjustment data to February 2014 Snapshot Adjustment month Scripts Handing Fees July ,935 27, August ,761 (576.09) September ,526 39, October ,405 30, November ,596 35, December ,683 15, January , February , March ,972 17, April , May , , June 2013 (151,513) (169,948.16) TOTAL 17, , Figures for April, May and June 2013 in the table above were also affected by a change in process in calculating Monthly Adjustment Payments to recognise out-of-cycle transactions that were previously not being accounted for. The out-of-cycle issue is explained in further detail in the next sub-section. Further, this change in process in April resulted in payment errors in the Monthly Adjustment Payment calculations for April, May and June These errors have been identified and rectified in the Annual Adjustment Payment. The errors primarily relate to handling fees associated with Medical Practitioner Supply Orders ( MPSO or Order Type 3 ) and Bulk Supply Orders ( BSO or Order Type 4 ). The correct treatment of Order Type 3 & 4 in the calculation of the Monthly and Annual Adjustment Payment calculations is as follows: Order Type 3 & 4 Handling Fees should be included in the Handling Fees deducted from the Monthly Funding Envelope; and Order Type 3 & 4 scripts should be excluded from the market share calculations used to allocate the transition pool. When Central TAS changed the process for calculating Monthly Adjustment Payments in April 2013 (affecting Monthly Adjustment Payments for April, May and June 2013) the calculation excluded Order Types 3 & 4 from both script counts (correctly) and Handling Fees (incorrectly). Review of Community Pharmacy Payments for 2012/13 23

26 This incorrect omission of Order Type 3 & 4 Handling Fees resulted in an over-payment of the Monthly Funding Envelope for April, May and June 2013, The error has no effect on script counts in the above table because these were calculated correctly in the first instance. The over-payment is corrected in the Annual Adjustment by including Handling Fees for Order Types 3 & 4. The specific effect of Order Type 3 & 4 Handling Fees on the Annual Adjustment for each respective month is shown in the table below: Order Type 3 & 4 Handling Fees ommitted from Monthly Adjustment Payment calculation Adjustment month Monthly Adjustment Annual Adjustment Difference remedied by Annual Adjustment July , , August , , September , , October , , November , , December , , January , , February , , March , , April , (235,294.03) May , (263,647.44) June , (234,200.64) TOTAL 2,185,754 2,918, (733,142.11) The Order Type 3 & 4 Handling Issue substantially explains the Annual Adjustment for Handling Fees in April 2013 of $233, The May and June 2013 adjustments are only partially explained by the Order Type 3 & 4 issue. The remaining Annual Adjustment for Handling Fees, after removing the effect of Order Type 3 & 4 and credits & resubmits, is presented in the table below: Unexplained differences in Annual Adjustment for May and June 2013 Annual Adjustment Effect of Credits and Adjustment month due to Order Type 3 resubmits Handling Fee & 4 Error differences Remaining Annual Adjustment Script count difference in Annual Adjustment April , (235,294.03) (4,790.56) (6,238.96) 474 May , (263,647.44) (5,933.96) 392, ,273 June 2013 (169,948.16) (234,200.64) (6,267.69) (410,416.49) (151,513) Total 726, (733,142.11) (16,992.21) (23,860.49) (3,766) Review of Community Pharmacy Payments for 2012/13 24

27 The remaining Annual Adjustment for April 2013 ($6,238.96) is attributed to 474 Late Claims. We have received records of the dates claims were submitted and a record of credits and resubmits for May and June Scripts submitted approximately 80 days after the month of service (i.e. after the calculation of the Monthly Adjustment Payment) and net of credits and resubmits were approximately -3,300 and -2,700 for May and June 2013 (i.e. Credits and resubmits out-numbered Late Claims in both months). These scripts do not sufficiently explain the remaining Annual Adjustment in the table above for May and June Central TAS is unable to explain the reasons for remaining Annual Adjustment figures for May and June These figures are of an offsetting magnitude of approximately $400,000 and similarly an offsetting number of scripts of approximately 150,000. However, the unexplained remaining Annual Adjustment appears to result from an error in the Monthly Adjustment Payment rather than any error in the calculation of the Annual Adjustment. We are satisfied that Handling Fees and script counts applied in the calculation of the Annual Adjustment Payment reconcile with the most up to date Handling Fee and script count data available in the February 2014 Snapshot from Pharmhouse. The use of correct information contained in the February 2014 Snapshot data for Handling Fees and script counts will result in the Annual Adjustment Payment calculation being correct regardless of errors made in the calculation of the Monthly Adjustment Payments Out-of-cycle adjustments To explain the complications to the calculation of Monthly Adjustment Payments associated with outof-cycle payments it is easier to start by describing how the current process has worked to alleviate the issue. The components of the transition pool calculation affected by out-of-cycle payments included CPAMs, LTC and Handling Fees. In August 2013 the Monthly Adjustment Payment process amended the calculation of payments used to derive the size of the actual monthly transition pool. The timing of this amendment resulted in an improved process for the Monthly Adjustment Payments related to April 2013, May 2013 and June The file provided by Sector Services was an YTD perspective of all payments up to that point in time. Central TAS calculates a payments figure for use in the calculation of the Monthly Adjustment Payment by deducting the previous YTD perspective from the current YTD perspective. Using May 2013 payments as an example the process works as follows: Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD payments April 2013 All Payments to April 2013 YTD payments May 2013 All Payments to May 2013 Payments used in Monthly Adjustment Payment $ Review of Community Pharmacy Payments for 2012/13 25

28 We found this process to be intuitive and easy to understand. The issue that this process resolves, which is not apparent at first glance, is that of out-of-cycle payments. The calculation captures new payments made in May 2013 that occurred out-of-cycle and relate to months prior to May 2013 by taking YTD current YTD previous. The result of this approach is that out-of-cycle payments are applied to the Monthly Adjustment Payment calculation in the respective month the payment was received, rather than when the services were provided, this appears to be consistent with the CPSA 3. Using a hypothetical example: Five out-of-cycle payments were made in May These out-of-cycle payments relate to services provided in January 2013 (2 instances), February 2013 (2), and March 2013 (1). The following diagram presents the distribution of these services on the same timeline but this time showing the timing of the services, rather than the month of payment: Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun YTD payments April 2013 All Payments to April 2013 YTD payments May 2013 All Payments to May 2013 Timing of services paid in May # These five out of cycle payments are included in the YTD payment figures for May 2013 but are not present in the YTD payment figures for April An YTD current YTD previous correctly captures these payments and ensures that they are not overlooked. Prior to August 2013 the method for calculating the payments for use in deriving the Monthly Adjustment Payment was to isolate payments where the dispensing was made in that respective month. This method failed to capture out-of-cycle payments made in that month that had been dispensed in a previous month Recommended improvements to process We recommend that the timing inconsistencies between claims and adjustment payments be reduced to improve the efficiency and accuracy of Monthly Adjustment Payment calculations. Monthly Adjustment Payments should be calculated at least one month after the time limit for claims expires in each month. Whether the time limit remains at its current setting of 120 days or is reduced to three months to be consistent with the CPSA is a matter for the Community Pharmacy Sector to agree upon. 3 Consistent with CPSA H22.1(b)(ii)(A) total actual payments for Community Pharmacy Anticoagulation Management Services in that month, for all Providers. Underlining made by Deloitte for emphasis on key determinants within the CPSA underlying our statement. Review of Community Pharmacy Payments for 2012/13 26

29 Resolving this timing inconsistency will ensure: i. That the calculation uses a data set that is substantially complete for each respective month; and ii. Required adjustments for Late Claims in calculation of the Annual Adjustment Payment are significantly reduced, increasing certainty for both the funding DHBs and Pharmacies. Acceptance of claims submissions out of time should strictly be limited to exceptional cases only and in full knowledge that these claims distort previous allocations of the Funding Envelope. We recommend that the number of accepted submissions of out of time claims, and other Late Claims arising for any other reason, be monitored each month by Central TAS to ensure that the potential effect of these claims on the Annual Adjustment, whilst not fully quantified, can at least be approximated throughout the year Residual amounts due community pharmacy closures We have been asked to review and confirm that residual amounts to be paid to Pharmacies that closed during FY13 will be included in the Annual Adjustment Payment. When a pharmacy closes it is not paid any further Forecast Transition Payments and the four remaining Monthly Adjustment Payments after closure are withheld and paid within the Annual Adjustment Payment ( Residual Amounts ). We have independently verified the calculation of Residual Amounts in the Annual Adjustment process and have identified Residual Amounts withheld during the year for the 12 Pharmacies that closed in FY13. The value of these Residual Amounts for each of the 12 Pharmacies is presented in the table below: Residual amounts due to community pharmacy closures Closed Pharmacy number Residual Amount 1 (454) 2 (2,372) 3 (418) 4 (9,356) (0) 7 (1,856) 8 (3,814) 9 (33,575) 10 (6,889) 11 (6,039) 12 2,907 TOTAL (61,839) Review of Community Pharmacy Payments for 2012/13 27

30 More detail on the process for calculating Residual Amounts due to closed pharmacies and how this was applied to the Annual Adjustment payment is provided in the following subsection: Process for closed pharmacy calculations Each month Sector Services sends a list of current providers (the Current Providers List ) that categorises Pharmacies into Actives, Transfers and Mergers. The Current Providers List is then exported to a table of providers spreadsheet which is compared to the previous month file. Pharmacy closures are identified by comparing the file for the latest month to the file from the previous month to determine which pharmacies are no longer included. The list of all the pharmacies and closed pharmacies is then exported to another excel document where the dispensing ratio is set to zero for any closed pharmacies. Setting the dispensing ratio to zero results in the market share for a closed pharmacy being zero and therefore the Forecast Transition Payment is also zero. Monthly Adjustment Payments are calculated for closed pharmacies for four months following the change in status but are withheld until the Annual Adjustment Payment is made. We were provided with a record of 12 pharmacy contracts that were terminated in FY13. Four transition adjustment payments have been calculated for each of these 12 contracts but sector services pay/recover instructions have been held off. The residual recover or to pay amounts due to these pharmacy closures is the sum of these adjustment payments. Central TAS uses the full set of payment calculations for each month, including closed pharmacies and subtracts amounts actually paid in Forecast Transition Payments and Monthly Adjustment Payments to calculate the amount due to closed pharmacies in the Annual Adjustment Payment. The process for calculating what is due to a closed pharmacy in the Annual Adjustment Payment is the same as that for active pharmacies. Central TAS calculate payments made for each claimant in each month, regardless of active or closed status, and then compare these figures to what should have been paid out (using a full set of claims data from the February 2014 Snapshot) in each month for each respective pharmacy. The difference will be the amount to be paid or recovered for each pharmacy. We consider this aspect of the process to be reasonable; the use of a full set of data in the Annual Adjustment corrects any omissions or errors during the year Recommended improvements to closed pharmacy processes We note that the process for identifying and calculating payments for closed pharmacies involves a significant amount of manual transfers of data and analysis by Central TAS. These manual processes increase the risk of error in the calculation of payments. We recommend increasing the degree of automation within the closed pharmacy calculation to reduce the risk of error within these calculations. Central TAS have informed us that they are currently collaborating with Sector Services to ensure that the Current Providers List is provided in a consistent form each month and also that it is provided in a form that allows more automated calculation procedures to be performed on the data. We consider this collaboration to be a step toward reducing the likelihood of error occurring in this process. Review of Community Pharmacy Payments for 2012/13 28

31 5.4. Delays in the application of dispensing ratios for appeals and new pharmacies The Dispensing Ratio Sub-Group ( DR Sub-Group ) is responsible for conducting quarterly reviews of dispensing ratios for appeals and new pharmacies on behalf of CPSOG. The Transition Payments Process Review, November 2013 conducted by Central TAS Internal Audit function noted that reviews were not being undertaken in a reasonable time by the DR Sub-Group and many pharmacies had failed to receive quarterly reviews under the CPSA. We were asked to review delays in the application of dispensing ratios for appeals and new pharmacies and to ensure that: i. Dispensing ratios had been reviewed by the DR Sub-Group; and ii. Updated dispensing ratios would be applied retrospectively where appropriate to monthly transition pools. We can confirm that dispensing ratios have been reviewed and updated for the 162 claimant numbers that were subject to a dispensing ratio review by the DR Sub-Group. Amendments were made to dispensing ratios retrospectively where appropriate when calculating the Annual Adjustment Payments due to each Pharmacy. The following subsections provide additional detail on our review of the dispensing ratio review process: 1. Review process for new pharmacies and appeals An overview of the circumstances under which a dispensing ratio is reviewed; 2. Issues caused by delays in the review process and amended in the Annual Adjustment A summary of the transition payment components that are affected by delays in the review of dispensing ratios; 3. Recommendations Suggestions for improving the dispensing ratio review process in the future to increase the accountability of the DR Sub-Group and reduce risks associated with updating dispensing ratios Review process for new pharmacies and appeals The dispensing ratio is a critical element in the calculation of a pharmacy s share of the Funding Envelope. The market share used to calculate each respective pharmacies share of the transition pool is based on a pharmacy s share of initial items multiplied by an assessment of its dispensing ratio. Initial dispensing ratios used in the calculation of transition payments were based actual dispensing data from the 2011 calendar year (i.e. 1 January to 31 December 2011) data. This dispensing data was sourced from Pharmhouse. Review of Community Pharmacy Payments for 2012/13 29

32 Dispensing ratios used in the calculation of transition payments are fixed and are only adjusted for new pharmacies or under exceptional circumstances. The process for allocating dispensing ratios to new pharmacies was intended to be as follows 4 : FY12 New Pharmacies (Established between 1 July 2011 and 30 June 2012) New pharmacies established between 1 July 2011 and 30 June 2012 were given a dispensing ratio of the lower of: i. The last 3 months of claims available; or ii. The median dispensing ratio. FY13 New Pharmacies (Established after 1 July 2012) New pharmacy s established after 1 July 2012 are allocated a dispensing ratio of 1, which is then reviewed quarterly for the first 12 months but capped at median dispensing ratio Issues caused by delays in the review process and amended in the Annual Adjustment When there is a delay in the application of a dispensing ratio due to an appeal or new pharmacy, this can result in: 1. An incorrect Forecast Transition Payment being made due to incorrect market share calculations; 2. An incorrect dispensing ratio being used in the Monthly Adjustment Payment, again resulting in incorrect market share calculations. Since the Transition Payments Process Review the DR Sub-Group has met and reviewed all outstanding appeals and retrospectively reviewed all new pharmacies dispensing ratios for each month. The Annual Adjustment process applies these corrected dispensing ratios to the calculation of transition payments retrospectively for each respective pharmacy in each month of FY13. These corrected calculations are then compared to what was actually paid to each pharmacy in each month, the difference is what is paid in the Annual Adjustments and corrects any errors or omissions due to delays in dispensing ratio reviews. We checked that the dispensing ratios applied in the Annual Adjustment Payment were consistent with records of retrospective changes to dispensing ratios for the 162 claimant numbers affected, this also included changes to dispensing ratios for merged pharmacies. We identified 10 new pharmacies where incorrect dispensing ratios were applied in calculation of the Annual Adjustment Payment, 4 CPSA H22.2 Review of Community Pharmacy Payments for 2012/13 30

33 The 10 pharmacies affected by incorrect dispensing ratios were all advantageously allocated slightly higher dispensing ratios than would have otherwise been the case. We note that while this error does result in the Annual Adjustment being marginally incorrect for all pharmacies, we consider the effect on other pharmacies due to this error to be immaterial given the following: The small number of pharmacies affected; and The likelihood of the Funding Envelope being expanded due to unexplained contributing factors to the Annual Adjustment Payment Recommendations The review process by the DR Sub-Group and subsequent updates to dispensing ratios lack transparency largely due to the highly confidential nature of these reviews. We appreciate the need for upmost confidentiality in this respect. We recommend that the DR Sub- Group confirm to the Sector that meetings have taken place and, without disclosing any identifying information on individual pharmacies, report the aggregate number of new pharmacy reviews and appeals processed each quarter. This level of transparency will increase the accountability of the DR Sub-Group and provide confidence to the Sector that dispensing ratio reviews are occurring on a timely basis consistent with the CPSA. We note the incorrect dispensing ratios applied to 16 new pharmacies within FY13. This resulted in advantageous payments to these companies however we do not consider the effect to have been material on transition payments for any other pharmacy not directly affected by the change Correction of March 2013 overpayment associated with LTC & PHAM service fees The LTC & PHAM service fees were introduced from March The first Forecast Transition Payment to incorporate LTC & PHAM service fees was made on 1 March The Monthly Adjustment Payment adjusts for the actual number of LTC & PHAM registered patients for that month including accounting for over payments of LTC & PHAM service fees related to any LTC & PHAM registrations that may have terminated mid-month. We have been asked to check that an error identified in the calculation of the Monthly Adjustment Payment for March 2013 related to LTC & PHAM service fees has been rectified in the calculation of the Annual Adjustment Payment. The forecast for LTC & PHAM service fees for March 2013 was $1,462,050, this amount was subtracted from the March 2013 Monthly Funding Envelope to calculate the March 2013 Forecast Transition Payment. The Monthly Adjustment Payment for March 2013 was made four months later on 1 July Actual LTC & PHAM service fees paid by Sector Services for March 2013 were $1,288, This amount should have been subtracted from the March 2013 Monthly Funding Envelope to calculate the Monthly Adjustment Payment. Review of Community Pharmacy Payments for 2012/13 31

34 Central TAS failed to update the Monthly Adjustment Payment process to incorporate LTC & PHAM service fees in the first month this component was present. The result of this omission was that actual LTC & PHAM service fees were not deducted from the Monthly Funding Envelope when calculating the Monthly Adjustment Payment leading to an overpayment of $1,288, to Pharmacies for March We have reviewed the Annual Adjustment Payment calculation to ensure that $1,288, of LTC & PHAM service fees is deducted for March We can confirm that LTC & PHAM service fees for March 2013 have been deducted from the Monthly Funding Envelope in the calculation of the Annual Adjustment Payment; the table below presents the LTC & PHAM service fees applied in the Monthly Adjustment Payment and Annual Adjustment Payment calculations: LTC & PHAM service fees applied to Monthly and Annual Adjustment calculations Adjustment month Monthly Adjustment Annual Adjustment Difference remedied by Annual Adjustment July August September October November December January February March ,288, (1,288,460.15) April ,375, ,383, (7,770.96) May ,362, ,365, (3,525.62) June ,426, ,428, (2,199.49) TOTAL 4,164,736 5,466, (1,301,956.22) A secondary issue related to LTC & PHAM payments were out-of-cycle payments. Out-of-cycle LTC & PHAM service fees are paid throughout the year and added to the adjustment payments in the month they are paid (regardless of the date of service). Out-of-cycle LTC & PHAM payments are attributable to pharmacy transfers/ mergers in most cases. Out-of-cycle payments are resolved through the above Annual Adjustment calculation and are discussed in further detail in Section Review of Community Pharmacy Payments for 2012/13 32

35 Further information on the process for including LTC & PHAM service fees into the transition payment process is provided in the following subsection: Overview of process for including LTC & PHAM service fees in the Annual Adjustment calculation The annual LTC service fee per registered patient was $130 or $10.83 per month. Patients are no longer able to be registered with the LTC service if they have not received any dispensing in a 3 month period. Each month Sector services provide a file to Central TAS containing information regarding all LTC & PHAM registrations. In the LTC registrations file, the count of non-zero advanced payments multiplied by the service fee, represents the forecast used for that month. This is then subtracted off the Monthly Funding Envelope available for that month. 135,000 LTC patients were assumed to be registered for the purpose of calculating the March 2013 Forecast Transition Payment, at per patient the total forecast assumption for LTC service fees was $1,462,050. At that stage there was not any LTC registrations data available so the projected growth of patients with LTC dispensings was used to arrive at 135,000. From March 2013 onwards Sector Services provided a file to Central TAS containing information regarding all LTC & PHAM registrations, this information was used to calculate forecast LTC & PHAM service fees to be subtracted from the Monthly Funding Envelope available for that month. The Annual Adjustment process accesses information on all LTC payments made by Sector Services in FY13 and compares this to what was paid each month. The difference between what was actually paid in Monthly Forecast and Adjustment Payments to what should have been paid using all payment data, as calculated in the Annual Adjustment, is then subtracted from the transition pool remaining for each of the months applicable Unspent CPAMs $1.5 million of the $370.5 million Funding Envelope for FY13 was set aside for CPAMs payments. CPAMs payments actually paid in FY13 totalled $503,636.96, leaving $996, unspent of out of the $1.5 million budget. We were asked to review calculations to ensure that this unspent amount was correctly included in the Annual Adjustment payment such that the entire budget for FY13 is paid. From our review we were able to confirm that the Annual Adjustment payment calculated by Central TAS will result in the entire CPAMs budget for FY13 being paid. However, our understanding of the CPSA differs to the allocation of unspent CPAMs to each month s transition pool. We have provided an alternative suggestion for the monthly allocation of unspent CPAMs based on our understanding in Section The process used by Central TAS to allocate unspent CPAMs is similar to that used to allocate unspent Brandswitch discussed in Section In Section the unspent CPAMs calculations are also shown and discussed. The only difference being that actual CPAMs data was used to calculate Monthly Adjustment Payments whereas only budgeted Brandswitch data was used. Review of Community Pharmacy Payments for 2012/13 33

36 In the subsections that follow we outline the background to the CPAMs payments and focus specifically on how unspent funds within the CPAMs budget were allocated within the Annual Adjustment payment: 1. CPAMs Overview - A background on the CPAMs budget and the specific issues regarding CPAMs; 2. CPAMs process amendments in August 2013 An explanation of how a change in Central TAS process for calculating CPAMs improved accuracy of Monthly Adjustment Payments; 3. CPAMs effect on the Annual Adjustment Payment The CPAMs effect on the Annual Adjustment payment as calculated by Central TAS; 4. Monthly allocation of unspent CPAMs An explanation of how Central TAS allocated the unspent CPAMs to each respective month within the Annual Adjustment payment; and 5. Process for allocating unspent CPAMs compared to CPSA Our understanding, based on the CPSA, of how unspent CPAMs should have been allocated to each month CPAMs Overview The CPAMs budget for FY13 was $1,500,000, this budget was divided into monthly budgets based on the same seasonality factors signed off by FFSM and used to allocate the Monthly Funding Envelopes. Forecast Monthly Transition Payments were calculated using these monthly budgeted figures for CPAMs as a proxy for Forecast CPAMs 5. Actual CPAMs payment data was used to calculate the Monthly Adjustment Payment, capturing all claims made up to 3 months after the date of dispensing. This data was provided by Sector Services to Central TAS in excel format. Central TAS provided us with access to these files and the Analyst explained the process and issues inherent in interpreting this data. One particular issue Central TAS encountered when calculating Monthly Adjustment Payments was having to recognise out-of cycle CPAMs payments, this is discussed further in the next subsection. The excel file provided by Sector Services each month contains CPAMs actual data with a YTD perspective of all CPAMs payments made up until that point in time on an items basis. Each item has an associated claimant number and amount paid exclusive of GST. Also included is the CPAM claim period; most claimants submit monthly but some will submit multiple months into a single claim. Any unspent funds within the CPAMs budget are then allocated to each respective month s transition pool based on the seasonally adjusted percentages presented in section Consistent with CPSA H22.1(b)(i)(A) Review of Community Pharmacy Payments for 2012/13 34

37 CPAMs process amendments in August 2013 Prior to August 2013 the method for calculating the CPAMs for use in deriving the Monthly Adjustment Payment was to isolate payments where the dispensing was made in that respective month. This method failed to capture out-of-cycle payments made in that month that had been dispensed in a previous month. A secondary amendment in August 2013 was to change the approach to CPAMs claims that covered multiple months. Some CPAMs claims relate to multiple months but are submitted and paid in aggregate. Prior to August 2013 Central TAS had chosen to allocate these payments equally to the months in which the claims related to. Post August 2013 these claims are now all included in the final month in which they relate to, this is done in order to reduce subjectivity on Central TAS behalf when allocating payments across months. The effect of this change is rectified in the Annual Adjustment Payment where a methodology consistent with that applied after August 2013 is applied to all months in FY13. However, we suggest this approach either be approved or more detailed guidance on how to treat claims for multiple months be provided to Central TAS Analysts. CPAMs, like most of the other components within the transition pool calculations, is also subject to late claims occurring after the Monthly Adjustment Payment has been made. Late Claims and out-of-cycle payments are discussed in detail in Section CPAMs effect on the Annual Adjustment Payment During FY13 deductions for CPAMs were made to calculate each of the Monthly Adjustment Payments. The total amount deducted for Monthly Adjustment Payments was $463, The combination of out-of-cycle payments and late claims has meant CPAMs payments were understated in most months. CPAMs payment data provided by Sector Services shows that $503, was actually paid in relation to CPAMs during FY13. Review of Community Pharmacy Payments for 2012/13 35

38 This understatement resulted in an under-deduction of CPAMs from the pool of funds to be distributed via transition payments and therefore Monthly Adjustment Payments, in aggregate across the year, were higher than they otherwise should have been. The quantum of the Monthly Adjustment overpayment is $40,317 with further monthly detail provided in the table below: CPAMs payments summary $ (excl GST) Budget 1 Monthly Monthly Effect of EOY Actuals 2 Actuals 3 Adjustment 4 July , , , ,345 August , , , (2,445) September , , , (2,976) October , , , (6,419) November , , , (1,192) December , , , (7,000) January , , , (6,873) February , , , (6,379) March , , , ,358 April , , , (9,717) May , , , (4,075) June , , , ,056 TOTAL 1,500, , , (40,317) 1 Budgeted CPAMs payments are deducted from the Envelope to calculate the Forecast Monthly Transition Pool 2 CPAMs claims data deducted from Envelope in the Monthly Adjustment Payment process. 3 Snapshot of CPAMs claims data from Pharmhouse as at February Deducted from Envelope in Annual Adjustment. 4 The effect, in each month, of using updated actuals data in the calculation of the Monthly Transition Pools Monthly allocation of unspent CPAMs The monthly allocation of unspent CPAMs is identical to, and linked, with the allocation of unspent Brandswitch funding. A detailed explanation of how Central TAS performs this calculation is provided in Section These calculations increase the actual pool for dispensing activity by $2,189,192.78, an amount equal to the unspent CPAMs and Brandswitch and therefore confirming that the methodology employed by Central TAS will result in the entire CPAMs funding envelope being distributed to Pharmacies Process for allocating unspent CPAMs compared to CPSA Whilst the process employed by Central TAS results in the entire CPAMs funding envelope being distributed it does not appear, from our interpretation, to be entirely consistent with the CPSA. We understand that the approach used by Central TAS has been agreed to by FFSM for Brandswitch but not for CPAMs. Review of Community Pharmacy Payments for 2012/13 36

39 Our understanding of the CPSA is that there is no seasonal allocation of unspent CPAMs and that the Actual Pool for Dispensing Activity for each month should only be affected by actual CPAMs payments made in that particular month. Applying this understanding an alternative allocation of CPAMs is presented in the table below consistent with how we would have expected to have seen the unspent CPAMs funding envelope allocated by month: Deloitte understanding of CPSA allocation of unspent CPAMs $ (excl GST) Total Envelope less: CPAMs Actual less: Brandswitch Allocation 1 Actual Pool for Dispensing Activity July ,120, (27,057.91) (243,363.35) 31,849, August ,590, (27,465.42) (239,348.38) 31,323, September ,760, (29,258.41) (240,636.59) 31,490, October ,074, (35,514.19) (243,018.80) 31,795, November ,244, (29,543.74) (244,305.11) 31,970, December ,220, (44,111.00) (228,969.87) 29,947, January ,964, (47,771.99) (219,456.42) 28,697, February ,166, (47,511.99) (205,833.59) 26,913, March ,577, (45,972.47) (224,097.07) 29,307, April ,997, (60,360.44) (234,855.71) 30,701, May ,864, (52,426.46) (256,580.52) 33,555, June ,921, (56,642.94) (226,704.85) 29,637, TOTAL 370,500, (503,636.96) (2,807,170.26) 367,189, Actual annual Brandswitch payments allocated monthly based on budgeted phasing calculated previously The total pool for dispensing activity under the Central TAS approach and our suggested approach remains unchanged, the only difference is that the monthly allocation of the unspent CPAMs amount under our suggested approach differs from that used in Central TAS s calculations. We have assessed the difference in calculations between what Central TAS has calculated and what we interpret the correct calculation to be under the CPSA. The correct calculation would not result in an adjustment greater than $20,000 in any one month. We consider this to be immaterial but note the issue in case the sector chooses to correct for it. Review of Community Pharmacy Payments for 2012/13 37

40 5.7. Negative R issues In this section we outline the background to Negative R and focus specifically on the different negative R adjustments and their implications to transition payments, as well as the process used to identify Negative R relate transactions and calculate Negative R values. The Negative R Adjustments (applied to transition payments) for each month of FY2013 are summarised in the table below: Negative R Adjustment Summary Monthly Adjustment Annual Adjustment Difference July 2012 ($381,641.95) ($382,405.52) $ August 2012 ($321,149.87) ($340,790.53) $19, September 2012 ($270,975.69) ($278,059.83) $7, October 2012 ($259,027.88) ($263,706.92) $4, November 2012 ($241,217.75) ($244,986.52) $3, Decemeber 2012 $14, $14, ($375.98) January 2013 $2, $2, ($6.38) February 2013 $ $ ($.23) March April May June TOTAL ($1,456,597.98) ($1,492,151.57) $35, The process for arriving at the Negative R adjustment is discussed in further detail in the following subsections. 1. Negative R Adjustments Overview- a background on Negative R definition, manual adjustments and automatic adjustments 2. Negative R adjustment processes an overview of the process used to calculate Negative R values used in manual adjustments 3. Negative R adjustment checks process checks and adjustment value checks 4. Negative R adjustment conclusions no recommendations were required in this process Review of Community Pharmacy Payments for 2012/13 38

41 Negative R Adjustments Overview Negative R arises when a Standard Co-payment 6 exceeds the accumulated Transaction Value for a dispensed pharmaceutical. Transaction Value refers to the GST inclusive value of drug costs plus margin plus handling fee. The difference between the Co-payment and Transaction Value is the Negative R value. A SQL query calculates Negative R using GST inclusive values for the Copayment and Transaction Value in the first instance and then removes GST to provide the recovery amount. Negative R was adjusted for in two ways during FY13, manually and automatically. Manual adjustments were made against transition payments, and Automatic Adjustments were made against batch payments in Sector Services. The figures in the Negative R Adjustment Summary table above only represent the adjustments to transition payments that were calculated manually for initial claims from July 2012 to November The manual adjustment process can be divided into two types of adjustments: i. Adjustment in the first month for the initial claim (the Original Adjustment ); and ii. Adjustments for up to 3 months subsequent to the initial claim due to repeats ( Reverse Adjustments ). The Original Adjustment involves the Negative R value being deducted from a pharmacy s transition payment in that month. The Reverse Adjustment, by contrast, will add the lower of i) the Transaction Value of the claim; or ii) the absolute Negative R value used in the Original Adjustment, back to a pharmacy s transition payments, thus reversing part or all of the Original Adjustment made earlier. Original Adjustments are always negative, while Reverse Adjustments are always positive. Automatic Adjustments will have no effect on the transition payment. 6 Pharmacies may be partially or fully funded for their services privately via co-payments made by individuals in combination with payments that they receive from Sector Services. The level of copayments that can be charged can be found in the CPSA Procedures. Review of Community Pharmacy Payments for 2012/13 39

42 For the first five months of FY13, shown in the timeline above, there were only manual adjustments (coloured black and red), then in December 2012, Automatic Adjustments were introduced. Automatic Adjustments could only capture new initial items dispensed after 1 December 2012 so the manual Reverse Adjustments continued for three months to capture possible Reverse Adjustments for September, October and November All manual Reverse Adjustments should all have been identified by February After February 2013 all Negative R adjustments, both Original and Reverse, were made automatically, and directly offset against batch payments, no longer affecting transition payments. The timeline above can help explain payments shown in the Negative R Adjustment Summary table. From July 2012 to November 2012, when there were only manual adjustments (both Original and Reverse), the Negative R values in the table are all negative. However, adjustment values between December 2012 and February 2013 become positive, because the only adjustments being made were Reverse Adjustments (which are always positive) and Automatic Adjustments (which have no effect on the transition pool). For the last four months, the effect of Negative R transactions on transition payments is zero as the Automatic Adjustments remove the effect of Negative R from the transition pool calculation. Review of Community Pharmacy Payments for 2012/13 40

43 Negative R adjustment processes Central TAS sends a SQL query to the Pharmhouse database to obtain transactional level detail data on any Negative R transactions using an algorithm to identify $2 or $3 co-payment transactions. This data is used to calculate the Negative R adjustments for co-payments less than equal to $3 ($5 copayments came into effect after the implementation of Automatic Adjustments). These Negative R values are then incorporated into the calculation of Monthly Adjustment Payments. The timing of the calculation of Monthly Adjustment payments resulted in Late Claims that were Negative R transactions not being incorporated into these calculations. Issues associated with Late Claims are discussed further in Section 5.2. Negative R calculations were also completed as part of the Annual Adjustment process (the second column in the Negative R Adjustment Summary table). The Annual Adjustment calculations capture Late Claims transactions that were not included in the calculation of Monthly Adjustment Payments. The overpayment of the Funding Envelope of $35, related to Negative R transactions has been attributed to Late Claims Negative R adjustment checks Logic Check of the manual Negative R Reverse Adjustment. A basic check was conducted based on information provided to ensure that this provided the same net Negative R adjustment occurs regardless of the timing of transactions. SQL Query check: Basic checks of the SQL query used to identify transactions that had characteristics associated with $2 or $3 co-payment transactions were conducted to verify that the SQL code was correctly identified. This was done using information available from the tables of copayment information 2012 CPSA procedures; a data dictionary from Sector Services; and information about the underlying SQL query Negative R adjustment Conclusions We consider the process used by Central TAS to identify and adjust for the effect of Negative R transactions is reasonable. Our review of the Annual Adjustment calculation confirmed that Central TAS appropriately incorporated the change from manual calculations of Negative R to Automatic Adjustments through the batch payment process. The $35, overpayment related to Negative R can be attributed to Late Claims. Review of Community Pharmacy Payments for 2012/13 41

44 5.8. Negative A3/J3 issues In this section we outline the background to Negative A3/J3 and focus specifically on the: Assurance that the process to calculate the Negative A3/J3 transactions is consistent with the agreed Statement of Intent and Principles Impact of removing the handling fees associated with Negative A3/J3 transactions from the funding envelope, therefore underestimating the remaining envelope quantum Recalculation of transition payments to accommodate proposed changes to CPS regarding negative A3/J3 payments The Negative A3/J3 Adjustments to the transition pool on a monthly basis for FY2013 are summarised in the table below: Negative A3/J3 Adjustment Summary Negative A3/J3 Handling fee values July 2012 $59, August 2012 $63, September 2012 $55, October 2012 $57, November 2012 $59, Decemeber 2012 $53, January 2013 $44, February 2013 $63, March 2013 $69, April 2013 $67, May 2013 $72, June 2013 $62, TOTAL $728, There is an additional $728, available to be added to the transition pool as a result of Negative A3/J3 items being identified. The process for calculating the Negative A3/J3 adjustment is discussed in further detail in the following subsections: 1. Adjustments Overview- a background on Negative A3/J3 definition, and issues surrounding Negative A3/J3 treatment 2. Statement of Intent- 3. Definitions 4. Handling Fees 5. Market value and Transition Payments 6. Credits, Errors & Resubmits 7. Process 8. Timeline implications Review of Community Pharmacy Payments for 2012/13 42

45 Negative A3/J3 Adjustments Overview Negative R arises when a $15 or $10 Co-payment exceeds the accumulated Transaction Value for a dispensed pharmaceutical. Prior to the CPSA, because Negative A3/J3 transactions were not eligible for a batch payment, so there was no incentive or need to report these claims. However, the current contract requires reporting on all transactions, regardless of whether they are entitled to a payment or not. The treatment of Negative A3/J3 transactions is quite different to Negative R (discussed above) despite the definitions being similar. Treatment for Negative R adjustments is explicitly stated in the CPSA, in contrast, the CPSA is silent on the treatment of Negative A3/J3 adjustments. A legal opinion was sought on the treatment of Negative A3/J3 transactions and concluded that the CPSA, as drafted, was not consistent with the original intent of the contract as discussed between the parties. As a result of this, an official statement of intent has been written, which will formalise the Negative A3/J3 adjustments that are required Negative A3/J3 Adjustments Statement of Intent A major premise underlying the change in contract was the intent to try and keep total payments per item as consistent as possible with payments made prior to FY13. So although new information was being collated on Negative A3/J3 transactions, a draft Statement of Intent for Negative A3/J3 transactions was produced in January 2014 that included an Affirmation of the Original Statement of Intent for Negative A3/J3 transactions ( the Affirmation ) stating that Negative A3/J3 transactions should: be treated as they were prior to 2012., and with regards to payments, the total transaction value is collected from the patient and no contribution is made by the DHB and no recovery from the community pharmacy will be made. The two major implications from this Affirmation are that: The definition of Negative A3/ J3 transactions should be consistent with how Negative A3/J3 transactions were identified prior to 1 July 2012 Negative A3/J3 transactions should not contribute in any way to the calculation of transition payments Definition: The key element to the definition of negative A3/J3 transactions is the definition of Transaction Value. The definition of Transaction Value prior to 1 July 2012 should be used to ensure consistency. This means using a dispensing fee of $5.30 (or in special cases a multiple of $5.30) in the Transaction Value calculation rather than the $1 handling fee introduced by the CPSA. Review of Community Pharmacy Payments for 2012/13 43

46 Transition payments: There are two ways that Negative A3/J3 transactions affect transition payments in FY13 if not adjusted, these are through inclusion in: Handling fees, which are used to calculate the transition pool Initial script volumes used to calculate market value, which will influence the market share used to determine each respective pharmacy s transition payment Negative A3/J3 Definitions There are three different interpretations of the A3/J3 definition. These definitions can be are summarised as follows: 1) A3/J3 Transaction Value based on $1 handling fee 2) A3/J3 Transaction Value based on $5.30 dispensing fee; and 3) A3/J3 Transaction Value based on dispensing fee used prior to 1 July 2012 (most frequently $5.30) The first definition, based on a $1 handling fee, was used to calculate Monthly Adjustment Payments and based only on initial items. The second definition, consistent with the Statement of Intent, has been used to identify Negative A3/J3 transaction in the following sections relating to Handling Fees and recalculation of transition payments for the Annual Adjustment Payment. The Annual Adjustment Payment calculation also takes the full repeat sequence into account Negative A3/J3 Handling fees Handling fees associated with Negative A3/J3 transactions were not adjusted for throughout FY13. The result of not adjusting during FY13 is that there is no record of the volume and impact of these transactions (based on pre-cpsa definitions). The figures in the Negative A3/J3 Adjustments Summary table above were all calculated retrospectively as part of the Annual Adjustment. The Negative A3/J3 handling fee values calculated and removed from the Annual Adjustment calculation were based on handling fees payable on positive A3/J3 transactions under the current CPSA Negative A3/J3 Transition Payments Although Negative A3/J3 handling fees were not adjusted throughout FY13, Negative A3/J3 transactions had twice been included or excluded from volumes used to calculate market share and transition payments. Review of Community Pharmacy Payments for 2012/13 44

47 The timing of this differing treatment can be seen above in the timeline. Initially adjustments were made to exclude Negative A3/J3 transactions from market share calculations. Adjustments excluding Negative A3/J3 transactions continued until December The adjustments made to Negative A3/J3 at the different stages in the above timeline were not comparable with one another because of the varying definitions and treatment of Negative A3/J3 transactions. It is also difficult to measure or compare the impact of any one set of changes due to the interrelationships between the definitions and adjustments, We conducted checks to assess whether the definition applied within the calculation of the Annual Adjustment of Negative A3/J3 was consistent with the Statement of Intent. The checks involved comparing the initial A3/J3 volumes used in the original July 2012 Monthly Adjustment Payment against the July 2012 initial volumes per the February 2014 Snapshot. We identified minor differences between the two data sets in our check but found these to be immaterial and the nature of the difference was as negative, i.e. the second definition identified fewer Negative A3/J3 transactions than the first definition used originally in July Negative A3/J3 Credits, errors, and resubmits It should be noted that the Negative A3/J3 information used to adjust handling fees and market value was not adjusted for credits, errors and resubmits. This is due to the difficulties involved in linking the two sets of information. As credits and resubmits are expected to affect only approximately 0.7% of Negative A3/J3 transactions, Central TAS did not anticipate that this would produce a material difference to the Annual Adjustment Payment Negative A3/J3 Timeline implications The treatment of Negative A3/J3 currently requires all repeats to be completed before final identification. There is currently a 90 day time limit for patients to claim for repeats, a pharmacy then has a 4 month (approximately 120 day) Claim Window to submit claims. The implications of this to the timing of a final adjustment are shown below: The timeline above shows that the last Initial Claims month of FY13, i.e. June 2013 (depicted by the black box), followed by 90 days of Repeats (depicted by the red box), and the claim window for September, the last month of Repeats (depicted by the green box). Review of Community Pharmacy Payments for 2012/13 45