Complaint - Heritage and Evergreen v. NY DOH

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
HERITAGE HEALTH AND HOUSING, INC., and

EHS, INC. d/b/a EVERGREEN HEALTH,
AMENDED
Plaintiffs, COMPLAINT
-against-
NEW YORK STATE DEPARTMENT OF HEALTH and Index No.: 651441 /2023
JAMES V. McDONALD, M.D., M.P.H., in his capacity
as the Acting Commissioner of Health,
Defendants.
Plaintiffs Heritage Health and Housing, Inc., and EHS, Inc. d/b/a Evergreen Health, by and
through their attorneys, O' Connell & Aronowitz, P.C., as and for their Amended Complaint against
Defendants, respectfully allege as follows:
PARTIES
1. Plaintiff Heritage Health and Housing, Inc. ("Heritage"), is a domestic not-for-profit
corporation with a principal place of business located at 41 6 W. 127th Street, New York, New York.
2. Formerly known as the Washington Heights-West Harlem-Inwood Mental Health
Council, Inc., Heritage traces its origins to the 1967 assembly of a group of community activists who
were concerned about the lack of medical care and mental health services in the Central Harlem,
Washington Heights and Inwood neighborhoods of New York City.
3. Today, Heritage is a not-for-profit corporation that, among other things, operates Heritage
HealthCare Center, a federally qualified health center ("FQHC") located in Harlem, a distressed area
that was the epicenter of the COVID pandemic. The FQHC has a mission to provide innovative, high-
quality and comprehensive health care, dental and psychosocial services to medically underserved
communities in New York City. Services at the HealthCare Center include Internal Medicine, Family
Medicine, Pediatrics, HIV/ AIDS, Gastroenterology (including treatment of liver disease and ulcerative
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colitis), Dental, Podiatry, Cardiology (including Cardiovascular Risk Reduction and Diabetes testing and
treatment), Behavioral Health Services (including PsychiatJ.y and Psychotherapy), and a school-based
Health Center.
4. Of the Heritage patients who reported their race upon intake, 40% identified as being
Hispanic, while another 33.5% identified as being Black. Approximately 300 individuals out of its total
patient population of 5500 persons receive treatment for HIV/AIDS.
5. Fifty-seven percent of Heritage's patient population 1s eligible to receive medical
assistance ("Medicaid").
6. Eighteen percent of Heritage's patients are on Medicare, while another 10% of the
persons who treat at Heritage are uninsured.
7. Plaintiff EHS, Inc. d/b/a Evergreen Health ("Evergreen") is a domestic not-for-profit
corporation with a principal place of business located at 206 South Elmwood A venue, Buffalo, New
York.
8. Evergreen was originally founded by a group of volunteers in 1983 as Buffalo AIDS Task
Force, Inc., to address the HIV and AIDS crisis in Western New York. As breakthroughs in medical
therapy were made for HIV and other sexually transmitted infections/diseases, the organization
expanded its range of services beyond HIV care to meet the needs of the communities that it serves.
9. Evergreen is an organization with over 500 employees, 6 service locations in two
counties, 10 buildings and approximately 24,000 patients. Its roots are in serving those who were rejected
by the health care system during the AIDS crisis, and it continues to prioritize caring for the health and
wellness of underserved communities. Its stated mission is to foster healthy communities by providing
medical, supportive and behavioral services to individuals and families in Western New York and in the
Southem Tier of New York - especially those in marginalized populations and/or challenged by chronic
or life-threatening diseases and disabilities, including HIV/AIDS.
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10. Today, Evergreen and its affiliates, Community Access Services, Inc., and the Pride
Center of Western New York, Inc., operate as a comprehensive healthcare delivery system where anyone
can receive unconditionally non-judgmental and affoming medical, dental, pharmacy, supportive and
behavioral health services under one roof. Among the types of services that Evergreen provides are
chronic illness support, HIV treatment and care, HIV prevention, LGBTQ health and transgender
specialty care, sexual health care, drug user health care, treatment and pharmacy services for Hepatitis
C, and healthcare for rural populations in the Southern Tier.
11. Of the Evergreen patients who reported their race upon intake, 23% identified as
Black/African-American, while another 13% identified as being Hispanic. More than 50% of its patients
are members of the LGBTQ+ community.
12. Approximately 54% of Evergreen's patient population is eligible for and receives
Medicaid.
13. Twenty percent of Evergreen' s patients are on Medicare, while another 3% of the persons
who treat at Evergreen are uninsured.
14. Upon information and belief, since the United States Supreme Court decision in Singleton
v. Wulff, 428 U.S. 106 (1976), courts have generally recognized health care providers' standing to pursue
constitutional and statutory claims on behalf of their patients.
15. Pursuant to that authority, Heritage and Evergreen are acting on behalf of their patients
who will be adversely impacted should Defendants implement what is described herein as "the 340B
Carveout."
16. Upon information and belief, Defendant New York State Department of Health ("DOH")
is a department/agency of the State of New York. DOH was established pursuant to § 200 of the New
York Public Health Law ("PHL"), and it maintains principal offices at Empire Plaza, Corning Tower,
Albany, New York.
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17. Upon information and belief, DOH maintains a Regional Office at 90 Church Street, 13 th
Floor, New York, New York.
18. Upon information and belief, pursuant to PHL § 201 (1 )(v), DOH serves as the single state
agency for Medicaid, with responsibility for supervising the State's plan for Medicaid, and for adopting
regulations as may be necessary to implement that plan.
19. Upon information and belief, pursuant to PHL § 201(1 )(p), DOH shall "receive and
expend fund s made available for public health purposes pursuant to law."
20. Upon information and belief, the stated mission of DOH is to "protect, improve and
promote the health, productivity and wellbeing of all New Yorkers" (emphasis added).
21. Upon information and belief, one of the strategic priorities articulated in DOH's current
departmental Strategic Plan is the need to "champion health equity." Through its Office of Minority
Health & Health Disparities Prevention, Office of Public Health, and Office of Quality and Patient
Safety, DOH asserts that it will meet this strategic priority by " [i]dentify[ing] and mitigat[ing] instances
where socioeconomic factors impact health and health care quality."
22. Upon information and belief, in 2022, DOH submitted to the federal Centers for Medicaid
and Medicare Services ("CMS") a Medicaid waiver proposal entitled "Strategic Health Equity Reform
Payment Arrangements: Making Targeted, Evidence-Based Investments to Address the Health
Disparities Exacerbated by the COVID-1 9 Pandemic." DOH stated that it sought the Medicaid waiver
to "lay the groundwork for reducing long standing racial, disability-related, and socioeconomic health
disparities, increase health equity through measurable improvement of clinical quality and outcomes,
and keep the overall Medicaid program expenditures neutral to the federal government."
23. Upon information and belief, DOH's Medicaid waiver proposal was purportedly
structured to advance health equity, with the agency' s focus on the following subsidiary goals:
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(a) building a more resilient, flexible and integrated delivery system that reduces health disparities,
promotes health equity, and supports the delivery of social care; (b) developing and strengthening
supportive housing services and alternatives for the homeless and long-term institutional populations;
and (c) redesigning and strengthening system capabilities to improve quality, advance health equity, and
address workforce shortages.
24. Upon information and belief, on or about January 1, 2023, Defendant James V.
McDonald, M.D., M.P.H., was appointed Acting Commissioner of Health, and he presently serves in
that official capacity.
25. This lawsuit has been commenced because DOH's laudable but ultimately empty words
are belied by its racist, discriminatory actions. While DOH pays lip service to and articulates politically
correct goals such as reducing health disparities, especially among underserved communities including
communities of color, through the planned conduct underlying this lawsuit, DOH will intentionally
enhance those disparities. As discussed more fully herein, by pressing forward with an illegal and
discriminatory plan that will radically alter how the Medicaid pharmacy benefit in New York operates,
DOH will wreak immeasurable harm upon New York's safety-net health care providers and the largely
low-income persons dependent upon those providers for their health care and medications. Heritage and
Evergreen respectfully request that this Court declare that plan, known as the 340B Carveout, illegal and
permanently enjoin Defendants from implementing it.
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RELEVANT FACTS
DOH Is the Single State Agency

Responsible For Administering the
Medicaid Program Within New York State:
26. Upon information and belief, created in 1965, the federal medical assistance ("Medicaid")
program is a joint federal-state program for furnishing and financing health care and services to
vulnerable and at-risk Americans.
27. Upon information and belief, Medicaid's stated purpose is:
[E]nabling each State, as far as practicable under the conditions in such State,
to furnish (1) medical assistance on behalf of families with dependent children
and of aged, blind or disabled individuals, whose income and resources are
insufficient to meet the costs of necessary medical services, and (2)
rehabilitation and other services to help such families and individuals attain
or retain capability for independence or self-care....
42 U.S.C. § 1396.
28. Upon information and belief, every state must designate a single state agency responsible
for establishing, and complying with, a state Medicaid plan. See 42 U.S .C. § 1396a(a)(5). Each state
Medicaid plan must be approved by the United States Department of Health and Human Services
("HHS") and must describe the policies and methods that the state will utilize to set reimbursement rates
for each type of Medicaid service provided. See 42 C.F.R. § 430.10 and 447.201(b).
29. Upon information and belief, when implementing its Medicaid program, each state is
required to "provide such safeguards as may be necessary to assure that ... care and services will be
provided, in a manner consistent with simplicity of administration and the best interest of its recipients."
42 U.S.C. § 1396a(a)(l 9).
30. Upon inf01mation and belief, DOH is the single state agency responsible for
administering the Medicaid program within New York State.
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The Federal 340B Program Generates
Needed Revenue for Safety-Net Providers:
31. Upon information and belief, to understand the 340B drug pricing program ("the 340B
Program") underlying this litigation, one must look back to 1990, when Congress created the Medicaid
drug rebate program ("MDRP") to lower the cost of pharmaceuticals reimbursed by state Medicaid
agencies. The MDRP requires drug companies to enter into a rebate agreement with HHS as a
precondition for their drugs being covered by Medicaid and Medicare Part B. Under the MDRP program,
a manufacturer must pay rebates to state Medicaid programs for "covered outpatient drugs," as defined
in the statute. The rebate amount for a brand name covered outpatient drug is based on the manufacturer's
"best price" for the drug in question.
32. Upon information and belief, in 1992, through Section 602 of the Veterans Health Care
Act, Congress created the 340B Program. See 42 U.S.C. § 256b et seq. In doing so, Congress extended
to safety-net providers the same kind of relief from high drug costs that Congress provided to the
Medicaid program with the MDRP.
33. Upon information and belief, the 340B Program requires drug manufacturers, as a
condition of their participation in Medicaid and Medicare Part B, to enter into an agreement with HHS.
Under these pharmaceutical pricing agreements ("PPAs"), the manufacturer agrees to provide front-end
discounts on covered outpatient drugs purchased by "covered entities" that serve the nation' s most
vulnerable patient populations. More than 700 drug manufacturers have elected to participate in the 340B
Program.
34. Upon information and belief, the definition of "covered entities" includes six categories
of hospitals: disproportionate share hospitals ("DSHS"), or hospitals which serve a "disproportionate"
share of low-income Medicaid or Medicare patients; children's hospitals and cancer hospitals exempt
from the Medicare prospective payment system; sole community hospitals; rural referral centers; and
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critical access hospitals. To be eligible to participate in the 340B Program, hospitals in each of these
categories must be (a) owned or operated by a state or local government; (b) a public or non-public non-
profit organization which is formally granted governmental powers by a state or local government; or
(c) a private non-profit organization that has a contract with a state or local government to provide care
to low-income individuals who do not qualify for Medicaid or Medicare.
35. Upon information and belief, the percentage of Medicare patients in 340B Program
hospitals that identify as Black is 69 percent higher than in non-340B Program hospitals and 63 percent
higher than in physician offices.
36. Upon information and belief, there are also ten categories of non-hospital entities that fall
within the definition of a "covered entity." These non-hospital covered entities include FQHCs; FQHC
" look-alikes"; state-operated AIDS drug assistance programs; tribal/urban Indian health centers; Ryan
White HIV/AIDS programs; and other federally funded specialized clinics (i.e., hemophilia,
tuberculosis) serving low-income patients. Eligibility for these non-hospital entities to participate in the
340B Program is based on whether the facility receives federal funding.
37. Upon information and belief, once admitted into the 340B Program, covered entities are
entitled to receive discounts on all eligible covered outpatient pharmaceuticals.
38. Upon information and belief, covered entities may only dispense drugs purchased with
340B Program discounts to "eligible patients." Although there are no income- or insurance-based
requirements for patient eligibility, covered entities may not dispense drugs purchased with 340B
Program discounts to patients who do not receive outpatient services at the covered entity. Specifically,
patients must have an established relationship with the covered entity, receive health care services from
a health care professional employed by the covered entity, and receive a health care service or range of
services consistent with the services for which federal funding has been provided to the entity. The
definition of an "eligible patient" precludes individuals who only receive prescription drugs from the
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covered entity (but no other health care services) from receiving drugs purchased with 340B Program
discounts.
39. Upon information and belief, the maximum amount that a drug manufacturer can charge
a covered entity for the purchase of a 340B Program covered drug is called the 340B Program "ceiling
price."
40. Upon information and belief, the 340B Program "ceiling price," which is calculated
according to a prescribed statutory formula, is lower than the amount other purchasers would pay for the
drug.
41. Upon information and belief, the 340B Program discount for brand name drugs is set at
23.1 percent off the drug's average manufacturers price ("AMP"); for generic drugs, the 340B Program
discount is 13.0 percent off AMP. The discount can be larger if the "best price" that a manufacturer
offers for a drug is lower than the minimum discount.
42. Upon information and belief, the 340B Program drug pricing discounts are intended to
"enable [covered entities] to stretch scarce Federal resources as far as possible, reaching more eligible
patients and providing more comprehensive services." H.R. Rep. No. 102-384, pt. 2 at 12 (1992) (conf.
rep01t).
43. Upon information and belief, because of the 340B Program discounts, health care
facilities are able to buy medications at a much cheaper rate and offer their patients treatments that they
otherwise could not afford. Furthermore, by turning a profit when insurance companies reimburse them
at full price for the pharmaceuticals purchased at the 340B Program discount price, the safety-net
providers are able to generate revenues that enable them to stretch scarce federal resources and provide
care for vulnerable populations.
44. Upon information and belief, safety-net providers use 340B Program savings to provide
critical programs that otherwise might not be fiscally possible. These programs include but are not
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limited to providing free or substantially discounted prescriptions to uninsured or low-income patients;
providing "wrap-around" support services needed to address social determinants that present barriers to
care; improving access to specialized care previously unavailable in underserved areas; establishing and
improving neighborhood clinics; bringing mobile units to communities with no local primary care
provider or pharmacy; creating multidisciplinary clinics to treat substance use and mental health
disorders; offering HIV prevention and care services that cannot be billed to Medicaid or other programs;
providing transportation to medical appointments; providing additional nurses for medical care; and
providing medical care for children in foster care.
45. In short, the 340B Program is a well-established, long-standing mechanism created by
Congress that successfully funnels money to safety-net providers to ensure that they have the necessary
resources to expand uncompensated care programs and to adequately care for their patients' health and
health-related social needs.
46. Upon information and belief, 340B Program funding is vital to covered entities because
of its predictability and flexibility. The 340B Program has created a reliable funding stream which is not
tied to grant cycles or state budgets. Moreover, because there are few restrictions as to how it is used (so
long as it is reinvested into health care related services), covered entities can direct the 340B Program
revenues where they are needed most.
47. Upon information and belief, use of the 340B Program revenues also leads to better health
outcomes for the patients of covered entities. For example, Ryan White clinics provide care for one-half
of the nation' s population with HIV/AIDS. One study has found that HIV/AIDS patients who receive
their drugs from a 340B Program provider have higher medication adherence rates than patients who do
not.
48. Upon information and belief, Heritage is an FQHC and is a "covered entity" as that term
is defined under the 340B Program.
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49. Upon information and belief, in 2022 alone, Heritage generated approximately $3. I
million in 340B Program revenues. As a result of those revenues, Heritage has been able to provide
uncompensated care and medications to many of its most vulnerable patients.
50. Upon information and belief, FQHCs such as Heritage provide health care to 1 in 11
people in the United States.
51. Upon information and belief, Evergreen is an FQHC "look-alike" and is a "covered
entity" as that term is defined under the 340B Program.
52. Upon information and belief, in 2022 alone, Evergreen generated approximately $14
million in 340B Program revenues from the patients that it billed through Medicaid managed care. As a
result of those revenues, Evergreen has been able to provide uncompensated care and medication to
many of its most vulnerable patients.
53. Upon information and belief, 340B Program revenues account for an average of 11 % of
the budgets of primary safety-net providers across New York State, and for some clinics, that number is
as high as 40%.
54. Upon information and belief, 340B Program revenues assist covered entities in New York
in providing critical health care services to nearly 2.3 million New Yorkers.
55. Upon information and belief, of the 2.3 million New Yorkers who receive critical health
care services from covered entities within the State, 71 % are persons of color, and 89% are classified as
being "low-income."
DOH Proposes the 340B Carveout:
56. Upon information and belief, in or about 2020, during the administration of former
Governor Andrew Cuomo, DOH announced a plan to change the pharmacy benefit for persons
participating in the State's Medicaid program. DOH proposed that the pharmacy benefit afforded to
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New York Medicaid recipients would be carved out of the State' s Medicaid managed care program, with
payment for medications covered under that benefit to be reimbursed on a fee-for-service ("FFS") basis.
This plan became known as "the 340B Carveout."
57. Upon information and belief, under Medicaid FFS, 340B Program providers must bill at
the acquisition cost for the drug in question.
58. Upon information and belief, because 340B Program providers under the 340B Carveout
would be required to bill at their acquisition cost for all drugs, the revenues that 340B Program safety-
net providers had been able to generate under the Medicaid managed care model would be eliminated,
as would many of the ancillary benefits that they derived from the 340B Program discounts.
If Implemented, the 340B Carveout Will Cause

Severe Disruption to New York Safetv-Net Providers
and the Vulnerable Populations That They Serve:
59. Upon information and belief, if the 340B Carveout is implemented, it will all but
eliminate the savings that safety-net providers have realized through the 340B Program and the revenues
on which covered entities have relied to meet the health care needs of New York's sickest and poorest
residents. The 340B Carveout would dramatically curtail the scope and reach of services presently
available to low-income medically underserved New Yorkers; it would unde1mine the fiscal stability of
critical front-line community providers; and it would devastate a safety-net system within New York
that is vital if the State truly wishes to address longstanding health disparities.
60. Upon information and belief, if the 340B Carveout is implemented, it will lead to an
estimated $250 million loss in 340B Program revenue that has been reinvested in care and services for
New York's most vulnerable populations:
• FQHCs alone stand to lose a collective $100 million in 340B Program revenue;
• A survey of just 15 Ryan White programs and other community health centers focused
on HIV prevention and care found that they would lose $56 million annually; and
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• A small subset of hospitals reported that they would lose an additional $87 million in the
first year of the 340B Carveout's implementation.
61. Upon information and belief, if the 340B Carveout is implemented, it will cause severe
disruption to New York safety-net providers and the vulnerable populations that they serve. Among the
havoc-wreaking impacts that the 340B Carveout will cause include the following:
• the community-based safety-net providers on whom vulnerable New Yorkers depend will
collectively lose over $250 million annually;
• safety-net providers will be forced to cut jobs and services;
• clinics in underserved communities will close, exacerbating inequities in access to care;

and
• efforts to prevent the spread of HIV will be compromised, as over $56 million will be
siphoned away from the HIV prevention and treatment efforts of Ryan White HIV/AIDS
programs.
62. As noted previously, in 2022 alone, Heritage generated approximately $3 .1 million in
340B Program revenues. Implementation of the 340B Carveout would be devastating to Heritage and
the patients who rely upon Heritage for their health care and medications. The 340B Carveout would
lead to the elimination of many programs that Heritage offers to the most needy (often uninsured) of its
patients, and given the narrow margins on which Heritage operates, implementation of the 340B
Carveout could hasten the closure of a facility desperately needed in Harlem.
63. Implementation of the 340B Carveout would cause Evergreen to lose $14 million in 340B
Program revenues, losses which would be devastating to Evergreen and the patients who rely upon
Evergreen for their health care and medications. The 340B Carveout would lead to the elimination of
many programs that Evergreen offers to the most needy of patients, and given the narrow margins on
which Evergreen operates, implementation of the 340B Carve out could hasten the closure of one or more
of the (six) Evergreen service locations desperately needed in the Buffalo metropolitan area or in the
Southern Tier of New York.
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Independent Studies Have Shown That New York
Medicaid Will Not Achieve the Savings That DOH
Expects to Realize Through the 340B Carveout:
64. Upon information and belief, DOH has attempted to justify the 340B Carveout by
claiming that the plan would generate $166 million in savings in the first year of the Carveout, shared
among the federal and state governments.
65. Upon information and belief, in 2020, the Menges Group, a Virginia-based consulting
firm that studies Medicaid and Medicare programs, issued a report that refuted the savings projected by
DOH under the 340B Carveout. Analyzing the likely impact of the 340B Carveout, the Menges Group
calculated that the State would actually lose $154 million in the first year of the 340B Carveout and a
total of $1.5 billion over five years, in large part due to the costs arising from avoidable inpatient and
emergency care. A copy of the report issued by the Menges Group is attached hereto as Exhibit A.
66. Upon information and belief, in addition, a 2022 report authored by the Wakely
Consulting Group ("the Wakely Report"), a healthcare actuarial consulting firm, estimated that not only
are savings from the 340B Carveout illusory but that the shift from Medicaid managed care to Medicaid
FFS will actually increase annual New York State-specific Medicaid pharmacy benefit expenditures by
more than $235 million in Fiscal Year 2023. A copy of the Wakely Report is attached as Exhibit B.
67. Upon information and belief, among the Wakely Report's key findings regarding the
financial impact of the 340B Carveout were the following:
• Ingredient Costs and Dispensing Fees: While the State would generate savings from
lower ingredient costs paid under the Medicaid FFS model, higher dispensing fees paid
to pharmacies would result in a net 7.5% increase in total expenditures.
• Drug Utilization Differences and Rebate Revenue: Wakely anticipates an increase in

costs due to a shift in utilization toward brand name drugs (and away from generic
drugs). Although the State would generate additional drug rebate revenue under the
340B Carveout, this would be due to increased brand name utilization with rebate
revenue unlikely to offset the higher brand name drug prices.
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• Administrative Cost Estimates: Wakely concluded that the State's estimates of
administrative savings are likely overstated because health plans will still need to
manage a broad range of pharmacy-related administrative functions, such as benefit
requests, case management and care coordination.
68. Upon information and belief, in addition to not achieving projected cost savings, moving
the pharmacy benefit from managed care to FFS will result in more fragmented care for those Medicaid
patients, particularly minority and underserved populations and individuals with complex health
conditions who rely on having their care integrated and coordinated across the health care spectrum.
69. Upon information and belief, the reduction in safety-net providers' ability to offer needed
services will lead to worsened health outcomes in the communities that they serve.
DOH Is Pressing Forward With

Implementation of the 340B Carveout:
70. Upon information and belief, the 340B Carveout was originally scheduled to take effect
on May 1, 2021.
71. Upon information and belief, after New York's safety-net providers worked with
community leaders and local advocacy groups to warn New York lawmakers about the serious fiscal and
social burdens that the 340B Carveout would cause if implemented, in or about April 2021, as part of
the 2021 budget legislation, implementation of the 340B Carveout was delayed until April 1, 2023.
72. Upon information and belief, despite the devastating impacts that the 340B Carveout, an
ill-conceived relic of the Cuomo era, would inflict upon New York's safety-net providers and the persons
who rely upon those providers for needed health care services, DOH is currently pressing forward with
plans to implement the 340B Carveout on April 1, 2023.
73. By reason of the foregoing, this Court is presented with a justiciable controversy.
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74. Neither Heritage nor Evergreen has previously made an application to any court for the
relief sought herein.
AS AND FOR A FIRST CAUSE OF ACTION

(New York Declaratory Judgment)
75. Plaintiffs repeat and reiterate the allegations of paragraphs 1 through 74 of this Amended
Complaint with the same force and effect as if each had been fully set forth herein.
76. Upon information and belief, CPLR 3001 provides that New York State Supreme Court
"may render a declaratory judgment having the effect of a final judgment as to the rights and other legal
relations of the parties to a justiciable controversy whether or not relief is or could be claimed. If the
court declines to render such a judgment it shall state its grounds ..."
77. Upon information and belief, Article VI, paragraph 2 of the United States Constitution,
commonly known as the Supremacy Clause, provides in pertinent part, "This Constitution, and the laws
of the United States which shall be made in pursuance thereof .. . shall be the supreme law of the land;
and judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the
contrary notwithstanding."
78. Upon information and belief, the 340B Carveout will all but eliminate the savings that
Congress intended safety-net providers to realize through the 340B Program and the revenues on which
these covered entities have relied to meet the health needs of New York's most vulnerable and needy
residents. The 340B Carveout would result in a dramatic reduction in the scope and reach of services
presently available to New Yorkers who rely upon safety-net providers for their health care and
medications.
79. Upon information and belief, the 340B Carveout impinges upon and reduces the
effectiveness of the federal 340B Program because it reduces the amount of money available to covered
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entities to fulfill their non-profit missions and to provide extra (uncompensated) medical and other
services to millions of New Yorkers, many of whom participate in the Medicaid program.
80. To the extent that Defendants' conduct impinges upon and reduces the effectiveness of
the federal 340B Program, it runs afoul of federal law and should be declared illegal.
81. Upon information and belief, a permanent injunction prohibiting Defendants from
implementing the 340B Carveout is necessary to avoid irreparable harm to Heritage, Evergreen and their
patients.
82. Upon information and belief, a permanent injunction prohibiting Defendants from
implementing the 340B Carveout is necessary to protect the broader public interest, including the 2.3
million New Yorkers who receive vital health care and medications from 340B covered entities within
the State.
83. By reason of the foregoing, Plaintiffs respectfully request that this Court issue an Order
declaring, pursuant to CPLR 3001 , that Defendants' 340B Carveout is illegal because it constitutes an
improper impingement upon the proper and intended functioning of the federal 340B Program, and
permanently enjoining Defendants from implementing the 340B Carveout.
AS AND FOR A SECOND CAUSE OF ACTION

(Discrimination in Violation of the Affordable Care Act)
85. Upon information and belief, on or about March 23, 2010, the Patient Protection and
Affordable Care Act ("ACA") was signed into law, representing the most significant regulatory overhaul
and expansion of health care coverage in the United States since the 1965 enactment of Medicaid and
Medicare.
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86. Upon information and belief, included in the ACA was a non-discrimination provision
that prohibits any federally funded or administered benefits program or activity from engaging in
discrimination. More specifically, Section 1557 of the ACA provides that "an individual shall not ... be
excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any
health program or activity, any part of which is receiving Federal financial assistance, including credits,
subsidies, or contents of insurance, or under any program or activity that is administered by an Executive
Agency or any entity established under this title (or amendments)." 42 U.S.C. § 18116(a).
87. Upon information and belief, Section 1557 of the ACA prohibits discrimination in health
care on the grounds set forth in four pre-existing civil rights statutes: Title VI of the Civil Rights Act of
1564 (42 U .S.C. § 2000d et seq.) (race, color or national origin); Title IX of the Education Amendments
of 1972 (20 U.S.C. § 1681 et seq.) (sex/gender), the Age Discrimination Act of 1975 (42 U.S.C. § 6101
et seq.) (age), and the Rehabilitation Act of 1974 (29 U.S.C. § 794) (disability).
88. Upon information and belief, the New York Medicaid program administered by DOH is
a "health program or activity" which is "receiving federal financial assistance" and, therefore, is subject
to Section l 557's non-discrimination provision.
89. Upon information and belief, because each of the four civil rights statutes referenced in
Section 1557 provides for a private right of action, federal courts have held that Section 1557 allows
aggrieved persons to bring a private right of action for damages and attorneys' fees.
90. Upon information and belief, HHS ' s Office of Civil Rights ("OCR") has interpreted
Section 1557 "as authorizing a private right of action for claims of disparate impact discrimination on
the basis of any of the criteria enumerated in the legislation." 81 Fed. Reg. 31440 (2016).
91. Upon information and belief, DOH's planned implementation of the 340B Carveout will
significantly, adversely and disproportionately impact New York Medicaid recipients, including
(01 2 15556 SJ 18
Heritage and Evergreen patients that participate in Medicaid, on the basis of their race, color and/or
national origin.
92. By reason of the foregoing, Defendants' discriminatory action will disproportionately
deny Heritage and Evergreen patients of the full and equal enjoyment of the benefits, services, facilities,
privileges and advantages available under the federal-state Medicaid and federal 340B Programs on the
basis of their race, color and/or national origin.
93. By reason of the disproportionately minority composition of their patient populations,
Defendants' discriminatory action will deny Heritage and Evergreen of the full and equal enjoyment of
the benefits, services, facilities and advantages available under the federal-state Medicaid and federal
340B Programs on the basis of race, color and/or national origin.
94. Upon information and belief, those individuals diagnosed with human immunodeficiency
virus (HIV)/acquired immunodeficiency syndrome (AIDS), whether symptomatic or asymptomatic,
suffer from a "disability" as that term is defined in the Rehabilitation Act.
95. Upon information and belief, in light of the Supreme Court's decision in Bostock v.
Clayton County, 140 S. Ct. 173 1 (2020), federal discrimination laws that prohibit discrimination because
of sex or gender include discrimination against members of the LGBTQ+ community.
96. Upon information and belief, DOH's planned implementation of the 340B Carveout will
significantly, adversely and disproportionality impact members of the LGBTQ+ community and New
York Medicaid recipients with HIV/AIDS, including Heritage and Evergreen patients that participate in
Medicaid, on the basis of sex and/or disability.
97. By reason of the foregoing, Defendants' discriminatory action will disproportionately
deny Heritage and Evergreen patients of the full and equal enjoyment of the benefits, services, facilities,
privileges and advantages under the federal-state Medicaid and federal 340B Programs on the basis of
sex and/or disability.
{01215556 5) 19
98. By reason of the foregoing, Defendants' discriminatory action will deny Heritage and
Evergreen of the full and equal enjoyment of the benefits, services, facilities and advantages under the
federal-state Medicaid and federal 340B Program on the basis of sex and/or disability.
99. Upon information and belief, Defendants DOH and McDonald knew or should have
known that the 340B Carveout would disproportionately impact persons of color, members of the
LGBTQ+ community, and persons with HIV/AIDS, including the Heritage and Evergreen patients
described herein.
100. Upon information and belief, Defendants DOH and McDonald knew or should have
known that the 340B Carveout would disproportionately impact 340B Program providers such as
Heritage and Evergreen who provide needed care to New York's communities of color, members of the
LGBTQ+ community and persons with HIV/AIDS.
101. By reason of the foregoing, the discriminatory conduct of Defendants DOH and
McDonald, in violation of the ACA, is intentional and willful.
102. By reason of the foregoing, Plaintiffs request that the Court issue an Order declaring that
Defendants' 340B Carveout violates Section 1557 of the ACA by discriminating against Plaintiffs, their
patients, and all similarly situated persons or providers due to sex, disability, race, color and/or national
origin, and permanently enjoining Defendants from implementing the 340B Carveout.
AS AND FOR A THIRD CAUSE OF ACTION

(Equal Protection Clause of the United States Constitution)
103. Plaintiffs repeat and reallege the allegations of paragraphs 1 through 102 of this Amended
Complaint as if each had been fully set forth herein.
104. The Fourteenth Amendment to the United States Constitution provides:
No State shall make or enforce any law which shall abridge the privileges or
immunities of citizens of the United States; nor shall any State deprive any
{01215556.5) 20
person of life, liberty, or property, without due process of law; nor deny to any
person within its jurisdiction the equal protection of the laws.
105. Upon information and belief, Heritage is a covered entity that participates in the federal-
state Medicaid program.
106. Upon information and belief, Evergreen is a covered entity that participates in the federal-
state Medicaid program
107. Upon information and belief, Heritage is a covered entity that also participates in the
340B Program and enjoys the benefits, services, privileges and advantages afforded to participants in
that federal program.
I 08. Upon information and belief, Evergreen is a covered entity that also participates in the
340B Program and enjoys the benefits, services, privileges and advantages afforded to participants in
that federal program.
109. Upon information and belief, if Defendants' 340B Carveout is implemented, Heritage,
Evergreen and other safety-net providers in New York State will be deprived of the revenues that they
had been able to generate under the 340B Program, while similarly-situated covered entities in other
states will continue to be able to generate 340B Program revenues.
Evergreen and other safety-net providers in New York State will be unable to offer to their patients the
ancillary benefits derived from the 340B Program discounts, while similarly-situated covered entities in
other states will continue to be able to offer such benefits to their patients.
111. Upon information and belief, if Defendants' 340B Carveout is implemented, patients of
Heritage and Evergreen will be deprived of the full enjoyment of the benefits, services, facilities,
privileges and advantages available under the federal-state Medicaid and federal 340B Programs.
112. Upon information and belief, if Defendants' 340B Carveout is implemented, patients of
Heritage and Evergreen will be deprived of the full enjoyment of the benefits, services, facilities,
(01215556,5) 21
privileges and advantages available under the federal-state Medicaid and federal 340B Programs, while
similarly-situated persons in other states will not be so adversely impacted.
113. Upon information and belief, DOH bas attempted to justify the 340B Carveout by
claiming that the plan would generate significant savings which would be shared among the federal and
state governments.
114. Upon information and belief, the reports issued by the Menges Group and the Wakely
Consulting Group (referenced above) collectively illustrate that not only are the desired savings from
the 340B Carveout illusory but that the shift from Medicaid managed care to Medicaid FFS will actually
increase annual New York State-specific Medicaid pharmacy benefit expenditures.
115. By reason of the foregoing, Defendants' decision to implement a program that will cause
Heritage, Evergreen and their patients to be treated differently from similarly-situated persons in other
states is not rationally related to a legitimate governmental purpose.
116. By reason of the foregoing, if Defendants' 340B Carveout is implemented, Defendants
will violate the rights of Heritage, Evergreen and their patients under the Equal Protection Clause of the
Fourteenth Amendment to the United States Constitution.
117. By reason of the foregoing, Plaintiffs request that the Court issue an Order declaring that
Defendants' 340B Carveout violates the rights of Heritage, Evergreen and their patients under the Equal
Protection Clause of the Fourteenth Amendment to the United States Constitution, and permanently
enjoining Defendants from implementing the 340B Carveout.
AS AND FOR A FOURTH CAUSE OF ACTION

(Violation of Equal Protection and Non-Discrimination
Provisions of the New York Constitution)
(0 12 15556.5) 22
119. Upon information and belief, Article I, Section 11 of the New York State Constitution
provides as follows:
No person shall be denied the equal protection of the laws of this state or any
subdivision thereof. No person shall, because of race, color, creed or religion, be
subjected to any discrimination in his or her civil rights by any other person or
by any firm, corporation, or institution, or by the state or any agency or
subdivision of the state.
Evergreen and their patients will be deprived of their rights under the Equal Protection Clause of the New
York State Constitution.
Evergreen and their patients will suffer discrimination on the basis of sex, sexual orientation, gender
identity or expression, disability, race, color or creed in violation of the protections afforded to them
under the New York State Constitution.
122. By reason of the foregoing, Plaintiffs respectfully request that this Court enter an Order
declaring that Defendants' 340B Carveout violates the rights of Heritage, Evergreen and their patients
under the equal protection and non-discrimination provisions of Article 1, Section 11 of the New York
State Constitution, and permanently enjoining Defendants from implementing the 340B Carveout.
WHEREFORE, Plaintiffs Heritage Health and Housing, Inc., and EHS, Inc. d/b/a Evergreen
Health respectfully request that the Court enter a judgment in their favor and against Defendants as
follows:
(a) on the first cause of action, issuing an Order declaring that Defendants' 340B Carveout
is illegal because it constitutes an improper impingement upon the proper and intended
functioning of the federal 340B Program, and permanently enjoining Defendants from
implementing the 340B Carveout;
(b) on the second cause of action, issuing an Order declaring that Defendants' 340B Carveout
violates Section 1557 of the ACA (42 U.S.C. § 18116), by discriminating against
Heritage, Evergreen and their patients on the basis of sex, disability, race, color and/or
national origin, and permanently enjoining Defendants from implementing the 340B
Carveout;
(01215556,5} 23
(c) on the third cause of action, issuing an Order declaring that Defendants' 340B Carveout
violates the rights of Heritage, Evergreen and their patients under the Equal Protection
Clause of the Fourteenth Amendment to the United States Constitution, and permanently
enjoining Defendants from implementing the 340B Carveout;
(d) on the fourth cause of action, issuing an Order declaring that Defendants' 340B Carveout
violates the rights of Heritage, Evergreen and their patients under the equal protection
and non-discrimination provisions of Article 1, Section 11 of the New York State
Constitution, and permanently enjoining Defendants from implementing the 340B
Carveout;
(e) awarding to Plaintiffs their reasonable attorneys' fees and costs, as permitted by law; and
(f) awarding to Plaintiffs such other and further relief as the Court may deem just and proper.
DATED: March 24, 2023 O'CONNELL & ARONOWITZ, P.C.

Albany, New York
By:
Brian M. Culnan, Esq.

Attorneys for Plaintiffs
54 State Street, 9 th Floor
Albany NY 12207-2501
(518) 462-5601
bculnan@oalaw.com
(01 2 15556 5) 24
EXHIBIT A
Jhe Menges Group]
Strategic Health Policy & Cate Coordination Consulting
Why New York Should Maintain its

Medicaid Pharmacy Carve-In Approach
October 1, 2020
KEY FINDINGS
• Fiscal Impact - Carve-Out Will Cost State Significantly: The pharmacy carve-out will
cost New York an estimated SI 54 million during the first year of implementation and
SI .5 billion over five years.
• Carve-In Savings Track-Record: Savings from a carvc-in approach arc based in part on
evidence from New York and other states showing the carve-in model has yielded
savings of more than 20% relative to the carve-out model. The fce-for-service setting has
had ample opportunity to yield savings - in New York and nationally - but has not done
• Inaccurate 1)01.1 Fiscal Forecast: The Department of Health’s fiscal forecast for the
carve-out does not address the key components that will lead to higher costs - including
drug mix and premium tax impacts - and overestimates savings such as in administrative
• Undermining Consumer Care: New York has been a leader in creating an integrated
system of managed care coordination that emphasizes quality and robust care access for
Medicaid consumers. A drug benefit carve-out will undermine integrated care
coordination and adversely impact quality for consumers.
Prepared for:
New York Health Plan Association
Coalition of New York State Public Health Plans
Prepared by:
Alex Cohn, Joel Menges,
Amira Mouna, and Grace Williams
The Menges Group]
Strategic Health Policy & Care Coordination Consulting
Table of Contents
i. Executive Summary 1
II. The Carve-Out Model Will Cost the State Significantly .4
Derivation of Cost Impacts
Step 1 : Establish Baseline Costs
Step 2: Trend Baseline Costs to Upcoming State Fiscal Years
Step 3: Estimate Percentage Impacts of Carve-In on Pharmacy Expenditures
a. Progression of New York costs in comparison with the rest of the USA;
b. Progression of all 2011 carve-out states; and
c. Experience of 16 FFS states (where 95% or more of Medicaid

prescriptions have been paid in the FFS setting).
Step 4: Estimate Carve-In Savings Due to Reduced Risk Margin Payments to MCOs
Step 5: Administrative Cost Impacts
Step 6: Estimating Premium Tax Impacts on State Funds
Step 7: Estimate Overall Net Impacts of the Carve-Out Approach
III. New York State’s Pharmacy Carve-Out Savings Estimates Are

Flawed and Opaque 14
IV. The Carve-Out Will Undermine Quality Care 18
A. Benefits of the Carve-In Model for Members 18
B. Considerations for Specialized Care: A Focus on the HIV Special

Needs Plan Program .20
V. Conclusion .24
APPENDICES
A. Methodology and Data Sources .25
B. Additional Analyses of States’ Carve-Out Versus Carve-In

Experience .27
C. Compilation of Efforts New York MCOs are Making to Facilitate

Member Access and Adherence to Medications 32
The Menges Group]
I. Executive Summary
Overview
In April 2020, Governor Cuomo signed the SFY2021 budget mandating that the Medicaid
prescription drug benefit be “carved out” of the Medicaid managed care program and be
administered in the fee-for-service (FFS) setting. The core objective of this policy change is to
yield Medicaid savings.
Carving pharmacy benefits out of the Medicaid Managed Care Organizations’ (MCO) plan
benefit package will cost the state $154 million in the first year, based on a proven history of
savings when the pharmacy benefit has been carved-in to the MCO benefit compared to carve-
out models. These additional costs are projected to more than double in the subsequent year, with
cumulative state costs across the first five years of the carve-out totaling $1.5 billion. Moreover,
the savings analysis by the Department of Health (DOH) is in some parts flawed - for example,
failing to account for a carve-in model’s enhanced ability to lower the use of more expensive
drugs. Further, the move to a pharmacy carve-out undermines the State’s policy goals of
improving quality through care integration, which will adversely impact consumer care.
Numerous alternatives exist for State savings while maintaining a carve-in model including:
ending prescriber prevails, increasing the use of the Drug Utilization Review Board (DURB) and
allowing plans to use step-therapy.
The New York Health Plan Association and the Coalition of New York State Public Health Plans
engaged The Menges Group to assess the financial and programmatic impacts of New York’s
proposed carve-out of the Medicaid pharmacy benefit.
Key Findings
The carve-out approach will result in increased Medicaid costs and diminished integration and
care coordination.
1. State Costs Will Increase $154 Million During Year 1 of a Medicaid Prescription
Drug Benefit Carve-Out Implementation and $1.5 Billion Over Five Years.
These estimates are derived through extensive data analyses of Medicaid pharmacy costs in the
carve-in and carve-out settings. Our analyses are based on net costs per prescription, which take
into account both the price (including initial ingredient and dispensing fee payments and all
rebates) and drug mix for all Medicaid prescriptions in each state and each year:
• New York Has Saved with a Carve-in Approach: New York switched from a carve-
out to a carve-in approach in 201 1 . Comparisons of New York’s costs (relative to
national Medicaid pharmacy costs) since implementing this policy change show that New
York achieved a 21.4% savings on MCO-paid prescriptions compared to the rest of the
nation during FFY 2019 by using a pharmacy carve-in model.
1
The Menges Group |
• States that Switched to a Carve-in Approach Spend Less than States that Retained
a Carve-Out Approach: An 18.4% increase in net cost (post-rebate) per prescription
occurred across states that retained their carve-out model between FFYs 2011 and 2019.
In stark contrast, states that switched to a carve-in during this timeframe (one of which is
New York) collectively experienced a 1.2% decrease in net cost per prescription.
• Fee-For-Service States Paid More: Data tabulations for all 16 FFS-dominant states -
where 95% or more of Medicaid prescriptions have been paid in the FFS setting - shows
performance on net costs per prescription were 15% below New York in FFY 2011 but
ballooned to 16% above New York as of FFY 2019. The FFS carve-out model has had
ample opportunity to yield Medicaid cost savings, but has failed to do so1.
Each of the analyses above conclude that a carve-in is more cost-effective than a carve-out. Our
overall fiscal impact estimate averages the results of these analyses and includes all offsetting
savings from a carve-out model.
DOH has projected state savings of $125 million in the first year of the carve-out. We estimate
that the overall New York State costs in the upcoming fiscal year will be $279 million higher
than are currently forecasted - adding together the $125 million savings that will not happen and
the $154 million additional cost that will occur if the carve-out is implemented. These adverse
fiscal impacts are expected to become far larger in each subsequent year under the carve-out.
2. The Carve-Out Will Undermine Quality of Care for Medicaid Patients.
New York’s MCOs have developed integrated staff, information systems, and care coordination
processes that function optimally under a carve-in model which includes all Medicaid-covered
services. Prescription drugs are a core benefit - pulling prescription drugs out of this integrated
structure will undermine care coordination and ultimately diminish care quality for Medicaid
members, especially those with chronic illnesses.
Policy Recommendations
Reject the Costly Pharmacy Carve-Out that Will Undermine Quality and Find Savings
within the Carve-in Model. Our analyses demonstrate switching to a carve-out approach will
significantly increase Medicaid costs and undermine quality improvements achieved through the
integrated care model that the State and its MCO partners have worked to develop. Instead, DOH
should seek cost-saving alternatives within the carve-in model.
1. Focus on Drug Mix, Not Just Price: MCOs and their PBMs have successfully managed
both the mix and the price of drugs. Recent Medicaid pharmacy benefit policy initiatives -
such as New York’s carve-out - focus on drug prices and do not adequately address the mix
of drugs. The best remedy for a high-priced drug often involves not using it when clinically
effective lower-cost alternatives are available. Negotiating a rebate discount can still result in
1 These data were tabulated using CMS state drug utilization data files for FFY 2019. We identified 16 FFS-
dominant states - where 95% or more of Medicaid prescriptions were paid in the FFS setting.
2
The Menges Group
a higher net cost than the available alternatives and may not achieve net savings. MCOs have
been more successful than FFS in this area, while also implementing strong processes to
facilitate access and adherence to needed medication regimens. At best, the carve-out will
result in better prices for brand drugs; however, evidence demonstrates that gains in this area
are far outweighed by the forfeiture of optimally cost-effective drug mix management.
2. Preserve Quality Integrated Care: Over the past decade, New York has put tremendous
effort into converting Medicaid to a highly coordinated system of care and coverage for low-
income residents. Pharmacy is an integral component of member’s overall health and care.
Moving the pharmacy benefit outside of this coordinated system will undermine plans’
ability to manage this critical aspect of members’ healthcare and hinder their ability to access
important data. This ultimately will lead to decreased quality outcomes for consumers.
3. Accurately Estimate and Fully Share Fiscal Impact Estimates: DOH’s savings estimate
does not clearly account for all costs, including ongoing administrative expenses and lost
premium taxes. The continuation of existing administrative costs related to managing the
Medicaid drug benefit in a switch to a carve-out appear to be missing in DOH’s estimate.
DOH estimates it will no longer need to pay for MCOs’ collective annual pharmacy-related
administrative costs of $285 million, and that the costs of replacing these functions in the
carve-out setting will be just $43 million (meaning 85% of current administrative costs
would be eliminated). DOH expects the MCOs to remain active partners in managing the
pharmacy benefit, but appears not to account for the ongoing administrative expense this
entails. Further, DOH appears not to have accounted for lost premium tax attributable to the
carve-out. DOH should also provide a transparent detailed written document conveying all
aspects of its fiscal impact calculations.
4. Other Cost-Savings Opportunities Within the Carve-In Model Exist: New York’s health
plans are aligned with DOH in seeking pharmacy savings and welcome the opportunity to
work with DOH to determine the most appropriate steps to achieve savings within a carve-in
model.
3
The Menges Group)
II. The Carve-Out Model Will Significantly Increase State Costs
We estimate that the cost ofpharmacy carve-out to New York State will be $154 million during
the first year of implementation, with these costs more than doubling in the ensuing year and
accumulating to $1.5 billion over five years. Substantial additional costs will be bome by the
federal government.
Derivation of Cost Impacts
A description of each step taken to produce these estimates is presented in the narrative below.
Step 1: Establish Baseline Costs
We used New York’s FFY 2019 net costs for MCO-paid prescriptions of $2.7 billion as our
baseline. This figure was derived through our tabulations using the State Drug Utilization Data
files for pre-rebate costs, along with an average rebate of 51.7%.
Step 2: Trend Baseline Costs to Upcoming State Fiscal Years
To estimate upcoming pharmacy costs under the existing carve-in model, we derived an average
annual increase of 5.24% in pharmacy expenditures across New York’s Medicaid MCOs during
the five-year timeframe FFY 2014 - FFY 2019. This trend factor captures changes in the volume
of MCO-paid prescriptions (e.g., those driven by Medicaid enrollment increases) as well as
changes in Medicaid costs per prescription. This annual cost trend was used throughout the cost
estimation timeframe, with a 30-month trend used to estimate cost inflation between the mid
point of FFY 2019 and SFY 2021-22. Cost projections were produced for each of the five New
York State fiscal years beginning with SFY 2021-22 and totaled across these five years.
Note that the FFY 2019 data do not capture the Medicaid enrollment increases that are occurring
due to the COVID-19 pandemic, nor have we specifically estimated COVID-induced increases
in enrollment from SFY 2021-22 forward.
Step 3: Estimate Percentage Impacts of Carve-In on Pharmacy Expenditures
We have quantified the cost differential between the carve-in and carve-out approaches in three
ways,2 taking advantage of the vast experience data available in both settings:
a. Progression of New York costs in comparison with the rest of the USA;
b. Progression of all 2011 carve-out states; and
c. Experience of 16 FFS states (where 95% or more of Medicaid prescriptions have

been paid in the FFS setting).
2 Additional analyses demonstrating the cost-effectiveness of the MCOs’ efforts within various therapeutic classes
and within high-cost curative Hepatitis C medications are presented in Appendix B.
4
The Menges Group]
Each approach considers all Medicaid prescriptions in each state, the MCOs’ share of these
prescriptions, initial ingredient costs, dispensing fees, statutory rebates, and supplemental
rebates. All of our assessments involved hundreds of millions of annual prescriptions. Our
analyses focused on statewide costs per Medicaid prescription for all Medicaid prescriptions to
avoid any distortions that might be created by MCO enrollees having a different mix of health
conditions than the Medicaid FFS enrollees in these same states.
a. Progression of New York Costs as Compared with the Rest of the Nation
Demonstrated Cost Savings. New York transitioned its pharmacy benefit from FFS to Managed
Care beginning in SFY 2012. Because the vast majority of New York’s Medicaid population had
their benefits administered through MCOs at that time, this policy change resulted in 77% of
Medicaid prescriptions being paid by MCOs during that same year (Exhibit 1). Under the carve
in, New York’s net costs per Medicaid prescription decreased by 13.3% in 2012 versus 2011,
compared to an increase of 1.6% in the rest of the US (excluding New York). In FFY 2013, net
Medicaid costs per prescription continued to decrease by 13.6%, with 83% of statewide
Medicaid prescriptions being administered through MCOs. We note that the 10.2% increase the
State incurred in 2014 is likely a function of the introduction of the high-cost hepatitis C drugs,
such as Sovaldi.
Significantly, during the first eightyears of the pharmacy benefit carve-in to Managed Care
(2012-19), net costs per prescription for all New York Medicaid prescriptions decreased by
8.9%. This decrease is even more significant considering the rest of the nation (excluding New
York) experienced an overall increase of 8.9% in net costs per prescription during the same time
period (Exhibit B-l in Appendix B). New York’s carve-in net decrease is likely even larger due
to the fact that the decrease includes prescriptions still filled through FFS - in FFY 2019, 16.9%
of New York’s Medicaid prescriptions were paid FFS. When adjusting for the FFS performance,
we estimate that New York achieved a 21 .4% savings on MCO-paid prescriptions compared to
the rest of the nation during FFY 2019.
Generic Dispensing Rate. Another important performance metric for pharmacy benefits
management is generics as a percentage of all Medicaid prescriptions. New York’s generic
dispensing rate across all Medicaid prescriptions increased by 1 1 .4 percentage points between
the last year of the carve-out (2011) and the first year of the carve-in approach (2012). In
comparison, the increase in generics as a share of all Medicaid prescriptions for the rest of the
nation (excluding New York) was just 3.8 percentage points. By 2019, 88.8% of all New York
Medicaid prescriptions filled were comprised of generic drugs (Exhibit 1).
5
[ The Menges Group |
Exhibit 1: New York’s Medicaid Prescription Drug Costs, FFY 2010-20193
% of Net (Post Percent
Prescriptions Rebate) Change in Net Total Generic
Paid for by Cost Per Cost Per Rebates Per Dispensing
MCOs Prescription Prescription Prescription Rate
FFY2010 0.1% $43.66 $42.28 61.9%
FFY2011 0.2% $44.31 1.5% $43.37 68.1%
FFY2012 77.0% $38,43 -13,3% $34.25 79.5%
FFY2013 82.8% $33.19 -13.6% $32,81 85,3%
FFY2014 84.6% $36.59 10.2% $37.22 86.7%
FFY2015 85,9% $38,47 5.1% $38.87 87.9%
FFY2016 86.3% $39,96 3.9% $41.18 88.2%
FFY2017 89.3% $41,18 3.0% $43.28 88.3%
FFY2018 86.6% $41.01 -0.4% $43.72 88.1%
FFY2019 83.1% $40.37 -1.6% $43.23 88.8%
Percent or
Percentage Point
Change, 2011-2019 82.9% -8.9% NA -0.3% 20.7%
b. Progression of All 2011 Carve-Out States
Prior to 201 1, 13 states with Medicaid managed care plans, including New York, used a
pharmacy benefit carve-out approach. The carve-out approaches were driven by the fact that
prior to passage of the Affordable Care Act (ACA), the large statutory rebates applied only to
Medicaid prescriptions paid in the FFS setting.
Following passage of the ACA in 201 1, ten states (Delaware, Illinois, Indiana, Iowa, Nebraska,
New York, Ohio, Texas, Utah, and West Virginia) carved the Medicaid prescription drug benefit
into their integrated, comprehensive benefit package. We compared the experiences of these
states (with the exception of West Virginia, which returned to a carve-out model in 2017) to
those of Missouri, Tennessee, and Wisconsin, who retained the pharmacy benefit in FFS (Exhibit
2), and found significant differences in both cost savings and proportion of generics prescribed.
Our analysis showed that:
• The three states that retained the pharmacy benefit carved out of managed care
between FFY 2011 and FFY 2019 saw an 18.4% increase in net cost (post-rebate) per
prescription.
• In contrast, states that switched to a carve-in during this timeframe collectively
experienced a 1 .2% decrease in net cost per prescription when including New York,
and an increase of 4.7% across the other eight states (excluding New York).
3 Peach highlighting in FFY 2012 indicates the first full year of the prescription drug carve-in in New York.
6
The Menges Group)
• Similarly, states that kept the benefit carved out in saw a 7.9 percentage point
increase in generics as a percentage of all prescriptions as compared to an increase of
twice the size - 16.7 percentage points - for those that carved the benefit in.
This analysis included all Medicaid prescriptions in each state and year, and included all
Medicaid rebates in these states between FFY 2011-2019 — including the formula-driven
statutory rebates mandated by the ACA as well as the “supplemental” rebates that states,
MCOs, and PBM companies have negotiated with brand drug manufacturers.
Exhibit 2. Prescription Drug Cost Progression from 2011-2019 Across States Using
Carve-Out Approach During 2011
Net Cost Per Prescription Generics as a Percentage of

(Post-Rebate) all Prescriptions Rebates Per Prescription
FFY FFY Percent ~ffy| FFY Percentage FFY FFY Percent
State Grouping 2011 2019 Change 2011 2019 Point Change 2011 2019 Change
States with a
Prescription Drug Carve-
Out Throughout FFY
2011-2019 (3 States) $37.98 $44.97 18.4% 76.8% 84.7% 7.9% $31.19 $59.09 89.5%
States with a
Prescription Drug Carve
Out During 2011, Carve
in During 2019 (9 States
including NY) $39,31 $38.83 -1.2% 71.1% 87.8% 16.7% $37.53 $47.93 27.7%
States with a
Prescription Drug Carve
Out During 2011, Carve
in During 2019 (8 States
excluding NY) $36.26 $37.96 4.7% 73.0% 87.3% 14.3% $33.97 $50.62 49.0%
7
The Menges Gr<w]
c. Experience of FFS States (where 95% or more of Medicaid prescriptions have been
paid in the FFS setting).
We also evaluated the experience of sixteen FFS states, where 95% or more of Medicaid
prescriptions have been paid in the FFS setting (referred to as “FFS-dominant states”)
since FFY 2011. Thirteen of these sixteen states do not use the Medicaid MCO model
extensively (if at all), and three states in this group use a pharmacy carve-out approach
within their Medicaid MCO programs. This analysis shows that keeping the benefit in
FFS has been less successful in decreasing net costs per prescription, as compared to the
MCO carve-in approach in New York, and the nine states referenced earlier who adopted
a carve-in model in 2011. For example, as of FFY 2019, the 16 FFS-dominant states’ net
costs per prescription ballooned to 16% above those of New York, despite being 15%
below New York in FFY 2011 (Exhibit 3).
The generic usage data conveys a similar story: the generic dispensing rate across the 16
FFS-dominant states increased by 7.6 percentage points from FFY 201 1 to FFY 2019—
far below New York’s 20.7 percent increase and the collective experience of the nine
states that switched to a carve-in model (Exhibit 5).
Statistics comparing New York’s cost per prescription and generic usage progressions
with the remainder of the nation are summarized in Exhibit B-l in Appendix B.
Exhibit 3. Performance of States Predominantly Paying for Medicaid Prescriptions

in the Fee-For-Service Setting
Net Cost Per Generic Percentage

Prescription of Prescriptions
Percent Percent
Jurisdiction 2011 2019 Change 2011 2019 Change
NY $44.31 $40.37 -8.9% 68.1% 88.8% 20.7%
USA Overall $37.03 $39.45 6.5% 75.3% 87.6% 12.3%
USA (excluding NY) $36.13 $39.34 8.9% 76.2% 87.4% 11.3%
16 FFS-Dominant
States $37.62 $46 65 24.0% 75.3% 82 9% 7 6%
9 States Switching to
Carve-ln Approach
Between 2011 and
2019 $39.31 $38.83 -1.2% 71.1% 87.8% 16.7%
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These three (a-c) approaches all reached similar directional outcomes - with significant savings
occurring in the carve-in setting relative to the carve-out setting. The percentage magnitude of
the carve-in savings did differ with each approach taken. We therefore averaged the cost impact
differential derived from each of the three approaches, as shown in Exhibit 4.
Exhibit 4. Cost Impacts of Different Comparisons of States’ Carve-in and Carve-Out

Experience
Adjusted %
Difference - Net
Net (Post-Rebate) Cost Net Cost/Rx Cost Advantage of

Per Prescription Difference (Carve-ln MCO % of All Using Carve-ln
Progression Comparisons Model's Savings) Prescriptions Approach
New York's Progression

vs. Rest of USA 17.8% 83.1% 21.4%
Progression of All 2011

Carve-Out States 19.6% 88.5% 22.1%
16 FFS States vs. Carve-ln

States 24.5% NA 24,5%
Average of Three Approaches 22.7%
Our aggregate finding is that the carve-in model results in pharmacy costs that are 22.7% below
those in the carve-out setting. For the initial year of implementation, we estimate that the adverse
impact will be only half as large (1 1.35%), due to an assumption that Medicaid MCO enrollees
will be allowed to maintain continuity of existing drug therapies to soften the disruptions that
this programmatic change will otherwise create. These assumptions result in a first-year increase
in Medicaid payments to pharmacies of $349 million under the carve-out.
The full 22.7% differential is applied to the second through fifth years of the implementation of a
New York carve-out.
As shown in Exhibit 5, we estimate that over five years, the carve-out would increase the
Medicaid pharmacy payments in New York by $3.5 billion.
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Exhibit 5. Pharmacy Expenditure Impacts of Carve-Out
Net (Post-Rebate) Estimated Net Costs Additional
Medicaid Costs Estimated for Prescription Medicaid

Under Current Percentage Net Drugs Pharmacy
Program Structure, Pharmacy Cost Under Carve-Out Expenditures
MCO-Paid Increase of Approach, MCO- Due to Carve-
Year Prescriptions Carve-Out Paid Prescriptions Out
FFY2019 (baseline) $2,707,636,523

SFY 2021-2022 $3,076,247,760 11.3% $3,425,232,013 $348,984,253
SFY 2022-2023 $3,237,380,073 22.7% $3,971,907,820 $734,527,747
SFY 2023-2024 $3,406,952,416 22.7% $4,179,954,357 $773,001,941
SFY 2024-2025 $3,585,406,873 22.7% $4,398,898,268 $813,491,395
SFY 2025-2026 $3,773,208,685 22.7% $4,629,310,351 $856,101,666
5-Year Total $17,079,195,807 20.6% $20,605,302,808 $3,526,107,002
Step 4: Estimate Carve-In Savings Due to Reduced Risk Margin Payments to MCOs
Medicaid MCOs are paid a risk margin via the capitation rate-setting process to provide a
reasonable opportunity for the health plans to derive earnings from their considerable care
coordination efforts and to provide a buffer against the financial risks they are responsible for.
Under a pharmacy carve-out, it would no longer be necessary for DOH to pay Medicaid MCOs a
risk margin on the pharmacy component of health care costs. We have estimated this risk margin
payment to represent 1.0% of pre-rebate pharmacy expenditures, which is consistent with the
percentage used by DOH in its recent capitation rate derivation calculations. Pre-rebate costs are
used as the basis for this allocation because statutory rebates do not flow through the health
plans’ books. As a result, the pharmacy costs that must be included in the MCOs’ capitation rate
are roughly double the ultimate net (post-rebate) pharmacy costs that occur once manufacturers
pay statutory rebates to government agencies. This component of our analysis estimates a cost of
of approximately $70 million per year, as shown in greater detail in Appendix B (specifically
Exhibit B-5). This savings component, however, does not come close to offsetting the increased
pharmacy costs derived in the previous steps.
Step 5: Administrative Cost Impacts
We do not anticipate that administrative costs will change substantially under a carve-in model -
no administrative cost increases nor decreases have been included in our modeling efforts.
However, transitioning to a carved-out program may result in additional costs as the state scales
up its operations to handle the additional load of covering significantly more individuals.
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The Menges Group)
Other than in specialized situations (e.g., the HIV SNP program where pharmacy represents
more than 50% of the health plans’ overall Medicaid revenue), no more than 5% of the Medicaid
MCOs’ existing administrative functions and corresponding costs should be eliminated under a
pharmacy carve-out. The vast majority of the pharmacy-related administrative costs undertaken
by MCOs will need to be replicated by the state in transition to the FFS, increasing DOH’s
administrative costs while the cost of administering other benefits remain with the MCOs. There
may be additional administrative costs incurred by the state to ensure efficient data exchanged
between the MCOs and the state including:
• Reporting and operations to enable coordination with medical benefits;
• Reporting and operations to ensure management/adherence of DOH quality measures;

and
• System infrastructure to share and reconcile pharmacy data with the MCOs.
The administrative services that are most at risk of evaporating altogether are some of the plans’
medication access and adherence programs that benefit patients, which will be more difficult and
costly for the MCOs to operate in a carve-out setting. These access and adherence supports,
many of which are catalogued in Appendix C, are services that New York policymakers should
be highly interested in preserving and enhancing.
Given these factors, our fiscal impact estimates have not assumed that any administrative savings
(nor increased costs) will occur under a switch to a carve-out approach.
Step 6: Estimating Premium Tax Impacts on State Funds
For-profit Medicaid MCOs pay a 2% premium tax to the State of New York, an amount that is
built into their capitation payment rates. This tax mechanism is used to draw down additional
federal funds, as described in greater detail in Section III. The carve-out lowers New York’s
annual capitation payments to the Medicaid MCOs, reducing the degree to which the premium
tax yields increased Federal revenue. Exhibit 6 conveys the carve-out’s adverse fiscal impact
caused by a smaller premium tax. These estimates were derived through the following formula
for each year:
• The net Medicaid pharmacy costs in the first column of Exhibit 5 were translated to
initial pharmacy costs by dividing these figures by 0.483. We estimate that rebates
represented 51.7% of New York’s initial prescription drug costs during FFY2019.
• We multiplied the initial pharmacy costs by 1 .04. This four percent figure assumes 2.5
percentage points for pharmacy-related administrative costs 1 .0 percentage points for the
risk margin paid to MCOs.
• We divided each year’s figures from the above steps by two, in recognition that the
premium tax applies only to for-profit health plans. We analyzed recent Medicaid MCO
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enrollment in New York and found the membership to be very evenly divided among for-
profit MCOs and not-for-profit MCOs.
• The resulting figure was multiplied by 2% to estimate the full premium tax amount that
will disappear.
• The above figure was multiplied by 0.60 to represent the estimated Federal share of the
premium tax for the pharmacy-related portion of the MCOs’ capitation. These figures
represent the adverse fiscal impact of the carve-out related to the MCO premium tax, and
are shown in Exhibit 6 for each year. These adverse impacts are estimated to be $40
million in Year 1 and $220 million over five years of the carve-out’s implementation.
Exhibit 6. Adverse Impact of MCO Premium Tax on State Funds
Premium Tax
Year Impact
FFY2019 (baseline)
SFY 2021-2022 $39,559,947

SFY 2022-2023 $41,632,078
SFY 2023-2024 $43,812,745

SFY 2024-2025 $46,107,634
SFY 2025-2026 $48,522,729
Step 7: Estimate Overall Net Impacts of the Carve-Out Approach
Overall fiscal impacts if the carve-out were implemented are adverse and are shown in Exhibit 7.
Under a carve-out, state fund Medicaid cost increases are estimated to total $154 million during
Year 1 and $1.5 billion across the first five years of implementation. Overall Medicaid cost
increases (Federal and state shares combined) are estimated to total $285 million during Year 1
and $3.2 billion across the first five years of implementation.
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Exhibit 7. Carve-Out Impacts After Factoring in MCO Premium Tax Dynamics
Total Medicaid
Fiscal Impact New York State Fund Federal Fiscal
(Added Cost of Premium Tax Fiscal Impact (Added Impact (Added Cost
Year Carve-Out) Impact Cost of Carve-Out) of Carve-Out)
FFY2019 (baseline)
SFY 2021-2022 $285,280,634 $39,559,947 $153,672,201 $131,608,433
SFY 2022-2023 $667,487,364 $41,632,078 $308,627,023 $358,860,341
SFY 2023-2024 $702,450,017 $43,812,745 $324,792,752 $377,657,265
SFY 2024-2025 $739,243,996 $46,107,634 $341,805,233 $397,438,763
SFY 2025-2026 $777,965,226 $48,522,729 $359,708,820 $418,256,406

5-Y ear Total $3,172,427,238 $219,635,133 $1,488,606,029 $1,683,821,209
Note that we have estimated a 60% Federal matching rate to allocate the state and Federal share
of these additional Medicaid costs.
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III. New York State’s Pharmacy Carve-Out Savings Estimates are Flawed
and Opaque
This section addresses the fiscal forecast information that has been made available to The
Menges Group regarding the carve-out option. Importantly, the information we have received
has been provided to us through notes taken by New York stakeholders who attended a DOH
verbal summary of its forecast and its components. Minimal documentation of the assumptions
has been made available for public review, and no detailed derivation of any kind has been made
publicly available. The key components of the DOH fiscal forecast are shown in Exhibit 8.
Exhibit 8: DOH Fiscal Forecast Summary
Year 1 Total Medicaid Impact

of Carve-Out in $ Millions (red
figures represent added cost
components; black figures
Item it Category Description represent savings components)

Assesses impact of MCO-paid mix
and volume of drugs being paid
according to NY Medicaid FFS
1 Claims Repricing reimbursement schedule ($39)

Estimates administrative
payments to MCOs no longer
needed and cost of providing
administrative services in FFS
2 Administration setting $242

Additional rebates are estimated
3 Rebates to occur under carve-out $281

Spread pricing, 340-B Program
changes, MCO risk margin,
4 Other provider prevails ($148)
Total Medicaid Impact $336
State Fund Impact $125
A. Components Excluded from DOH’s Fiscal Forecast
Based on the limited projections made available for analysis, at least two critically important
components were missing from the DOH forecast: (1) drug mix and (2) premium tax impacts.
1. Drug Mix. Across all the analyses we have conducted comparing the cost-effectiveness of a
carve-in versus carve-out of prescription drugs, a consistent finding is that the front-end mix of
drugs differs substantially between the two settings. The percentage of generics prescribed
impacts overall costs - the higher the percentage, the more that can be saved. As was mentioned
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earlier, under the carve-in, New York’s generic percentage of all Medicaid prescriptions
increased from 68.1% in 201 1 to 88.8% in 2019 (Exhibit 1). These drug mix differences are
central to explaining how New York’s net (post-rebate) costs per Medicaid prescription
decreased by 8.9% from 2011-2019 (Exhibit B-l in Appendix B), whereas the three carve-out
states’ net cost per prescription increased by 18.4% (Exhibit 2).
2. Premium Tax. New York imposes a 2% premium tax on certain MCOs, as a mechanism to
increase the Federal match rate. The model includes the following components (using a
hypothetical starting point of $100 in capitation payments to a Medicaid MCO).
• DOH pays a for-profit Medicaid MCO an additional two percent to account for the
MCOs’ premium tax, or $102.00.
• The Federal government pays 60% of the Medicaid cost ($6 1 .20), with New York State
paying the remaining 40% ($40.80).
• The for-profit MCOs pay the two percent premium tax ($2.00) back to New York State,
which New York State retains in its entirety.
• Through this mechanism, the affected MCOs ultimately retain the intended $100
payment, but instead of this amount being split $60.00 each Federal and $40.00 State, the
Federal Government’s net payment is $61 .20 and New York State’s net payment is
$38.80.
New York would lose an estimated $40 million in 2021-2022 tax revenue from the
pharmacy portion of the premiums ifpharmacy is excludedfrom the plan benefit package,
and the potential loss amounts to $220 million over five years (as shown previously in
Exhibit 6). These impacts did not appear to be included in the fiscal forecast (although again,
due to the lack of detail provided by DOH, this is not completely clear).
B. Assessment of Components Included in DOH Fiscal Forecast:
1. Repricing. Based on the limited information provided by the State, we have no basis to
dispute DOH’s repricing analysis. The repricing effort is a fairly straightforward calculation;
using a vastly higher dispensing fee in conjunction with the Actual Acquisition Cost (AAC)
payment schedule’s relatively lower ingredient costs.4
4 We note that no payer outside of those administering the fee-for-service Medicaid program has adopted
the AAC approach New York uses for Medicaid FFS pharmacy claims. Given that all payers have an
incentive to eliminate excess drug costs, it seems telling that the AAC payment methodology is in place
only where it is required to be used.
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The Menges Group |
However, we are concerned that DOH only appears to be conducting a re-pricing analysis in its
effort to ascertain the carve-out model’s impact on pre-rebate payments to pharmacies. As
described above, the carve-in model’s savings are significantly associated with drug mix
differences. A repricing approach vastly undervalues the savings the carve-out model yields with
regard to “front-end” pharmacy expenditures, if not paired with a drug mix impact assessment.
Drug mix and drug prices need to be fully considered. Ample evidence of drug mix impacts is
available and should be included in any sound fiscal forecast.
2. Administrative Costs. The DOH fiscal forecast has assumed that 85% of pharmacy-related
administrative costs will be removed from the MCOs’ capitation payments and that these will
result in pure savings. The forecast only has 15% of existing pharmacy-related administrative
costs reappearing under new, FFS management. As noted above, our analyses suggest that, other
than in specialized situations (e.g., the HIV SNP program where pharmacy represents more than
50% of the health plans’ overall Medicaid revenue), no more than 5% of the Medicaid MCOs’
existing administrative functions and corresponding costs will be eliminated under a pharmacy
carve-out and that MCOs will incur significant, additional administrative costs when replicating
these functions in the transition to FFS. The MCO pharmacy-related administrative costs that do
shift to the FFS setting will largely reoccur in that setting rather than disappear and become
savings.
3. Rebates. Payers are often able to negotiate supplemental rebates on brand drugs above the
large statutory rebates that these manufacturers must pay for Medicaid prescriptions under the
provisions of the Affordable Care Act. However, the additional rebates occurring in the
Medicaid FFS setting have not yielded cost-effective overall results. The states managing the
front-end drug mix most effectively, rather than the states excelling at securing rebates, have
consistently been the top-performers in Medicaid drug cost management.5 In the aggregate, large
rebates per prescription are inversely correlated with successful management of net Medicaid
pharmacy costs. During FFY 2017 for example, the three states obtaining the largest rebates per
Medicaid prescription - Connecticut, South Dakota, and Vermont - were the three states with the
nation’s highest net costs per Medicaid prescription in that year.
New York’s ability to attain relatively favorable supplemental rebates is questionable since the
state’s large purchasing power is much smaller than that of most of nationwide PBMs who are
currently negotiating rebates under contract with New York’s Medicaid MCOs.
The rebate section of the DOH fiscal forecast, coupled with the absence of a drug mix
component, creates further concern regarding an over-focus on each drug’s price, while
forfeiting the ability to optimally steer volume to lower cost drugs.
5 Exhibit 6 of this report shows the ranking of each state on net cost per Medicaid prescription, generic percentage of
all Medicaid prescriptions, and rebates per Medicaid prescription:
https://www.themengesgroup.com/upload file/value of managed care for medicaid rx .pdf
These rankings demonstrate the direct relationship that often exists between net costs per prescription and generic
usage, and the inverse relationship that exists between net costs per prescription and rebates per prescription.
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Strategic Health Pol icy & Care Coordination Consulting
4. 340B Program Impacts. Our understanding is that DOH has modeled an opportunity to
achieve Year 1 savings of approximately $166 million through making changes in how 340B
Program outpatient drugs are procured. Based on the Federal match rate, we envision that
roughly 40% of these savings, or $66 million would be the state fund impact. This is an area
where DOH has recently provided relatively detailed data, via slides presented at the initial
meeting of the 340B Advisory Group on August 5, 2020.
Unless FFS or the carve out has a mechanism to steer additional volume to 340B pharmacy
providers, these savings will likely stem from reduced payments to 340B providers. The overall
financial viability of 340B providers is typically fragile, and policymakers need to ensure that
these points of access remain available. To that end, policy makers should avoid a savings
approach that cuts safety net providers’ revenues. Alternatively, some of the savings
components, such as limiting the profit margin being attained by various contract pharmacies,
can be secured under the carve-in model.
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IV. The Carve-Out Will Undermine Quality of Care
This section of the report describes the anticipated programmatic impacts the carve-out model
will have, beyond the adverse fiscal impacts shown in Section III, with additional detail included
in the appendix. Through a survey of New York’s Medicaid MCOs, we have conveyed several
programmatic advantages and disadvantages of a carve-in versus carve-out approach below.
A. Benefits of the Carve-In Model for Members
Better Care Coordination for Medicaid Members
Integrated benefits allow MCOs to improve care coordination, deliver whole person care, and
have timely visibility into member needs. MCOs’ staff include pharmacists and other pharmacy-
focused and care management personnel who facilitate access to medications and provide
adherence and other forms of support to members. The in-house pharmacy team works closely
and directly with the MCO’s other care coordination personnel and within the same information
technology platform. That level of integration has real implications on patient care; one health
plan noted that their pharmacy department staff attends weekly behavioral health and medical
rounds to provide information on treatment adherence that may explain emergency department
utilization or inpatient admissions. This enables staff to quickly connect with at-risk members to
prevent future hospital admissions. Carving the pharmacy benefit out of managed care will
reduce integration across the care continuum, and will likely have significant, negative impacts
on members with complex or chronic medical conditions.
Access to Real-Time Pharmacy Data
New York’s MCOs provided extensive information regarding their efforts to integrate pharmacy
data with other aspects of their coordinated care business operations in real-time and in
accordance with their own data specification requirements. Several examples of how the MCOs
currently use and integrate their pharmacy data are conveyed below. The carve-out model
substantially weakens these aspects of the MCOs’ care coordination efforts.
Several New York health plans operate Medicaid lines of business in other states where a
carve-out model is used. In these states, the MCOs report that the pharmacy data they receive
from the state (or the state’s PBM contractor) is significantly delayed, often unreliable, and
not easily integrated with plans’ existing internal information system and staffing structures.
• Impact on Member Care. Real-time pharmacy data is critical in supporting members

through transitions of care between various settings and ensuring members have access to
the medication treatment needed, as well as reconciliation of treatments. Plans noted that
transitions can frequently produce a gap in care that requires health plan intervention. For
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[ The Menges Group]
example, when a member is discharged from an emergency room, it is critical for a health
plan to coordinate on behalf of the member to resolve any pharmacy issues to prevent
readmissions. Additionally, if a member is admitted to the hospital, the hospital may
contact the health plan care coordination team to identify which medications the member
was taking. Access to real-time data is particularly important for members with multiple
co-morbidities and who are prescribed various medications. These data allow the health
plan pharmacy to track polypharmacy, contraindications, prescription drug abuse, and
adverse reactions for members, and intervene when needed. Some health plans also noted
that they can immediately identify when a member is late in filling his or her ongoing
medication treatment and can intervene proactively.
• Impact on Quality. Real-time pharmacy data that is integrated with the MCOs’ overall
data system is valuable in improving quality performance in various clinical and
operational areas. Below are several ways in which a carve-out approach will reduce the
current program oversight functions and their effectiveness.
> The information obtained from medication reconciliation, pharmacy point of sale
rejections, and medication adherence helps drive quality programs tied to oversight of
clinical and behavioral health programs.
> Components of quality programs allow health plans to audit coverage determinations
across various member populations to ensure the decision is appropriate and
individualized to the member. Override information, medication rejections, and
inappropriate clinical decisions are used to identify individual-level concerns as well
as broader population health issues.
> Plans often conduct quality audits on adherence outreach. This allows the plan to
connect with members and providers to work towards favorably impacting
medication adherence and individualized care plans.
> Health plans use pharmacy data for Quality Assurance Reporting Requirements and
HEDIS measures such as Asthma Medication Ratio, Statin Therapy for Patients with
Cardiovascular Disease, and Antidepressant Medication Management.
More detail regarding plans’ use of real time data is included in the appendix, including
several examples of how having the pharmacy benefit carved-in has optimized behavioral
health and substance use disorder treatment adherence.
Medication Access and Adherence Support
Pharmacy data is critical for managing members’ access to medications and adherence support,
particularly for high-needs populations:
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• For members with sickle cell disease, health plans use pharmacy data to identify which
members may have missed a refill of their medication and follow-up with the provider as
well as the member to identify any barriers.
• For high-risk pregnant members, health plans are able to structure their care management
efforts around members’ specific treatments such as diabetes and preeclampsia -
information they learn from pharmacy records. If members are identified as being high
risk through this data, the plan may reach out to the providers and members around
treatment and education options.
• For HIV populations, health plans are regularly reviewing viral load information with the
member’s prescription to ensure medication adherence. Detailed information on the New
York HIV SNP health plans’ programs and anticipated impacts related to a pharmacy
carve-out is presented in Section VII.
• Health plans regularly review claims data for medications with complex regimens that are
associated with rare diseases to identify care management opportunities.
• Health plans use real-time pharmacy data to identify and arrange for durable medical
equipment that may be needed for some specialized drugs.
Improved Value-Based Contracting with Providers
• New York Medicaid MCOs are increasingly engaging in value-based purchasing

initiatives involving pharmacies and including pharmacy-related incentives in contracts
with other network providers. These initiatives aim to better align MCOs, pharmacies,
and other providers to achieve DOH’s objectives regarding access, quality, and cost
effectiveness. Integrating pharmacy is critical to successful administration of these
models and would be significantly impacted by a carve-out.
While the state is committed to integrated care, there is no realistic path to avoiding diminished
programmatic performance under a carve-out model. The MCOs have developed integrated
staff, integrated information systems, and integrated care coordination processes that all function
optimally under a carve-in model of all services - all with the purpose of providing the best care
to Medicaid members. Pulling a benefit as central to health care and to care coordination as
prescription drugs out of this integrated structure is an inherently problematic approach.
B. Considerations for Specialized Care: A Focus on the HIV Special Needs

Plan Program
Since the implementation of the pharmacy benefit into managed care in 2012, the HIV SNPs
have played an instrumental role in the broader state efforts toward “Ending the Epidemic”6 and
6 On June 29, 2014, Governor Andrew M. Cuomo detailed a three-point plan to move us closer to the end of the
AIDS epidemic in New York State, https://www.health.ny.gov/diseases/aids/ending the epidemic/
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have improved viral load suppression to 81% as of 2019. Under the carve-in setting the HIV
Special Needs Plan Programs (HIV SNPs) have built exceptional in-house pharmacy teams and a
comprehensive model of care coordination tailored to the unique needs of their enrollees. HIV
SNP plans provide integral services to both their members and New York State through cost
control, myriad clinical initiatives and tailored support for members, and fraud identification and
prevention. The pharmacy carve-out would all but eliminate the role of these highly specialized
plans, and have particularly adverse effects for HIV SNP members, the majority of whom are
HIV positive.
1. Cost Control
In the face of rapidly rising drug prices, HIV SNPs leverage two primary strategies to curb drug
costs:
a. A Transparent, Pass-Through Payment Model. With a transparent, pass-through financial

model in place, plans do not profit off the spread-pricing practice, and PBMs are instead
reimbursed more directly through fees. Detailed drug cost- and rebate-level reports are now
being shared by the MCOs with DOH on a quarterly basis to ensure full transparency.
b. Maximize Rebate Potential Through Formulary Management. For HIV SNPs, the
highest drug volume and costs come from HIV drugs and account for around 90% of overall
drug use - rebates for which are already negotiated directly with manufacturers and collected by
New York State (not the health plans). Clinically, the needs of a very complex HIV population
with a high number of behavioral health/substance use and other comorbid conditions requires a
very different type of formulary drug selection than is needed to optimally serve New York’s
overall Medicaid population.
2. Clinical Initiatives and Tailored Support
HIV SNP entities deliver fully integrated care coordination with exceptional attention to
members’ individual needs:
• In-House Pharmacy Team with Tailored HIV Expertise and Experience. Given the
extreme importance of successful medication access and adherence for persons living
with HIV, HIV SNPs have established integrated care pharmacy teams. These staff
possess specialized knowledge of HIV treatment options and enrollee dynamics, and their
careers are focused on working closely with enrollees, their MCO’s care coordination
staff, prescribers, and pharmacies to facilitate access and adherence to an optimal
medication regimen.
Clinical staff pharmacists are both physically and procedurally embedded within
interdisciplinary care management teams. Throughout daily outreaches with members,
care management staff and staff pharmacists “co-call” members to deliver education on
the clinical and medication aspects of their treatment. This integrated approach and these
joint conversations have led to positive outcomes such as resolving concerns related to
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[ The Menges Group)
state complaints, providing education and information that has increased medication
adherence, identifying and eliminating therapeutic duplications, and/or identifying
potentially harmfill and serious adverse effects. The quality and comprehensiveness of
these interventions are heavily dependent on current access to historical and real-time
claims data.
HIV SNP staff working on site with providers have repeatedly been told by these provider
staff how much less the providers ’ administrative burdens have been under New York’s
pharmacy carve-in model.
• Clinical Monitoring to Support Medication Adherence. HIV SNPs’ pharmacy

departments actively monitor lab work for members living with HIV to ensure
medication treatment adherence and to ensure their members are adequately protected
from opportunistic infections. By ensuring labs for viral loads and CD4 counts are up to
date, plans can assess if the appropriate therapy is being utilized and if members'
treatments are optimized. Real-time access to optimal data and therapy is critical to
achieving the goals of viral load suppression and reduced transmission.7 The analysis for
one HIV SNP that had implemented an intervention to avoid disruption of HCV therapy
estimated an increased cost of $29 million was avoided through the health plan’s
intensive efforts to facilitate adherence to the full HCV medication treatment regimen.
• Improving Access Barriers at Point-of-Sale. An HIV SNP’s pharmacy department

reviews any medications rejected at the pharmacy on a daily basis, specifically for HIV,
hepatitis C, antipsychotics, and gender-affirming medications. This allows the plan to
proactively and quickly resolve any issues and prior authorizations to mitigate barriers to
care related to medication access.
• HIV Prevention for High-Risk HIV Negative Members. The HIV SNPs also play a
key role in preventing the spread of the virus. Each new infection has been projected to
create increased lifetime treatment costs per individual of $400,000 - $500,000. An HIV
SNP’s pharmacy team counsels each HIV negative member who starts an HIV pre
exposure prophylaxis (PrEP) regimen, reviews the patient’s pharmacy history to identify
any drug interactions, and works with them to address any concerns about the treatment.
The plan ensures that the patient has the appropriate tools to prevent HIV. In addition,
HIV SNPs track whether refills are occurring and reach out if there are lags. Persistence
in PrEP therapy is one of the key challenges to maximize this public health intervention.
7 We note that while it is possible that DOH will provide the HIV SNPs (and other Medicaid MCOs) with “real
time” pharmacy data under a carve-out model, this has yet to occur in the states that have carved out the pharmacy
benefit. Obtaining pharmacy data in the state’s format is also significantly different from an MCO working with its
contracted PBM to provide data on the MCO’s terms and in a manner that optimally supports that MCOs’ care
coordination activities.
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In a carve-out scenario, the PBM would only approve the medication and notfollow up
to ensure initial usage and persistence in therapy.
The comprehensive nature of the various processes that an in-house pharmacy team
employs to assist members with medication access and adherence are a result of the
experience and expertise of the in-house pharmacy staff to use all the tools at their
disposal to support members. Below, we share member-specific examples of the
advantages of supporting HIV SNP members with an in-house team of staff pharmacists.
3. Fraud Identification and Prevention
Coverage determinations are scrutinized to ensure decisions are clinically appropriate, member
specific, and safe. Items identified during these audits include override errors, rejected
medications, inappropriate clinical decisions, and missed information. The audits allow for
continuous improvement to patient care by identifying individual issues and larger trends and
implementing changes to promote the most clinically appropriate outcomes. The carve-in setting
creates enhanced opportunities to identify and address fraudulent behaviors. The Fraud, Waste,
and Abuse (FWA) programs developed by HIV SNPs work with the Office of the Medical
Inspector General (OMIG) to curb FWA associated with HIV drugs in NYC. In a carve-out
model, this audit process would be significantly limited by time and resources, opening the door
for missed interventions that could have improved patient care.
One HIV SNP’s program consists of a clinical team who develops analytical reports driven by
live pharmacy claims data to conduct weekly reviews and outreach assessing each patient’s
problematic pharmacy claims patterns in conjunction with a retrospective review of antiretroviral
treatment prescription data. This includes implementing a restricted member “lock-in” program
and identification of overprescribing. Working closely together with OMIG, the HIV SNP has
demonstrated as high as 97% intervention acceptance rates with provider and pharmacy networks
to help the state combat inappropriate prescribing and medication dispensing in the community.
“Returning the management of the pharmacy benefit to FFS will devastate our comprehensive care model and
threaten the very sustainability of the Plan. The pharmacy benefit accounts for 60% of our premium revenue.
Consequent losses in administrative revenue would significantly alter, ifnot eliminate, our capacity to support
critical components of the model including care coordination, value-based incentives including the LYL
Undetectable viral load suppression programs and innovative interventions on social determinants of health.
The pharmacy counter has become the intersection where all ofour care comes together. Most people living with
HIV are require multiple medications to manage the multiple chronic conditions that accompany aging with HIV.
Divorcing management of the pharmacy benefitfrom other aspects of care management removes the very resources
that have so dramatically transformed the others. It seems counter-intuitive to fragment the pharmacy benefitfrom
the rest of the patient’s care management, especially given the certain disruption and questionable savings that will
result. ”
- HIV SNP Executive
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The Menges Group j
VI. Conclusion
The analyses outlined in this report provide compelling evidence to encourage the state to
reconsider their position on carve-out and reverse course. The state, plans and providers can find
alternative savings within the carve-in model that protect Medicaid members, sustain the
providers who care for them and continue to build on the state’s successful model of integrated
care for low-income New Yorkers.
After extensive and transparent data analysis included in this report, we conclude that the
expected fiscal and programmatic impacts of a Medicaid pharmacy carve-out are all unfavorable
and will result in increased Medicaid costs and weakened care coordination.
Contrary to the state’s projected savings of $125 million in the first year of the carve-out, we
estimate that it will cost the state $154 million during the first year. Taken together, we estimate
that the overall New York State costs in the upcoming fiscal year will be $279 million higher
than are currently forecasted - adding together the $125 million savings that will not happen and
the $154 million additional cost that will occur if the carve-out is implemented.
The state’s fiscal projections related to the pharmacy carve-out are flawed, as they appear to omit
critical components related to changes in the mix of drugs, loss to the state of premium tax
revenues and understatement of the administrative costs - to both plans and the state - of a
carve-out model.
Equally critical, carving-out the pharmacy benefit will harm Medicaid enrollees, especially those
with chronic illnesses who need medication management and care coordination to maintain and
improve their health. Carve-out models cannot provide the same level of coordinated care. In
addition, changes contemplated to 340B reimbursement could lead to the collapse of many
safety-net providers who serve New York’s most vulnerable Medicaid members.
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{ The Menges Group)
APPENDIX A
Methodology and Data Sources
The Menges Group collected and analyzed an extensive array of quantitative and qualitative data
in creating this report. Qualitatively, we collected information from more than a dozen New
York Medicaid health plans, including three MCOs fully focused on serving HIV/AIDS
populations. New York’s MCOs provided information regarding their operations and interactions
with members as they relate to the prescription drug benefit, and how they would change under a
statewide carve-out and/or uniform preferred drug list (PDL). Plans also provided quantitative
information related to the Medicaid pharmacy benefit, such as the cost and mix for certain
medications, drug rebates received, and administrative costs associated with managing the drug
benefit.
In addition to information received directly from health plans, we relied extensively on CMS
State Drug Utilization Data. These files contain 100% of the Medicaid prescription drug
utilization data reported directly from state Medicaid programs to CMS on a quarterly basis.
Drug utilization is presented at the National Drug Code (NDC)-level and includes the volume of
prescriptions and the Medicaid amount paid (before rebates) broken out by the Medicaid FFS
and managed care settings. NDCs were classified as brand or generic using the National Average
Drug Acquisition Cost (NADAC) weekly reference data from CMS. We conducted additional
research on high-volume NDCs to classify them as brand or generic if they were not identified in
the NADAC file. In instances of missing data or prescription drug volume or expenditures that
are grossly unrealistic, we corrected the data. These adjustments were minimal, accounting for
just 1.0% of prescription volume nationally over the past five years.
We relied on a separate file—the CMS Financial Management Reports (FMR)—to compile the
amount of Medicaid drug rebates states receive in each federal fiscal year. The FMRs contain
statutory rebates as well as supplemental rebates the states and MCOs/pharmaceutical benefits
management (PBM) entities negotiate with manufacturers. The total rebates reported by states
vary from year-to-year based on the timeliness and completeness of reporting. To account for
these fluctuations, we distributed total rebates across years in each state (without changing the
total) in a manner that better tied each year’s rebates with each year’s pre-rebate expenditures.
The FFY2019 CMS FMRs were not yet available for this analysis. Average brand rebate
percentages in each state from FFY2013-FFY2018 were applied to FFY2019 drug utilization
data to estimate brand drug rebates. All generic drugs receive a 13% rebate and thus FFY2019
generic rebates were tabulated rather than estimated. While MCOs’/PBMs’ supplemental rebates
are not available or are underreported in the CMS FMR for most states (31 states in FFY2018),
they are published for several states. The MCOs’/PBMs’ average percentage of supplemental
rebates in the states where this information was reported was used to estimate MCOs’
supplemental rebates in the other states in which Medicaid MCOs operate.
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[ The Menges Group)
Across these data sources, we are able to tabulate the following key performance statistics for
any state (or any group of states) for any year:
• Initial (pre-rebate) cost per Medicaid prescription
• Rebates per Medicaid prescription (including statutory and supplemental rebates)
• Net (post-rebate) cost per Medicaid prescription
• Generics as percentage of all Medicaid prescriptions
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The Menges Group]
APPENDIX B
Additional Analyses of States’ Carve-Out Versus Carve-In Experience
Exhibit B-l. Net Cost Per Prescription and Generic Dispensing Trends from 2011-2019,
New York and Nationwide
Generic
Net Cost Per Percentage of
Prescription Percent Prescr ptions Percent
Jurisdiction 2011 2019| Change 2011 2019 Change
NY $44.31 $40.37 -8.9% 68.1% 88.8% 20.7%
USA Overall $37.03 $39.45 6.5% 75.3% 87.6% 12.3%
USA (excluding NY) $36.13 $39.34 8.9% 76.2% 87.4% 11.3%
Despite relying heavily on MCOs to pay for Medicaid prescriptions, New York still had nearly
17% - just below 13 million prescriptions - of its Medicaid prescriptions in fee-for-service (FFS)
during FFY2019. New York’s Medicaid FFS prescription volume is larger than the total
Medicaid prescription volume of all but 19 states. While New York has a very different
population (and clinical distribution of drugs) in the FFS setting than in the MCO setting, we
deemed New York’s FFS volume to be ample for purposes of comparing MCO-paid and FFS-
paid costs per prescription within therapeutic classes. The 20 therapeutic classes with the largest
Medicaid prescription volume during FFY2019 are shown in Exhibit 3 along with the average
costs per prescription for New York’s MCO-paid and FFS-paid medications within these
classes.8
These comparisons demonstrate that vast differences in average costs per prescription often exist
between the MCO and FFS settings, with these differentials almost always favoring the MCO
setting as being far more cost effective. On average across these 20 therapeutic classes, the
average cost per prescription in the FFS setting was 2.3 times above the MCOs’ average cost.
New York policymakers need to be extremely wary about transitioning responsibility for the
MCO-paid prescriptions to the FFS setting given these performance dynamics.
8 Note that we are not able to tabulate or accurately estimate net (post-rebate) costs per prescription at the
therapeutic class level. The rebate information is available only at an aggregate level. The figures in Exhibit 3 are
therefore produced on a pre-rebate basis.
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The Menges Group ]
Strategic Health Pol icy & Care Coordination Consulting
Exhibit B-2. Comparison of New York’s FFY2019 Cost Per Prescription in MCO and FFS
Settings for 20 Top-Volume Therapeutic Drug Classes
FFY2019 Medicaid Average Cost Per Prescription

Prescr ptions During FFY2019 (Pre-Rebate)
FFS Cost as %
Detailed (Third Tier) Therapeutic Class MCO FFS MCO FFS of MCO Cost
Nonsteroidal anti-inflammatory drugs 2,655,016 155,837 $5 $20 408%
Statins 2,430,318 279,622 $10 $13 133%
Antihistamines 1,900,438 581,108 $5 $11 251%
Platelet aggregation inhibitors 1,198,923 1,104,722 $9 $10 107%
Adrenergic bronchodilators 2,091,277 184,889 $46 $62 133%
Selective serotonin reuptake inhibitors 1,766,372 235,032 $6 $15 237%
Laxatives 898,607 988,745 $7 $11 160%
Proton pump inhibitors 1,625,924 111,314 $13 $76 601%
Calcium channel blocking agents 1,439,183 170,832 $5 $13 266%
Atypical antipsychotics 1,184,768 360,197 $193 $152 79%
Topical steroids 1,365,083 84,101 $24 $26 107%
Non-sulfonylureas 1,221,816 139,396 $9 $24 250%
Angiotensin Converting Enzyme Inhibitors 1,204,261 134,434 $4 $13 352%
Contraceptives 1,091,460 200,910 $45 $52 115%
Miscellaneous analgesics 812,530 418,558 $2 $10 551%
Inhaled corticosteroids 1,098,490 103,472 $87 $92 106%
Gamma-aminobutyric acid analogs 999,522 140,245 $58 $94 162%
Thyroid drugs 994,737 124,669 $11 $21 192%
Aminopenicillins 1,056,484 60,062 $5 $13 247%
Cardioselective beta blockers 933,911 143,931 $8 $14 164%
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| The Menges Group]
Management of High-Cost Drugs - Assessment of Curative Hepatitis C

Medication Cost Progression in MCO and FFS Settings
One example of MCOs’ ability to more quickly react to changes in the prescription drug market
deals with emerging curative hepatitis C medications. In December 2013, Sovaldi was approved
by the FDA as the first curative hepatitis C medication, followed by Harvoni in October 2014.
These medications were quite expensive however, averaging around $23,000 and $27,000 per
prescription, respectively. As less costly alternatives became available, New York’s MCOs (and
MCOs nationally) demonstrated their value by switching to less costly alternatives much more
rapidly than was occurring in the Medicaid FFS setting.
Exhibit B-3 conveys how the Medicaid FFS and MCO settings used each medication as a share
of their total hepatitis C usage for New York State and the entire nation. The MCO setting—both
nationally and in New York—has been much faster to adopt lower-cost hepatitis C medications,
such as Zepatier, Epclusa, Mavyret, and Velpatasvir I Sofosbuvir (generic Epclusa), as they
became available.
Focusing on New York, Medicaid MCOs showed a more rapid uptake of lower-cost alternatives
the year following their approval, compared to the FFS setting.
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The Menges Group]
Exhibit B-3: Hepatitis C Medication Usage and Cost Per Prescription by Drug, New York
and National, 2015-2019
Share of Medicaid Hepatitis C Volume: National MCO Share of Medicaid Hepatitis C Volume: New York MCO
Average Cost Per Average Cost Per
Prescription, Prescription,
Drug 2015-2019 CY2015 CY2016 CY2017 CY2018 CY2019 Drug 2015-2019 CY2015 CY2016 CY2017| CY2018| CY2019
Sovaldi $23,626 17% 13% 1% 0% 0% Sovaldi $24,118 18% 13% 1% 0% 0%
Harvoni $28,038 54% 43% 19% 6% 2% Harvoni $29,000 60% 38% 12% 4% 1%
Viekira Pak $22,561 4% 5% 3% 1% 0% Viekira Pak $21,540 3% 4% 0% 0% 0%
Zepatier $15,832 0% 9% 33% 3% 0% Zepatier $17,507 0% 17% 45% 2% 0%
Epdusa $20,862 0% 7% 27% 11% 8% Epclusa $23,113 0% 8% 26% 7% 2%
Vosevi $20,665 0% 0% 1% 3% 2% Vosevi $18,170 0% 0% 1% 4% 4%
Mavyret $11,465 0% 0% 6% 73% 68% Mavyret $9,100 0% 0% 10% 82% 59%
Generic Generic
Velpatasvir& Velpatasvir&
Sofosbuvir $7,164 0% 0% 0% 0% 18% Sofosbuvir $7,743 0% 0% 0% 0% 34%
Share of Medicaid Hepatitis C Volume: National FFS Share of Medicaid Hepatitis C Volume: New York FFS
Average Cost Per Average Cost Per
Prescription, Prescription,
Drug 2015-2019 CY2015 CY2016 CY2017 CY2018 CY2019 Drug 2015-2019 CY2O15 CY2016 CY2017 CY2018 CY2019
Sovaldi $22,073 17% 13% 1% o% 0% Sovaldi $27,708 15% 13% 0% 0% 0%
Harvoni $26,390 47% 42% 39% 12% 6% Harvoni $30,684 34% 43% 38% 5% 13%
Viekira Pak $25,496 8% 7% 4% 0% 0% Viekira Pak $27,568 22% 15% 0% 0% 0%
Zepatier $14,429 0% 6% 14% 3% 2% Zepatier $17,838 0% 6% 35% 3% 15%
Epclusa $21,276 0% 8% 26% 27% 34% Epclusa $24,003 0% 1% 27% 30% 27%
Vosevi $21,382 0% 0% 1% 2% 2% Vosevi $24,545 0% 0% 0% 2% 0%
Mavyret $11,631 0% 0% 6% 52% 48% Mavyret $12,760 0% 0% 0% 59% 42%
Generic Generic
Velpatasvir& Velpatasvlr&
Sofosbuvir $6,562 0% 0% 0% 0% 5% Sofosbuvir $6,610 0% 0% 0% 0% 3%
This ability to more nimbly prioritize lower-cost medications resulted in lower costs in the
Medicaid MCO setting.
Exhibit B-4 presents overall cost per prescription outcomes for the curative Hepatitis C drugs
each year from 2015-2019, comparing the MCO and FFS settings. While both the FFS and MCO
settings start out with relatively similar costs per Hepatitis C prescription in 2015 (in fact, New
York’s MCO costs per prescription were slightly above New York’s Medicaid FFS setting
average in 2015 when no competitive products were available), the New York MCOs’ steerage
of volume towards lower-cost drugs as they became available has led to large-scale savings in
overall costs per prescription. During 2018 and 2019, the average cost per prescription for New
York’s MCOs was dozens of percentage points lower than the New York FFS average cost. New
York’s experience is similar to the national experience of Medicaid MCO and Medicaid FFS
payments for these medications. New York’s Medicaid MCO average cost per prescription was
below the national MCO average during 2018 and 2019.
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The Menges Group)
The New York Medicaid MCOs’ collective management of drug mix in this category of
medications has been highly cost-effective. IfNew York’s MCOs had paidfor the curative
Hepatitis C drugs in the same manner (price and mix) as occurred in the New York FFS setting,
additional costs of $208 million would have occurred across the 2015-2019 timeframe.
Exhibit B-4: Costs Per Prescription, Hepatitis C Medications, 2015-2019
2015 2016 2017 2018 2019

New York's Medicaid Experience
New York MCO $22,867 $21,883 $19,659 $7,622 $11,897
New York FFS $21,110 $24,148 $24,097 $17,534 $17,854

New York MCO as % of NY FFS 108% 91% 82% 43% 67%
Nationwide Medicaid Experience

USA MCO $20,803 $21,111 $17,900 $12,877 $12,215
USA FFS $18,258 $19,358 $20,451 $16,015 $16,002
USA MCO as % of USA FFS 114% 109% 88% 80% 76%
Exhibit B-5. MCO Risk Margin Impacts of Carve-In
Estimated Net Costs

for Prescription Additional Offsetting Carve-
Drugs Medicaid Out Savings - Total Medicaid
Under Carve-Out Pharmacy Removing MCO Fiscal Impact
Approach, MCO- Expenditures Due Risk Margin (Added Cost of
Year Paid Prescriptions to Carve-Out Allocation for Rx Carve-Out)
FFY2019 (baseline)
SFY 2021-2022 $3,425,232,013 $348,984,253 $63,703,619 $285,280,634
SFY 2022-2023 $3,971,907,820 $734,527,747 $67,040,383 $667,487,364
SFY 2023-2024 $4,179,954,357 $773,001,941 $70,551,924 $702,450,017
SFY 2024-2025 $4,398,898,268 $813,491,395 $74,247,398 $739,243,996
SFY 2025-2026 $4,629,310,351 $856,101,666 $78,136,440 $777,965,226
5-Year Total $20,605,302,808 $3,526,107,002 $353,679,764 $3,172,427,238
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[ The Menges Group]
APPENDIX C
COMPILATION OF EFFORTS NEW YORK MCOs ARE MAKING TO

FACILITATE MEMBER ACCESS AND ADHERENCE TO
MEDICATIONS
The following case examples have been provided by New York Medicaid health plans
conveying instances in which plans had a meaningful impact on their members through full
integration of the pharmacy benefit. The first section contains 22 specific accounts of the ways
plans were able to improve members’ access to medications.
The second section presents 22 specific instances in which plans helped members with their
adherence to medications. The health plans did not view that similar services would occur under
a pharmacy carve-out model in these instances - nor in many other case examples that were not
included.
A. Helping Members Access Needed Medications - 22 Case

Examples
1. Correcting Rejected Claims
During case management rounds, a health plan’s pharmacist noted rejected claims for a
member’s antidiabetic medication. The reason for the rejection was due to the prescribed
quantity exceeding the maximum recommended daily dose. The pharmacist reached out to the
clinic, where the provider happened to be a first-year resident who mistakenly prescribed an
incorrect dose. The prescription was adjusted to the appropriate dose and the plan’s pharmacist
was able to contact the member’s pharmacy to process the claim and ensure the member had
access to the proper dosage of the medication.
2. Monitoring Patient Prescriptions to Complete Treatment
A member of this plan had been taking medication to treat his Hepatitis C. Due to the high cost
of Hepatitis C treatments, this plan has a team of in-house pharmacists that manages all Hepatitis
C medications and track new products entering the market. This allows the plan to have a
comprehensive offering of the most optimal and cost-effective therapies. After meeting with his
physician, the member was prescribed a new medication with excellent cure rates for patients
who complete the full course of treatment. In this member’s case, one of the in-house
pharmacists reviewed the member’s prescribed treatment and identified that the physician had
prescribed an eight-week course of therapy for the member, which is only half of the
recommended 16-week treatment. The in-house pharmacist contacted the physician who then
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The Menges Group)
adjusted the prescription. The member was then contacted to ensure he completed the foil course
of therapy. Without the access to real-time prescription data and the intense follow up from the
in-house team, the member would not have completed the foil course of treatment, and thus
would have wasted tens of thousands of dollars on incomplete treatment that would not have
successfully treated his Hepatitis C.
3. Ensuring Continued Access to Medication Amid the COVID-19 Pandemic
This plan has a member who is HIV+, has schizophrenia, and has a long history of emergency
hospital admissions for mental and physical health issues. As a result of the COVID-19
pandemic, this member’s regular physician’s office closed, and she could no longer access the
necessary monthly injections of an antipsychotic medication. This plan’s social work and
behavioral health care management teams immediately recognized that a missing injection could
have disastrous health outcomes for the patient, so they worked to find a solution. The teams
arranged for the patient to pick up the medication at her local pharmacy and for a provider who
specializes in medical and psychiatric home care to administer the injections at the member’s
home. The plan’s in-house pharmacists utilize the real-time pharmacy data to monitor when the
prescription was filled and picked up by the member before sending the home care provider to
administer the injection. Without the ability for plans to access real-time pharmacy data and the
close integration of pharmacy and clinical teams, the plan would not be able to offer these
services to its members.
4. Medication Replacement to Maintain Access
A member of this plan is homeless and has been diagnosed with HIV, generalized anxiety
disorder, major depression, and substance use disorder. She has a long history of hospital
admissions and numerous detoxes. Following her recent discharge from inpatient psychiatric
treatment, she returned to the homeless shelter where she had been staying to find that all her
medications had been stolen. When the plan’s in-house team of pharmacists was completing their
weekly multidisciplinary rounds with the Medical Director and the care management, social
work, and behavioral health teams to review the status of individual members, this member’s
case was discussed and they identified better ways to support her. The in-house pharmacists
contacted the pharmacy and the member’s prescriber and arranged for all approvals necessary for
the member’s medications to be replaced. Within hours, the member had her medications and
remained stable, likely averting another hospital admission.
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5. Overriding a Prescription through Drug Utilization Review (DUR)
Upon receiving a request for a Hepatitis C medication, the pharmacist reviewed the member’s
genotype and previous treatments to see if it was an appropriate regimen for the member. The
provider’s requested therapy was not in line with the recommended regimen per the American
Association for the Study of Liver Diseases (AASLD) guidelines for the management of
Hepatitis C. The plan’s pharmacist contacted the prescriber, explained what the correct treatment
course should be, and had the regimen updated. DUR at point of sale helps prevent inappropriate
utilization for members who are receiving specialty medications or with co-morbid conditions.
6. Outreach to Members with Specialty Needs Amid COVID-19
At the beginning of the COVID-19 pandemic, amidst the “New York Pause,” a pharmacist at this
plan created a list of all the Medisource patients with HIV or AIDS and personally reached out to
each of these members to reassure them that their ability to access health and pharmaceutical
care would not suffer due to the state-wide shut down. This pharmacist worked with the
members to ensure they had access to pharmacies that were open and could fill or deliver 90-day
supplies of their medications and to answer any questions about the status of the pandemic. If
other obstacles to access their health or pharmaceutical care were identified, the pharmacist
provided tips to overcome these barriers.
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7. Difficulty Accessing Medication for Newborn

A newborn was discharged from the hospital with a prescription for Synagis to prevent
respiratory distress syndrome. The newborn’s parents were having difficulty obtaining the drug,
so the NICU case manager intervened on behalf of the infant. The NICU case manager and
health representatives called the pediatrician’s office for several weeks in an attempt to obtain
the medication but had no success. The NICU case manager utilized the health plan’s pharmacy
tool to paste hospital notes in order to get the prescription for Synagis approved due to a lack of
response from the pediatrician. Without the use of real-time pharmacy data, the NICU case
manager and health representatives would not have been able to override the system to ensure
the baby had access to this necessary medication.
8. Addressing Comorbidities Optimally

A member has a high opioid dose to address her multiple chronic conditions including HIV,
COPD, hypertension, and chronic pain. Despite this complexity, her health plan has worked with
her to maintain a suppressed viral load. The pharmacy team reached out to the member’s
provider to try to modify her opioid dosage to prevent opioid reliance. While reviewing her
pharmacy utilization and medical history, the plan’s pharmacy team found that she had recently
been admitted multiple times to the emergency room for COPD exacerbations. The pharmacy
team determined that she had not refilled her COPD inhaler prescription. She did not realize that
the prescription was missing because she uses two inhalers and was on multiple medications.
They immediately advised the member to contact the doctor for a refill and to discuss the opioid
prescriptions. The team reached out directly to the doctor, who felt that the member required the
opioid dosage she was taking. The doctor not only agreed to add naloxone to prevent overdose in
this member but prescribed the treatment to all of her other opioid patients as well.
9. Difficulty Obtaining Medication from the Member’s Regular Pharmacy

A plan assisted a member in filling his oxycodone/acetaminophen prescription before a weekend
when his regular pharmacy was having issues ordering it. The plan found another pharmacy that
had the medication in stock and facilitated delivery.
10. Navigating Prior Authorizations

Case managers for plans utilize pharmacy data to identify drugs that are subject to prior
authorization. With this information, case managers are able to assist members and providers
with obtaining approval or navigating the denial process. These efforts facilitate and expedite
members’ access to their prescribed medications.
11- Ensuring Access to a Prescription Despite Hospital Readmission

A member was unable to obtain an antibiotic that was prescribed upon discharge from her
hospital birth because she was later readmitted for treatment for a post-partum complication. The
case manager intervened and advised the pharmacist that the provider needs to request a prior
authorization due to a quantity limit. Without the ability to view real-time pharmacy claims for
care gaps, the case manager would not have known that the member was unable to access the
medication. The case manager’s partnership with the pharmacist helped the member access her
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[ The Menges Group)
prescribed antibiotic, likely preventing a second readmission.
12. Overcoming Expired Prior Authorization

A member had an existing prescription for Florastor 250mg capsules whose prior authorization
expired. Even after the ordering physician provided a new prior authorization and prescription
and the pharmacy authorization request was approved, the pharmacy still rejected the medication
because they needed an “authorization reason.” The member tried to address the issue for more
than a week before contacting his case manager. When the case manager checked with the
pharmacy, they found that the pharmacy was running this medication under a different National
Drug Code (NDC) and amount. The case manager provided the pharmacy with the correct NDC
and the correct amount to dispense according to updated guidelines. The pharmacy was then able
to dispense after the corrections were made. This issue was resolved by the case manager and the
member received his medication two days later.
13. Increasing Timely Access to Makena/17P

A plan received numerous reports of pharmacy issues due to Makena/17P prescriptions. Despite
ongoing provider education efforts, pharmacies often struggle with ordering, procuring, stocking,
and storing the injections. In addition, there is often a delay in obtaining accurate prior
authorizations due to providers submitting inaccurate and/or incomplete prior authorization
forms. The Medicaid average for timely access to this medication in New York state is 20%.
Through the use of real-time pharmacy data and the ability to escalate urgent matters within the
pharmacy team and medical directors, a plan was able to receive a 67% access to timely
medication procurement for members. The plan would not be able to achieve the same results if
the pharmacy benefit is carved out.
14. Proper Dosage for Patients

A plan utilized its drug utilization review (DUR) program to identify a pediatric patient living
with HIV who was being under-dosed on an antiretroviral medication based on her age and
weight. One of the plan’s Clinical Pharmacists made several rounds of provider calls to discuss
increasing the member’s dose based on her weight and ensured the pharmacy was able to
dispense the new prescription to the member.
15. Obtaining Necessary Prior Authorizations

A member was approved for a Prodigy talking glucometer but was unable to obtain the
corresponding test strips because the prescriber had only submitted a prior authorization request
for the glucometer and not the test strips. Upon outreach from the pharmacy, the plan worked
internally with the prior authorization team to add the corresponding authorizations for the test
strips, which was approved almost instantly. The plan’s integrated ability to address these
various dynamics resulted in the member easily getting her glucometer and test strips.
16. Ensuring Cost Sharing to Provide Continued Access

A plan’s Care Management and Pharmacy Departments worked together in real time to resolve
an issue where a member was unable to pick up insulin due to the pharmacy not adhering to
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Medicaid law pertaining to cost share. After the member spoke with care management, the plan’s
pharmacy department was able to ensure the member received her insulin.
17. Combatting the Opioid Epidemic

A plan’s pharmacy team employs a comprehensive strategy to combat the opioid epidemic by
addressing and restricting overuse of opioid medications. This strategy includes providing
comprehensive opioid counseling and medication review in close coordination with members
and providers. To date, the program has reduced the total morphine equivalence for the plan’s
members on high-dose opioids by 37%.
18. Tailoring the Formulary to Meet Members’ Needs

To maintain the best quality of care for patients living with HIV, at risk of contracting HIV, and
patients who are of transgender experience, a plan integrates the pharmacy benefit into the model
of care to meet the unique health care needs of these individuals. For example, the plan has
elected to include Qvar (a corticosteroid inhaler indicated for maintenance therapy in patients
with asthma) in its formulary in addition to other inhalers (e.g. Flovent) because Qvar does not
have interactions with antiretrovirals.
19. Biosimilar Formulary Outreach

A plan has successfully launched biosimilar formulary changes using additional provider support
to enhance existing written communications. This includes identifying members currently on
reference medications, outreaching to their respective providers, and educating the providers on
biosimilars. It also includes assisting providers in transitioning members to their respective
biosimilar equivalents by proactively initiating phone-based prior authorization before the
formulary changes go into effect. This initiative assists providers in planning with their members
on the changes to ease the transition and supports providers through formulary exceptions if they
feel that continued reference drug use is necessary.
20. Obtaining Easy to Use Alternatives

An Autistic teenager lives with his grandmother, who was recently diagnosed with diabetes. The
teenager is responsible for helping his grandmother maintain her diabetes care, as his
grandmother cannot read the numbers on the meter. When the teenager had difficulties using the
meter and strips that were preferred, the plan’s care management team worked with him and his
grandmother to switch to an alternative meter and strips that are easier for him and his
grandmother to use and understand.
21. Outreach to Prescriber to Obtain New Prescription

A member had several rejected claims for her prescription for Epclusa. She had a prior
authorization approved for generic Epclusa but, per the specialty pharmacy, they could not fill
the generic without a new prescription from the original prescriber, which they had not obtained.
Her plan performed telephonic outreach to the prescriber’s office and requested they send a new
prescription to the pharmacy for a generic version of the medication.
37
(The Menges Group)
22. Obtaining Prescriptions Despite COVID-19 Closures

A member of a plan’s Restricted Recipient Program was having difficulty obtaining updated
prescriptions because of the COVID-19 quarantine and closures. Because of this unprecedented
situation, the member’s prescriber was unable to write behavioral health and substance use
disorder medication refill prescriptions. The plan’s care management team worked internally
with the pharmacy team and prescriber practice to find an alternative prescriber who would write
the necessary prescriptions for this member.
B. Helping Members with Adherence to Prescribed Medication

Regimens (23 Examples)
I. Encouraging Compliance with Course of Treatment

During a monthly Restricted Recipient Committee meeting it was noted that a member did not
feel she was benefiting from her SSRI antidepressant and wanted to stop taking it. A health
plan’s pharmacist noted that the member had only picked up this medication one week prior.
Following the meeting, the plan’s pharmacist counseled the member on SSRIs and explained that
they usually need to be taken for 2-4 weeks before the full benefit is felt. The member
understood and continued with the treatment course.
2. Field Visits to Encourage Medication Adherence
In an effort to encourage adherence to medications, this plan has an internal team in place to
perform outreach to members to ensure medication adherence. In addition to telephonic outreach,
a representative from this team conducts field visits to meet members and assess what resources
they need to stay on track with their medications. Members are referred to this outreach team
based on their diagnosis with conditions that require prolonged or multiple medications (like
Hepatitis C or HIV), or any member who may be having difficulty adhering to their
antipsychotic medications. The team performs comprehensive medication reviews to help
members improve their understanding of their medications and improve quality of care for
members with diabetes or rare diseases like pulmonary arterial hypertension.
3. Intervening to Meet a Member’s Needs Post-Discharge
This plan’s care management team worked to engage a teen member and her guardian following
her discharge from a behavioral health unit for an eating disorder. Through the use of both real
time and retrospective pharmacy claims, a care manager on the team identified a history of
nonadherence with medications and that the teen’s medications had not been filled for several
months post-discharge. The care manager failed to make contact with the teen or her guardian, so
he reached out to the outpatient psychiatrist the member had been seeing. The psychiatrist noted
that the member had been decompensating psychiatrically and medically. Once this report was
received, rapid crisis interventions were put into place to readmit the member to address her
38
| The Menges Group |
Strategic: Health Policy & Care Coordination Consulting
severe weight loss. Without the plan’s ability to access real-time pharmacy data, the care
management team’s outreach would have been delayed, which could have had detrimental
impacts on her health.
4. Explaining Treatment Benefits for HIV/AIDS
One of this plan’s members was having difficulty adhering to her antiretroviral medications due
to her feelings of guilt, isolation, depression, and anxiety surrounding her diagnosis. She began
skipping her medications due to her high levels of anxiety, which had been leading to
anticipatory vomiting. She declined most interventions from case management or pharmacy and
decided that the best way to cope was to avoid her appointments and often skip medications.
Following continued attempts from this plan’s care management team, she agreed to speak with
the pharmacist about questions pertaining to her treatment plan. She worked with the pharmacist
to create a new medication regimen based on past medications and patients with similar adverse
event profiles. The pharmacist worked with her to overcome her nausea and vomiting, and she
began to see the medication as a positive daily step toward overcoming her condition rather than
as a punishment for it. Following her regular discussions with the pharmacist, the member has
increased her self-advocacy and identity and has resumed taking her antiretrovirals regularly. In
this member’s circumstance, the frequent contact and psychosocial interaction has aided her in
coming to terms with her diagnosis and adhering to medications that will help effectively
manage it.
5. Weekly Review and Local Partnerships to Address Member Non-Adherence
Every week, MTM pharmacists at this plan monitor member adherence for both antidepressant
and antipsychotic medications. Because of this, adherence concerns are captured in real time and
any rejections due to DURs or prior authorizations are caught and managed quickly. The plan’s
ability to catch these concerns in real time allows for a rapid turnaround on rejections. An MTM
pharmacist is able to Skype the pharmacist responsible for prior authorizations in order to
expedite the approval process. The plan’s MTM pharmacists are able to work with local
behavioral health clinics and form trusting connections with nurses and counselors at these
clinics. Without these connections to local clinics, members who rely on personal connections to
maintain their medication adherence are likely to become liable to systemic issues that serve as
barriers to adherence.
6. New Methods to Ensure Continued Adherence
During the UM process for an inpatient behavioral health admission, this plan discovered that
one member had numerous recurring readmissions for the same diagnosis and symptoms over
the past month. Throughout the course of each inpatient admission, the member improved
enough to be discharged back to the community with psychopharmacologic medications.
However, over the course of a week, his symptoms would rapidly resurface, leading to his
39
readmission. This plan’s UM team reviewed his medication history through their internal
processes and determined that he had been adherent with a long acting injectable (LAI) for a
different health condition. The member was then offered a LAI antipsychotic as an alternative to
his daily medication. He accepted and was able to remain stable upon return to the community.
7. Switching Medications
A member is a long-term survivor of HIV who is managing multiple health conditions and has a
prior history of substance abuse. She had a heart attack last year and is diagnosed with high
cholesterol, high blood pressure, and severe allergies. Using real-time pharmacy data, her health
plan’s pharmacy team regularly reaches out to help her manage the multiple daily medications
she takes to manage her health and stay well. They reached out to the member and her provider
to switch her HIV therapy to one with lesser side effects on her liver and kidney. Recently during
the COVID-19 pandemic, the member reached out to the team for help accessing fresh food
while following the “stay at home” order. The plan was able to connect her to Get Food NYC.
Since becoming a member, she enrolled in the plan’s workforce training program and is now a
member of her plan’s member advisory board. In response to the help she’s received, this
member said “My medicine is essential. If I wasn’t positive, I might not have turned my life
around. I might not have had regular checkups and found out I was on the verge of a stroke
earlier this year because of terribly high blood pressure. Ironically, HIV has helped me take back
my life in order to give to others.”
Referral to Treatment Adherence Specialists

8.
A member is living with HIV and was recently diagnosed with hepatitis C. This member’s case
was especially complex because she had a heart condition, a high HIV viral load, and a breast
cancer diagnosis during her HCV treatment. To complicate matters further, the patient has a
history of drifting into and out of care and often missed her appointments. Her plan’s pharmacy
team referred her to a treatment adherence specialist to ensure that the plan actively reaches out
to the member and coordinates with providers. The first step in her treatment was to reduce her
viral load, which was delayed due to her breast cancer diagnosis. Though difficult, the plan was
able to help her achieve load suppression and recently confirmed that the member has been cured
of her hepatitis C. The plan continues to follow up with this hard to reach member.
9. Providing Resources for Illiterate Members

A member of a plan is illiterate and was not able to navigate through his prescriptions. The
plan’s pharmacy team developed a medication list for him using pictures and other graphics to
help him understand what each medication is used for, how much to take, and how to adhere to
the prescribed regimen.
40
[ The Menges Group ]
10. Identifying Members in MAT for Telephonic Outreach

A plan identified that 50% of individuals in New York who receive a prescription for Medication
Assisted Therapy do not receive subsequent refills. Using the plan’s Substance Abuse Gap in Fill
Report, members were identified for telephonic outreach and their concerns regarding filling
their prescriptions were addressed by the plan’s pharmacy team.
11. Utilizing Real-Time Pharmacy Data to Ensure Adherence to Makena/17P

To address numerous issues in the procurement of Makena/17P medications, a health plan’s
pharmacy department generates biweekly reports from Makena/ 17P prior authorization requests
for the case management team to identify members who are beginning to take the medication.
Case managers monitor medication adherence via the pharmacy and medical claims database to
identify when members receive their first prescription of Makena/17P and when it is
administered by reviewing CPT codes for the administration and HHC claims. This medication
has a short window for when it needs to be administered to ensure an optimal outcome, therefore
it is critical to have real-time pharmacy information.
12. Collaboration Between Care Managers and Pharmacists for Daily Outreach Calls
Via integration teams and initiatives, a plan’s Clinical Staff Pharmacists are both physically and
procedurally imbedded within interdisciplinary Care Management teams. Throughout completed
daily outreaches with members, Care Management staff utilize pharmacists for “co-calls” in
order to articulate clinical information that the Care Management staff may not be best suited to
complete. This has led to numerous beneficial and productive conversations with members that
have helped in numerous ways. Some of these ways include lessening/resolving concerns related
to state complaints, providing education/information that has increased medication adherence,
identifying needed collaboration regarding potential therapeutic duplications, and/or identifying
potentially harmful and serious adverse effects. Even though these types of interventions can still
occur in a carve-out model, the quality of these interventions are heavily dependent on plans’
current access to historical and real-time claims data.
13. Providing Clinical and Administrative Support for Members with Hepatitis C
A health plan contacts members across all lines of business who are approved for hepatitis C
(HCV) medications to offer counseling and support to troubleshoot any barriers to care. In doing
so, the HCV team routinely identifies and addresses both clinical issues (navigating through
adverse effects, drug interactions, and stressing adherence) as well as administrative issues (such
as ensuring medications are obtained by members if pharmacy or delivery issues are found). This
leads to increased regimen completions and sustained viral responses. For example, one member
of this plan believed that HCV treatment length was eight weeks. The plan’s pharmacist
contacted the member and explained that her individualized treatment plan is actually twelve
weeks. The pharmacist was able to take the time to listen to the member on how direct-to-
consumer advertisement caused the confusion, understand why she needed to complete an
additional month’s worth of medication, and have the member successfully finish their treatment.
41
The Menges Group ]
14. Clinical Quality

Currently, members with certain chronic conditions such as COPD, asthma, diabetes, and
hypercholesterolemia receive outbound calls from a plan’s clinical outreach specialists. These
calls are made to educate members on their medication regimens, the reasons why those
medications are prescribed, how those medications work, and the importance of taking their
medications exactly as prescribed. In addition to outbound telephone calls, this plan outreaches
members on certain medications, such as antidepressants or beta blockers, via letter, SMS text,
and email. If real-time pharmacy data are no longer consistently available to through a carve-out,
these calls will not be effective nor likely possible, leaving the most at-risk members with
chronic conditions further vulnerable.
15. Multidisciplinary Case Management

A plan was struggling to contact a young adult member with HIV who had not been taking his
antiretroviral agents. Several outreach attempts from case managers had failed, but the plan’s
pharmacist successfully outreached in the form of motivational interviewing and several weekly
conversations. During this time, rapport increased, and they spoke of various reasons for this
patient’s nonadherence, including debunking conspiracy theories, discussing the pros and cons of
herbal medicine and other natural therapies, and concerns about his trust with the medical
system. The member recently began taking antiretrovirals, and conversations continue about
adverse event management, adherence tricks, continued trust with his healthcare team, and
disclosure of his HIV status to family and friends. His HIV viral load is currently undetectable,
and he is adherent to appointments and his medications.
16. Providing Early Refill in Emergency Circumstances

A pharmacist fielded a call from a member whose house burned down the previous night
destroying her HCV treatment. The pharmacist worked with the pharmacy to allow for an early
refill of her HCV medication to avoid any gap in treatment. The pharmacist also provided the
member with information on obtaining a replacement supply from the manufacturer, thereby
ensuring completion of her HCV regimen and providing savings of roughly $8,000 for a
replacement supply.
17. Supporting ARV Therapy for Viral Load Suppression

A member in his upper 40s has multiple medical conditions, including HIV, hepatitis C,
cardiovascular disease, hypertension, asthma, and chronic pain. To manage them all, he takes at
least 15 medications. Last year, the member’s physician was working with him to optimize his
HIV antiretroviral medication. The physician changed his prescription to a different drug in
January and then changed it again in July. In both instances the member’s pharmacy dispensed
both the old and new medications because he had refills remaining on the old prescription. One
of his plan’s in-house pharmacists identified the possible duplication of therapy during its regular
weekly review of all antiretroviral pharmacy claims using real-time pharmacy data. The in-house
pharmacist contacted the prescriber to confirm the therapy change, called the member to make
sure he was taking the correct medication and alerted the pharmacy to stop refills on the old
medications. The member is taking his HIV medication and has achieved viral load suppression.
42
[ The Menges Group]
This plan’s approach as an HIV SNP is to remove barriers to achieving viral load suppression. In
this member’s case, that meant not requiring prior authorization for the new prescriptions and,
instead, using its access to real-time pharmacy data and outreach to the prescriber, the member,
and the pharmacy to validate the appropriate medication therapy. This plan believes this “no
barriers” approach is instrumental in enabling 85% of its HIV-positive members to achieve viral
load suppression—protecting their health, preventing them from spreading HIV, and helping
with the Governor’s mission to End the AIDS Epidemic in New York State.
18. Medication Reconciliations with Nurse Care Managers

Using pharmacy claims information from the member platform, nurse case managers are able to
conduct medication reconciliation with patients. Through the reconciliation process the case
managers can address adherence concerns, alert the patient's provider to potential issues, and
escalate issues surrounding prior authorizations or co-pays to the appropriate pharmacy team.
19. Working with a Pharmacist to Provide Additional Case Management Support

A member suffers from debilitating depression. When he began taking antidepressants, he and a
plan pharmacist spoke about the symptoms and prognosis of depression, realistic expectations
for antidepressants, and side effect management. The member and pharmacist formed a bond
through their discussions, and the member began to realize the benefits of having a continued
support system through this pharmacist. Several months later, during the “New York Pause” as a
result of COVID-19, the member lost his job and was living with his family to save money,
despite ongoing disagreements.
His depression and anxiety steadily increased. He called the pharmacist back several months
later and conversations picked up between the two. Currently, weekly scheduled conversations
between the member and the pharmacist occur. These conversations involve positive coping
mechanisms, natural management of depression, relationship building with his family, and
follow up with his counselor and his patient advocate. At the same time, the pharmacist helped
discuss advantages and disadvantages of increasing his prescription strength, streamlining prior
authorizations to ensure adherence, and support/encouragement of positive weekly examples of
his own self-advocacy.
20. Providing Support through a Pharmacy Management Program

A plan has developed an extensive pharmacy management program to achieve positive
adherence results. Chronic diseases with complicated resistance patterns, such as HIV, also have
complex drug regimens with many drug-drug interactions which require extensive support
mechanisms in addition to the drug itself in order to assure safe use and beneficial outcomes. The
program offers:
• An open line for providers to contact the plan’s team directly for customized
pharmacy benefit-related issues.
43
[ The Menges Group]
• Pharmacy PrEP program, which provides education to at-risk HIV-negative

populations.
• Educational sessions for staff to improve understanding of HIV therapies and
optimize care for members, encourage provider participation in the plan’s
pharmacy and therapeutics committee meetings to review emerging therapies,
and many more resources to simplify, support, and encourage medication
adherence.
21. Treatment Adherence Program (TAP)

Members of a plan are assigned to TAP to assist in medication adherence. The treatment
adherence team works with the pharmacy team to track lab results and prescription fills as
indicators of adherence. The team outreaches to identified members telephonically or in person.
A personalized adherence program is created for each member. TAP also goes above and beyond
medication assistance to provide escorts to appointments and reminder calls.
22. Counseling from MTM Pharmacists

A New York MCO was recently awarded a state grant to help “End the (HIV/AIDS) Epidemic”
by offering an interdisciplinary approach to the management of members with HIV/AIDS as well
as the community education about various HIV prevention mechanisms, particularly for our
Medisource population. The Medication Therapy Management (MTM) pharmacist is tasked with
adherence counseling for members with HIV/AIDS, which often relates not only to a member’s
antiretroviral drugs, but to medications used to treat or prevent various concomitant conditions as
well.
These conversations often go beyond adherence tips and tricks, the management or alleviation of
adverse events, and the management of drug-drug interactions. Using various psychosocial and
behavioral health counseling techniques, the pharmacist can delve deeper into the reasons for a
patient’s nonadherence to medications, touching on topics such as stigma and distrust in the
health care system, guilt over diagnosis, concerns about disclosure of serostatus, the use of
complementary and alternative medical approaches to treatment, methods to help keep partners
HIV-negative, spiritual concerns, or real time referrals to case management for legal, housing,
transportation, behavioral health, or care coordination needs. The MTM Pharmacist also has a
history of working with several prescribers in clinics known for excellence in HIV care, and this
close working relationship allows a smooth flow of clinical information between providers.
The MTM pharmacist has been a vital aspect of the team that developed and conducts outreach
to providers and members who have risk factors for HIV seroconversion. Outreach to patients
will include a discussion of risk factors and various ways to prevent the transmission of blood
borne infections, including HIV, such as the use of Pre-Exposure Prophylaxis, Treatment as
Prevention, and routine testing. Further outreach will be directed at transgender females and the
partners of people with HIV.
44
If the pharmacy benefit was carved out, this plan’s process would become a challenge because
they would not have consistent access to reports and real-time claims. The pharmacist dedicated
to this project might not be supported in the carve out model and the broader care management
team’s ability to support members at the current level would be diminished.
23. Behavioral Health Prescription Drug Treatment and Adherence Support

Joe” has paranoid schizophrenia and was nonadherent to his provider appointments,
medications, and case manager appointments. After running and reviewing a non
adherent antipsychotic treatment report, the health plan flagged Joe as needing
support/intervention. The health plan staff reached out to his provider and community
pharmacy to better understand the situation and obtain updated contact information.
The case management team successfully reached out to him and relinked him to his care
team.
The health plan continued to face challenges with the member’s adherence given his
mistrust of the medications and lack of understanding around the necessity of the
treatment for his condition. Recognizing there is a social component of successful
adherence, the health plan pharmacist reached out to the member’s mother and
discussed options for counseling and motivational interviewing (including the
advantages and disadvantages of the medications) to encourage the member to adhere
to treatment. Through continued involvement, pharmacist aids were able to ensure
adherence by regular check ins, real time connections, and honest and trusting working
relationships with family, pharmacy, case managers and counselors.
c. HIV Special Needs Plans - Examples of Efforts Made to Support

Access and Adherence to Optimal Medication Regimens (2
Examples)
Below, we share two member-specific examples of the advantages of supporting Medicaid

members with an MCO pharmacy carve-in model. These examples reflect support of HIV SNP
members using an in-house team of staff pharmacists.
1. Facilitating Compliance For Member with Distorted Thoughts
Gloria” is HIV+, has schizophrenia, and a long history of emergency hospital admissions. She
was receiving monthly injections of an antipsychotic at her physician’s office. When the
physician’s office reduced services due to the pandemic, the plan’s Social Work and Behavioral
Health teams arranged for a provider who specializes in medical/psychiatric home care to do the
injections at Gloria’s home, with Gloria picking up the medication at her pharmacy. The second
45
[ The Menges Group ]
month, Gloria told the provider she had not been able to pick up the medication as she had been
thrown out of the pharmacy because of her behavior. Because people with Gloria’s conditions
sometimes experience thought distortions, the plan’s in-house pharmacists checked the real-time
pharmacy data and confirmed that the prescription had been filled and picked up. The plan’s
clinical team immediately arranged for the specialized provider to administer the medication.
2. Attaining Approval to Access a High-Cost Specialty Medication
“Michael” is an HIV positive male who was not responsive to conventional HIV therapy and had
a history of substance use. He required a salvage regimen to stabilize his health. The regimen
was in addition to his ARV therapy and cost in excess of $120,000. The plan’s pharmacy team
accessed his real-time utilization data and treatment history for a quick determination. The team
worked directly with the provider to approve the medication and identify a specialty pharmacy
for home- delivery. They also arranged nursing visits to administer infusions required for the
salvage therapy. The pharmacist assigned to the case conducted monthly utilization reviews to
ensure proper use of the therapy. The plan’s team also followed up with the doctor to ensure that
monthly lab work was completed. For the first time in more than 10 years this member reached
viral suppression .
46
EXHIBIT B
jJakely
An HMA Company *
December 15, 2022
Mr. Eric Linzer

President & CEO
New York Health Plan Association
Mr. Anthony Fiori

Coalition of New York State Public Health Plans
Senior Managing Director
Manatt, Phelps & Phillips, LLP
Re: Estimated New York Medicaid Pharmacy Carve-out Financial Impact
Dear Eric and Anthony:
Wakely Consulting Group (Wakely) was retained by the New York Health Plan Association
(NYHPA) and the Coalition of New York State Public Health Plans (Coalition) to develop an
independent estimate of the financial impact associated with carving out the pharmacy benefit
from Medicaid managed care and administering it through the state’s fee-for-service (FFS)
program. The New York Medicaid program is administered by the New York State Department of
Health (DOH). DOH contracted with Deloitte to develop the Medicaid Managed Care (MMC) and
Health and Recovery Plan (HARP) capitation rates.
This letter documents the results and methodology used by Wakely to estimate the financial
implications of the Medicaid pharmacy benefit carve-out. Wakely does not intend to create a
reliance to third parties. When distributed, this document should be provided in its entirety. We
relied on Medicaid State Drug Utilization Data (SDUD),1 MMC and HARP information sharing
reports, DOH’s pharmacy carve-out administrative cost and 340B savings estimates, and on
various other publicly available sources to perform this analysis.
EXECUTIVE SUMMARY
Effective April 1 , 2023, the Medicaid pharmacy benefit is scheduled to be carved out for MMC,
HARP, and HIV-SNP managed care populations and will be administered through New York’s
Medicaid FFS program.2 This transition has many financial implications, including the change to
FFS pharmacy fee schedule reimbursement levels, anticipated drug mix shift from moving to the
1 https://www.medicaid.aov/medicaid/prescriDtion-druqs/state-drug-utllization-data/index.html
2 https://www.health.ny.gov/health care/medicaid/redesiqn/mrt2/pharmacy transition/docs/2022-08-
16 carve out ffs.pdf
ATLANTA • DENVER • MINNEAPOLIS • NEW YORK • PHOENIX • TAMPA • WAKELY.COM

Jakely
An HMA Company
Page 2
state’s preferred drug list (PDL),3 higher rebate and 340B savings, pharmacy administrative cost
transfer, and capitation revenue-related impacts.
Wakely repriced New York’s calendar year (CY) 2021 Medicaid SDUD managed care experience
to estimate the impact of reimbursing claims at the Medicaid FFS fee schedule. We further
modeled the expected drug mix shift by comparing utilization patterns by therapeutic class against
four states that have an extended history operating under a Medicaid pharmacy carve-out model:
Missouri, Tennessee, West Virginia, and Wisconsin.4 Associated differences in national and
supplemental rebates, 340B-related savings, administrative costs, and premium taxes were also
evaluated to estimate relative costs between the managed care and carve-out pharmacy models.
Table 1 summarizes the results of this analysis.
Table 1: Estimated Annual NY Medicaid Pharmacy Carve-out CostZ(Savings) Impact ($M)

Total State State
and Federal Share
Category Shares Only5
FFS Repricing Ingredient Costs ($188.3) ($94.1)
FFS Repricing Dispensing Fees $647.2 $323.6
FFS Repricing Total Impact* $458.9 $229.5
FFS Drug Mix Impact* $802.9 $401.4
Medicaid Drug Rebate Program Rebates* ($563.9) ($281.9)

Supplemental Rebates* ($65.6) ($32.8)
340B Savings ($166.0) ($83.0)
340B Reinvestment Funds $102.0 $51.0
Administrative Costs ($98.1) ($49.1)

MCO Premium Tax Revenue $0.0 $35.6
MCO Underwriting Gain ($71.3) ($35.6)
Total Impact $398.9 $235.1
Excludes impact to 340B experience
Table 1 shows that transitioning the managed Medicaid pharmacy benefit to FFS is estimated to
increase annual New York State-specific expenditures by about $235M. The primary drivers of
the higher state expenditures include increased net drug costs due to higher dispensing fees
3 Note that “PDL” and “formulary” are used interchangeably throughout this report.
4 As of July 2019, these were the four states that primarily administered their Medicaid pharmacy benefit using a
carve-out model (https://www.kff.orq/report-section/how-state-medicaid-proqrams-are-manaqinq-prescription-druq-
costs-pharmacv-benefit-administration/)
5 Estimated State impacts do not consider the temporary 6.2% Federal Medical Assistance Multiplier (FMAP) increase
under the Families First Coronavirus Response Act. They are developed using a 50.0% FMAP, since CHIP and ACA
Expansion are separate programs from the MMC, HARP, and HIV-SNP populations considered in this analysis.
Estimated NY Pharmacy Carve-out Financial Impact NYHPA and Coalition

Jakely
An HMA Company
Page 3
under Medicaid fee-for-service contracts, higher expected brand dispensing rates, and loss of.
state premium tax revenue due to reduced capitation rates. These increases are partially offset
by increased Federal and supplemental rebates and assumed 340B and administrative savings.
METHODOLOGY
Carving the Medicaid pharmacy benefit out of managed care will significantly impact both drug
reimbursement levels and utilization patterns. To estimate this impact, Wakely relied on CY 2021
Medicaid SDUD experience which is published by CMS as part of the Medicaid Drug Rebate
Program (MDRP). This data contains National Drug Code (NDC)-level utilization and paid
amounts for managed care organization (MCO) and Medicaid FFS delivery methods, excluding
340B drugs.6 Our financial analysis compared New York’s MCO costs against estimated costs
under a carve-out model by evaluating the following seven pharmacy benefit cost components:
1. Ingredient Costs and Dispensing Fees

2. Drug Utilization Differences Under a Carve-out PDL
3. National Rebates
4. Supplemental Rebates
5. 340B Savings
6. Administrative Costs
7. Impact on Taxes and Underwriting Gain on MCO Capitation Rate Changes
The methodology used to estimate the financial impact for each of these components is described
in the following sections.
1. Ingredient Costs and Dispensing Fees
MCOs generally use pharmacy benefit managers (PBMs) to provide pharmacy services to their
members. Dispensing fees are typically much lower than FFS under this arrangement, with an
assumed $0.50 per script included in our modeling based on recent PBM contracting levels.7 This
compares to a $10.18 dispensing fee under New York’s current FFS fee schedule.8 Conversely,
ingredient costs paid under the managed pharmacy benefit are often higher than those under a
FFS fee schedule.9
6 https://www.medicaid.gov/medicaid/prescription-drugs/state-drua-utilization-data/state-druq-utilization-data-
faq/index.html
7 https://www.health.ny.gov/health care/medicaid/redesian/mrt2/ext request/docs/2020-03-05 waiver ext app.pdf
8 https://www.health.ny.gov/health care/medicaid/proqram/docs/pharmacy reimbursement.pdf
9 PBM spread pricing has historically been a significant contributor to higher ingredient costs. However, effective
October 2019, spread pricing was prohibited in PBM contracts and therefore is not considered in our analysis (Source:
MMC and HARP information sharing reports)

lakely
An HMA Company
Page 4
Wakely segmented CY 2021 SDUD MCO costs into ingredient costs and dispensing fees by
assigning dispensing fees of $0.50 per prescription and allocating the remaining drug payments
to ingredient costs. MCO drug experience was then repriced to New York’s Medicaid FFS fee
schedule to estimate unit cost differences relative to the managed care payment levels reflected
in the SDUD data. We applied the following criteria to reflect the New York FFS schedule:
• We applied National Average Drug Acquisition Cost (NADAC) per unit pricing when an
NDC mapped to an associated NADAC price10
• When NADAC was unavailable for a given NDC, we applied Wholesale Acquisition Cost
(WAC) discounted at 3.3% for brand and WAC discounted at 17.5% for generic drugs.
Note that the New York FFS fee schedule will also consider the State Maximum Allowed Cost
(SMAC) or Usual and Customary (U&C) amounts, which are unavailable to Wakely. As a result,
our repriced amounts may be overstated to the extent that greater discounts are achievable
through these sources. Table 2 provides a summary of our repricing results.
Table 2: Estimated New York FFS Fee Schedule Repricing CostZ(Savings) Impact ($M)
Drug Cost
Metric Component Brand Generic Total
Ingredient Costs $5,219.1 $876.3 $6,095.4
MCO Costs Dispensing Fees $3.9 $29.6 $33.4
Total Costs $5,223.0 $905.9 $6,128.8
MCO Costs Ingredient Costs $5,141.1 $766.0 $5,907.1
Repriced to NY's Dispensing Fees $78.5 $602.1 $680.7
FFS Fee Schedule Total Costs $5,219.6 $1,368.1 $6,587.8
Ingredient Costs ($78.0) ($110.3) ($188.3)
Difference Dispensing Fees $74.7 $572.5 $647.2
Total Costs ($3.3) $462.2 $458.9
Tables 1 and 2 show that ingredient costs are reduced under the FFS fee schedule (-$188.3M),
but this is outweighed by the significant increase in dispensing fees (+647.2M). The resulting
financial impact is estimated to be +$458. 9M, which represents a 7.5% increase to total pharmacy
expenditures. This cost increase arises entirely from generic drugs, as changes in ingredient costs
and dispensing fees for brand drugs largely offset.
10 NADAC schedules are updated weekly. Given that SDUD experience is available by quarter, we relied on the
February 21, 2021 schedule for 1Q 2021; May 19, 2021 schedule for 2Q 2021; August 18, 2021 schedule for 3Q 2021 ,
and November 17, 2021 schedule for 4Q 2021 (https://www.medicaid.gov/medicaid/prescription-druqs/pharmacv-
pricinq/index.html). NADAC mapped to approximately 75% of total drug spend using this approach.
Estimated NY Pharmacy Carve-out Financial impact NYHPA and Coalition

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2. Drug Utilization Differences Under a Carve-out PPL
MCOs currently utilize their own formularies that vary from the PDL used in New York’s FFS
program. MCOs use formularies to negotiate greater discounts with pharmaceutical
manufacturers for allowing their drugs to be included on the formulary. MCOs can also limit the
number of drugs on their formulary and design it to emphasize the use of generic drugs. States
operating carve-out models are unable to limit the brand drugs on their PDLs due to their
participation in the Medicaid Drug Rebate Program. This program provides significant rebates,
but it can limit the states’ use of the most cost-effective drugs.
The 2021 SDUD experience underlying our analysis reflects drug utilization under the various
MCO formularies in effect during 2021. Transitioning to a carve-out model requires the
prescription drug benefit to use the NY FFS program’s PDL, which would impact the drug mix
being utilized. The impact of this utilization shift was modeled by adjusting the drug mix within
each therapeutic class to the distribution observed in the four states that have historically operated
under pharmacy carve-out models: Missouri, Tennessee, West Virginia, and Wisconsin. We
specifically compared New York and each benchmark state’s drug distributions within 770
therapeutic classes, which were primarily based on MediSpan’s Generic Product Identifier sub
class (GPI-6).11 Table 3 provides a summary of the drug mix impact and generic dispensing rate
(GDR) for each of these carve-out benchmark states. Note that the drug mix impacts in this table
reflect the FFS repriced drug experience from Step 1 .
Table 3: Estimated Pharmacy Carve-out Drug Utilization Mix Impact
Total Cost Drug Mix

State Drug Mix ($M) Impact ($M) GDR
New York (current drug mix) $6,587.8 n/a 88.5%
Missouri $7,435.7 $847.9 86.1%
Tennessee $7,230.6 $642.8 86.9%

West Virginia $7,349.1 $761.3 86.0%
Wisconsin $7,547.3 $959.6 86.9%
Avg. of 4 Benchmark States $7,390.7 $802.9 86.5%
Table 3 indicates that the drug shift impact from transitioning to FFS is expected to be significant,
with an average cost increase of $802.9M (or +12.2%) based on experience from the four
benchmark states. This cost increase is mostly driven by the significantly lower generic usage
within each carve-out scenario, as observed by each benchmark state exhibiting GDRs between
1 .6% and 2.5% lower than the current New York GDR of 88.5%. Cost increases were also
observed within several therapeutic classes due to a shift in certain brand drugs toward other,
11 Several GPI-6 sub-classes, including "Simulants - Misc.” and “Adhd / Anti-Narcolepsy Agents Amphetamines", were
segmented by duration (short acting vs. long acting). "Human Insulin" and “Beta Adrenergics” sub-classes were further
segmented by dosage form.

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costlier brand alternatives. Table 4 provides a summary of the 10 therapeutic classes with the
highest average drug shift impact across the four benchmark states. This table shows that 10 of
the 770 therapeutic classes account for $583. 5M (or 72.7%) of the estimated drug mix impact.
Table 4: Estimated Pharmacy Carve-Out Drug Utilization Mix Impact

by Top-10 Therapeutic Classes
Avg. Impact of
4 Benchmark
Therapeutic Class States ($M)
Human Insulin - Rapid Acting (Pen) $85.4
Adrenergic Combinations - Long Acting $83.9
Stimulants - Misc. - Long Acting $77.0
Human Insulin - Long Acting (Pen) $73.5
Beta Adrenergics - Short Acting (Inhalers) $66.0
Dipeptidyl Peptidase-4 (DPP-4) Inhibitors $55.2
Opioid Partial Agonists - SLID Agent $39.3
Sodium-Glucose Co-Transporter 2 (SGLT2) Inhibitors $36.7
Hepatitis C Agent - Combinations $33.7
ADHD/Anti-Narcolepsy Agents:Amphetamines - Long Acting $32.9
Total Impact (Top 10 Classes) $583.5
Total Impact (All Classes) $802.9
% of Impact from Top 10 Classes 72.7%
Note that these drug shift impacts represent a fully transitioned carve-out model, as the
benchmarks states have operated a carve-out model since at least 2019. These results do not
consider any phasing-in of the FFS formulary, such as through grandfathering provisions, which
would lessen the impact directly following carve-out implementation.
3. National Rebates
Congress created the Medicaid Drug Rebate Program (MDRP) in 1990 prior to most states
moving to managed Medicaid for medical and pharmacy services. The MDRP requires drug
manufacturers to enter into a federal rebate agreement for their drugs to be covered under
Medicaid. MDRP parameters require manufacturers to pay states statutory rebates based on the
utilization of their drugs which are in turn shared with the federal government. The current rebate
amounts are the lesser of (a) 23.1% of the drug’s average manufacturer price (AMP) or (b) the

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difference between AMP and the lowest price negotiated by private payers for brand name drugs
and 1 3% of AMP for generic drugs.12
Our analysis assumes that New York currently achieves a national rebate of 51% of total drug
costs based on federal fiscal year (FFY) 2019 rebate levels.13 Under a carve out model, the State
is expected to achieve higher national rebates due to drug mix changes anticipated under a FFS
formulary (which typically target higher utilization of brand drugs). Since these rebates are
primarily attributable to brand drugs, national rebate increases were estimated for the four carve-
out benchmark scenarios by adjusting aggregate rebate amounts by the change in repriced brand
drug costs developed in Steps 1 and 2 above. Table 5 provides a summary of the estimated
increase in national rebates for each of the four carve-out benchmark states. This table shows
that estimated national rebate retained through the MDRP are greater under a carve-out model,
which is driven by higher brand drug utilization.
Table 5: Estimated Pharmacy Carve-out National Rebate Impact
Est. Increase
Est. National in National
State Drug Mix Rebates ($M) Rebates ($M)
New York (current drug mix) $3,125.7 n/a
Missouri $3,721.1 $595.4
Tennessee $3,575.2 $449.5
West Virginia $3,685.7 $560.0
Wisconsin $3,776.5 $650.8
Avg. of 4 Benchmark States $3,689.6 $563.9
4. Supplemental Rebates
In addition to the national rebates retained under the MDRP, MCOs and states negotiate
supplemental rebates with drug manufacturers for preferential status on their PDLs. Transitioning
the pharmacy benefit to New York’s FFS program will result in MCO supplemental rebates being
replaced by the supplemental rebates achieved by the state. Our modeling assumes MCO
supplemental rebates represent 5.3% of total drug spend based on the April 2021 MMC and
HARP information sharing reports.14
12 While most brand drug rebates are based on 23.1% of AMP, certain pediatric and clotting brand drugs have a lower
rebate of 17.1% of AMP. There is also an inflationary component included in the final rebate calculation to account for
the rising cost of drugs, (https://www.kff.orq/medicaid/issue-brief/understandinq-the-medicaid-prescription-druq-
rebate-program/)
13 https://www.phrma.orq/-/media/Proiect/PhRMA/PhRMA-Orq/PhRMA-Orq/PDF/Medicaid-202Q/NY-One-
Pager 20.pdf
14 Sourced from Appendix D.2 of the MMC and HARP information sharing reports, which includes the adjustment to
remove supplemental rebates from pharmacy base experience

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New York’s state-achieved supplemental rebates represented 3.7% of drug spend based on the
FFY 2017 CMS-64 reports.15 The supplemental rebates contained in CMS-64 reports for FFY
2018 and later did not appear to be reliable16 and were not used in this analysis. As a result, our
modeling assumes that current state-achieved supplemental rebates are 5.3%, consistent with
levels collectively achieved by the MCOs. However, aggregate supplemental rebates are
expected to increase due to the overall increase in drug spend expected under a FFS PDL. Table
6 provides a summary of the supplemental rebate change under each of the four carve-out
benchmark states.
Table 6: Estimated Pharmacy Carve-out National Rebate Impact
Est. Increase
Est. National in National
State Drug Mix Rebates ($M) Rebates ($M)
New York (current drug mix) $326.1 n/a
Missouri $394.1 $68.0
Tennessee $383.2 $57.1
West Virginia $389.5 $63.4
Wisconsin $400.0 $73.9
Avg. of 4 Benchmark States $391.7 $65.6
Note that the DOH analysis factors in a reduction to current supplemental rebate levels under
FFS relative to a managed care environment. It subsequently assumes a 1% increase to current
FFS levels due to additional negotiating leverage with drug manufacturers under a FFS PDL.17
Based on this, we believe our current estimate, which maintains the managed care supplemental
rebate levels, provides a reasonable (and potentially conservative) estimate.
5. 340B Savings
Drug manufacturers must participate in the federal 340B program as a condition of the MDRP.
The 340B program offers significant drug discounts to certain safety net providers covering
underserved populations, including Federally Qualified Health Clinics, tribal/urban Indian health
centers, Ryan White HIV/AIDS Program grantees, and children's hospitals. 340B ceiling prices
15 https://www.meciicald.qov/medicaid/financial-manaaement/state-expenditure-reportinq-for-medicald-
chip/expenditure-reports-mbescbes/index.html
16 The CMS-64 report field capturing supplemental rebates (Drug Rebate Offset - State Sidebar Agreement) increased
from $32M in FFY 2017 to $85M in FFY 2018 and then was greater than $200M in FFY 2019 and later. This suggests
the report may be capturing additional state savings unrelated to the supplemental rebates intended for this analysis.
17 https://www.health.ny.gov/health care/medicaid/redesiqn/mrt2/ext request/docs/2020-03-05 waiver ext app.pdf

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are set to Medicaid prices net of rebates, but manufacturers can provide additional discounts to
340B providers if they chose.18
States are prohibited from accessing national or supplemental rebates for 340B claims to avoid
duplicative discounts. Specifically, 340B claims should be excluded from MCO and state FFS
drug invoices submitted to manufacturers for MDRP national rebates and are therefore excluded
from the SDUD experience used in the prior cost components of this analysis. MCOs are
understood to reimburse 340B eligible claims using their usual retail pharmacy reimbursement,
so the state’s ability to retain these rebates is effectively lost under a carved-in model.19
Wakely did not have access to 340B experience for this analysis. As a result, we relied on DOH’s
estimated savings opportunity of $166M,20 which is understood to represent the net impact of
repricing 340B claims to FFS reimbursement levels and additional 340B-related rebates. Our
analysis also includes the impact of the $102M reinvestment fund described in DOH’s fiscal
analysis. The reinvestment fund is intended to partially offset expected revenue reductions
experienced by 340B covered entities under a pharmacy carve-out model.21 This reinvestment
could be significantly higher than the $102M commitment which was intended for State Fiscal
Year 2021-22, and would offset much of the 340B-related savings.
6. Administrative Costs
Carving out the managed Medicaid pharmacy benefit results in certain MCO administrative costs
being transferred to the state. MCO-specific administrative cost reductions will result largely due
to the transition of pharmacy claims processing costs. However, a significant portion of MCO
pharmacy-related administrative functions is expected to remain despite the carve-out. For
example, the MCOs will need to retain pharmacy staff to support and manage remaining functions
such as benefit requests, case management, member and provider complaints, and care
coordination. They will also undertake additional efforts with the state to reconcile the necessary
data required to coordinate member medical and pharmacy benefits.
MCO pharmacy administrative cost reductions will be effectuated through removing

administrative costs attributable to the pharmacy component within the MMC, HARP, and HIV-
SNP capitation rates. MCO pharmacy-related administrative functions that remain following the
carve-out should still be considered in rate development. Wakely estimated this rating
administrative cost reduction as 2.0% of the pharmacy component based on the adjustment
18 (https://www.kff.orq/medicaid/issue-brief/understandinq-the-medicaid-prescription-druq-rebate-
proqram/view/footnotes/#footnote-438418-26)
19 https://www.health.ny.qov/health care/medicaid/redesiqn/mrt2/meetinqs/docs/2020-08-
05 340b advisory mtq1.pdf
20 https://www.health.nv.qov/health care/medicaid/redesiqn/mrt2/meetinqs/docs/2020-08-
26 340b advisory mtq2.pdf
21 https://www.health.ny.gov/health care/medicaid/redesiqn/mrt2/ext request/docs/2020-03-05 waiver ext app.pdf

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applied for California’s Medicaid programs, which similarly underwent a pharmacy carve-out
effective January 2022.22 This assumption compares to the 3.07% pharmacy administrative costs
included in CY 2019 capitation rates, which DOH references in their pharmacy carveout fiscal
impact analysis. It is unclear whether this higher figure would remove funding for pharmacy-
related administrative functions that need to be maintained in a carve-out scenario. Also, this
figure appears to capture additional expenses from PBM spread pricing which was prohibited
effective October 2019. As a result, we believe our assumed 2.0% admin cost reduction is
appropriate.23
The aggregate reduction was calculated by applying the assumed 2.0% administrative cost
reduction to total projected pharmacy administrative costs underlying the April 2021 capitation
rates.24 The resulting annual pharmacy administrative cost reduction is $141. 1M. This reduction
is offset by administrative cost increases in the NY FFS Medicaid program as it scales up its
operations to handle the additional load of covering significantly more members. Wakely relied on
DOH’s estimate of $43M for these cost increases, which yields a net savings of $98.1 M for the
pharmacy administrative cost transfer.
7. Impact of Taxes and Underwriting Gain on MCO Capitation Rate Changes
MCO capitation rates are based on projected claim and administrative costs plus a provision for
underwriting gain and MCO premium taxes. Therefore, the state will lose part of the MCO
premium tax revenue if the pharmacy benefit is no longer covered under managed Medicaid.
Capitation rate payments will decrease under a carved-out model due to the lack of prescription
drug costs and because the administrative costs, premium taxes, and underwriting gain
attributable to the drug portion of total benefit costs will no longer apply. The removal of the
underwriting gain portion attributable to pharmacy costs results in a cost savings, other things
equal. By comparison, the elimination of premium taxes associated with the pharmacy benefit will
result in a revenue reduction to the state, since it represents a portion of capitation rate payments
that are federally funded, whereas all premium tax receipts are retained by the state.
22 Sourced from the CY 2022 Medi-Cal Managed Care Rate Certification

(https://hmais.healthmanaqement.com/california/ca-medi-cal-manaqed-care-rate-certification-2022/)
23 From DOH’s fiscal impact analysis, "administrative costs are a critical component to financial plan budget savings.
Administrative costs that are included within the current managed care capitation rates along with the level of spread
pricing included within the managed care reimbursement allows for MCOs and PBMs to realize a profit when
administering the pharmacy benefit. Administrative costs paid to managed care plans to administer the Medicaid
pharmacy benefit were $285 million in 2019“
(https://www.health.ny.qov/health care/medicaid/redesiqn/mrt2/ext request/docs/2020-03-05 waiver ext app.pdf)
24 Total projected pharmacy costs in the April 2021 MMC and HARP information sharing reports were $6.9B. These
costs are significantly larger than Table 2 MCO pharmacy costs reported in SDUD ($6.1 B) primarily due to the inclusion
of 340B claims. Note that HIV-SNP rating documents were unavailable to Wakely for this analysis. This is not assumed
to materially impact the results of our analysis given the program’s relatively small size (less than 16,000 members as
of October 2022). https://www.health.nv.qov/health care/manaqed care/reports/enrollment/monthly/index.htm)

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The MMC and HARP capitation rates include a Franchise Tax of 1.75% plus a separate 0.30%
Metropolitan Transportation Authority (MTA) surcharge in applicable regions25 to all for-profit
MCOs. Meanwhile, no premium taxes are applied for not-for-profit MCOs. We estimate a premium
tax revenue of approximately 1 .0% of premium in our modeling. This blended figures is based on
the observed MMC and HARP enrollment distribution by MCO and region.26
The capitation rates also include a 1 .0% provision for risk margin. These percentage loads were
applied to total projected costs including the 2.0% administrative cost load from Step 6 to estimate
premium tax revenue lost and underwriting gain savings under the pharmacy carve-out model.
CONCLUSION
This analysis was developed on behalf of the NYHPA and Coalition-member health plans to
present an independent financial cost estimate for the NY Medicaid pharmacy carve-out effective
April 2023. Other uses may be inappropriate. We relied on Medicaid State Drug Utilization Data,
MMC and HARP information sharing reports, DOH’s pharmacy administrative costs and 340B
savings estimates, and on various other publicly available sources documented in this letter to
perform this analysis.
Sam Rickert and Taylor Pruisner are responsible for this communication. We are Members of the
American Academy of Actuaries and Fellows of the Society of Actuaries. We meet the
Qualification Standards of the American Academy of Actuaries to issue this letter. We completed
this analysis using sound actuarial practice. To the best of our knowledge, the letter is in
compliance with the appropriate Actuarial Standards of Practice with no known deviations.
Outside parties receiving this work should retain their own experts and form their own opinions.
Wakely does not intend to create a reliance to these outside parties and these materials may not
be released to third parties without Wakely’s prior written consent, and when consent is granted,
the materials should be provided in their entirety.
Users of this memorandum should be qualified to use it and understand the results and the
inherent uncertainty. There are no known relevant events subsequent to the date of the
information received that would impact the results of this analysis. Wakely provides actuarial
services to a variety of clients throughout the health industry. Our clients include commercial,
Medicare, and Medicaid health plans, the federal government and state governments, medical
providers, and other entities that operate in the domestic and international health insurance
markets. Wakely has implemented various internal practices to reduce or eliminate the conflict of
interest risk in serving our various clients. Except as noted here, Wakely and the undersigned
actuaries are financially independent and free from conflict concerning all matters related to
25 The MTA surcharge applies to the Long Island, Mid-Hudson, Northern Metro, and NYC Metro regions
26 https://www.health.nv.qov/health care/manaqed care/reports/enrollment/monthly/

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performing the actuarial services underlying this analysis. In addition, Wakely is organizationally
and financially independent from NYHPA, Coalition, and their member health plans.
Please do not hesitate to call if you have any questions or if we may be of additional assistance.
Sincerely,
Sam Rickert, FSA, MAAA Taylor Pruisner, FSA, MAAA

Senior Consulting Actuary Director & Senior Consulting Actuary
Wakely Consulting Wakely Consulting

Complaint - Heritage and Evergreen v. NY DOH

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Complaint - Heritage and Evergreen v. NY DOH

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SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

HERITAGE HEALTH AND HOUSING, INC., and

Defendants, respectfully allege as follows:

1. Plaintiff Heritage Health and Housing, Inc. ("Heritage"), is a domestic not-for-profit

2. Formerly known as the Washington Heights-West Harlem-Inwood Mental Health

Washington Heights and Inwood neighborhoods of New York City.

patient population of 5500 persons receive treatment for HIV/AIDS.

5. Fifty-seven percent of Heritage's patient population 1s eligible to receive medical

persons who treat at Heritage are uninsured.

7. Plaintiff EHS, Inc. d/b/a Evergreen Health ("Evergreen") is a domestic not-for-profit

9. Evergreen is an organization with over 500 employees, 6 service locations in two

or life-threatening diseases and disabilities, including HIV/AIDS.

C, and healthcare for rural populations in the Southern Tier.

are members of the LGBTQ+ community.

who treat at Evergreen are uninsured.

constitutional and statutory claims on behalf of their patients.

Albany, New York.

Floor, New York, New York.

regulations as may be necessary to implement that plan.

where socioeconomic factors impact health and health care quality."

Payment Arrangements: Making Targeted, Evidence-Based Investments to Address the Health

address workforce shortages.

that official capacity.

permanently enjoin Defendants from implementing it.

DOH Is the Single State Agency

vulnerable and at-risk Americans.

27. Upon information and belief, Medicaid's stated purpose is:

42 U.S.C. § 1396a(a)(l 9).

administering the Medicaid program within New York State.

"best price" for the drug in question.

Medicaid program with the MDRP.

of hospitals: disproportionate share hospitals ("DSHS"), or hospitals which serve a "disproportionate"

to low-income individuals who do not qualify for Medicaid or Medicare.

higher than in physician offices.

340B Program is based on whether the facility receives federal funding.

entitled to receive discounts on all eligible covered outpatient pharmaceuticals.

offers for a drug is lower than the minimum discount.

care for vulnerable populations.

providing medical care for children in foster care.

45. In short, the 340B Program is a well-established, long-standing mechanism created by

health-related social needs.

revenues where they are needed most.

is defined under the 340B Program.

uncompensated care and medications to many of its most vulnerable patients.

people in the United States.

entity" as that term is defined under the 340B Program.

many of its most vulnerable patients.

DOH Proposes the 340B Carveout:

This plan became known as "the 340B Carveout."

the acquisition cost for the drug in question.

If Implemented, the 340B Carveout Will Cause

New York's most vulnerable populations:

• safety-net providers will be forced to cut jobs and services;

• clinics in underserved communities will close, exacerbating inequities in access to care;

62. As noted previously, in 2022 alone, Heritage generated approximately $3 .1 million in

Carveout could hasten the closure of a facility desperately needed in Harlem.

Southern Tier of New York.

among the federal and state governments.

financial impact of the 340B Carveout were the following:

• Drug Utilization Differences and Rebate Revenue: Wakely anticipates an increase in

DOH Is Pressing Forward With

plans to implement the 340B Carveout on April 1, 2023.