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Review of Community Pharmacy Payments for 2016/17

Technical Advisory Services

12 February 2018

Contents

Glossary of Terms 2

1. Executive Summary 4

2. Introduction 6

3. FY17 payments under the CPSA 7

4. Agreed Expenditure for FY18 15

5. Overall Conclusions 20

Review of Community Pharmacy Payments for 2016/17 2

Glossary of Terms

Abbreviation Definition

Agreed Expenditure Minimum payment under the CPSA for FY18, replacing the Minimum Guaranteed Expenditure.

Brandswitch fees Additional payment to pharmacy when dispensing pharmaceuticals that have changed brands and that meet certain criteria.

Case Mix Quarterly Adjustments

Adjustments paid quarterly after recalculating Case Mix Service Fees for negative A3 and J3 transactions.

Case Mix Service fees Service fees based on initial and repeat items for LTC and Core pharmacy services.

Contract Group One of two groups (along with the Expert Advisory Group) that have an advisory function for the Community Pharmacy Services Agreement (CPSA).

CPAMS Community Pharmacy Anti-Coagulation Management Services

CPSA / Agreement Community Pharmacy Services Agreement

DHBs District Health Boards

Final Actual Case Mix Service

fees

Actual Case Mix fees for July 2016 to June 2017 based on

data received up to and including 31 October 2017.

FY16 The period 1 July 2015 to 30 June 2016



Handling fees The applicable handling fee as set out in the CPSA and serves as a marker for dispensing activity

Interim Actual Case Mix fees Interim Actual Case Mix Fees calculated during FY17 based on the actual number of initial and repeat items

the Pharmacy dispensed to service users during the relevant service month.

LTC Long-Term Conditions Service

LTC MSF LTC Monthly Service fees (paid in relation to patients

registered with a pharmacy in long-term conditions service).

Margin payments Contribution to pharmacies for the cost of procurement and stockholding.

MARGIN SUPP and MARGIN

ADJ

Support payment and one off adjustment on margin

payments


Abbreviation Definition

Minimum Guaranteed Expenditure

The bottom of the Targeted Expenditure Range. The FY17 Minimum Guaranteed Expenditure is $380,932,798.50.

MOH Ministry of Health

Negative A3 or J3 Transaction Initial items which have a co-payment amount higher than the standard co-payment amount and the initial item has a value of less than this co-payment using an assumed service fee. For full definition see CPSA Definitions.

Pharmacy Community Pharmacy

S26 S29 M Additional margins on unregistered subsidised medicines

S26 S29 AF Administrative fee on unregistered subsidised medicines

S26 S29 CF Counselling fee on unregistered subsidised medicines

Stage 4 Stage 4 of the CPSA:

Stage 4 is the current stage of the CPSA and has operated from 1 August 2014.

Targeted Expenditure Range The range of expenditure DHBs will pay to Community

Pharmacies in FY17 under the CPSA. The Targeted Expenditure Range for FY17 is $380,932,798.50 to $384,742,126.49.

TAS Technical Advisory Services Limited formerly known as Central Region’s Technical Advisory Services Limited

Total Expenditure The total actual expenditure paid to Community Pharmacies in FY17 under the CPSA, less audit recoveries.

Wash-up Payment In the case where Total Expenditure is less than the Minimum Guaranteed Expenditure, the difference forms

the wash-up payment that is allocated to pharmacies based on each pharmacy’s market share of Core and LTC Pharmacy services initials and repeats (inclusive of LTC MSF and all case mix, handling fees, exclusive of negative A3 and J3) less audit recoveries.


1. Executive Summary

Deloitte was asked to undertake a review of payments collated by

Technical Advisory Services Limited (TAS) under the Community

Pharmacy Services Agreement (CPSA or the Agreement) for the

period 1 July 2016 to 30 June 2017 (FY17).

End of Year Adjustment Process

This Report provides an overview of the CPSA payment mechanism, the calculation of payments

under the Agreement and conclusions of our review.

FY17 is the second full year under Stage 4 of the CPSA. Stage 4 of the CPSA was implemented in

August 2014. FY15 was intended to be the final year of the CPSA. However, we understand that

DHBs engaged with the sector, and then made the decision following feedback to extend the CPSA

for an additional year (FY16) with a further 12 month renewal for FY17.

Between 1 July 2016 and 30 June 2017 the CPSA had a Targeted Expenditure Range of

$380,932,798.50 to $384,742,126.49. The end of year process ensures that the Minimum

Guaranteed Expenditure, which is the bottom of the Targeted Expenditure Range of

$380,932,798.50, is paid to community pharmacies.

Since actual payments under the CPSA surpassed the Minimum Guaranteed Expenditure no wash-

up payment is required in FY17. However, we understand that District Health Boards (DHBs) are

confirming the preferred approach for recovery of an overpayment relating to a Brandswitch fee

error with the Ministry of Health (as the DHBs’ payment agent) and sector representatives.

The CPSA has been extended for another 12 months for FY18. As part of the FY18 contract

extension the Minimum Guaranteed Expenditure has been replaced with the Agreed Expenditure.

The CPSA defines that the Agreed Expenditure for FY18 will be the sum of the total Handling Fees,

Service Fees and any other amounts paid by all DHBs to all providers during the 2016/17 Financial

Year as audited excluding the subsidy cost of Pharmaceuticals and any Part P payments (CPSA

clause H32.1). Using this definition as provided in the CPSA FY18 extension, we have been asked

by TAS to independently verify their Agreed Expenditure calculation. Our independent review of

the FY18 Agreed Expenditure confirms that TAS has applied the contract definition consistently and

has applied the appropriate FY17 payment totals to calculate the FY18 Agreed Expenditure. The

FY18 Agreed Expenditure total of $426,991,711.90 is consistent with our analysis.

Findings:

- The CPSA payments process for FY17 has been defined by TAS in step-by-step

documentation that lists sources and calculations at each step. The calculations and

methodology applied by TAS are consistent with FY16 with the exception of no wash-up

calculation required in FY17 due to actual payments exceeding the Minimum Guaranteed

Expenditure.

- We have checked the documented process to make sure that the calculations applied by

TAS have been carried out correctly and that the process is aligned with the CPSA. Overall

we consider the calculation of actual payments applied by TAS to be consistent with the

CPSA agreement.


- The process has been more streamlined, and we conclude TAS analysts have applied

reasonable and consistent methodology at all stages of the process.

- There was an overpayment of Case Mix Service Fees and margins charged on Brandswitch

items in FY17. The Ministry of Health have investigated to cause and believe it to be due

to an undetected coding change to Brandswitch fees. This error was not initially picked up

through normal monitoring processes and therefore continued for eight months until it was

picked up in June 2017. The payments where the error occurred are complex, have natural

monthly variability and are of a relatively small size compared to total payments.

- Each year-end there is an adjustment process for Case Mix Service Fees to balance interim

and final invoices. Similar to prior years there is an amount due to pharmacies which

covers late claims, credits and resubmits of Case Mix Service Fees.

- The net difference between the overpayment to pharmacies and the amount due to

pharmacies from the two items above has been determined to be $976,794. In addition

margins were also paid on the Brandswitch items above which should also be recovered,

amounting to $86,545. The total value of $1,063,339 remains outstanding.

- For the purpose of this report we have assumed that the FY17 end of year (EOY)

adjustment of approximately $1.1m will be recovered from community pharmacies. TAS

have informed us that the CPSA Clauses H15 Overpayment and H17 Set-off outline the

recoveries process in the event of an overpayment. Therefore the FY17 actual payments

contributing to Minimum Guaranteed Expenditure used in this report account for the

overpayment using the corrected totals.

- In FY18 the Minimum Guaranteed Expenditure is being replaced by an Agreed Expenditure.

The calculation of Agreed Expenditure makes the minimum amount required to be paid to

pharmacies more transparent and allows for an easy-to-follow process for subsequent

years.


2. Introduction

Deloitte was asked to undertake a review of payments collated by

TAS under the CPSA for FY17.

Purpose, Approach and Scope

The purpose of this report is to outline our understanding of the process employed by TAS to

account for payments and to ensure that this is consistent with the CPSA.

In order to assess the appropriateness of TAS processes the scope of our Report was to:

Review the process and methodology used for the calculation and distribution of payments

from the Targeted Expenditure Range;

Ascertain whether the methodology is consistent with the most current CPSA contract; and

Independently review the FY18 Agreed Expenditure.

Our approach for reviewing the end of year calculations performed by TAS has included:

Recalculation of preliminary results using source data supplied by the Community Pharmacy

Programme;

Reviewing the methodology used to extract data and calculate transactions;

Reviewing the interpretation of the contract extension and confirming the elements

included;

Meeting with TAS to discuss our preliminary findings from discussions, interviews and

analysis; and

A brief report summarising the conclusions reached.

Out of Scope

We have not reviewed the payments made to any individual pharmacy or group of

pharmacies.


3. FY17 payments under the

CPSA

Summary

This section describes in detail the steps that TAS performs in order to calculate the amount that

has been paid under the Agreement and to check whether this surpasses the FY17 Minimum

Guaranteed Expenditure of $380.9m

The FY17 Minimum Guaranteed Expenditure was the same value as the Annual Funding Envelope

for FY16. While in previous years a funding envelope was set with the intention of actual payments

falling below the envelope with the remainder being distributed to pharmacies via an EOY wash-up

payment, the Minimum Guaranteed Expenditure sets a minimum payment which must be paid out

with the intention of actual payments surpassing the Minimum Guaranteed Expenditure so that no

end of year wash-up payment will be required.

Throughout the year pharmacies receive various service fee payments under the CPSA on types of

services and amounts of units dispensed. The amount paid out must pass the Minimum

Guaranteed Expenditure which is the bottom of the Targeted Expenditure Range.

The waterfall chart below steps through the payments made under the CPSA:

Stage 4 payments made in FY17 are deducted: Final Case Mix Service Fees, Community

Pharmacy Anti-Coagulation Management Services Payments (CPAMS), LTC MSF, Handling

fees, Brandswitch Fees, Case Mix Quarterly Adjustments, and;

Audit recoveries are added back.

Due to Total Expenditure under the CPSA exceeding the Minimum Guaranteed Expenditure by

$5.3m in FY17 there is no amount to allocate to pharmacies via an EOY wash-up payment.


Brandswitch overpayment

An overpayment, which the Ministry of Health believe to be the result of a coding error for

Brandswitch Fees, was identified in June 2017. We understand this error was picked up when

routine software testing was undertaken. This error resulted in an overpayment of Case Mix

Service fees and Brandswitch margins to pharmacies over a period of eight months in FY17.

The overpayment occurred between November 2016 and June 2017. The case mix overpayments

for May and June were recovered through the usual monthly case mix adjustments. However, the

case mix overpayments between November and April, and all margins paid on brand switch,

remain outstanding.

The Ministry of Health have reviewed the cause of the overpayment, and believe that it was

triggered by a change to a Brandswitch identifier code (called the Formulation_ID) by PHARMAC.

Following the code change, the Ministry of Health (MOH) payment system did not recognise the

Formulation_ID should be treated as Brandswitch items only (not attracting Case Mix Service Fees

and margin payment), and instead treated them as if they were ordinary pharmaceutical

dispensing which attracted a Case Mix Service Fee and margin payment. This meant, in addition to

the normal Brandswitch payment, the items were also paid a margin payment (inflating

Brandswitch fees total) and Case Mix Service fee (inflating interim Case Mix Service fees). The

margin payment and the Case Mix Service fee payments should not have been paid, and therefore

should be recovered by DHBs.

At the end of each year, there is typically an adjustment process for Case Mix Service Fees to

balance the interim and final invoices. In FY16 the adjustment amount due to pharmacies was

$206,732 to cover late claims, credits and resubmits of Case Mix Service Fees.

The net difference between the overpayment to pharmacies and the amount due to pharmacies

from the two items above has been calculated as $976,794 . In addition margins were also paid

on the Brandwitch items above which should also be recovered, amounting to $86,545. The total

value of $1,063,339 remains outstanding.

The overpayment of $976,794 due to Brandswitch payments attracting Case Mix Service fees was

made up of calculated Brandswitch fees, estimated by TAS to be between $1,241,888 and

$1,291,563. The calculated Brandswitch fees are offset by an EOY adjustment, estimated by TAS

to be $265,093 to $314,769. These numbers are presented in the table on the following page.

The actual Brandswitch margin recoveries from MOH are $86,545. Combining the difference

between interim and final Case Mix Service fees and the Brandswitch margin overpayment the

total EOY adjustment is a recovery of $1,063,339.

Include elements of overpayment


We have reviewed the assumptions and methodology provided to us by TAS, and have stepped through the process below. TAS has provided the following assumptions that were used to

estimate the Brandswitch overpayments:

Case Mix Service Fee estimated overpayment:

Case Mix Service Fee on Brandswitch

items from FY17 Contract $4.380

Number of Brandswitch claims during

the period

November 2016 – April 2017:

283,536 claims

Initial Relative Value Unit

(multiplied to the Case Mix Service Fee

depending on the number of items

presented within a prescription)

Low High

x1.0

(less than 3 items)

x1.04

(greater than 6 items)

Calculated Case Mix Service

Fee Brandswitch adjustment

4.380 x

283,536

x 1.0 =

-$1,241,888

4.380 x

283,536

x 1.04 =

-$1,291,563

(Case Mix Service fees x #

Brandswitch claims between

November 2016 – April

2017 x Initial Relative Value

Unit (low / high))

Note: Overpayments in May and

June were managed as part of

the usual adjustment process

therefore are not included in

this calculation

Low scenario:

High scenario:

The implied FY17 EOY adjustment range excluding the coding error is $265,093 to $314,769. This

is 0.12% - 0.14% of the total Case Mix Service Fee. In FY16 the end of year adjustment payment

was $206,732 or 0.09% of the total Case Mix Service Fee. Due to a growing volume of

pharmaceuticals dispensed each year, an increase of this magnitude is comparable.

FY17 End of Year (EOY)

Actual Case Mix adjustment

-$976,794

FY17 implied EOY adjustment for late

claims, credits & resubmits

$265,093

Calc. Brandswitch Case Mix

Service Fee adjustment

-$1,241,888

FY17 End of Year (EOY)

Actual Case mix

adjustment

-$976,794

FY17 implied EOY adjustment for late

claims, credits & resubmits

$314,769

Calc. Brandswitch Case Mix Service

Fee adjustment

-$1,291,563


FY17 payments under the CPSA

STEP 1

Step 1 outlines the actual payments made in FY17. This step is broken into two parts, firstly

explaining the process for Final Actual Case Mix Service fees, followed by the process for all other

payments over the same period.

STEP 1a: Calculate End of Year Case Mix Payments

In this step TAS obtains the Final Actual Case Mix Service fees to include in actual payments

contributing to the Minimum Guaranteed Expenditure.

The Final Calculated Case Mix Payments file has been provided by the MOH Sector Operations

team. The excel file details Interim and Final Case Mix Service fees by month for each claimant

number.

The Case Mix Service fees have been provided inclusive of GST, we have excluded GST for the

purpose of deductions from the Minimum Guaranteed Expenditure amount.

During FY17 Interim Actual Case Mix Service fees have been paid. However due to claims, credits

and resubmits beyond the Interim Actual Case Mix Service fee cut-off, a final calculation was

performed to determine the Final Actual Case Mix payment for FY17.

In previous years, the Final Actual Case Mix Service fee has been higher than the Interim Actual

Case Mix Service fees. This year, however, the Interim Actual Case Mix Service fee was higher.

This was due to the Brandswitch coding error which resulted in an overpayment of Case Mix

Service fees in the interim payment. The Final Actual Case Mix Service fees reflects the Actual

Case Mix Service fees for FY17 taking into account the error correction as well as the late claims,

credits and resubmits beyond the Interim Actual Case Mix Service fee cut-off.

The table below compares the Interim Case Mix Service fees paid and the Final Actual Case Mix

Service fees. Final Case Mix Service Fees for FY17 was $228.3m excluding GST and the total

adjustment for FY17 is ~$(1.0)m exclusive of GST.

Total wash up

amount = Minimum

Guaranteed

Expenditure

Actual Payments

Contributing to

Minimum

Guaranteed

Expenditure

+ Audit Recoveries

identified in FY17-


We have checked that the Final Actual Case Mix Service fees provided by MOH Sector Operations

matches the total Final Actual Case Mix Services fees used by TAS in determining actual payments

contributing to the Minimum Guaranteed Expenditure.

STEP 1b: All other payments for FY17

In this step TAS removes all other actual payments made. All other actual payments include:

Payments sourced from Oracle:

CPAMS,

LTC MSF, and

Case Mix Quarterly Adjustments.

Payments sourced from PharmHouse:

Handling fees, and

Brandswitch fees.

A summary of these payments for FY17 is displayed below.

Case Mix Fees

$

Interim

Actual Case

Mix Fees Paid

Final Actual

Case Mix

Invoices

Difference

July 2016 (18,571,637) 18,611,709 40,071

August 2016 (20,404,395) 20,459,469 55,074

September 2016 (19,468,403) 19,506,621 38,219

October 2016 (18,490,644) 18,514,167 23,523

November 2016 (19,800,795) 19,814,076 13,281

December 2016 (19,828,183) 19,838,135 9,952

January 2017 (17,732,949) 17,739,277 6,328

February 2017 (17,379,127) 16,856,526 (522,602)

March 2017 (20,115,358) 19,696,376 (418,982)

April 2017 (17,123,334) 16,832,171 (291,164)

May 2017 (20,754,092) 20,789,544 35,453

June 2017 (19,576,542) 19,610,594 34,052

Total (229,245,460) 228,268,666 (976,794)

FY17 All Other Actual Payments Summary

$

CPAMs 3,584,579

LTC MSF 32,054,686

Handling fees* 120,438,019

Brandswitch fees** 2,492,182

Case mix quartery adjustments 115,929

Total 158,685,394

*Base and specific services, excluding negative A3J3 items as per Stage 4 Rules

and Brandswitch payments, net of credits and resubmits

**Includes recovery of margin paid on brandswitch


Oracle Payments

Community Pharmacy Anti-Coagulation Management Services Payments (CPAMS)

For FY17, CPAMS payments out of the targeted expenditure range were capped at $3.5m. CPAMS

payments actually paid in FY17 totalled $3.6m. Due to the cap, only $3.5m was included in actual

payments contributing to the Minimum Guaranteed Expenditure. The amount above the cap was

separately funded by the respective DHBs.

LTC Monthly Service Fee

Service fees for LTC Pharmacy services are funded through the LTC MSF of $20.80 per month for

each registered patient ($249.60 per annum) under Stage 4. The LTC MSF actually paid in FY17

totalled $32.1m, sourced from the Oracle payments file.


Quarterly reviews were undertaken to recalculate Case Mix Service fees for negative A3 and J3

transactions. Case Mix Quarterly Adjustments payments actually paid in FY17 totalled $0.1m,

sourced from the Oracle payments file.

A monthly breakdown of the payments sourced from Oracle is displayed below.

PharmHouse Payments

A PharmHouse extract pulls the actual Brandswitch and Handling fees paid to individual

pharmacies into an Excel file.

Handling fees

Handing fees are paid for all items dispensed. Credits and resubmitted items are also accounted

for within the Handling fee component at this stage (credit items are subtracted and resubmitted

items are added) and negative A3J3 Handling fees are excluded:

A breakdown of Handling fees by month is displayed below.

Oracle Payments Monthly Breakdown

$ CPAMS LTC MSF

Case Mix

Quarterly

Adjustments

July 2016 296,991 2,662,823 -

August 2016 284,490 2,643,596 -

September 2016 287,641 2,648,898 28,413

October 2016 295,470 2,670,336 -

November 2016 295,358 2,656,998 -

December 2016 306,222 2,650,396 24,644

January 2017 292,860 2,675,794 -

February 2017 307,120 2,663,130 -

March 2017 307,565 2,641,357 29,048

April 2017 306,262 2,675,418 -

May 2017 298,620 2,737,074 -

June 2017 305,980 2,728,867 33,823

Total 3,584,579 32,054,686 115,929


Brandswitch fees

For FY17, Brandswitch payments out of the targeted expenditure range were capped at $2.0m.

Brandswitch payments actually paid in FY17 totalled $2.5m. Due to the cap, only $2.0m is

included in actual payments contributing to the Minimum Guaranteed Expenditure. The amount

above the cap is separately funded by the relevant DHBs.

The Brandswitch nominal expenditure breakdown is displayed below:

Due to the same Brandswitch coding error, which resulted in the overpayment of Case Mix Service

fees, margins were paid on Brandswitch items in error. As displayed in the table, the total has

been adjusted to take into account the Brandswitch margin recoveries.

STEP 2: Audit Recoveries

In this step, TAS obtains the identified audit recovery amounts to add back to the Minimum

Guaranteed Expenditure.

The MOH Audit and Compliance team audits the payments made to community pharmacy and

identifies payments that were recoverable during FY17.

TAS is provided with a file from the MOH Audit and Compliance team containing a breakdown of

the recoveries identified. $0.2m of recoveries were identified by Audit and Compliance in FY17.

Handling Fees Breakdown

$Monthly

Handling FeesCredits Resubmits Negative A3J3 Total

July 2016 9,907,035 (39,576) 29,229 (64,778) 9,831,910

August 2016 10,685,986 (40,973) 30,354 (67,358) 10,608,009

September 2016 10,248,512 (42,857) 33,495 (63,555) 10,175,595

October 2016 9,820,837 (36,716) 28,451 (58,188) 9,754,384

November 2016 10,403,845 (37,904) 28,104 (63,257) 10,330,788

December 2016 10,474,992 (40,274) 30,271 (58,154) 10,406,834

January 2017 9,538,734 (35,244) 26,479 (45,127) 9,484,841

February 2017 9,120,902 (38,459) 28,428 (68,429) 9,042,442

March 2017 10,570,212 (40,566) 28,672 (78,590) 10,479,727

April 2017 9,209,654 (41,916) 32,699 (64,266) 9,136,171

May 2017 10,995,195 (40,177) 29,085 (80,060) 10,904,043

June 2017 10,367,038 (37,343) 26,977 (73,398) 10,283,274

Total 121,342,941 (472,004) 352,243 (785,161) 120,438,019

Brandswitch Breakdown

$ Total

July 2016 0

August 2016 923,192

September 2016 0

October 2016 0

November 2016 4,623

December 2016 3,297

January 2017 2,241

February 2017 692,826

March 2017 546,057

April 2017 397,359

May 2017 5,835

June 2017 3,296

Total 2,578,727

Brandswitch margin recoveries (86,545)

Total Brandswitch corrected 2,492,182


These recoveries are added back to the Minimum Guaranteed Expenditure when calculating

whether the Minimum Guaranteed Expenditure has been surpassed, regardless of whether affected

District Health Boards (DHBs) had successfully recovered the respective amounts.

STEP 3: Determine whether payments under the CPSA exceed the Minimum Guaranteed

Expenditure

In this step TAS determines the excess above Minimum Guaranteed Expenditure by subtracting all

actual payments (Step 1) from Minimum Guaranteed Expenditure then adding Audit recoveries

(Step 2) as outlined below:

Due to Total Expenditure under the CPSA exceeding the Minimum Guaranteed Expenditure by

$5.3m in FY17 there is no amount to allocate via to pharmacies an end of year wash-up payment.

However, the identified overpayment remains outstanding to be recovered.

Minimum

Guaranteed

Expenditure

Actual Payments

Contributing to

Minimum

Guaranteed

Expenditure

+ Audit Recoveries

identified in FY17-

Payments under the CPSA

$

Minimum Guaranteed Expenditure 380,932,799

Less: Actual payments FY17

Final Case Mix Fees (228,268,666)

CPAMs (capped) (3,500,000)

LTC MSF (32,054,686)

Handling fees* (120,438,019)

Brandswitch fees (capped) (2,000,000)

Case mix quartery adjustments (115,929)

Actual payments FY17 (386,377,299)

Plus: Audit recoveries FY17 166,445

Total excess above Minimum Guaranteed Expenditure (5,278,056)

*Base and specific services, excluding negative A3J3 items as per Stage 4 Rules

and Brandswitch payments, net of credits and resubmits


4. Agreed Expenditure for FY18

The CPSA was extended in FY16, then again in FY17. The CPSA has been extended for another 12 months for FY18.

Under Schedule 1 of the FY18 contract extension, new clause H32 states that an ‘Agreed Expenditure’ will be paid to providers in FY18, replacing the Minimum

Guaranteed Expenditure. The Agreed Expenditure is the minimum amount that will be paid out to pharmacies in FY18. We have been asked by TAS to

independently verify their Agreed Expenditure calculation. To determine which payments are included in the Agreed Expenditure, TAS started with a list of all

payments that relate to FY17 and determined which payments should be included based on the definition provided in clause H32.1 below:

“The minimum total amount of Handling Fees, Service Fees and any other amounts (excluding the subsidy cost of Pharmaceuticals, any expenditure

paid to Providers for those Services that are provided pursuant to Part P of Providers’ respective agreements and for New Services Initiatives) that will

be paid by all DHBs to all Providers during the 2017/18 Financial Year will be the sum of the total Handling Fees, Service Fees and any other amounts

paid by all DHBs to all Providers during the 2016/17 Financial Year as audited (excluding the subsidy cost of Pharmaceuticals and any expenditure

paid to Providers for those Services that are provided pursuant to Part P of Providers’ respective agreements) (the Agreed Expenditure).”

The main change between the Minimum Guaranteed Expenditure and the Agreed Expenditure is with the treatment of margins. Previously, margins were not

included in CPSA payments as payments were solely focused on service fees whereas margins were considered as part of delivery. Under the new contract,

CPSA payments will include margins as they are recognised as part of the total package. This has resulted in a higher minimum payment value to pharmacies

than in previous years.

Below is a list of all CPSA payments that relate to FY17:

Payments Definition

FY17 Min

Guaranteed

Expenditure

FY18

Agreed

Expenditure

Explanation

Total

(% of Agreed

Expenditure)

All Services

Net Handling

Fees ex A3J3

Fees paid on all

dispensary services

Included as this was a payment that was distributed

from DHBs to providers in FY17 and will continue in FY18.

$120,438,018.80

(28.21%)

Final Case Mix

Fees

Service fees based on

initial and repeat items



$228,268,665.63


Payments Definition

FY17 Min

Guaranteed

Expenditure

FY18

Agreed

Expenditure

Explanation

Total

(% of Agreed

Expenditure)

for LTC and core

pharmacy services

Note: This figure uses Final Case Mix fees which are

adjusted for the Case Mix fee overpayment.

(53.46%)

Case Mix

Quarterly

Adjustments

Adjustments paid

quarterly after

recalculating Case Mix

Service fees for

negative A3 and J3

transactions



$115,928.65

(0.03%)

Brandswitch Payments for switching

pharmaceutical brands



The FY17 Minimum Guaranteed Expenditure used a

capped amount. The FY18 Agreed Expenditure will not

use the capped amount as Brandswitch payments are no

longer capped under the CPSA FY18 extension.

Note: This figure adjusts for the margin overpayment.

$2,492,181.70

(0.58%)

CPAMS Community Pharmacy

Anti-Coagulation

Management Services



The FY17 Minimum Guaranteed Expenditure used a

capped amount. The FY18 Agreed Expenditure will not

use the capped amount as CPAM payments are no longer

capped under the CPSA FY18 extension.

$3,584,579.36

(0.84%)

LTC MSF Long-term condition

monthly service fees

(paid in relation to

patients registered with

a pharmacy)



$32,054,685.77

(7.51%)


Payments Definition

FY17 Min

Guaranteed

Expenditure

FY18

Agreed

Expenditure

Explanation

Total

(% of Agreed

Expenditure)

All Services

Net Drug

Margins ex

A3J3

Drug margins



Note: In FY17 there was a variation to the CPSA in

regard to a new funding model for pharmaceutical

margins and subsidised unregistered medicines (3% for

medicines under $150, 4% for medicines $150 of more

and a 16.9 cents per pack fee). This variation came into

effect on 1 August 2016. Due to the variation coming

into effect 1 August 2016, in FY17 there was one month

under the previous funding model and 11 months under

the new funding model. TAS have not made any

adjustments to the FY17 payment figure to account for

the one month under the old funding model as the

contract states to use the actual amount paid in FY17

$39,032,876.24

(9.14%)

MARGIN SUPP

and MARGIN

ADJ

Support payment and

one off adjustment on

margin payments

Not included as the support payment is outside of the

CPSA agreement and is an individual agreement for the

impacted pharmacies.

Note: When the variation to the CPSA in regard to a new

funding model for pharmaceutical margins and subsidised

unregistered medicines came into effect on 1 August

2016, while the majority of pharmacies benefitted from

the offer, a very small number of pharmacy owners were

negatively affected. The pharmacies that were

significantly negatively affected were offered a support

package for the remainder of FY17. The support package

arrangement has been extended another 12 months for

FY18.

N/A


Payments Definition

FY17 Min

Guaranteed

Expenditure

FY18

Agreed

Expenditure

Explanation

Total

(% of Agreed

Expenditure)

S26 S29 M Margins on

unregistered subsidised

medicines



Note: This payment came into effect on 1 August 2016

therefore the total only takes into account 11 months of

actual payments. TAS have not adjusted this as the

contract states to use the actual amount paid in FY17.

$179,432.26

(0.04%)

S26 S29 AF Administrative fee on


medicines

$354,108.00

(0.08%)

S26 S29 CF Counselling fee on


medicines

$637,680.10

(0.15%)

Audit

Recoveries


from DHBs to providers in FY17. The total however

excludes medicine margins.

Note: A component of audit recovery is medicine

margins. The MOH has confirmed that they are unable to

separate medicine margins from medicine costs. Using a

proxy medicine margins came out to be lower than

$3000, therefore as there is no way to get the exact

figure, TAS have decided to exclude medicine margins

due to immateriality. This means that the total is

exclusive of medicine margins.

$(166,444.61)

((0.04)%)

FY18 Agreed Expenditure: $426,991,711.90


TAS have assessed that the following payments should be included in the Agreed Expenditure total

for FY18 under the CPSA contract extension:

All Services Net Handling Fees ex A3J3

Final Case Mix Fees


Brandswitch

CPAMS

LTC MSF

All Services Net Drug Margins ex A3J3

S26 S29 M

S26 S29 AF

S26 S29 CF

Audit Recoveries

We have reviewed the payments TAS have - included in the Agreed Expenditure calculation

against the contract definition provided in clause H32.1. We have also checked the payment totals

against the FY17 totals to make sure they are aligned. The FY18 Agreed Expenditure total of

$426,991,711.90 is consistent with our analysis.


5. Overall Conclusions

Overall, we consider the calculation payments to be consistent with the CPSA and that TAS

analysts have applied reasonable and consistent methodology to calculations throughout the

process.

FY17 was the second full year of Stage 4 under the CPSA, requiring the Minimum Guaranteed

Expenditure of $380,932,798.50 to be paid out to pharmacies. The payment received by

pharmacies exceeded the Minimum Guaranteed Expenditure, meaning that no annual adjustment

is required.

Through this process we have undertaken a review of the calculations and methodology applied by

TAS to make sure that the process followed has been in line with the CPSA. We have found no

calculation errors or cases where the Stage 4 amendments and subsequent variations to the CPSA

have not been followed. We note that the DHBs are working through the process for overpayment

recovery of the Brandswitch error with the Ministry of Health.

The CPSA has been extended a third year, for FY18. Under the FY18 contract extension, an Agreed

Expenditure replaces the Minimum Guaranteed Expenditure as the minimum payment to

pharmacies in FY18. Our independent review of the FY18 Agreed Expenditure confirms that TAS

has applied the contract definition consistently and has applied the appropriate FY17 payment

totals to calculate the FY18 Agreed Expenditure. The FY18 Agreed Expenditure total of

$426,991,711.90 is consistent with our analysis.


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