Review of Community Pharmacy Payments for 2016/17 Technical Advisory Services

Transcription

1 Review of Community Pharmacy Payments for 2016/17 Technical Advisory Services 12 February 2018

2 Contents Glossary of Terms 2 1. Executive Summary 4 2. Introduction 6 3. FY17 payments under the CPSA 7 4. Agreed for FY Overall Conclusions 20

3 Glossary of Terms Abbreviation Agreed Brandswitch fees Case Mix Quarterly Adjustments Case Mix Service fees Contract Group CPAMS CPSA / Agreement DHBs Final Actual Case Mix Service fees Definition Minimum payment under the CPSA for FY18, replacing the Minimum Guaranteed. Additional payment to pharmacy when dispensing pharmaceuticals that have changed brands and that meet certain criteria. 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. One of two groups (along with the Expert Advisory Group) that have an advisory function for the Community Pharmacy Services Agreement (CPSA). Community Pharmacy Anti-Coagulation Management Services Community Pharmacy Services Agreement District Health Boards Actual Case Mix fees for July 2016 to June 2017 based on data received up to and including 31 October FY16 The period 1 July 2015 to 30 June 2016 FY17 The period 1 July 2016 to 30 June 2017 FY18 The period 1 July 2017 to 30 June 2018 Handling fees Interim Actual Case Mix fees LTC LTC MSF Margin payments MARGIN SUPP and MARGIN ADJ The applicable handling fee as set out in the CPSA and serves as a marker for dispensing activity Interim Actual Case Mix Fees calculated during FY17 based on the actual number of initial and repeat items the Pharmacy dispensed to service users during the relevant service month. Long-Term Conditions Service LTC Monthly Service fees (paid in relation to patients registered with a pharmacy in long-term conditions service). Contribution to pharmacies for the cost of procurement and stockholding. Support payment and one off adjustment on margin payments Review of Community Pharmacy Payments for 2016/17 2

4 Abbreviation Minimum Guaranteed MOH Negative A3 or J3 Transaction Pharmacy S26 S29 M S26 S29 AF S26 S29 CF Stage 4 Targeted Range TAS Total Wash-up Payment Definition The bottom of the Targeted Range. The FY17 Minimum Guaranteed is $380,932, Ministry of Health 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. For full definition see CPSA Definitions. Community Pharmacy Additional margins on unregistered subsidised medicines Administrative fee on unregistered subsidised medicines Counselling fee on unregistered subsidised medicines Stage 4 of the CPSA: Stage 4 is the current stage of the CPSA and has operated from 1 August The range of expenditure DHBs will pay to Community Pharmacies in FY17 under the CPSA. The Targeted Range for FY17 is $380,932, to $384,742, Technical Advisory Services Limited formerly known as Central Region s Technical Advisory Services Limited The total actual expenditure paid to Community Pharmacies in FY17 under the CPSA, less audit recoveries. In the case where Total is less than the Minimum Guaranteed, the difference forms the wash-up payment that is allocated 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 2016/17 3

5 1. Executive Summary Deloitte was asked to undertake a review of payments collated by Technical Advisory Services Limited (TAS) under the Community Pharmacy Services Agreement (CPSA or the Agreement) for the period 1 July 2016 to 30 June 2017 (FY17). End of Year Adjustment Process This Report provides an overview of the CPSA payment mechanism, the calculation of payments under the Agreement and conclusions of our review. FY17 is the second full year under Stage 4 of the CPSA. Stage 4 of the CPSA was implemented in August FY15 was intended to be the final year of the CPSA. However, we understand that DHBs engaged with the sector, and then made the decision following feedback to extend the CPSA for an additional year (FY16) with a further 12 month renewal for FY17. Between 1 July 2016 and 30 June 2017 the CPSA had a Targeted Range of $380,932, to $384,742, The end of year process ensures that the Minimum Guaranteed, which is the bottom of the Targeted Range of $380,932,798.50, is paid to community pharmacies. Since actual payments under the CPSA surpassed the Minimum Guaranteed no washup payment is required in FY17. However, we understand that District Health Boards (DHBs) are confirming the preferred approach for recovery of an overpayment relating to a Brandswitch fee error with the Ministry of Health (as the DHBs payment agent) and sector representatives. The CPSA has been extended for another 12 months for FY18. As part of the FY18 contract extension the Minimum Guaranteed has been replaced with the Agreed. The CPSA defines that the Agreed for FY18 will be the sum of the total Handling Fees, Service Fees and any other amounts paid by all DHBs to all providers during the 2016/17 Financial Year as audited excluding the subsidy cost of Pharmaceuticals and any Part P payments (CPSA clause H32.1). Using this definition as provided in the CPSA FY18 extension, we have been asked by TAS to independently verify their Agreed calculation. Our independent review of the FY18 Agreed confirms that TAS has applied the contract definition consistently and has applied the appropriate FY17 payment totals to calculate the FY18 Agreed. The FY18 Agreed total of $426,991, is consistent with our analysis. Findings: - The CPSA payments process for FY17 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 FY16 with the exception of no wash-up calculation required in FY17 due to actual payments exceeding the Minimum Guaranteed. - We have checked the documented process to make sure that the calculations applied by TAS have been carried out correctly and that the process is aligned with the CPSA. Overall we consider the calculation of actual payments applied by TAS to be consistent with the CPSA agreement. Review of Community Pharmacy Payments for 2016/17 4

6 - The process has been more streamlined, and we conclude TAS analysts have applied reasonable and consistent methodology at all stages of the process. - There was an overpayment of Case Mix Service Fees and margins charged on Brandswitch items in FY17. The Ministry of Health have investigated to cause and believe it to be due to an undetected coding change to Brandswitch fees. This error was not initially picked up through normal monitoring processes and therefore continued for eight months until it was picked up in June The payments where the error occurred are complex, have natural monthly variability and are of a relatively small size compared to total payments. - Each year-end there is an adjustment process for Case Mix Service Fees to balance interim and final invoices. Similar to prior years there is an amount due to pharmacies which covers late claims, credits and resubmits of Case Mix Service Fees. - The net difference between the overpayment to pharmacies and the amount due to pharmacies from the two items above has been determined to be $976,794. In addition margins were also paid on the Brandswitch items above which should also be recovered, amounting to $86,545. The total value of $1,063,339 remains outstanding. - For the purpose of this report we have assumed that the FY17 end of year (EOY) adjustment of approximately $1.1m will be recovered from community pharmacies. TAS have informed us that the CPSA Clauses H15 Overpayment and H17 Set-off outline the recoveries process in the event of an overpayment. Therefore the FY17 actual payments contributing to Minimum Guaranteed used in this report account for the overpayment using the corrected totals. - In FY18 the Minimum Guaranteed is being replaced by an Agreed. The calculation of Agreed makes the minimum amount required to be paid to pharmacies more transparent and allows for an easy-to-follow process for subsequent years. Review of Community Pharmacy Payments for 2016/17 5

7 2. Introduction Deloitte was asked to undertake a review of payments collated by TAS under the CPSA for FY17. Purpose, Approach and Scope The purpose of this report is to outline our understanding of the process employed by TAS to account for 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: Review the process and methodology used for the calculation and distribution of payments from the Targeted Range; Ascertain whether the methodology is consistent with the most current CPSA contract; and Independently review the FY18 Agreed. Our approach for reviewing the end of year calculations performed by TAS has included: Recalculation of preliminary results using source data supplied by the Community Pharmacy Programme; Reviewing the methodology used to extract data and calculate transactions; Reviewing the interpretation of the contract extension and confirming the elements included; Meeting with TAS to discuss our preliminary findings from discussions, interviews and analysis; and A brief report summarising the conclusions reached. Out of Scope We have not reviewed the payments made to any individual pharmacy or group of pharmacies. Review of Community Pharmacy Payments for 2016/17 6

8 3. FY17 payments under the CPSA Summary This section describes in detail the steps that TAS performs in order to calculate the amount that has been paid under the Agreement and to check whether this surpasses the FY17 Minimum Guaranteed of $380.9m The FY17 Minimum Guaranteed was the same value as the Annual Funding Envelope for FY16. While in previous years a funding envelope was set with the intention of actual payments falling below the envelope with the remainder being distributed to pharmacies via an EOY wash-up payment, the Minimum Guaranteed sets a minimum payment which must be paid out with the intention of actual payments surpassing the Minimum Guaranteed so that no end of year wash-up payment will be required. Throughout the year pharmacies receive various service fee payments under the CPSA on types of services and amounts of units dispensed. The amount paid out must pass the Minimum Guaranteed which is the bottom of the Targeted Range. The waterfall chart below steps through the payments made under the CPSA: Stage 4 payments made in FY17 are deducted: Final Case Mix Service Fees, Community Pharmacy Anti-Coagulation Management Services Payments (CPAMS), LTC MSF, Handling fees, Brandswitch Fees, Case Mix Quarterly Adjustments, and; Audit recoveries are added back. Due to Total under the CPSA exceeding the Minimum Guaranteed by $5.3m in FY17 there is no amount to allocate to pharmacies via an EOY wash-up payment. Review of Community Pharmacy Payments for 2016/17 7

9 Brandswitch overpayment An overpayment, which the Ministry of Health believe to be the result of a coding error for Brandswitch Fees, was identified in June We understand this error was picked up when routine software testing was undertaken. This error resulted in an overpayment of Case Mix Service fees and Brandswitch margins to pharmacies over a period of eight months in FY17. Include elements of overpayment The overpayment occurred between November 2016 and June The case mix overpayments for May and June were recovered through the usual monthly case mix adjustments. However, the case mix overpayments between November and April, and all margins paid on brand switch, remain outstanding. The Ministry of Health have reviewed the cause of the overpayment, and believe that it was triggered by a change to a Brandswitch identifier code (called the Formulation_ID) by PHARMAC. Following the code change, the Ministry of Health (MOH) payment system did not recognise the Formulation_ID should be treated as Brandswitch items only (not attracting Case Mix Service Fees and margin payment), and instead treated them as if they were ordinary pharmaceutical dispensing which attracted a Case Mix Service Fee and margin payment. This meant, in addition to the normal Brandswitch payment, the items were also paid a margin payment (inflating Brandswitch fees total) and Case Mix Service fee (inflating interim Case Mix Service fees). The margin payment and the Case Mix Service fee payments should not have been paid, and therefore should be recovered by DHBs. At the end of each year, there is typically an adjustment process for Case Mix Service Fees to balance the interim and final invoices. In FY16 the adjustment amount due to pharmacies was $206,732 to cover late claims, credits and resubmits of Case Mix Service Fees. The net difference between the overpayment to pharmacies and the amount due to pharmacies from the two items above has been calculated as $976,794. In addition margins were also paid on the Brandwitch items above which should also be recovered, amounting to $86,545. The total value of $1,063,339 remains outstanding. The overpayment of $976,794 due to Brandswitch payments attracting Case Mix Service fees was made up of calculated Brandswitch fees, estimated by TAS to be between $1,241,888 and $1,291,563. The calculated Brandswitch fees are offset by an EOY adjustment, estimated by TAS to be $265,093 to $314,769. These numbers are presented in the table on the following page. The actual Brandswitch margin recoveries from MOH are $86,545. Combining the difference between interim and final Case Mix Service fees and the Brandswitch margin overpayment the total EOY adjustment is a recovery of $1,063,339. Review of Community Pharmacy Payments for 2016/17 8

10 We have reviewed the assumptions and methodology provided to us by TAS, and have stepped through the process below. TAS has provided the following assumptions that were used to estimate the Brandswitch overpayments: Case Mix Service Fee estimated overpayment: Case Mix Service Fee on Brandswitch items from FY17 Contract Number of Brandswitch claims during the period $4.380 November 2016 April 2017: 283,536 claims Initial Relative Value Unit (multiplied to the Case Mix Service Fee depending on the number of items presented within a prescription) Low x1.0 (less than 3 items) High x1.04 (greater than 6 items) Calculated Case Mix Service Fee Brandswitch adjustment x 283,536 x 1.0 = -$1,241, x 283,536 x 1.04 = -$1,291,563 (Case Mix Service fees x # Brandswitch claims between November 2016 April 2017 x Initial Relative Value Unit (low / high)) Note: Overpayments in May and June were managed as part of the usual adjustment process therefore are not included in this calculation Low scenario: FY17 End of Year (EOY) Actual Case Mix adjustment FY17 implied EOY adjustment for late claims, credits & resubmits Calc. Brandswitch Case Mix Service Fee adjustment -$976,794 $265,093 -$1,241,888 High scenario: FY17 End of Year (EOY) Actual Case mix adjustment -$976,794 FY17 implied EOY adjustment for late claims, credits & resubmits $314,769 Calc. Brandswitch Case Mix Service Fee adjustment -$1,291,563 The implied FY17 EOY adjustment range excluding the coding error is $265,093 to $314,769. This is 0.12% % of the total Case Mix Service Fee. In FY16 the end of year adjustment payment was $206,732 or 0.09% of the total Case Mix Service Fee. Due to a growing volume of pharmaceuticals dispensed each year, an increase of this magnitude is comparable. Review of Community Pharmacy Payments for 2016/17 9

11 FY17 payments under the CPSA Total wash up amount = Minimum Guaranteed - Actual Payments Contributing to Minimum Guaranteed + Audit Recoveries identified in FY17 STEP 1 Step 1 outlines the actual payments made in FY17. 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: Calculate End of Year Case Mix Payments In this step TAS obtains the Final Actual Case Mix Service fees to include in actual payments contributing to the Minimum Guaranteed. The Final Calculated Case Mix Payments file has been provided by the MOH Sector Operations team. The excel file details Interim and Final Case Mix Service fees by month for each claimant number. The Case Mix Service fees have been provided inclusive of GST, we have excluded GST for the purpose of deductions from the Minimum Guaranteed amount. During FY17 Interim Actual Case Mix Service fees have been paid. However due to claims, credits and resubmits beyond the Interim Actual Case Mix Service fee cut-off, a final calculation was performed to determine the Final Actual Case Mix payment for FY17. In previous years, the Final Actual Case Mix Service fee has been higher than the Interim Actual Case Mix Service fees. This year, however, the Interim Actual Case Mix Service fee was higher. This was due to the Brandswitch coding error which resulted in an overpayment of Case Mix Service fees in the interim payment. The Final Actual Case Mix Service fees reflects the Actual Case Mix Service fees for FY17 taking into account the error correction as well as the late claims, credits and resubmits beyond the Interim Actual Case Mix Service fee cut-off. The table below compares the Interim Case Mix Service fees paid and the Final Actual Case Mix Service fees. Final Case Mix Service Fees for FY17 was $228.3m excluding GST and the total adjustment for FY17 is ~$(1.0)m exclusive of GST. Review of Community Pharmacy Payments for 2016/17 10

12 Case Mix Fees $ Interim Actual Case Mix Fees Paid Final Actual Case Mix Invoices Difference July 2016 (18,571,637) 18,611,709 40,071 August 2016 (20,404,395) 20,459,469 55,074 September 2016 (19,468,403) 19,506,621 38,219 October 2016 (18,490,644) 18,514,167 23,523 November 2016 (19,800,795) 19,814,076 13,281 December 2016 (19,828,183) 19,838,135 9,952 January 2017 (17,732,949) 17,739,277 6,328 February 2017 (17,379,127) 16,856,526 (522,602) March 2017 (20,115,358) 19,696,376 (418,982) April 2017 (17,123,334) 16,832,171 (291,164) May 2017 (20,754,092) 20,789,544 35,453 June 2017 (19,576,542) 19,610,594 34,052 Total (229,245,460) 228,268,666 (976,794) We have checked that the Final Actual Case Mix Service fees provided by MOH Sector Operations matches the total Final Actual Case Mix Services fees used by TAS in determining actual payments contributing to the Minimum Guaranteed. STEP 1b: All other payments for FY17 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 FY17 is displayed below. FY17 All Other Actual Payments Summary $ CPAMs 3,584,579 LTC MSF 32,054,686 Handling fees* 120,438,019 Brandswitch fees** 2,492,182 Case mix quartery adjustments 115,929 Total 158,685,394 *Base and specific services, excluding negative A3J3 items as per Stage 4 Rules and Brandswitch payments, net of credits and resubmits **Includes recovery of margin paid on brandswitch Review of Community Pharmacy Payments for 2016/17 11

13 Oracle Payments Community Pharmacy Anti-Coagulation Management Services Payments (CPAMS) For FY17, CPAMS payments out of the targeted expenditure range were capped at $3.5m. CPAMS payments actually paid in FY17 totalled $3.6m. Due to the cap, only $3.5m was included in actual payments contributing to the Minimum Guaranteed. The amount above the cap was separately funded by the respective DHBs. LTC Monthly Service Fee Service fees for LTC Pharmacy services are funded through the LTC MSF of $20.80 per month for each registered patient ($ per annum) under Stage 4. The LTC MSF actually paid in FY17 totalled $32.1m, 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 FY17 totalled $0.1m, 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 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. Case Mix Quarterly Adjustments July ,991 2,662,823 - August ,490 2,643,596 - September ,641 2,648,898 28,413 October ,470 2,670,336 - November ,358 2,656,998 - December ,222 2,650,396 24,644 January ,860 2,675,794 - February ,120 2,663,130 - March ,565 2,641,357 29,048 April ,262 2,675,418 - May ,620 2,737,074 - June ,980 2,728,867 33,823 Total 3,584,579 32,054, ,929 Review of Community Pharmacy Payments for 2016/17 12

14 Handling Fees Breakdown $ Monthly Handling Fees Credits Resubmits Negative A3J3 Total July ,907,035 (39,576) 29,229 (64,778) 9,831,910 August ,685,986 (40,973) 30,354 (67,358) 10,608,009 September ,248,512 (42,857) 33,495 (63,555) 10,175,595 October ,820,837 (36,716) 28,451 (58,188) 9,754,384 November ,403,845 (37,904) 28,104 (63,257) 10,330,788 December ,474,992 (40,274) 30,271 (58,154) 10,406,834 January ,538,734 (35,244) 26,479 (45,127) 9,484,841 February ,120,902 (38,459) 28,428 (68,429) 9,042,442 March ,570,212 (40,566) 28,672 (78,590) 10,479,727 April ,209,654 (41,916) 32,699 (64,266) 9,136,171 May ,995,195 (40,177) 29,085 (80,060) 10,904,043 June ,367,038 (37,343) 26,977 (73,398) 10,283,274 Total 121,342,941 (472,004) 352,243 (785,161) 120,438,019 Brandswitch fees For FY17, Brandswitch payments out of the targeted expenditure range were capped at $2.0m. Brandswitch payments actually paid in FY17 totalled $2.5m. Due to the cap, only $2.0m is included in actual payments contributing to the Minimum Guaranteed. The amount above the cap is separately funded by the relevant DHBs. The Brandswitch nominal expenditure breakdown is displayed below: Brandswitch Breakdown $ Total July August ,192 September October November ,623 December ,297 January ,241 February ,826 March ,057 April ,359 May ,835 June ,296 Total 2,578,727 Brandswitch margin recoveries (86,545) Total Brandswitch corrected 2,492,182 Due to the same Brandswitch coding error, which resulted in the overpayment of Case Mix Service fees, margins were paid on Brandswitch items in error. As displayed in the table, the total has been adjusted to take into account the Brandswitch margin recoveries. STEP 2: Audit Recoveries In this step, TAS obtains the identified audit recovery amounts to add back to the Minimum Guaranteed. The MOH Audit and Compliance team audits the payments made to community pharmacy and identifies payments that were recoverable during FY17. TAS is provided with a file from the MOH Audit and Compliance team containing a breakdown of the recoveries identified. $0.2m of recoveries were identified by Audit and Compliance in FY17. Review of Community Pharmacy Payments for 2016/17 13

15 These recoveries are added back to the Minimum Guaranteed when calculating whether the Minimum Guaranteed has been surpassed, regardless of whether affected District Health Boards (DHBs) had successfully recovered the respective amounts. STEP 3: Determine whether payments under the CPSA exceed the Minimum Guaranteed In this step TAS determines the excess above Minimum Guaranteed by subtracting all actual payments (Step 1) from Minimum Guaranteed then adding Audit recoveries (Step 2) as outlined below: Minimum Guaranteed - Actual Payments Contributing to Minimum Guaranteed + Audit Recoveries identified in FY17 Payments under the CPSA $ Minimum Guaranteed 380,932,799 Less: Actual payments FY17 Final Case Mix Fees (228,268,666) CPAMs (capped) (3,500,000) LTC MSF (32,054,686) Handling fees* (120,438,019) Brandswitch fees (capped) (2,000,000) Case mix quartery adjustments (115,929) Actual payments FY17 (386,377,299) Plus: Audit recoveries FY17 166,445 Total excess above Minimum Guaranteed (5,278,056) *Base and specific services, excluding negative A3J3 items as per Stage 4 Rules and Brandswitch payments, net of credits and resubmits Due to Total under the CPSA exceeding the Minimum Guaranteed by $5.3m in FY17 there is no amount to allocate via to pharmacies an end of year wash-up payment. However, the identified overpayment remains outstanding to be recovered. Review of Community Pharmacy Payments for 2016/17 14

16 4. Agreed for FY18 The CPSA was extended in FY16, then again in FY17. The CPSA has been extended for another 12 months for FY18. Under Schedule 1 of the FY18 contract extension, new clause H32 states that an Agreed will be paid to providers in FY18, replacing the Minimum Guaranteed. The Agreed is the minimum amount that will be paid out to pharmacies in FY18. We have been asked by TAS to independently verify their Agreed calculation. To determine which payments are included in the Agreed, TAS started with a list of all payments that relate to FY17 and determined which payments should be included based on the definition provided in clause H32.1 below: The minimum total amount of Handling Fees, Service Fees and any other amounts (excluding the subsidy cost of Pharmaceuticals, any expenditure paid to Providers for those Services that are provided pursuant to Part P of Providers respective agreements and for New Services Initiatives) that will be paid by all DHBs to all Providers during the 2017/18 Financial Year will be the sum of the total Handling Fees, Service Fees and any other amounts paid by all DHBs to all Providers during the 2016/17 Financial Year as audited (excluding the subsidy cost of Pharmaceuticals and any expenditure paid to Providers for those Services that are provided pursuant to Part P of Providers respective agreements) (the Agreed ). The main change between the Minimum Guaranteed and the Agreed is with the treatment of margins. Previously, margins were not included in CPSA payments as payments were solely focused on service fees whereas margins were considered as part of delivery. Under the new contract, CPSA payments will include margins as they are recognised as part of the total package. This has resulted in a higher minimum payment value to pharmacies than in previous years. Below is a list of all CPSA payments that relate to FY17: Payments Definition FY17 Min Guaranteed FY18 Agreed Explanation Total (% of Agreed ) All Services Net Handling Fees ex A3J3 Fees paid on all dispensary services Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. $120,438, (28.21%) Final Case Mix Fees Service fees based on initial and repeat items Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. $228,268, Review of Community Pharmacy Payments for 2016/17 15

17 Payments Definition FY17 Min Guaranteed FY18 Agreed Explanation Total (% of Agreed ) for LTC and core pharmacy services Note: This figure uses Final Case Mix fees which are adjusted for the Case Mix fee overpayment. (53.46%) Case Mix Quarterly Adjustments Adjustments paid quarterly after recalculating Case Mix Service fees for negative A3 and J3 transactions Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. $115, (0.03%) Brandswitch Payments for switching pharmaceutical brands Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. The FY17 Minimum Guaranteed used a capped amount. The FY18 Agreed will not use the capped amount as Brandswitch payments are no longer capped under the CPSA FY18 extension. $2,492, (0.58%) Note: This figure adjusts for the margin overpayment. CPAMS Community Pharmacy Anti-Coagulation Management Services Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. The FY17 Minimum Guaranteed used a capped amount. The FY18 Agreed will not use the capped amount as CPAM payments are no longer capped under the CPSA FY18 extension. $3,584, (0.84%) LTC MSF Long-term condition monthly service fees (paid in relation to patients registered with a pharmacy) Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. $32,054, (7.51%) Review of Community Pharmacy Payments for 2016/17 16

18 Payments Definition FY17 Min Guaranteed FY18 Agreed Explanation Total (% of Agreed ) All Services Net Drug Margins ex A3J3 Drug margins Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. Note: In FY17 there was a variation to the CPSA in regard to a new funding model for pharmaceutical margins and subsidised unregistered medicines (3% for medicines under $150, 4% for medicines $150 of more and a 16.9 cents per pack fee). This variation came into effect on 1 August Due to the variation coming into effect 1 August 2016, in FY17 there was one month under the previous funding model and 11 months under the new funding model. TAS have not made any adjustments to the FY17 payment figure to account for the one month under the old funding model as the contract states to use the actual amount paid in FY17 $39,032, (9.14%) MARGIN SUPP and MARGIN ADJ Support payment and one off adjustment on margin payments Not included as the support payment is outside of the CPSA agreement and is an individual agreement for the impacted pharmacies. N/A Note: When the variation to the CPSA in regard to a new funding model for pharmaceutical margins and subsidised unregistered medicines came into effect on 1 August 2016, while the majority of pharmacies benefitted from the offer, a very small number of pharmacy owners were negatively affected. The pharmacies that were significantly negatively affected were offered a support package for the remainder of FY17. The support package arrangement has been extended another 12 months for FY18. Review of Community Pharmacy Payments for 2016/17 17

19 Payments Definition FY17 Min Guaranteed FY18 Agreed Explanation Total (% of Agreed ) S26 S29 M S26 S29 AF Margins on unregistered subsidised medicines Administrative fee on unregistered subsidised medicines Included as this was a payment that was distributed from DHBs to providers in FY17 and will continue in FY18. Note: This payment came into effect on 1 August 2016 therefore the total only takes into account 11 months of actual payments. TAS have not adjusted this as the contract states to use the actual amount paid in FY17. $179, (0.04%) $354, (0.08%) S26 S29 CF Counselling fee on unregistered subsidised medicines $637, (0.15%) Audit Recoveries Included as this was a payment that was distributed from DHBs to providers in FY17. The total however excludes medicine margins. $(166,444.61) ((0.04)%) Note: A component of audit recovery is medicine margins. The MOH has confirmed that they are unable to separate medicine margins from medicine costs. Using a proxy medicine margins came out to be lower than $3000, therefore as there is no way to get the exact figure, TAS have decided to exclude medicine margins due to immateriality. This means that the total is exclusive of medicine margins. FY18 Agreed : $426,991, Review of Community Pharmacy Payments for 2016/17 18

20 TAS have assessed that the following payments should be included in the Agreed total for FY18 under the CPSA contract extension: All Services Net Handling Fees ex A3J3 Final Case Mix Fees Case Mix Quarterly Adjustments Brandswitch CPAMS LTC MSF All Services Net Drug Margins ex A3J3 S26 S29 M S26 S29 AF S26 S29 CF Audit Recoveries We have reviewed the payments TAS have - included in the Agreed calculation against the contract definition provided in clause H32.1. We have also checked the payment totals against the FY17 totals to make sure they are aligned. The FY18 Agreed total of $426,991, is consistent with our analysis. Review of Community Pharmacy Payments for 2016/17 19

21 5. Overall Conclusions Overall, we consider the calculation payments to be consistent with the CPSA and that TAS analysts have applied reasonable and consistent methodology to calculations throughout the process. FY17 was the second full year of Stage 4 under the CPSA, requiring the Minimum Guaranteed of $380,932, to be paid out to pharmacies. The payment received by pharmacies exceeded the Minimum Guaranteed, meaning that no annual adjustment is required. 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 CPSA. We have found no calculation errors or cases where the Stage 4 amendments and subsequent variations to the CPSA have not been followed. We note that the DHBs are working through the process for overpayment recovery of the Brandswitch error with the Ministry of Health. The CPSA has been extended a third year, for FY18. Under the FY18 contract extension, an Agreed replaces the Minimum Guaranteed as the minimum payment to pharmacies in FY18. Our independent review of the FY18 Agreed confirms that TAS has applied the contract definition consistently and has applied the appropriate FY17 payment totals to calculate the FY18 Agreed. The FY18 Agreed total of $426,991, is consistent with our analysis. Review of Community Pharmacy Payments for 2016/17 20

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