Original Notice.

Preproposal statement of inquiry was filed as WSR 00-18-113.

Title of Rule: New chapter 246-30 WAC, AWARDS prescription drug discount program.

Purpose: The rules establish a new program which will enable individuals aged fifty-five years or older to participate in a prescription drug discount program.

Other Identifying Information: The rule is in response to Governor's Executive Order 00-04 which requires the department to work with the Health Care Authority to establish a Washington senior discount prescription drug project.

Statutory Authority for Adoption: RCW 43.70.040 (1) and (5), 43.70.020(5).

Statute Being Implemented: RCW 43.70.130, 43.70.060.

Summary: The rules describe the AWARDS program, explains how the program operates, identifies who is eligible for membership, and details program limitations.

Name of Agency Personnel Responsible for Drafting: Michelle Davis, 1112 S.E. Quince Street, Olympia, WA 98504-7890, (360) 236-4044; Implementation and Enforcement: Ida Zodrow, P.O. Box 91118, Seattle, WA 98111-9218, (206) 521-2000.

Name of Proponent: Department of Health, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: This proposed rule describes the AWARDS program, explains how the program will operate, identifies who is eligible for membership, and details program limitations. The purpose of the rule is to enable individuals who are fifty-five years of age and older to obtain a membership in the AWARDS discount prescription drug project. It is anticipated that the rules will assist individuals who currently do not have prescription drug coverage to obtain prescription drugs at discounted prices through their membership in this program.

Proposal does not change existing rules.

A small business economic impact statement has been prepared under chapter 19.85 RCW.

     The governor of Washington state is committed to help seniors obtain the prescriptions they need. The governor determined that the federal Medicare program does not provide prescription drug coverage to seniors and is unlikely to address this unmet need in the near future. Given the rapidly rising cost of prescription drugs and lack of movement at the federal level to redress this problem, the governor determined that there is a need for an immediate short-term solution to protect the health of Washington's senior citizens. On August 29, 2000, the governor issued Executive Order No. 00-04 to establish a mechanism by which Washington seniors can obtain prescription drugs at a reduced cost.

     This program will allow seniors age fifty-five and older who do not have prescription drug coverage to purchase prescription drugs at discounts comparable to those negotiated by the state's uniform medical plan. The Washington State Health Care Authority oversees the uniform medical plan and negotiates with providers to obtain discount prices for prescription drugs (and other health care services). The Department of Health expects that participants in the AWARDS program will typically receive about a 25% discount off the usual and customary prices.¹ These discount prices will be available to qualifying seniors for a modest enrollment fee.

     The governor included several directives in his executive order:

     1. The Department of Health and the Health Care Authority, in coordination with each other, are directed to "take all administrative actions necessary or advisable to implement a program to provide prescription drug price discounts negotiated through the Health Care Authority to Washington senior citizens aged fifty-five and older."

     2. The program be implemented by January 2001.

     3. The program be self-supporting and without cost to the state.

     4. The program be called A Washington State Alliance to Reduce Prescription Drug Spending ("AWARDS") program.

     Overview of the Proposed Regulation: To implement the governor's directive, the Washington State Department of Health (henceforth DOH or department) worked collaboratively with the Washington State Health Care Authority to develop proposed regulations. The proposal would allow persons fifty-five and older who do not have prescription drug coverage to purchase prescription drugs at prices similar to those paid by individuals participating in the state's uniform medical plan. To receive the discount price, qualifying individuals will have to pay a nominal annual application fee and make their purchases at a participating pharmacy. A pharmacy benefit manager through a contract negotiated by the Health Care Authority would administer the proposed program. Finally, individual pharmacies will have a choice of whether or not to participate in the proposed program.

     Is an SBEIS necessary? Under the Regulatory Fairness Act, an SBEIS is required whenever a regulation imposes "more than minor" costs on a regulated business. The "more than minor" threshold varies by industry. It is $111 for the businesses falling under the "miscellaneous shopping goods stores" standard industrial code classification.² To estimate the cost to pharmacies required determining the number of persons eligible for the program, the proportion that would enroll, the number of prescriptions affected, the average savings per prescription, the overall savings, and the distribution of that savings across pharmacies.³

     Number of Eligible Persons: The department projects that about 265,000 persons in Washington state would currently qualify for the proposed program: 207,023 persons fifty-five and older have Medicare but no pharmacy coverage; and 57,085 persons fifty-five and older are uninsured.

     Estimated Proportion of Eligible Persons Enrolling: The incentive to participate in the AWARDS program varies with the use of prescription drugs among the eligible population, the specific medication, and the difference in cash and AWARDS program prices. The department assumed that 40% of eligible persons would not participate due to their low drug use and consequent lack of savings.

     Of the remaining 60%, the department could not find good information indicating the number that would enroll. Similar programs currently operating in Washington have seen limited participation (e.g., Save-Rx, AARP, YouRxPlan, Washington Health Card). A variety of reasons have been offered for this limited participation: Being unaware of the program, finding program procedures too complicated, not take the time to enroll, not have the financial ability to purchase prescription medicine even with the discount prices. The AWARDS program adds another potential reason for not participating "not trusting a government run program." The lack of good data led the department to develop three estimates of participation: 10% or 27,000 persons; 20% or 53,000 persons; and 30% or 80,000 persons.

     A final complication was the proportion of enrollees that would choose the mail order option to purchase their prescriptions. The department assumed 20% would choose the mail order approach.

     Estimated Pharmacy Cost: To project the cost to pharmacies, the department first had to estimate the number of prescriptions that would be purchased under the AWARDS program. According to data for state employees who are at least fifty-five and enrolled in the state's Uniform Medical Plan, these persons are given, on average, eleven prescriptions over the course of a year. The department assumed that eight of these prescriptions be given for acute conditions and that the prescription would run for one month. The department assumed that the other three were written to treat a chronic condition and would be taken for twelve months. Overall, this results in an estimated forty-four prescription-months per enrollee each year.

     The department next estimated the per prescription savings. To do this the department calculated the expected price differential for eighty-three drugs representing several therapeutic classes. The predicted average monthly discount for a single prescription is $10.77 for in-pharmacy purchased prescriptions and $15.48 for prescriptions purchased by mail order. Based upon these figures, the department estimated that with an enrollment of 53,000 persons, the total annual cost to pharmacies would approximate $27,000,000⁴ (see Table 1).

     The average cost per pharmacy: Depending on the number of persons that enroll, the department estimates that average cost per pharmacy will range from $12,300 to $36,400.

     It is clear from the above assessment that the proposed rule will significantly exceed the more than minor cost threshold so the department must prepare an SBEIS.

     Does the proposed rule affect both large and small businesses? The Regulatory Fairness Act defines a business as "...[any] entity, including a sole proprietorship, corporation, partnership, or other legal entity, that is owned and operated independently from all other businesses, that has the purpose of making a profit..." The act defines a small business as one that employs less than fifty individuals.

     The proposed AWARDS program would clearly affect both large and small businesses. While specific figures are not available for individual pharmacies, the department knows of pharmacies with more than fifty employees and pharmacies with less than fifty employees. Independent pharmacies generally average fewer than fifty employees while many traditional, food service and mass merchandising pharmacies have more than fifty employees. Table 2 shows average employment at independent and nonindependent pharmacies.

     Does the proposed rule impose disproportionate cost on small businesses? To determine whether the proposed rule imposes disproportionate costs on small businesses, the department calculated the "per employee" cost of the AWARDS program at a large, chain pharmacy and at a small independent, owner operated pharmacy. Assumed that 53,000 persons enroll in the AWARDS program (the middle estimate), the average annual per pharmacy cost of the proposed program is about $23,900. The typical nonindependent pharmacy has eighty-five employees while an independent, owner operated pharmacy has twelve, the per employee cost of the small pharmacy ($1,992) will be about seven times more than that of the large pharmacy ($281). The department expects that the actual difference in "per employee" costs will be less than estimated here. Large pharmacies typically see a higher proportion of pharmacy customers than their smaller counterparts. As such, the overall AWARDS program cost is likely to be higher than $23,900 at large pharmacies and less than $23,900 at small pharmacies. Nevertheless, the department concludes that the AWARDS program would impose disproportionately higher costs on small businesses.

     Is mitigation legal or feasible? As described above, the proposed design of the AWARDS program has the potential to adversely affect the profit of pharmacies, especially small pharmacies. As a result the next question for the department is over whether mitigation for small businesses is legal and feasible. The department has considered three alternatives to this proposal. One alternative would be to wait for federal or state legislative action. However, the governor determined that waiting is unacceptable. The legislative process is unlikely to provide relief that seniors need now in order to make life-sustaining drugs affordable. Even if legislation occurs on a state or federal level, the time necessary to fully implement legislation would result in further delay. The high and rising price of prescription drugs has put them out of reach of many seniors in Washington state. This has resulted in a crisis among Washington's seniors that jeopardizes their health. A second alternative would be to establish a program that includes direct financial assistance for seniors to purchase prescription drugs. This could help mitigate the financial cost to pharmacies. However, any program providing financial assistance would require legislative action and is beyond the current authority of the secretary of health. The final alternative would be to solely offer a mail order program. The department determined that a mail order only program would more severely affect pharmacies and, therefore, be counter to the intent of the Regulatory Fairness Act. The department expects that allowing pharmacies to participate in the AWARDS program, would to some extent mitigate the cost on small businesses.

     Based on these considerations, the department determined that a program to assist seniors in Washington without prescription drug insurance to purchase prescription drugs is currently needed to promote the appropriate use of health care resources among Washington's seniors and protect their health. The department also determined that available alternatives to this program either would not meet the objectives of the authorizing statutes or are beyond the current authority of the secretary. Therefore, the department concluded that it would not be feasible to provide additional mitigation to small pharmacies and still meet the "stated objectives of the statutes upon which the proposed rule is based."

     Other Regulatory Fairness Act Mandates: State efforts to involve businesses when developing the proposed rule. In order to meet the mandates of the governor's executive order, the department had to engage an unusually rapid rule development process. Nevertheless, the department worked to inform the public of the rule-making effort and to provide opportunities for public input. The department mailed the CR-101 statement of inquiry to over 2400 individuals and organizations. The interested parties list includes state agencies, pharmacies, pharmaceutical manufacturers, pharmacy professional associations and advocacy groups, as well as senior citizen centers, associations, and advocacy groups.

     Representatives of the Department of Health, Health Care Authority and Governor's Office appeared before the Pharmacy Board in a joint briefing about the governor's executive order, the rules process and how the program may work once it is implemented.

     The department expects to file the proposed rules with the code reviser November 1. The department also expects to make the significant legislative rule analysis available for public review and comment prior to the public hearing on this rule. The department will mail and e-mail the notice to persons on the interested parties list. The department will mail a notice the same week as the filing to allow as much time for comment as possible. The department plans to hold a public hearing on December 5, for those individuals who wish to testify in person.

     What are the reporting, record-keeping, and other compliance requirements? The proposed rule would not impose any additional record-keeping or reporting requirements. However, as described above a small amount of additional data entry may be required as a result of this rule. Any such compliance requirements would be part of the contract that HCA negotiates with the PBM.

     List the types of businesses affected by the proposed rule: Pharmacies are the principal type of business affected by the proposed rule.

     Will the proposed rule cause affected industries to lose business? The effect of the AWARDS program on pharmacy business depends on specific circumstances and decisions of the pharmacy owner. The department assumes that pharmacies that currently participate in the CCN2 program will gain business. They should gain customers who formerly went to another pharmacy who is not participating in the AWARDS program. They will gain a few customers who previously did not take their prescribed medication due to its cost. They should also gain some customers who previously went to another pharmacy that closed down due to decreased revenues.

     The department assumes that some of the pharmacies that currently do not participate in the CCN2 but decide to join the AWARDS program will gain business. They should gain customers who formerly went to another pharmacy who is not participating in the AWARDS program. They will gain a few customers of people who previously did not take their prescribed medication due to its cost. They should also gain some customers who previously went to another pharmacy that closed down due to decreased revenues. On the other hand, some of these pharmacies will likely close down due to decreased revenues and these, obviously, will loose business.

     Finally, the department assumed that the AWARDS program would minimally affect pharmacies that choose not to participate in the AWARDS program and are relatively far away from their closest rival (more than 5 miles).

¹ Estimated average price discount. Based on price estimates provided by Donna Marshall of Marshall Pharmacy Outcomes Research Associates, personal communications. See Table 1 for more information on the expected AWARDS program price discount.

² The standard industrial code for retail pharmacies is 5912. There is no "more than minor" cost threshold for this code. Therefore, the department used the "miscellaneous shopping goods stores," SIC code 594.

³ Pharmacies would see this savings as reduced income and, therefore, view it as a cost. The department is in the process of preparing a significant legislative rule analysis for this proposed rule. The department expects that analysis will include a more thorough description of the process the department used to estimate the cost of the proposed rule.

⁴ $27,000,000 = 44 prescriptions/enrollee/year x ($10.77/prescription x 42,400 enrollees + . $15.48/prescription x 10,600 enrollees)

The average cost per pharmacy $24,000 = $27,000,000 / 1140 pharmacies.

⁵ Though specific data entry requirements are not yet known, the department expects the following types of data will be needed: Name, address, phone number, group number, plan number, patient number, pricing scale, etc.

⁶ Based on discussions with Washington State Pharmacy Association personnel.

⁷ The Bureau of Labor Statistics, reports that the average pharmacist earns nearly $60,000 per year or about $62 per hour (Occupational Outlook Handbook, accessed at http://stats.bls.gov/oco/ocos079.htm#earnings).

⁸ National Association of Chain Drug Stores, Industry Profile 2000.

⁹ Personal communication with Lisa Salmi, Pharmacy Board. The Pharmacy Board defines a pharmacy chain as owning and operating four or more pharmacies.

A copy of the statement may be obtained by writing to Michelle Davis, Department of Health Regulatory Affairs Manager, 1112 S.E. Quince Street, P.O. Box 47890, Olympia, WA 98504-7890, phone (360) 236-4044, fax (360) 586-7424.

RCW 34.05.328 applies to this rule adoption. These rules are legislatively significant under RCW 34.05.328 because the rules adopt a new policy or regulatory program.

Hearing Location: Center Point Corporate Park Commons Building, 20809 72nd Avenue South, Kent, WA 98032, (253) 395-9226, on December 6, 2000, at 9:15 a.m.

Assistance for Persons with Disabilities: Contact Michelle Davis by November 22, 2000, TDD (800) 833-6388.

Submit Written Comments to: Michelle Davis at the address above or at awards.comments@doh.wa.gov, fax (360) 586-7424, by December 6, 2000.

Date of Intended Adoption: December 8, 2000.

November 1, 2000

Nancy Ellison

Deputy

for Mary C. Selecky

Secretary

OTS-4485.1

(1) Purpose. The AWARDS program is a statewide public health initiative. The AWARDS program makes prescription drugs more affordable for Washington residents who are age fifty-five or older and have no prescription drug coverage. The program is a state-sponsored purchasing alliance for AWARDS members to buy prescription drugs at a reduced cost.

     (2) Goals. The program's goals are:

     (a) To promote public health by making prescription drugs more affordable for AWARDS members; and

     (b) To assess the program's effectiveness in making prescription drugs more affordable for AWARDS members.

     (3) Definitions.

     (a) "AWARDS (A Washington Alliance to Reduce Prescription Drug Spending)" is a purchasing alliance sponsored by the state of Washington. AWARDS members are charged a discounted rate for prescription drugs.

     (b) An "individual membership" is available for a Washington resident fifty-five years of age or older who has no prescription drug coverage and pays an annual individual membership fee to participate in the AWARDS program.

     (c) A "family membership" is available for two or more Washington residents fifty-five years of age or older who have no prescription drug coverage, who are living in the same household, and who, on behalf of the family, pay an annual family membership fee to participate in the AWARDS program.

     (d) "Pharmacy benefits manager" means the entity responsible for pharmacy benefits management services, member enrollment, the AWARDS pharmacy network, provision of assessment data, and administrative duties through a contract with the state of Washington.

     (e) "Participating pharmacy" means a pharmacy that agrees to serve AWARDS members as part of a pharmacy network on terms set by the pharmacy benefits manager.

     (f) "AWARDS discount price" means the reduced cost for prescription drugs set by contract between the state and the pharmacy benefits manager. Participating pharmacies accept the AWARDS discount price as full payment when AWARDS members buy prescription drugs.

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The AWARDS program will only operate if the state can enter into a contract with a pharmacy benefits manager providing that:

     (1) The AWARDS program operates at no cost to the state. AWARDS members pay the AWARDS discount price when buying prescription drugs from a participating pharmacy and show a valid membership card. AWARDS members can also buy prescriptions by mail through the pharmacy benefits manager.

     (2) AWARDS is administered in cooperation with the Washington state health care authority through a contract with a pharmacy benefits manager.

     (3) Any Washington resident who is fifty-five years of age or older and has no prescription drug coverage is eligible to apply for an individual or family membership in the AWARDS program.

     (4) Applicants for AWARDS membership must send an AWARDS membership application to the pharmacy benefits manager. Applicants must certify that they are fifty-five years of age or older and have no prescription drug coverage. Applicants must also pay for an individual or family membership. The pharmacy benefits manager will send a membership card to approved applicants. When presenting a membership card at any participating pharmacy, AWARDS members will be charged the AWARDS discount price for prescription drugs. AWARDS members can also order prescription drugs by mail through the pharmacy benefits manager.

     (5) An AWARDS membership may be canceled when a member:

     (a) Is not eligible;

     (b) Fails to pay the membership fee when due;

     (c) Violates the terms and conditions of membership;

     (d) Misuses or permits unauthorized use of the membership card; or

     (e) Engages in misconduct in connection with the AWARDS program.

     If a membership is canceled due to (c) through (e) of this subsection, the membership fee may be forfeited and the member may be subject to other penalties under applicable laws. The AWARDS pharmacy benefits manager is responsible for enrollment decisions, for maintaining records, and for administering all member services. Any disputes arising between an applicant for AWARDS membership or an AWARDS member and the pharmacy benefits manager is a private contractual dispute. Disputes are resolved according to the terms and conditions of AWARDS enrollment. The state of Washington, its agencies and employees, are not parties to any such dispute.

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(1) The AWARDS program is not insurance coverage. The pharmacy benefits manager is solely responsible to AWARDS members for the services it provides. By establishing the AWARDS program, the state of Washington does not assume financial responsibility for the services provided to AWARDS members by the pharmacy benefits manager. AWARDS membership is subject to the additional terms and conditions contained in the AWARDS application and any subsequent changes in those terms and conditions or in benefits announced by the pharmacy benefits manager.

     (2) On thirty days' notice, program enrollment may be limited or suspended, or the AWARDS program may be canceled in its entirety, for any reason at the discretion of the department of health.

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