Attachment_4_-_REV_1_-_Future_Spend_and_Price_Evaluation_Guidance.pdf

Request for Revised Net Discount Proposals and

Price/Discount Evaluation Guidance (Revised June 4, 2019)

Dear Offerors, DOL is issuing this amendment to Solicitation 1605DC-18-R-00020 as part of its corrective action in response to the protest filed by PMSI, LLC d/b/a Optum Workers' Compensation

Services Of Florida on January 7, 2019. In taking corrective action, DOL agreed to re-evaluate certain aspects of the proposals and issue a new award decision. This amendment reflects DOL’s efforts to address questions and concerns raised regarding the price evaluation, specifically how the evaluators intend to calculate the annual aggregate savings that would accrue to the Government from each Offeror’s proposed net discounts from Average Wholesale

Price (AWP) for CLINS X001 to X004.

As further discussed below, DOL is providing current baseline data and projections for the anticipated contract period, including options, as well as the key underlying assumptions for those projections. These estimates will be used solely for evaluation purposes, to calculate the overall evaluated price of each Offeror’s price proposal. The actual volume of services under various CLINS will differ during performance.

DOL is requesting each Offeror to submit revised net discount proposed for all CLINs.

No other revisions to an Offeror’s price proposal or to other aspects of an Offeror’s approach will be considered.

This guidance is revised based upon questions received from offerors.

Please use the attached Excel files of prescription volumes, Durable Medical Equipment (DME) volumes, and diagnostic services and testing volumes as the basis and template for your revised net discount proposed. These numbers are based on DOL’s latest available volumes from Fiscal

Year (FY) 2018, as discussed below. DOL has provided identifiers to assist with compiling proposed prices into each CLIN.

From these files, DOL created baseline values (FY2018) under each CLIN based on 100% of

Average Wholesale Price (AWP) for drugs and allowed values (maximum potential reimbursement amount) for DME and Diagnostic Services and Testing, which is reflected in

Table 1. The Government estimated the monetary amount in each CLIN category over time and will utilize these values to calculate the aggregate savings from the price/discount proposals from all Offerors. The values in Table 1 reflect DOL’s best estimate under each CLIN given available data and reasonable assumptions about future conditions.

Given future market uncertainties and the nature of the FECA program, there are limitations in

DOL’s ability to provide precise information regarding future years. In light of these considerations, DOL has provided the following assumptions, as explained under each separate heading, to further assist the Offerors’ understanding of Table 1. Finally, using Table 1, DOL has created an Excel workbook that allows Offerors to see the impact of their proposed net discounts on their overall evaluated price. Offerors should submit their final net discount proposed in the excel workbook to DOL by 8:30AM EST June 10, 2019.

Table 1

Drug, DME, and Diagnostic Services and Testing Estimates

Categories

Baseline Data Base Period

Option Period 1

Option Period 2

Option Period 3

Option Period 4

Overall Total

Brand Name Retail $104,808,940.70 $65,765,561.04 $54,044,527.51 $48,005,307.29 $40,926,747.00 $35,121,280.94 $348,672,364.48

Generic Name Retail $216,191,506.01 $180,909,009.68 $220,982,153.36 $211,363,042.25 $200,670,439.67

$190,078,896.10

$1,220,195,047.07

Brand Name (mail order or

90 day supply) $10,037,331.39 $6,397,259.49 $5,308,574.36 $4,601,525.70 $3,738,793.12 $3,038,681.05 $33,122,165.11

Generic Name (mail order or 90 day supply) $21,551,464.08 $17,914,507.56 $22,206,060.20 $21,199,774.19 $20,038,675.59 $18,881,985.66 $121,792,467.28

Durable Medical Equipment

(DME) $926,681.39 $463,340.69 $931,314.80 $935,971.37 $940,651.23 $945,354.48 $5,143,313.96

Diagnostic Services and

Testing $1,690,434.66 $845,217.33 $1,698,886.83 $1,707,381.27 $1,715,918.17 $1,724,497.77 $9,382,336.03

Compound Medications

Spend (3 or fewer ingredients) $1,442.65 $1,202.16 $1,442.65 $1,442.65 $1,442.65 $1,442.65 $8,415.41

Compound Medications

Spend (more than 3 ingredients) $131,730.98 $109,771.42 $131,730.98 $131,730.98 $131,730.98 $131,730.98 $768,426.32

OPTIONAL: Specialty

Brand Name Retail $7,374,875.04 $6,145,483.37 $7,374,875.04 $7,374,875.04 $7,374,875.04 $7,374,875.04 $43,019,858.57

OPTIONAL: Specialty

Generic Name Retail $715,884.73 $596,546.75 $715,884.73 $715,884.73 $715,884.73 $715,884.73 $4,175,970.40

OPTIONAL: Specialty

Brand Name (mail order or

90 day supply) $794,883.21 $662,376.18 $794,883.21 $794,883.21 $794,883.21 $794,883.21 $4,636,792.23

OPTIONAL: Specialty

Generic Name (mail order or 90 day supply) $32,074.20 $26,727.43 $32,074.20 $32,074.20 $32,074.20 $32,074.20 $187,098.43

Total = $364,257,249.04 $279,837,003.10 $314,222,407.87 $296,863,892.88 $277,082,115.59 $258,841,586.81 $1,791,104,255.29

Assumptions

Non-specialty Brand and Generic Drugs (including: Brand Name Retail, Generic Name Retail, Brand Name (mail order or 90 day supply), and Generic Name (mail order or 90 day supply)):

Estimates contain year-over-year reductions based on previously planned controls (please note brand to generic conversions below). Further, a 4% year-over-year reduction in total spend for non-specialty brand and generic drugs due to prescription drug management improvements under a PBM.1

Brand to Generic Conversions:

After reviewing the brand name drug distribution of products, OWCP found that a substantial amount of brand name drugs could be switched to a therapeutically equivalent generic alternative. This would result in a lower brand name drug spend over time, and an increase in generic spend as the brand to generic conversions occur. The Government had already planned to implement this policy in the future once the PBM was awarded and the new vendor completed

Phase 3 of the awarded contract (which includes the development of patient/provider portal and implementation of a formulary). Consequently, the general approach of the new generic policy was factored into its calculations.

DME and Diagnostic Services and Testing (DS&T):

In the spring of 2018, the USPS implemented a contract with a DME vendor to provide voluntary (the claimant can choose to use the service or not) DME for their injured workers. The

DME’s FY2018 vendor penetration rate has been approximately 3% of the total DME allowed amounts for that program. Both the DME and Diagnostic and Testing Services (DS&T) under

DOL’s PBM contract are similarly structured. Thus, it is estimated that DOL’s PBM would achieve similar penetration results. Since the company to which the PBM contract is awarded can only offer DME services to non-USPS injured workers, 3% was multiplied by the baseline

(FY2018) non-USPS DME allowed amount to provide the baseline value for DME. USPS does not, however, have a DS&T contract so the estimated penetration rate of 3% was multiplied by all of the FECA DS&T (FY2018) allowed amount to provide the baseline value for DS&T. The

Government determined that the best proxy to estimate true penetration rate for its DS&T voluntary program was 3%, since the best data at the Government’s disposal is USPS’s DME voluntary participation rate and FECA DS&T will also be optional in nature. Additionally, a

0.5% year-over-year increase in penetration was assumed from Option Period 1 and forward for both DME and DS&T.

1 Paduda, J. Prescription Drug Management in Workers’ Compensation. The fifteenth Annual

Survey Report (2017 Data). Available at: https://comppharma.com/wp-content/uploads/2018/07/2018-CompPharma-Rx-Drug-Mng-Survey-Public.pdf. “More significantly, over the last eight years, workers’ compensation drug spend has dropped by 31.5%, or approximately $1.1 billion.”

https://comppharma.com/wp-content/uploads/2018/07/2018-CompPharma-Rx-Drug-Mng-Survey-Public.pdf https://comppharma.com/wp-content/uploads/2018/07/2018-CompPharma-Rx-Drug-Mng-Survey-Public.pdf

The FY2018 allowed amounts for DME and DS&T are based on the OWCP Fee Schedule and may be subject to adjustments based on locality, and pricing modifiers. OWCP uses the CMS

Geographic Practice Cost Indices (GPCI) to calculate the values for locality adjustments. A listing of geographic practice cost indices by ZIP code is contained in the file:

Effective_October_15_2018_gpci-by-zip.xls located on the OWCP fee schedule website.

OWCP acceptable modifiers will adjust allowable amounts by a modifier percentage using appropriate modifier levels. A listing of the Modifier Level Tables with the OWCP-designated fee schedule adjustment for each modifier are contained in the file:

Effective_October_15_2018_mod_table.xls on the OWCP fee schedule website.

For more information on the OWCP Fee Schedule, please see the OWCP Fee Schedule “Read

Me First” document on the OWCP website.

Compound Medications:

Compound Medications have dropped substantially since the publication of the FECA Bulletin

No. 17-01. This Bulletin created a prior authorization requirement for compounded drugs.

DFEC experienced a drop of approximately 90% in its compounding spend following the first year, and continues to see further reductions. Thus, only the fourth quarter of compound claims were provided to Offerors. OWCP used this fourth quarter spend to predict the baseline value.

No increase or decrease was assumed for future years as the compound utilization is anticipated to continue to be minimal.

OPTIONAL: Specialty Drugs:

For this optional CLIN, brand and generic drugs that cost over $670 for a 30 day supply and those that cost over $2,010 for a 90 day supply were identified.2 These values reflect common thresholds that define specialty drugs in Medicare’s program. Next, a pharmacist determined which of these medications were strictly specialty products. Product spend for injectable, antiretroviral, chemotherapy, and/or monoclonal antibodies were included as specialty products and the totals were summed to provide a full year baseline value. No increase or decrease was assumed for future years as any increase in specialty drug utilization would be offset by improvements in formulary management, and retrospective drug utilization review procedures.

Inflation/Deflation:

Future economic inflation/deflation in the values of average wholesale prices (AWPs) was not assessed separately. The 4% year-over-year reduction estimate in total spend is considered to be

2 Centers for Medicare and Medicaid. Announcement of Calendar Year (CY) 2019 Medicare

Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final

Call Letter. Specialty Tiers. Page 233. Available at: https://www.cms.gov/Medicare/Health-

Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2019.pdf. “This analysis showed that just around 1% of 30 day-equivalent fills exceeded $670 and as a result, CMS will maintain the $670 threshold for CY 2019.”

https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2019.pdf https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2019.pdf inclusive of any economic fluctuation, as workers’ compensation PBMs have seen their spend decrease despite fluctuations in AWP for both brand and generic drugs over the past 8 years.

Base Period versus Optional Periods:

The Government factored in contract-specific requirements and timelines into the base period spend. Due to Phase 1, 2, and 3 requirements, some requirements may not be fully functional upon contract award. The Government considered this aspect, and that is why the base period spend under the PBM is less than the first option year.

Additional Solicitation Amendments

The Government is taking this corrective action opportunity to correct a typo in the original solicitation. Offerors are advised that the correct instructions regarding Section L – Instructions, Conditions and Notices to Bidders, 2. Mandatory Criteria, A. Pricing/Discount are as follows:

Pricing/Discount: The Respondent must provide a document indicating that the guaranteed discount from Average Wholesale Price (AWP), as defined in Part 2 of this solicitation, will be at or below what is described in the following table:

Goods or Services Description Net discount proposed

Brand Name Retail AWP minus 16%

Generic Retail AWP minus 50%

Brand Name (mail order or 90 day supply)

AWP minus 20%

Generic (mail order or 90 day supply)

AWP minus 62%

Compound Medications (3 or fewer ingredients)

AWP minus 50%

Compound Medications (more than

3 ingredients)

AWP minus 70%

The Government is also revising Section M – Evaluation Factors for Award, Factor III –

Price/Discount to read in its entirety as follows:

The Government will evaluate quotes to determine if prices/discounts meet the minimum go/no go requirements. (Section L – Instructions, Conditions and Notices to Bidders, 2.

Mandatory Criteria, A. Pricing/Discount). Next, the CLIN prices/discounts will be evaluated, including all option periods and optional service CLINs, to ensure that the

Price/Discounts proposed are reasonable, using the techniques in FAR 15.404-1(b)(2).

The Government will also calculate the aggregate savings under each Offerors’ proposal considering every CLIN and every period, by applying the proposed net discounts to the estimated monetary amounts (as set forth in Table 1 above). The Government will thus generate a total estimated cost for each Offeror over the life of the contract. In selecting the awardee, the results of the Price/Discount evaluation will become significantly more important as technical ratings approach equality.