Reimbursement of outpatient prescription drugs is based on the drug's Actual Acquisition Cost (AAC) according to the Covered Outpatient Final Rule of the Affordable Care Act of 2010.  Pharmacy providers must use the current Texas Drug Code Index as the reference for allowable package sizes of reimbursable legend and non-legend drugs and are reimbursed at AAC plus a reasonable dispensing fee. AAC is defined as an estimate of prices generally and is currently paid in the market by one of the following:

1. Wholesale estimated acquisition cost (WEAC);
2. Long term care pharmacy acquisition cost (LTCPAC); or
3. Specialty pharmacy acquisition cost (SPAC)

The AAC is verifiable by invoice audit conducted by HHSC to include necessary supporting documentation verifying the final cost to the provider. The WEAC, LTCPAC, and SPAC prices are established using market or government sources, which include, but are not limited to:

• Reported manufacturer pricing
• First Databank
• Redbook
• Weighted Average Manufacturer Price as published by the Centers for Medicare & Medicaid Services (CMS)
• National Average Drug Acquisition Cost (NADAC), as published by CMS; or
• Gold Standard pricing service

Pharmacy providers participating in the 340B Drug Pricing Program must identify all outpatient pharmacy claims filled with 340B stock for 340B-eligible people. Refer to the 340B Resources section to learn more about billing requirements for eligible pharmacies.

This methodology applies to the pricing on all claims processed by HHSC as of June 1, 2016.  Retroactive claims are processed with the pricing on the date of service. The change is not related to and does not impact reimbursement rates associated with pharmacy reimbursement through Medicaid managed care.

NADAC pricing is generated by CMS and pricing disputes are directed to CMS. Refer to the Drug Pricing section for pricing contacts.

Texas Medicaid reimburses contracted pharmacy providers according to the “Pharmacy (Non-DME)” fee schedule. The estimated acquisition cost is defined in the Texas Administrative Code Title 1, Section 355.8541 relating to Legend and Non-legend Medication.

Ingredient costs may differ by the type of pharmacy and the benchmark for reimbursement is primarily the National Average Drug Acquisition Cost (NADAC), the benchmark of retail pharmacy acquisition costs developed by CMS as previously discussed. HHSC uses a drug’s wholesale acquisition cost (WAC) price when NADAC pricing is unavailable.

Retail Pharmacy

The ingredient cost is equal to the NADAC price, or (WAC minus 2 percent) if NADAC pricing is not available.

Long-term Care Pharmacy

A long-term care (LTC) pharmacy is defined as one for which the total Medicaid claims for prescription drugs to residents of long term care facilities exceeds 50 percent of the pharmacy’s total Medicaid claims per year. Long term care pharmacies are typically not open to the public for walk-in business.

The ingredient cost is equal to (NADAC minus 2.4 percent), or (WAC minus 3.4 percent) if NADAC pricing is not available.

Specialty Pharmacy

A specialty pharmacy meets all of the following criteria:

• Processes more than 10% of Medicaid specialty claims per year compared to total claims, as described in Section 354.1853 (relating to Specialty Drugs)
• Obtains volume-based discounts or rebates on specialty drugs from manufacturers or wholesalers; and
• Dispenses at least 80 percent of filled prescriptions by shipment through the U.S. Postal Service or another common carrier to customers or healthcare professionals (including physicians and home health providers).

The ingredient cost is equal to (NADAC minus 1.7 percent), or (WAC minus 8 percent) if NADAC pricing is not available.

Payment for legend drug and non‐legend drug (OTC) prescriptions are reimbursed at the lesser of the following:

1. AAC plus a reasonable dispensing fee
2. The Usual and Customary (UAC) price charged the general public
3. The Gross Amount Due (GAD), if provided

The total reimbursement amount is determined by adding $7.93 (the fixed component) to the ingredient cost and dividing the sum by 0.9804 (the variable component). An additional $0.15 is added if the pharmacy has been certified as providing free delivery service to people enrolled in Medicaid. The total reimbursement includes the dispensing fee. The calculated dispensing fee is determined by subtracting the total ingredient cost from the calculated total amount. Another $0.50 is added if the pharmacy dispenses a premium preferred generic.

Value	Component
$7.93	Fixed component
0.9804	Variable component
$0.15	Delivery incentive (based on provider file) applied to all legend claims after all calculations are complete. Note: 340B pharmacies do not receive delivery incentive.
$0.50	Premium Preferred Generic (PPG) incentive applied to all Medicaid PPG drugs after all calculations are complete. Note: Incentive does not apply to $0.00 total payment amount claims.

For example, if the total ingredient cost of a drug is $10.00, the pharmacy's total reimbursement is calculated in the following way:

• $10.00 plus $7.93 = $17.93
• $17.93 divided by 0.9804 = $18.28 
• Pharmacies with a delivery agreement add $0.15 = $18.43 (calculated total amount)
• $18.43 - $10.00 = $8.43 (calculated dispensing fee)
• Pharmacies dispensing a premium preferred generic drug add $0.50 = $18.93 (total reimbursement paid)

If the submitted UAC or GAD price for this item is less than the amount calculated above, the pharmacy will receive payment for the UAC or GAD price. Pharmacy providers should submit their true UAC price for all claims.

The total dispensing fee shall not exceed $200 per prescription.

• Refer to the Enrollment section to learn about the delivery incentive.
• Refer to the Drug Policy section to learn about premium preferred generic drugs.
• Refer to the 340B Resources section to learn more about requirements for the 340B Drug Pricing Program eligible pharmacies.

Certain products may differ from this reimbursed calculation, such as home health supplies, vitamin and minerals, influenza vaccines, and long-acting injectables. Refer to the Formulary search (txvendordrug.com/formulary/formulary-search), and the drug pricing details of each drug for information on specific pricing.