Review of Community Pharmacy Payments for 2015/16 Corporate Finance

Transcription

1 Review of Community Pharmacy Payments for 2015/16 Corporate Finance December 2016

2 Contents Glossary of Terms 2 1. Executive Summary 4 2. Introduction 6 3. Specific Components of the FY16 Wash-Up under Stage Overall Conclusions 15 Appendix 1: CPSA Stage 4 16 About Deloitte 18

3 Glossary of Terms Abbreviation Annual Adjustment / Wash-Up Annual Funding Envelope/ FY16 Envelope Brandswitch Case Mix Quarterly Adjustments Case Mix Service Fees CPAMS CPSA / Agreement CPSGG DHBs Final Actual Case Mix Service Fees Definition The annual adjustment calculation made at the end of the year to determine the National Total payment in order to ensure the Annual Funding Envelope is paid out. The national funding envelope for Pharmacy. The FY16 Annual Funding Envelope for Pharmacy is $380,932,799. Payments for switching pharmaceutical brands. Adjustments paid quarterly after recalculating Case Mix Service Fees for negative A3 and J3 transactions. Service fees based on initial and repeat items for LTC and core pharmacy services. Community Pharmacy Anti-Coagulation Management Services. Community Pharmacy Services Agreement Community Pharmacy Services Governance Group District Health Boards Actual Case Mix Fees for July 2015 to June 2016 based on data received up to and including 31 October FY15 The period 1 July 2014 to 30 June 2015 FY16 The period 1 July 2015 to 30 June 2016 ICP IPPD Interim Actual Case Mix Fee Interim PMR Late Claims Interim Core Payment for each initial item dispensed to a patient who received Core pharmacy services (under Stage 3). Initial items dispensed by that Pharmacy to that patient on that day. Interim Actual Case Mix Fee calculated during FY16 based on the actual number of initial and repeat items the Pharmacy dispensed to service users during the relevant service month. If there is lower expenditure against the forecast envelope than expected, DHB may exercise their discretion to distribute an early release of funds from the Annual Funding Envelope to support community pharmacy cash flow. Any claims where payments have occurred after the calculation of the Interim Actual Case Mix Fee or in the context of the Wash-Up calculation, claims for payments that have occurred after the calculation of the Final Review of Community Pharmacy Payments for 2015/16 2

4 Abbreviation LTC LTC MSF MOH National Total Negative A3 or J3 Transaction Pharmacy RVU Stage 3 / Stage 4 TAS Total PMR Definition Actual Case Mix Service Fees. Additional costs associated with Late Claims lies with DHBs. Long-Term Conditions service LTC Monthly Service Fees (paid in relation to patients registered with a pharmacy in long-term conditions service). Ministry of Health Total PMR less any previous PMR payments relating to FY16. To be distributed to ensure annual funding envelope is paid out. In FY16 there were no Interim PMR payments and therefore the National Total equals the Total PMR. Initial items which have a co-payment amount higher than the standard co-payment amount and the initial item has a value of less than this co-payment using an assumed service fee Community Pharmacy Relative Value Units are a base fee multiplier, there is a series for initials and one for repeats. Stage 3 and Stage 4 of the CPSA Stage 3 operated between 1 August 2013 and 31 July Stage 4 is the current stage of the CPSA and has operated from 1 August Technical Advisory Services Limited formerly known as Central Region s Technical Advisory Services Limited Total Payment Management Reserve. Any unallocated funding at the end of the financial year forms the Total PMR which is then paid out to pharmacies based on each pharmacy s market share of Core and LTC Pharmacy services initials and repeats (inclusive of LTC MSF and all case mix, handling fees, exclusive of negative A3 and J3) less audit recoveries. Review of Community Pharmacy Payments for 2015/16 3

5 1. Executive Summary Deloitte was asked to undertake a review of payments calculated by Technical Advisory Services Limited ( TAS ) under the Community Pharmacy Services Agreement ( CPSA or the Agreement ) for the period 1 July 2015 to 30 June 2016 ( FY16 ). This Report provides an overview of CPSA payment mechanism, the calculation of payments under the Agreement and conclusions of our review. FY16 is the first full year under Stage 4 of the CPSA ( Stage 4 ). Stage 4 of the CPSA was implemented in August 2014 and therefore FY15 involved 1 month under Stage 3 of the CPSA ( Stage 3 ) and 11 months under Stage 4. FY15 was the final year of the CPSA, however following engagement with the sector, the CPSA was extended for an additional year (FY16) with the provision for a further renewal of a further 12 months (FY17). The FY16 Community Pharmacy Envelope is $380,932,799, a 1.07% increase from the FY15 envelope of $376,899,969. The majority of payments under Stage 4 are through Case Mix Service Fees. The Case Mix Service Fees cover both Core and Long-Term Conditions ( LTC ) Pharmacy services. This reduced the previously calculated transition pool and interim core payments ( ICP ) to zero. Stage 4 also includes a Payment Management Reserve ( PMR ) to manage the payment of the full funding envelope to pharmacies, once all claims have been received. The PMR is 1% of the funding envelope in Stage 4. The end of year Wash-Up process includes Final Actual Case Mix Service Fees which are calculated and paid by the Ministry of Health ( MOH ) Sector Operations team, this has contributed to a simplified Wash-Up payment process undertaken by TAS. The output of the process undertaken by TAS is the Total Payment Management Reserve ( Total PMR ) available to be released to pharmacies. Amount Available for Release (Total PMR) $ excl of GST FY16 Community Pharmacy Envelope 380,932,799 Less: Actual Payments FY16 (375,389,599) Plus: Audit Recoveries FY16 117,242 Total PMR 5,660,442 The market share of the Total PMR for each Pharmacy is based on the market share of Core and LTC Pharmacy services initials and repeats (inclusive of LTC Monthly Service Fee ( LTC MSF ) and all case mix, handling fees, exclusive of negative A3 and J3) less audit recoveries. If expenditure is tracking below forecast, DHB may exercise their discretion to distribute an early release of funds from the Annual Funding Envelope to support community pharmacy cash flow, an Review of Community Pharmacy Payments for 2015/16 4

6 Interim PMR payment (dependent on a $2m threshold). In FY15 two Interim PMR payments were made. No Interim PMR payments have been made in FY16 as expenditure has tracked closer to the forecast envelope and therefore DHB has not been obligated to consider early release. The Total PMR equates to the National Total to be paid to pharmacies to ensure that the full CPSA Annual Funding Envelope of $380.9m is paid out by District Health Boards ( DHBs ). National Total to be Paid $ excl of GST Total PMR 5,660,442 Less: Interim PMR Payments relating to FY16 - National Total to be paid 5,660,442 Findings The CPSA payments process for FY16 has been defined by TAS in step-by-step documentation that lists sources and calculations at each step. The calculations and methodology applied by TAS are consistent with FY15 but with the absence of Interim PMR payments and one month under Stage 3 to calculate. We have checked the documented process to make sure that the calculations have been carried out correctly and that the process is aligned with the CPSA. Overall we consider the calculation of the National Total to be consistent with the CPSA Stage 4 and that the market share distributed to providers is correct. We conclude that TAS analysts have applied reasonable and consistent methodology at all stages of the process. The Wash-Up process has been accelerated for FY16 compared with previous years with the aim to: provide a more timely payment to assist pharmacies, most of whom work to a 31 March financial year; to avoid an Interim PMR payment to support Pharmacy cash flow; and to provide clear delineation between the FY16 process and consultation/ negotiation on the next contract following CPSA which will occur in We understand that there was general acceptance of the accelerated Wash-Up process by DHBs and the sector and that the early payment was endorsed by Community Pharmacy Services Governance Group ( CPSGG ). Although an earlier Wash-Up process compared with previous years means that not all late claims will be incorporated into the Wash-Up calculations, it has been assessed that the impact is very small and the liability of any additional cost lies with DHBs. Our FY16 (and previous) review of the Wash-Up process undertaken by TAS under Stage 4 of the CPSA shows a marked improvement in the CPSA payment mechanism process compared with previous years under Stage 2 and Stage 3 of the CPSA. In earlier stages of the CPSA we regarded the payment mechanism process to contain a high degree of complexity which was intensified by issues with documentation and file management. Under Stage 4 the majority of payments are in the form of Case Mix Service Fees which are calculated by the Ministry of Health ( MOH ) with other payments determined by TAS via automated and documented processes. Review of Community Pharmacy Payments for 2015/16 5

7 2. Introduction Deloitte was asked to undertake a review of payments calculated by TAS under the CPSA for FY Purpose, Approach and Scope The purpose of this report (the Report ) is to outline our understanding of the process employed by TAS to calculate payments and to ensure that this is consistent with the CPSA. In order to assess the appropriateness of TAS processes the scope of our Report was to: Confirm that the Annual Funding Envelope will have been paid out in full once the Wash-up payment process for FY16 is completed; Review the process and methodology used for completing the FY16 Wash-Up payments to community pharmacies; Ascertain whether the FY16 Wash-Up payment methodology is consistent with the most current CPSA contract; and Review the calculations performed and the methodology used by TAS with the data they have received from various sources. Our approach for reviewing the end of year calculations performed by TAS has included: Discussions with TAS to better understand their approach to calculations. Reviewing the transfer and amendments of source data (from Oracle, PharmHouse and MOH data sources) to the workbook used by TAS to perform the end of year calculations. Out of Scope We have not reviewed the calculations made by the MOH relating to the Final Actual Case Mix Service Fees data provided. We have not reviewed the SQL code used to extract PharmHouse data. Review of Community Pharmacy Payments for 2015/16 6

8 3. Specific Components of the FY16 Wash-Up under Stage 4 This section describes in detail the steps that TAS performs in order to calculate the National Total to be paid for FY16, and to ensure that the full Annual Funding Envelope of $380.9m is paid out by DHBs. Throughout the year pharmacies receive various service fees from the Annual Funding Envelope based on types of patients and amounts of units dispensed. A portion of the Annual Funding Envelope is retained until all claims have been received, called the Total PMR. The waterfall chart below steps through the calculation of the Total PMR, starting from the Annual Funding Envelope: Stage 4 payments made in FY16 are deducted: Final Actual Case Mix Service Fees, Community Pharmacy Anti-Coagulation Management Services Payments ( CPAMS ), LTC MSF, handling fees, Brandswitch fees, and Case Mix Quarterly Adjustments, and; Audit recoveries are added back. In FY16 no Interim PMR payments were made and therefore the National Total to be paid at end of year for FY16 matches the Total PMR. Review of Community Pharmacy Payments for 2015/16 7

9 3.1. STEP 1 Step 1 outlines the actual payments made for FY16. This step is broken into two parts, firstly explaining the process for Final Actual Case Mix Service Fees, followed by the process for all other payments over the same period STEP 1a: Actual Payments for FY16: Final Actual Case Mix Service Fees In this step TAS obtain the Final Actual Case Mix Service Fees to remove from the Annual Funding Envelope. During the FY16 Interim Actual Case Mix Fee were calculated based on the actual number of initial and repeat items the Pharmacy dispensed to service users during the relevant service month. Due to claims, credits and resubmits submitted beyond the Interim Actual Case Mix Fee cut-off, MOH Sector Operations performs a final Actual Case Mix Fee calculation at the end of the year. In FY16 this calculation was performed based on data received up to and including 31 October 2016 to determine the Final Actual Case Mix Service Fee payments for FY16. Payments to pharmacies are the Final Actual Case Mix Service Fees for each of the 12 months and the reversal of all Interim Actual Case Mix Service Fees paid, the difference equating to a final adjustment case mix fee payment. For calculating the Total PMR, MOH Sector Operations provided TAS with an excel file of the Final Actual Case Mix Service Fee payments for each claimant number ('15_16_Washup_Summary.xls ). This file provided from MOH Sector Operations was used as the data source, rather than the Oracle payment data, for calculating the Final Actual Case Mix Service Fees as it avoids complications around transfers and adjustments between pharmacies and also closed pharmacies. The file contains: The total Case Mix Service Fees (excluding A3J3 Quarterly payments) for each claimant due under the CPSA (regardless of whether the payment/recovery was made or not). This information supports the correct calculation of the Final Actual Case Mix Service Fees. At the individual claimant level, the Case Mix Service Fees owed to the claimant who did the dispensing (regardless of who the payment was made to or whether the payment/recovery was made or not). This information supports the correct calculation of market share. Final Actual Case Mix Service Fees have been provided exclusive of GST, the total of which is then deducted from the FY16 envelope. The table below compares the Interim Actual Case Mix Service Fees paid and the Final Actual Case Mix Service Fees invoices. The total adjustment for FY16 is $206,732 (exclusive of GST). Review of Community Pharmacy Payments for 2015/16 8

10 Case Mix Fees $ Interim Actual Case Mix Fees Paid Final Actual Case Mix Invoices Difference July 2015 (19,362,524) 19,402,834 40,310 August 2015 (18,936,838) 18,948,128 11,291 September 2015 (19,049,222) 19,065,984 16,762 October 2015 (18,282,819) 18,307,050 24,230 November 2015 (18,178,731) 18,204,910 26,179 December 2015 (19,372,119) 19,398,403 26,284 January 2016 (16,600,709) 16,612,001 11,293 February 2016 (16,921,348) 16,930,248 8,899 March 2016 (18,537,844) 18,541,977 4,133 April 2016 (17,734,626) 17,738,144 3,518 May 2016 (19,245,652) 19,253,980 8,328 June 2016 (18,864,138) 18,889,643 25,505 (221,086,571) 221,293, ,732 We have checked that the total Final Actual Case Mix Service Fees provided by MOH Sector Operations matches the total Final Actual Case Mix Service Fees used by TAS in determining the Total PMR. We have checked the number of Interim Actual Case Mix Service Fees for pharmacies compared with the number of Final Actual Case Mix Service Fees. There were 24 cases where the number of Final Actual Case Mix Service Fees for an individual claimant number were greater than the number of Interim Actual Case Mix Service Fees. The difference being due to these pharmacies not submitting claims, credits and resubmits until after the Interim Actual Case Mix Fee cut-off STEP 1b: All other actual payments for FY16 In this step TAS removes all other actual payments made. All other actual payments include: Payments sourced from Oracle: CPAMS, LTC MSF, and Case Mix Quarterly Adjustments. Payments sourced from PharmHouse: Handling fees, and Brandswitch fees. A summary of these payments for FY16 is displayed below. FY16 All Other Actual Payments Summary $ CPAMS 3,172,338 LTC MSF 31,929,959 Handling Fees* 117,341,778 Brandswitch fees 1,546,308 Case Mix Quarterly Adjustments 105,913 Total 154,096,296 *Base and Specific Services, excluding negative A3J3 items as per Stage 4 Rules and Brandswitch payments, net of credits and resubmits Review of Community Pharmacy Payments for 2015/16 9

11 Oracle Payments The Oracle payments data that TAS receives each month involves some amendments. These include correcting invalid dates, excluding records TAS have been told not to include and adding missing codes. TAS documents the changes for all invoices in an Oracle file correction log with explanations for changes and links to s from MOH confirming records that are to be excluded. We have reviewed the Oracle correction log for CPAMS, LTC MSF, Case Mix Quarterly Adjustments. We can confirm that the correction data has correctly been merged with the invoices not requiring correction with the total combined invoices matching the Oracle payment totals used in the Total PMR calculation. Community Pharmacy Anti-Coagulation Management Services Payments ( CPAMS ) $3.5m of the $380.9m Annual Funding Envelope for FY16 was set aside for CPAMS payments ( the CPAMS budget ). CPAMS payments actually paid in FY16 totalled $3,172,338 leaving $327,662 unspent out of the CPAMS budget. We were able to confirm that the Annual Adjustment payment calculated by TAS will result in the entire CPAMS budget for FY16 being paid. The amount unspent within the CPAMS budget of $327,662 is included within the Total PMR. LTC Monthly Service Fee Service fees for LTC Pharmacy services are funded through the LTC MSF of $20.8 per month for each registered patient ($249.6 per annum) under Stage 4. The LTC MSF payments actually paid in FY16 totalled $31,929,959, sourced from the Oracle payments file. Case Mix Quarterly Adjustments Quarterly reviews were undertaken to recalculate Case Mix Service Fees for negative A3 and J3 transactions. Case Mix Quarterly Adjustments payments actually paid in FY16 totalled $105,913 sourced from the Oracle payments file. A monthly breakdown of the payments sourced from Oracle is displayed below. Oracle Payments Monthly Breakdown $ CPAMS LTC MSF PharmHouse Payments A PharmHouse extract pulls the actual Brandswitch and handling fees paid to individual pharmacies into an Excel file. Handling fees Case Mix Quarterly Adjustments July ,540 2,674,716 - August ,805 2,659,715 - September ,935 2,660,969 25,633 October ,640 2,660,478 - November ,285 2,669,048 - December ,450 2,672,380 22,808 January ,895 2,690,009 - February ,420 2,634,188 - March ,889 2,669,672 26,035 April ,014 2,644,716 - May ,190 2,645,570 - June ,275 2,648,499 31,438 Total 3,172,338 31,929, ,913 Review of Community Pharmacy Payments for 2015/16 10

12 Handing fees are paid for all items dispensed. Credits and resubmitted items are also accounted for within the handling fee component at this stage (credit items are subtracted and resubmitted items are added) and negative A3J3 handling fees are excluded: A breakdown of handling fees by month is displayed below. Handling Fee Breakdown $ Monthly Handling Fees Credits Resubmits Negative A3J3 Total July ,261,637 (40,586) 33,232 (67,063) 10,187,219 August ,859,416 (34,428) 27,335 (62,044) 9,790,278 September ,982,619 (37,346) 28,556 (62,391) 9,911,437 October ,898,671 (41,728) 32,327 (60,752) 9,828,518 November ,722,889 (35,467) 27,321 (60,554) 9,654,189 December ,362,409 (38,094) 30,306 (57,841) 10,296,781 January ,912,746 (34,085) 25,981 (43,528) 8,861,113 February ,283,462 (34,961) 24,034 (66,473) 9,206,062 March ,051,172 (36,932) 26,931 (72,023) 9,969,149 April ,582,474 (34,557) 24,820 (69,600) 9,503,138 May ,266,542 (46,303) 36,003 (74,058) 10,182,183 June ,030,417 (40,375) 30,566 (68,897) 9,951,711 Total 118,214,452 (454,862) 347,412 (765,224) 117,341,778 Brandswitch fees $2.0 million of the $380.9m Annual Funding Envelope for FY16 was set aside for Brandswitch payments ( the Brandswitch budget ). Brandswitch payments actually paid in FY16 totalled $1,546,308), leaving $453,692 unspent out of the Brandswitch budget. The Brandswitch nominal expenditure breakdown is displayed below: Brandswitch Breakdown $ Handling Fees Drug Costs Drug Margins Total July ,382 6, ,394 August September ,412 23, ,261 October ,473 62,923 2,465 79,860 November , ,128 3, ,170 December ,809 46,812 1,834 59,455 January ,600 6, ,800 February , ,646 March , ,380 11, ,143 April , ,360 12, ,688 May , ,966 9, ,611 June ,051 95,490 3, ,281 Total 280,885 1,217,728 47,695 1,546,308 From our review we were able to confirm that the Annual Adjustment payment calculated by TAS will result in the entire Brandswitch budget for FY16 being paid. The amount unspent within the Brandswitch budget of $453,692 is not allocated to each month individually but rather included within the Total PMR Step 2: Audit Recoveries In this step TAS obtains the identified audit recovery amounts to add back to the Annual Funding Envelope in the next step. Review of Community Pharmacy Payments for 2015/16 11

13 MOH Audit and Compliance team audits the payments made to community pharmacy and identifies payments that were recoverable during FY16. TAS is provided with a file from the MOH Audit and Compliance team containing a breakdown of the recoveries identified. $117,242 of recoveries were identified by Audit and Compliance in FY16. These recoveries are added back to the Annual Funding Envelope when calculating the Total PMR for release, regardless of whether affected District Health Boards ( DHBs ) had successfully recovered the respective amounts STEP 3: Determine Total PMR In this step TAS determines the Total PMR by removing all actual payments (Step 1) from the Annual Funding Envelope before adding back Audit recoveries (Step 2) as outlined below: Total PMR $ FY16 Community Pharmacy Envelope 380,932,799 Less: Actual Payments FY16 (375,389,599) Plus: Audit Recoveries FY16 117,242 Total PMR 5,660, STEP 4: Determine the market share split by Pharmacy In this step the market share of the Total PMR for each claimant number is determined. Under section H30 of the CPSA Annual Review and unallocated Annual Funding Envelope amount, clause H30.4 explains the method for determining the allocation of the remaining amount of the Annual Funding Envelope not distributed to providers through the payment of handling fees and services fees during the year. Market share of the Total PMR is based on the pro-rata share of the actual handling fees and service fees paid or payable in relation to prescription items dispensed by each provider when providing Core and LTC Pharmacy services over the year, including the LTC MSF as outlined below: Included in the individual Pharmacy Core and LTC payments are: Core and LTC handling fees, LTC MSF, Final Actual Case Mix Service Fees and Case Mix Quarterly Adjustments. Audit recoveries relating to Core and LTC services are subtracted from the calculation. Totals for each of these payments are displayed below. Review of Community Pharmacy Payments for 2015/16 12

14 Total Core and LTC Payments $ Core and LTC Handling Fees 57,401,610 LTC MSF 31,929,959 Final Actual Case Mix Fees 221,293,302 Case Mix Quarterly Adjustments 105,913 Core and LTC Audit Recoveries (90,069) Total 310,640,715 A breakdown of the Core and LTC handling fees is shown below: Core and LTC Handling Fee Breakdown $ Monthly Handling Fees Credits Resubmits Negative A3J3 Total July ,056,069 (18,003) 12,528 (64,882) 4,985,712 August ,926,440 (14,994) 9,978 (60,174) 4,861,250 September ,974,569 (15,548) 10,275 (60,435) 4,908,861 October ,840,345 (14,611) 10,158 (58,763) 4,777,129 November ,789,619 (14,799) 10,004 (58,409) 4,726,415 December ,092,116 (16,343) 11,286 (55,820) 5,031,239 January ,366,403 (13,830) 9,560 (42,028) 4,320,105 February ,507,951 (15,673) 9,704 (63,733) 4,438,249 March ,927,220 (16,935) 10,773 (69,044) 4,852,014 April ,683,306 (15,870) 10,279 (67,063) 4,610,652 May ,071,444 (17,270) 11,306 (71,419) 4,994,061 June ,967,342 (15,626) 10,768 (66,561) 4,895,923 Total 58,202,824 (189,502) 126,619 (738,331) 57,401, STEP 5: Determine the Total PMR payment per Pharmacy The PMR share is then used to determine each respective Pharmacy s share of the Total PMR: In FY16 there were no Interim PMR payments made and therefore the total PMR is the same as the National Total to be paid. We have checked that the total amount to be paid per Pharmacy is the same as National Total to be paid. National Total to be Paid $ excl of GST Total PMR 5,660,442 Less: Interim PMR Payments relating to FY16 - National Total to be paid 5,660, Next Steps Once the Wash-Up process has been completed the next steps will involve: Review of Community Pharmacy Payments for 2015/16 13

15 1. Confirming instructions from DHB portfolio managers for treatment of transfers and closures Portfolio managers will determine who is to pay in the case of transfers/mergers/closures for transfers and mergers, this will be the latest claimant unless there are exceptional circumstances. 2. Payment notice to pharmacies to be prepared and distributed. 3. Payment files to MOH Sector Operations Including a list of payments to hold (if any) to MOH Sector Operations with agreed payment date. Review of Community Pharmacy Payments for 2015/16 14

16 4. Overall Conclusions Overall we consider the calculation of the Annual Adjustment to be consistent with the CPSA and that TAS analysts have applied reasonable and consistent methodology to calculations throughout the process. FY16 is the first full year under Stage 4 of the CPSA. Stage 4 of the CPSA was implemented in August 2014 and therefore FY15 involved 1 month under Stage 3 of the CPSA and 11 months under Stage 4 of the CPSA. FY15 was the final year of the CPSA however following engagement with the sector, the CPSA was extended for an additional year (FY16) with the provision for a further renewal of a further 12 months (FY17). During the implementation process of the CPSA there have been four stages. At each stage the process has become more streamlined, leading to a transparent process for Stage 4. The main component of Stage 4 funding is Case Mix Services Fees which cover both Core and LTC Pharmacy services. The Final Actual Case Mix Service Fees adjustments are calculated and paid by the MOH Sector Operations contributing to a simplified Wash-Up calculation performed by TAS. Through this process we have undertaken a review of the calculations and methodology applied by TAS to make sure that the process followed has been in line with the Stage 4 amendments to the CPSA. We have found no calculation errors or cases where the Stage 4 amendments to the CPSA have not been followed. The Total PMR calculated for FY16 is $5,660,442, as no Interim PMR payments were made in FY16, the National Total to be paid is the same as the Total PMR. Review of Community Pharmacy Payments for 2015/16 15

17 Appendix 1: CPSA Stage Case Mix Service Fees Stage 4 commenced from 1 August 2014 with the introduction of Case Mix Services Fees for LTC Pharmacy services (purchase unit code PH1028) and Core Pharmacy services (purchase unit code PH1001), order type 1 only (a handling fee is also paid on every item dispensed). Transition payments which made up approximately one third of the Annual Funding Envelope in Stage 3 were reduced to zero in Stage 4 along with the removal of ICP. The final month of the Stage 3 was the first month of FY15 (July 2014) with Stage 4 commencing from August 2014 for the remainder of FY15. FY15 was therefore based on one month under Stage 3 and 11 months under Stage 4. FY16 is the first full year under Stage 4 of the CPSA. The key components under Stage 4 are: Service fees for core and LTC Pharmacy services are funded through the Case Mix Service Fees plus a $1.00 handling fee. Additionally, pharmacies receive an LTC MSF of $20.80 per month for each registered patient ($ per annum). Specific Pharmacy services continue to be funded through a multiplier of the handling fee as in previous stages of the CPSA. Calculation of the Case Mix Service Fee: There are two scales for the calculation of Case Mix Service Fees one for initial items and one for repeat items. The scales are the same for an LTC Pharmacy services patient and Core Pharmacy services payment. The following diagram shows the calculation of the Case Mix Fee: Relative Value Unit ( RVU ) increases with the number of initial items dispensed by that Pharmacy to that patient on that day ( IPPD ). The RVU decreases as the repeat sequence number increases (Suffix). Pharmacies are paid Case Mix Services Fees monthly in advance using an estimate of dispensing activity using data for the pharmacy from a previous month (seasonally adjusted). For example, the December 2015 advance payment is calculated using actual data from September The Case Mix Services Fees advance payment is reversed out and the new payment is made once actual dispensing data for the relevant month is available Total PMR To manage the payment of the full Annual Funding Envelope to each Pharmacy, the financial modelling of the Stage 4 proposal includes a notional Total PMR of 1% of the Annual Funding Envelope. Any unallocated funding at the end of the financial year will form the Total PMR. Review of Community Pharmacy Payments for 2015/16 16

18 The value of the Total PMR is paid out based on each pharmacy s market share of LTC Pharmacy services and Core Pharmacy services initials and repeats (inclusive of LTC MSF and all case mix and handling fees, exclusive of negative A3 and J3). If there is lower expenditure against the forecast envelope than expected, DHB may exercise their discretion to distribute an early release of funds from the Annual Funding Envelope to support community pharmacy cash flow, an Interim PMR payment. In FY15 two Interim PMR payments were made, no Interim PMR payments have been made in FY16. Section 3 outlines the steps and calculations undertaken to determine the Total PMR and each pharmacy s share of the Total PMR. The Total PMR is then adjusted for any Interim PMR payment to give the National Total to pay for FY16 so that the full Annual Funding Envelope of $380.9m is paid out by DHBs. Review of Community Pharmacy Payments for 2015/16 17

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