The Economic Impact of Changing The Texas Medicaid Pharmacy Benefit Structure

The Economic Impact of Changing the
Texas Medicaid Pharmacy Benefit Structure:

An Analysis of the Potential Effects of
Switching from a Carve-Out to a Carve-In
System or Limiting Network Access
Summary of Key Results from a Study by the Perryman Group
Legislative Advertising: Pharmacy Choice & Access Now, P.O. Box 3435, Arlington, VA 22203, Richard Beck, Board Member
Table of Contents
Highlights of Study Findings ....................................................................................1
The Perryman Group’s Perspective ..........................................................................5
Assumptions and Analysis in Support of Various Plans for Change .....................9
Proposed Change Scenarios ....................................................................................13
Measuring the Economic Impacts .........................................................................14
Economic Impact Results .......................................................................................16
Scenario I: THHSC “Carve-In” Plan with Network Access Restriction ............................... 16
Scenario II: Fee Reductions as Proposed in the Texas Legislature ...................................... 20
Scenario III: Dispensing Fee Policy Changes as Outlined by The Lewin Group ................. 22
APPENDICES............................................................................................ 28
APPENDIX A: US Multi-Regional Impact Assessment System Methodology .29
APPENDIX B: Detailed Sectoral Results ..............................................................34
Scenario I: THHSC “Carve-In” Plan with Network Restriction ........................................... 35
Scenario II: Fee Reductions as Proposed in the Texas Legislature ...................................... 48
Scenario III: Dispensing Fee Policy Changes as Outlined by The Lewin Group ............... 61
i
INTRODUCTION
Given tight budget conditions, rising numbers of enrollees, and rapidly

escalating costs, Texas legislators are necessarily and appropriately
considering ways to reduce the burden of Medicaid funding.
Several cost-reduction strategies have been proposed which center on

the administration of pharmacy benefits. Analysis of various strategies
has also been conducted which purports to find substantial associated
savings.
However, any such changes should be carefully analyzed in a

broader context to ensure they do not lead to future problems and
cost escalation. Moreover, they must be evaluated in a dynamic
manner to reflect the costs arising beyond the initial incidence.
The Perryman Group was recently asked to evaluate the potential

economic consequences of changing the structure of pharmacy benefits
for Medicaid patients in a dynamic context, considering both industry
effects and higher potential health care expenses in the future. This
report presents the results of this analysis.
Highlights of Study Findings

From an economic perspective, reductions in fees which threaten the
viability of certain pharmacies (particularly independent establishments
and smaller chains operating in less populous areas) or a switch to a
“carve-in” method with significant network limitations as a basis for
providing Medicaid pharmacy benefits would lead to significant
negative fallout.
1
The network of pharmacies is crucial to ensuring adequate access for
both Medicaid and non-Medicaid patients, and pharmacy closures
would affect both groups. If access to needed medications is
constrained, additional health care outlays occur (which impose
incremental burdens on the State government), as well as other
economic disruptions.
The Perryman Group formulated three scenarios reflecting the

economic impacts of various potential cost-reducing actions.
Scenario I assumes the plan recently put forth by the Texas Health and
Human Services Commission (THHSC) is put in place (along with fee
reductions currently proposed by the Texas Legislature).
o This cost-reduction plan and the likely associated network
limitations have the potential to cause notable harms to the
pharmacy sector including the loss of more than 770
(primarily independent and small chain) locations, nearly
$1.6 billion in annual output (gross product) and 22,135 jobs.
o Access to needed medications is also reduced, affecting both
Medicaid and non-Medicaid patients. The total negative
effect (including these pharmacy losses and incremental
outlays for health care among Medicaid and non-Medicaid
patients) includes $3.1 billion in annual output and 42,923
permanent jobs. Because of the disproportionate number of
recipients in the blind and disabled category, these effects
could well be even larger.
o In addition, these losses in business activity reduce tax receipts
to the State (as well as local governments) and generate a need
for higher future spending due to increased health care needs.
The Perryman Group estimates the losses in State tax revenue
(when measured on a dynamic basis) to be $719.1 million in
yearly dynamic State revenue losses and required outlays.
2
These losses are far larger than any alleged benefits
associated with any incremental premium taxes.
o Looking beyond even the health outcomes, the network
limitations of mental health patients also lead to adverse
economic consequences in the form of increased
homelessness, incarceration, comorbidities, mortality, and
unemployment rates, as well as decreases in productivity.
These phenomena lead to an annual loss of about $3.8 billion
in output and more than 46,500 jobs.
Scenario II refers to fee reductions proposed by the Texas

Legislature (both the two 1% cuts that have already occurred and
an additional $1.00 reduction). These cuts also lead to notable
economic losses, although the consequences are far less severe if the
basic pharmacy network is maintained.
o The Perryman Group estimates the reduction in annual
business activity within the pharmacy sector to include about
175 closures, $364.4 million in annual output (gross product)
and 5,107 jobs.
o The total negative effect on the pharmacy and health care for
all patients under these assumptions includes $722.3 million in
lost output (gross product) each year and 9,904 permanent
jobs.
o This change in the level of Medicaid pharmacy benefits would
also lead to an estimated $165.9 million reduction in dynamic
State fiscal receipts and incremental outlays per annum, an
amount well in excess of the purported savings.
Scenario III presumes the implementation of the dispensing fee policy

recommendations embodied in a widely circulated study by The Lewin
Group. In this case, the reduction in business activity in the state
would be even more significant.
3
o Within the pharmacy sector, such a scenario leads to losses
of more than 1,150 pharmacies, as well as almost $2.4 billion
in annual output and 33,330 jobs.
o Overall losses under this scenario (including pharmacy
losses and incremental outlays by patients associated with
the potential network reductions) were estimated to be $4.7
billion in output and 64,632 jobs.
o Yearly State revenue losses and expenditure increases were
found to total about $1.8 billion. If the reductions were also
accompanied by additional network reductions (as would be
anticipated in the approach suggested in the Lewin study), the
aggregate losses would be even greater.
Examining potential avenues for savings is a necessary exercise,

particularly when facing a budgetary shortfall. However, maintenance
of a vibrant pharmacy network throughout Texas is both cost
effective and essential to providing an adequate health care
delivery system.
Proponents of a change to a “carve-in” system with notable network

restrictions purport that such a switch would benefit the State.
However, underlying analyses by The Lewin Group and the Texas
Health and Human Services Commission incorporate notable flaws or
omissions. Moreover, many aspects of these benefits are achievable
and even exceeded by savings suggested or supported by pharmacy
stakeholders. If a “carve-in” system is implemented, it is imperative
that certain provisions be incorporated or excluded to avoid higher
future costs. For example, restricting pharmacy access can lead to
higher costs in terms of care lapses and escalation of medical
problems and expenses.
Changing the Texas system of providing pharmacy benefits to

Medicaid recipients to a “carve-in” method or otherwise limiting
4
access would involve substantial negative fallout and should be
evaluated within a framework that fully reflects the overall
consequences of policy changes. While the additional strain on the
State budget is dynamic in nature and not always measured in the
framework of policy debates, it is nonetheless very real (as are the
associated costs to the economy and overall health and well-being
of Texas citizens).
The Perryman Group’s Perspective

TPG is an economic research and analysis firm based in Waco, Texas.
The firm has more than 30 years of experience in assessing the
economic impact of corporate expansions, regulatory changes, real
estate developments, public policy initiatives, and myriad other factors
affecting business activity. Dr. M. Ray Perryman, founder and
president of the firm, developed the US Multi-Regional Impact
Assessment System (USMRIAS) in the early 1980s and has
consistently maintained, expanded, and updated it on an ongoing basis.
This model has been used in hundreds of applications across a broad
range of issues and has an excellent reputation for reliability. Impact
studies have been performed for a wide variety of clients, including
many of the largest corporations in the world, governmental entities at
all levels, educational institutions, major healthcare systems, utilities,
and economic development organizations.
TPG has completed scores of impact analyses related to health care and
the life sciences. Some representative examples include studies of The
Texas Institute for Preclinical Studies, The Texas Institute for Genomic
Medicine, the proposed University of Texas Medical School in Austin,
the Galveston National Laboratory for Infectious Diseases at the
University of Texas Medical Branch, the proposed Center for
Translational Medicine in Round Rock, Parkland Hospital, the
5
Methodist Hospital, University Health System, M. D. Anderson Cancer
Center, Texas Tech Health Science Center, all of the hospitals in the
VHA Southwest system, Citizens Medical Center, Scott & White
(Temple Health and Bioscience District), the University of Texas
Health Science Center at San Antonio, Baylor College of Medicine,
Texas Medical Center, the University of Kansas Medical Center, and
numerous entities engaged in the development and production of
biomedical products.
Additionally, TPG has developed numerous public policy studies

related to health care issues. Representative efforts include analysis of
Medicaid and Children’s Health Insurance Program (CHIP) funding;
obesity and wellness initiatives; cancer treatment; effects of major
public sector health insurance plans, antitrust, and regulatory issues
related to medical equipment and supplies; and mental health
programs. The firm has also performed extensive financial analyses
for health-related enterprises, including Texas Health Resources and
NorthSTAR.
TPG also has extensive experience in analyzing all aspects of the

Texas economy. Dr. Perryman developed the Texas Econometric
Model in the late 1970s and has provided forecasts since 1982. The
firm’s ongoing analysis of state business activity is regularly relied
upon by hundreds of corporations and scores of government agencies.
6
PROVIDING PHARMACY BENEFITS
FOR TEXAS MEDICAID PATIENTS
Texas currently uses a “carve-out” method to provide pharmacy

benefits for Medicaid patients. “Carve-out” systems essentially
exclude certain health and pharmacy services from Medicaid
Managed Care.
The advantages of a “carve-out” method include the following.

o A “carve-out” model does not require the presence of layers of
bureaucracy or middlemen (such as Managed Care
Organizations (MCOs) or Prescription Benefit Managers
(PBMs)), which helps keep administrative costs lower. In fact,
the current state-run vendor drug program operates at a low 1%
administrative expense level.
o The narrow focus on pharmacy helps optimize costs and
services. Many private-sector firms cite costs and greater choice
as benefits of carving out drug spending, and the majority of
large employers “carve-out” drug benefits. While Medicaid,
based on its patient makeup, is very different from corporate
health care, the focus solely on pharmacy-related management
under a “carve-out” model can also be an advantage for Medicaid
beneficiaries. The large percentage of overall costs associated
with blind and disabled recipients likely makes it even less suited
to a managed care model than many commercial groups.
Due to federal law, manufacturers already have to offer their “best

price” for a particular drug for Medicaid fee-for-service programs.
Therefore, prices on drugs under “carve-out” models are already as low
as other systems.
7
Recently, proposals have surfaced to change to a “carve-in”
mechanism for funding.
o A “carve-in” structure involves shifting pharmacy benefits to
be included within the role of the MCOs, which contract with
the State to provide health services for Medicaid programs for a
set capitated cost.
o With pharmacy benefits “carved in,” MCOs would likely contract
with a PBM, a for-profit firm which acts as administrator of
the prescription drug program.
o Proponents point to potential savings due to efficiencies under the
“carve-in” system. However, many of these alleged advantages
are illusory. Moreover, if such an approach is adopted, it is
critical that a broad network of providers be preserved, which
typically does not occur in a managed care model.
Fees paid to pharmacies have also been reduced, with additional

reductions under consideration. While policies of this nature are
inevitably explored during periods of budgetary constraints, the overall
effects can actually be counterproductive to fiscal stability.
A widely circulated recent study by The Lewin Group (Potential

Federal and State-by-State Savings if Medicaid Pharmacy Programs
were Optimally Managed, December 2010) purports to demonstrate
that “carve-in” models provide significant savings. In reality, however,
this analysis is flawed in many respects.
8
Assumptions and Analysis in Support of Various Plans
for Change
As a part of this assessment, The Perryman Group examined various
studies and analyses pertaining to cost-reduction proposals.
The recommendation to transfer the Medicaid prescription program to

a managed care (“carve-in”) system is largely based on a comparative
analysis by the Texas Health and Human Services Commission that
requires further evaluation. The purported net savings is entirely the
result of an expected premium tax payment of $56.1 million over the
next biennium. In the absence of that levy, in fact, there is a cost
advantage of $11 million from implementing the cost-cutting policies
put forth by the pharmacy industry in the state within the context of the
current delivery model.
Several assumptions in the analysis by the THHSC are worthy of

additional analysis. Initially, the estimates suggest an added
administrative cost of only $700,000 for the biennium, which is
exactly offset by assumed improvements in utilization management. A
recent analysis of the Pennsylvania program found almost $25 million
per year in added administrative expenses, as well as an initial startup
cost of $6.7 million for tasks such as notifying recipients of the
changes. The study noted that only about one-third of this amount
could be offset by enhancements in utilization management. While the
same circumstances do not apply in all states, the Pennsylvania system
is only about one-half the size of the Texas program. Moreover, Texas
would be maintaining dual systems in that part of the program would
remain in the fee-for-service (“carve-out”) system. Similarly, even the
percentage increase in administrative costs represented in the Lewin
study suggests an added outlay of about $61.6 million per year. These
factors combined indicate that the added fees on a biennium basis in
Texas could easily be many times larger than those used in the
9
comparative analysis. This phenomenon alone could more than offset
the purported savings from the “carve-in” model.
Similarly, the THHSC comparison suggests that savings over the

biennium from a 3% increase in generic usage would total $11.4
million. Using the cost and number of subscriptions reported in the
Lewin report, the indicated savings is about $48.3 million per year
(almost $100 million per biennium). Even allowing for the federal
match and some lack or comparability, the savings is several times as
large as that used in the comparison. Moreover, with numerous brand-
name drugs having patents that expire in the near future, the proven
success of the current approach in driving generic compliance, and the
incentives available to managed care groups to use brand-name
products, it seems highly likely that this level can be substantially
exceeded. While there are other valid concerns (such as the failure to
fully account for the effects of cost-cutting approaches on premium tax
revenues), these major potential discrepancies are sufficient to
illustrate the need for a more thorough investigation before adopting
significant changes.
Perhaps the greatest shortcoming of the comparison is that it does not

account for the dynamic effects of a reduced network that limits
access in many areas (particularly in rural regions), thus leading to
complications and added health care expenses. Some of these
implications, which make it imperative that any future program
(whether fee-for-service or managed care) maintain a comprehensive
network, are explored below.
The Lewin study maintains that Texas could save approximately

$266.3 million annually through switching to a “carve-in” system for
Medicaid prescription management (including the federal and State
portions). This analysis is flawed in numerous respects.
10
First, the majority of the savings is achieved through a dramatic
reduction in fees that would reduce them to less than 20% of the actual
cost of dispensing medications. A decrease of this magnitude would
dramatically impact the viability of the Texas pharmacy sector and
have enormous adverse consequences, essentially dismantling much of
the existing pharmacy infrastructure of the state. In fact, THHSC has
previously conducted extensive analysis to demonstrate the
reasonableness of the current fee structure. Moreover, changes in fees
can be (and, in fact, recently have been) implemented within the
current structure. The economic impact of such an approach is
outlined below.
The second major source of purported savings results from an increase

in generic utilization. The Lewin analysis is based on the assumption
that Texas has a 69% use of generics at present and would be able to
increase this level through a “carve-in” program. According to the
Texas Health and Human Services Commission, the current generic
use is 72.3%, which is approximately the level that the Lewin study
indicates could be achieved through the “carve-in” system. In reality,
it has already been accomplished with the existing “carve-out” system.
Thus, it is obvious that the purported benefits (1) are overstated and (2)
are not dependent on a “carve-in” model. In fact, independent
pharmacies often achieve a higher level of generic use than Pharmacy
Benefit Managers. Because of the manufacturers’ rebates that PBMs
can negotiate (over and above the ones that flow back to the State and
federal governments), they have a specific incentive to purchase brand-
name products.
Moreover, over 50% of the alleged savings are derived from

prescriptions to blind and disabled recipients. Independent analysis has
determined that these populations are not well suited to managed care
pharmacy programs and that such initiatives are likely to result in
larger outlays for medical services (Resource Paper: Disability Care
11
Coordination Organizations—The Experience of Medicaid Managed
Care Programs for People with Disabilities, Center for Health Care
Strategies, Inc., April 2006).
Thus, the findings from the Lewin study are not a reliable barometer of
the current environment in Texas and do not form an appropriate
mechanism for policy determination.
12
RESULTS OF THE IMPACT ANALYSIS
From an economic perspective, reductions in fees which threaten the

viability of certain pharmacies (particularly independent
establishments and smaller chains operating in less populous
areas) or a switch to a “carve-in” method with significant network
limitations as a basis for providing pharmacy benefits would lead
to significant negative fallout.
Pharmacy closures and a reduction in access would affect not only the
Medicaid population, but also non-Medicaid patients.
Proposed Change Scenarios

Three scenarios were formulated to reflect the economic impacts of
various potential cost-reducing actions that have been discussed:
o Scenario I assumes the plan recently put forth by the Texas
Health and Human Services Commission is put in place (along
with fee reductions currently proposed by the Texas Legislature).
o Scenario II reflects the fee cuts discussed by the Texas
Legislature (two 1% reductions now in place and an additional
$1.00 reduction being discussed), but assumes that a broad
network is maintained irrespective of whether a “carve-in” or
“carve-out” approach is implemented.
o Scenario III presumes the implementation of the dispensing fee
policy recommendations embodied in a widely circulated study
by The Lewin Group.
13
Measuring the Economic Impacts
The Perryman Group first analyzed the effect on pharmacies of various
cost-reduction proposals and found that pharmacy store closings would
likely occur.
These closures would cause economic harm as well as restrict the

access of Medicaid and non-Medicaid patients, leading to further
potential negative effects.
These actions (like any economic activity) would generate multiplier or

ripple effects through the economy. As noted earlier, The Perryman
Group developed a model some 30 years ago (with continual updates
and refinements since that time) to describe these interactions. This
dynamic input-output assessment model uses a variety of data (from
surveys, industry information, and other sources) to describe the
various goods and services (known as resources or inputs) required to
produce another good/service. The submodel used in the current
analysis reflects the specific industrial composition and characteristics
of the Texas economy.
In this case, for example, pharmacies regularly purchase products

ranging from supplies to landscaping services. These businesses, in
turn, purchase the items necessary to produce and provide the supplies
and services from other companies. In this way, the pharmacy stores’
effect on the economy ripples out through a variety of firms across a
spectrum of industries. Moreover, the network of pharmacies is crucial
to ensuring adequate access for both Medicaid and non-Medicaid
patients. If access to needed medications is constrained, additional
health care outlays occur (which impose incremental burdens on the
State government), as well as other economic disruptions.
14
Impacts are expressed in terms of several different measures of
business activity.
o Total expenditures (or total spending) measures the reduction in
dollars changing hands in the state as a result of the reduced
access.
o Gross product (or output) is the reduction in production of
goods and services that will come about in Texas as a result of
the changes. This measure is parallel to the gross domestic
product numbers commonly reported by various media outlets
and is a subset of total expenditures.
o Personal income is dollars that end up in the hands of people in
the area; the vast majority of this aggregate derives from the
earnings of employees, but payments such as interest and rents
are also included.
o Job losses are expressed as permanent jobs (given that this will
be an ongoing impact).
Foregone economic activity, in turn, results in decreases in fiscal

receipts to the State as well as to local government entities. All results
are expressed on an annual basis as of 2013 in constant (2010) dollars.
Additional information regarding the methods and assumptions used in

this report, including the determination of specific inputs, may be
found in Appendix A.
Key results for each scenario are presented below; additional detail by
industrial segment is presented in Appendix B of this report.
15
Economic Impact Results
Scenario I: THHSC “Carve-In” Plan with Network Access Restriction
The cost-saving measures outlined by the THHSC and the likely

associated network limitations have the potential to cause notable
harms to the pharmacy sector including the loss of more than 770
(primarily independent and small chain) locations, nearly $1.6
billion in annual output (gross product) and 22,135 jobs.
16
In addition, access to needed medications is also reduced. As noted,
both Medicaid and non-Medicaid patients are affected. A substantial
component of the overall costs stems from the area of mental health
care.
The total negative effect (including these pharmacy losses and

incremental outlays for health care among Medicaid and non-
Medicaid patients) includes $3.1 billion in annual output and 42,923
permanent jobs. Because of the disproportionate number of recipients
in the blind and disabled category, these effects could well be even
larger.
17
The following table breaks down the sources of these losses.
The Annual Impact of the Potential Network Reductions

Accompanying a “Carve-In” Approach to Medicaid Prescription
Management on Business Activity in Texas (as of 2013)
(All Monetary Values are Given in Millions of 2010 Dollars)
Total Output (Gross Personal
Employment
Expenditures Product) Income
Losses in the Pharmacy $2,724.735 $1,579.278 $953.603 22,135
Sector
Total Incremental Cost
for Mental and General $2,906.169 $1,551.112 $1,020.860 20,788
Health Care for All
Patients
Incremental Cost for Mental $538.788 $289.005 $174.682 3,951
Health Care for Health
Medicaid Patients General $786.129 $418.144 $290.726 5,526
Health
TOTAL $1,324.917 $707.149 $465.408 9,477

Health Care for Non- Health
Medicaid Patients General $938.224 $499.044 $346.974 6,595
Health
TOTAL $1,581.253 $843.963 $555.452 11,311
TOTAL PHARMACY
AND
$5,630.904 $3,130.390 $1,974.463 42,923
INCREMENTAL
HEALTH CARE
COSTS
In addition, these losses in business activity reduce tax receipts to the

State (as well as local governments) and generate a need for higher
future spending due to increased health care needs. The Perryman
Group estimates the losses (when measured on a dynamic basis) to be
$719.1 million in yearly dynamic State revenue and required
18
outlays. These losses are far larger than any alleged benefits
associated with any incremental premium taxes.
Looking beyond even the health outcomes, the network limitations of

mental health patients also lead to adverse economic consequences
in the form of increased homelessness, incarceration,
comorbidities, mortality, and unemployment rates, as well as
decreases in productivity. These phenomena lead to an annual loss of
about $3.8 billion in output and more than 46,500 jobs.
19
Scenario II: Fee Reductions as Proposed in the Texas Legislature
Fee reductions proposed by the Texas Legislature (both the two

1% cuts that have already occurred and an additional $1.00
reduction) also lead to notable economic losses, although the
consequences are far less severe if the basic pharmacy network is
maintained.
The Perryman Group estimates the reduction in annual business

activity within the pharmacy sector to include about 175 closures,
$364.4 million in annual output (gross product) and 5,107 jobs.
20
The total negative effect on the pharmacy and health care for all
patients under these assumptions includes $722.3 million in lost output
(gross product) each year and 9,904 permanent jobs.
21
The table below presents a breakout of these losses.
The Annual Impact of Potential Network Reductions

Accompanying the Dispensing Fee Reductions Currently
Proposed on Business Activity in Texas (as of 2013)
Employment
Losses in the Pharmacy $628.697 $364.398 $220.031 5,107
Sector
for Mental and General
$670.561 $357.899 $235.550 4,797
Health Care for All
Patients
Incremental Cost for Mental $124.318) $66.684 $40.306 912
Medicaid Patients General
Health $181.389 $96.481 $67.081 1,275
TOTAL
$305.707 $163.165 $107.387 2,187
Incremental Cost for Mental

Health Care for Non- Health $148.371 $79.586 $48.104, 1,088
Medicaid Patients General
Health $216.483 $115.148 $80.060 1,522
TOTAL
$364.853 $194.734 $128.163 2,610
TOTAL PHARMACY
AND
INCREMENTAL $1,299.258 $722.297 $455.582 9,904
HEALTH CARE
COSTS
This change in the level of Medicaid pharmacy benefits would also

lead to a loss of an estimated $165.9 million in dynamic State fiscal
receipts and incremental outlays per annum, an amount well in
excess of the purported savings.
Scenario III: Dispensing Fee Policy Changes as Outlined by The Lewin Group
22
If the dispensing fee policy as outlined by The Lewin Group is
implemented, the reduction in business activity in the state would be
even more significant. Within the pharmacy sector, such a scenario
leads to losses of more than 1,150 pharmacies, as well as almost $2.4
billion in annual output and 33,330 jobs.
23
Overall losses under this scenario (including pharmacy losses and
incremental outlays by patients associated with the potential
network reductions) were estimated to be $4.7 billion in output and
64,632 jobs.
Total Annual Impact on Business Activity in Texas of Pharmaceutical Losses

and Incremental Outlays for Health Care Associated with Pharmaceutical
Network Effects of Implementing Dispensing Fee Policy Recommendations of
the Lewin Study
-$8.479 Total Expenditures
-$4.714 Gross Product
-64,632
Permanent -$2.973 Personal Income
Jobs
-$2.665 Retail Sales
-$10 -$9 -$8 -$7 -$6 -$5 -$4 -$3 -$2 -$1 $0
Billions of 2010 Dollars
Note: Includes Medicaid and Non-Medicaid patients as well as both mental and general health care. Assumes that the access effects
on the general population will only be 20% as significant as those for Medicaid recipients.
Source: The Perryman Group
These losses are described in further detail in the following table.
24
The Annual Impact of the Potential Network Reductions Accompanying
Implementing the Dispensing Fee Policy Recommendations of the
Lewin Study on Business Activity in Texas (as of 2013)
Employment
Losses in the Pharmacy $4,102.873 $2,378.058 $1,435.924 33,330
Sector
for Mental and General $4,376.076 $2,335.647 $1,537.199 31,302
Health Care for All
Patients
Medicaid Patients General $1,183.743 $629.637 $437.772 8,321
Health
TOTAL $1,995.044 $1,064.816 $700.806 14,271

Health Care for Non- Health
Medicaid Patients General $1,412.766 $751.455 $522.469 9,931
Health
TOTAL $2,381.032 $1,270.830 $836.393 17,032
TOTAL PHARMACY
AND
$8,478.949 $4,713.705 $2,973.124 64,632
INCREMENTAL
HEALTH CARE
COSTS
Yearly State revenue losses and expenditure increases were found

to total about $1.8 billion. If the reductions were also accompanied
by additional network reductions (as would be anticipated in the
approach suggested in the Lewin study), the aggregate losses would be
even greater.
25
CONCLUSION
Examining potential avenues for savings is a necessary exercise,

particularly when facing a budgetary shortfall. However, maintenance
of a vibrant pharmacy network throughout Texas is both cost
effective and essential to providing an adequate health care
delivery system.
Proponents of a change to a “carve-in” system with notable network

restrictions purport that such a switch would benefit the State.
However, underlying analyses by The Lewin Group and the Texas
Health and Human Services Commission incorporate notable flaws or
omissions.
Moreover, many aspects of these benefits are achievable and even

exceeded by savings suggested or supported by pharmacy
stakeholders. If a “carve-in” system is implemented, it is imperative
that certain provisions be incorporated or excluded to avoid higher
future costs. For example, restricting pharmacy access can lead to
higher costs in terms of care lapses and escalation of medical
problems and expenses.
The Perryman Group estimates that the economic cost of changes

proposed by the THHSC would lead to closure of approximately 770
pharmacies, leading to losses in business activity of some $1.6 billion
in output (real gross product) and 22,135 permanent jobs.
In addition, such closures would lead to higher costs for Medicaid and
non-Medicaid patients. Restricting network access through a plan such
as that proposed by the THHSC would lead to losses of an estimated
$3.1 billion in output (gross product) and 42,923 jobs by 2013. Other
26
non-medical costs (such as increased homelessness and incarceration)
would likely be realized.
Changing the Texas system of providing pharmacy benefits to

Medicaid recipients to a “carve-in” method or otherwise limiting
access would involve substantial negative fallout and should be
evaluated within a framework that fully reflects the overall
consequences of policy changes. While the additional strain on the
State budget is dynamic in nature and not always measured in the
framework of policy debates, it is nonetheless very real (as are the
associated costs to the economy and overall health and well-being
of Texas citizens).
27
APPENDICES
28
APPENDIX A: US Multi-Regional Impact
Assessment System Methodology
29
US Multi-Regional Impact Assessment System
• The basic modeling technique employed in this study is known as input-output

analysis. This methodology essentially uses extensive survey data, industry
information, and a variety of corroborative source materials to create a matrix
describing the various goods and services (known as resources or inputs) required
to produce one unit (a dollar’s worth) of output for a given sector. Once the base
information is compiled, it can be mathematically simulated to generate
evaluations of the magnitude of successive rounds of activity involved in the
overall production process.
• There are two essential steps in conducting an input-output analysis once the
system is operational. The first major endeavor is to accurately define the levels of
direct activity to be evaluated.
• In this case, estimates of the direct losses began with an analysis of the likely
effect on the pharmacy sector. By examining the likely fallout for pharmacies in
terms of reduced sales and profitability, an estimate of the number of stores likely
to close was obtained. These closures, in turn, were used as a basis for
estimating the costs in terms of network access. The basic estimate of pharmacy
closures and resulting direct employment effects was based on a methodology
defined by PricewaterhouseCoopers (PwC) in an analysis of the impacts of
proposed federal changes to Medicare funding (Impact of the Deficit Reduction Act
of 2005 on Pharmacies by State, PricewaterhouseCoopers, May 12, 2008). The
approach was fully updated to reflect both current cost characteristics (as
measured by changes in the Consumer Price Index for prescription drugs
maintained by the US Department of Labor) and the specific characteristics of the
Texas pharmacy sector as provided by the US Department of Commerce. In the
scenario regarding the “carve-in” approach suggested by the THHSC, a network
reduction of 30% (which is typical of such approaches) was assumed. The direct
reduction in pharmacy profits is computed based on the anticipated volume of
Medicaid prescription revenue and normal industry profits.
• With regard to the resulting detrimental effects on mental health, TPG initially
examined the reduction in medication access in each scenario. The resulting
incremental increase in health cost is estimated using the results of an analysis
performed by the American Psychiatric Institute for Research and Education
(Medicaid Prescription Drug Policies and Psychopharmacologic Treatment Access
and Continuity: Findings from Ten States, 2006).
• The general health-related cost from restricted access was based on a study and
published in the New England Journal of Medicine (Unintended Consequences of
Caps on Medicare Drug Benefits, John Hsu, M.D., M.B.A., M.S.C.E., Mary Price,
M.A., Jie Huang, Ph.D., Richard Brand, Ph.D., Vicki Fung, B.A., Rita Hui,
Pharm.D., Bruce Fireman, M.A., Joseph P. Newhouse, Ph.D., and Joseph V.
Selby, M.D., M.P.H., New England Journal of Medicine (2006); 354:2349-2359).
• Obviously, the consequences of diminishing the availability of pharmacy services
are limited to the Medicaid population. Such reduced access would also affect the
30
non-Medicaid population, although likely to a lesser extent. TPG assumed the
non-Medicaid population would be affected in relative terms by 20% of the level of
the Medicaid population. Given the demographics of Texas, this level almost
certainly understates the likely effects.
• TPG further examined the other, non-medical outcomes from reducing access to
mental health care. This analysis is derived from a prior study of the overall cost of
mental health and substance abuse in Texas, with all values fully updated for
subsequent price and demographic changes (Costs, Consequences and Cures!!!
An Assessment of the Impact of Severe Mental Health and Substance Abuse
Disorders on Business Activity in Texas and the Anticipated Economic and Fiscal
Return on Investment in Expanded Mental Health Services, May 2009). This study
examined comorbidities, disabilities, income, productivity, unemployment,
incarceration, homelessness, and mortality, all of which are well-documented
aspects of mental illness.
• The second step is the simulation of the input-output system to measure overall
economic effects. In the case of a prospective evaluation, it is necessary to first
calculate reasonable estimates of the direct activity (as described above).
• Once the direct input values were determined, the present study was conducted
within the context of the US Multi-Regional Impact Assessment System
(USMRIAS) which was developed and is maintained by The Perryman Group.
This model has been used in hundreds of diverse applications across the country
and has an excellent reputation for accuracy and credibility. In addition, the model
has been in operation and continually updated for over two decades. The system
used in the current simulations reflects the unique industrial structure of Texas.
• The USMRIAS is somewhat similar in format to the Input-Output Model of the
United States and the Regional Input-Output Modeling System, both of which are
maintained by the US Department of Commerce. The model developed by TPG,
however, incorporates several important enhancements and refinements.
Specifically, the expanded system includes (1) comprehensive 500-sector
coverage for any county, multi-county, or urban region; (2) calculation of both total
expenditures and value-added by industry and region; (3) direct estimation of
expenditures for multiple basic input choices (expenditures, output, income, or
employment); (4) extensive parameter localization; (5) price adjustments for real
and nominal assessments by sectors and areas; (6) measurement of the induced
impacts associated with payrolls and consumer spending; (7) embedded modules
to estimate multi-sectoral direct spending effects; (8) estimation of retail spending
activity by consumers; and (9) comprehensive linkage and integration capabilities
with a wide variety of econometric, real estate, occupational, and fiscal impact
models. The models used for the present investigation have been thoroughly
tested for reasonableness and historical reliability.
• As noted earlier, the impact assessment (input-output) process essentially
estimates the amounts of all types of goods and services required to produce one
unit (a dollar’s worth) of a specific type of output. For purposes of illustrating the
nature of the system, it is useful to think of inputs and outputs in dollar (rather than
physical) terms. As an example, the construction of a new building will require
31
specific dollar amounts of lumber, glass, concrete, hand tools, architectural
services, interior design services, paint, plumbing, and numerous other elements.
Each of these suppliers must, in turn, purchase additional dollar amounts of inputs.
This process continues through multiple rounds of production, thus generating
subsequent increments to business activity. The initial process of building the
facility is known as the direct effect. The ensuing transactions in the output chain
constitute the indirect effect.
• Another pattern that arises in response to any direct economic activity comes from
the payroll dollars received by employees at each stage of the production cycle.
As workers are compensated, they use some of their income for taxes, savings,
and purchases from external markets. A substantial portion, however, is spent
locally on food, clothing, healthcare services, utilities, housing, recreation, and
other items. Typical purchasing patterns in the relevant areas are obtained from
the ACCRA Cost of Living Index, a privately compiled inter-regional measure
which has been widely used for several decades, and the Consumer Expenditure
Survey of the US Department of Labor. These initial outlays by area residents
generate further secondary activity as local providers acquire inputs to meet this
consumer demand. These consumer spending impacts are known as the induced
effect. The USMRIAS is designed to provide realistic, yet conservative, estimates
of these phenomena.
• Sources for information used in this process include the Bureau of the Census, the
Bureau of Labor Statistics, the Regional Economic Information System of the US
Department of Commerce, and other public and private sources. The pricing data
are compiled from the US Department of Labor and the US Department of
Commerce. The verification and testing procedures make use of extensive public
and private sources. Note that all monetary values, unless otherwise noted, are
given in constant (2010) dollars to eliminate the effects of inflation.
• The USMRIAS generates estimates of the effect on several measures of business
activity. The most comprehensive measure of economic activity used in this study
is Total Expenditures. This measure incorporates every dollar that changes
hands in any transaction. For example, suppose a farmer sells wheat to a miller
for $0.50; the miller then sells flour to a baker for $0.75; the baker, in turn, sells
bread to a customer for $1.25. The Total Expenditures recorded in this instance
would be $2.50, that is, $0.50 + $0.75 + $1.25. This measure is quite broad, but is
useful in that (1) it reflects the overall interplay of all industries in the economy, and
(2) some key fiscal variables such as sales taxes are linked to aggregate
spending.
• A second measure of business activity frequently employed in this analysis is that
of Gross Product. This indicator represents the regional equivalent of Gross
Domestic Product, the most commonly reported statistic regarding national
economic performance. In other words, the Gross Product of, say, Amarillo is the
amount of US output that is produced in that area. It is defined as the value of all
final goods produced in a given region for a specific period of time. Stated
differently, it captures the amount of value-added (gross area product) over
intermediate goods and services at each stage of the production process, that is, it
32
eliminates the double counting in the Total Expenditures concept. Using the
example above, the Gross Product is $1.25 (the value of the bread) rather than
$2.50. Alternatively, it may be viewed as the sum of the value-added by the
farmer, $0.50; the miller, $0.25 ($0.75 - $0.50); and the baker, $0.50 ($1.25 -
$0.75). The total value-added is, therefore, $1.25, which is equivalent to the final
value of the bread. In many industries, the primary component of value-added is
the wage and salary payments to employees.
• The third gauge of economic activity used in this evaluation is Personal Income.
As the name implies, Personal Income is simply the income received by
individuals, whether in the form of wages, salaries, interest, dividends, proprietors’
profits, or other sources. It may thus be viewed as the segment of overall impacts
which flows directly to the citizenry.
• The fourth measure, Retail Sales, represents the component of Total
Expenditures which occurs in retail outlets (general merchandise stores,
automobile dealers and service stations, building materials stores, food stores,
drugstores, restaurants, and so forth). Retail Sales is a commonly used measure
of consumer activity.
• The final aggregates used are Permanent Jobs and Person-Years of
Employment. The Person-Years of Employment measure reveals the full-time
equivalent jobs generated by an activity. A person-year is simply the equivalent of
a person working for a year. As an example, it could be a carpenter employed for
five months, a mason for three months, and a painter for four months. In the case
of a construction project, these are typically spread over the course of the
construction and development phase. It should be noted that, unlike the dollar
values described above, Permanent Jobs is a “stock” rather than a “flow.” In other
words, if an area produces $1 million in output in 2007 and $1 million in 2008, it is
appropriate to say that $2 million was achieved in the 2007-2008 period. If the
same area has 100 people working in 2007 and 100 in 2008, it only has 100
Permanent Jobs. When a flow of jobs is measured, such as in a construction
project or a cumulative assessment over multiple years, it is appropriate to
measure employment in Person-Years (a person working for a year). This concept
is distinct from Permanent Jobs, which anticipates that the relevant positions will
be maintained on a continuing basis.
• The fiscal effects are derived from a model which translates changes in various
measures of economic activity into the tax structure of Texas. The incremental
direct outlays for health care expenses paid through State programs are also
included.
33
APPENDIX B: Detailed Sectoral Results
34
Scenario I: THHSC “Carve-In” Plan with
Network Restriction
35
The Annual Impact of the Losses in the Pharmacy Sector Associated with the Potential
Network Reductions Accompanying a "Carve-In" Approach to Medicaid Prescription
Detailed Industrial Category
Total Gross Personal Employment

Expenditures Product Income (Permanent
Category (2010 Dollars) (2010 Dollars) (2010 Dollars) Jobs)
Agricultural Products & Services ($40,445,110) ($10,854,592) ($7,392,574) -124

Forestry & Fishery Products ($788,533) ($838,908) ($311,091) -3
Coal Mining ($4,569,304) ($1,327,004) ($1,398,384) -9
Crude Petroleum & Natural Gas ($30,587,369) ($6,685,579) ($3,083,407) -13
Miscellaneous Mining ($708,559) ($266,459) ($156,639) -1
New Construction $0 $0 $0 0
Maintenance & Repair Construction ($47,840,110) ($25,211,028) ($20,775,470) -310
Food Products & Tobacco ($99,564,705) ($25,881,167) ($13,221,354) -230
Textile Mill Products ($1,238,317) ($289,183) ($244,702) -6
Apparel ($20,345,636) ($11,332,770) ($5,742,519) -165
Paper & Allied Products ($19,161,169) ($8,477,417) ($3,832,578) -59
Printing & Publishing ($32,258,491) ($16,571,038) ($10,816,307) -191
Chemicals & Petroleum Refining ($85,698,105) ($12,331,449) ($5,790,317) -43
Rubber & Leather Products ($12,008,634) ($5,251,672) ($3,070,106) -63
Lumber Products & Furniture ($4,761,706) ($1,698,406) ($1,210,912) -23
Stone, Clay, & Glass Products ($5,268,418) ($2,917,547) ($1,525,896) -23
Primary Metal ($4,283,836) ($1,230,206) ($915,730) -12
Fabricated Metal Products ($10,616,730) ($3,801,829) ($2,454,444) -42
Machinery, Except Electrical ($6,610,916) ($2,663,625) ($1,902,931) -19
Electric & Electronic Equipment ($8,181,653) ($4,268,406) ($2,551,819) -20
Motor Vehicles & Equipment ($6,946,453) ($1,389,260) ($902,568) -11
Transp. Equip., Exc. Motor Vehicles ($3,005,453) ($1,287,406) ($841,251) -9
Instruments & Related Products ($2,117,433) ($869,749) ($661,097) -7
Miscellaneous Manufacturing ($6,710,705) ($2,709,493) ($1,868,780) -30
Transportation ($69,971,033) ($48,516,601) ($32,087,152) -463
Communication ($66,082,699) ($40,582,537) ($17,325,962) -161
Electric, Gas, Water, Sanitary Services ($137,044,950) ($31,401,376) ($13,702,733) -60
Wholesale Trade ($80,728,895) ($54,645,278) ($31,508,971) -371
Retail Trade ($1,052,723,335) ($872,329,942) ($521,625,438) -14,323
Finance ($41,642,346) ($22,442,627) ($13,068,428) -121
Insurance ($51,793,063) ($30,999,409) ($18,532,609) -234
Real Estate ($307,608,156) ($54,770,573) ($8,824,729) -82
Hotels, Lodging Places, Amusements ($25,281,365) ($13,088,864) ($8,586,730) -219
Personal Services ($52,061,823) ($32,042,000) ($24,929,175) -440
Business Services ($106,379,385) ($68,208,811) ($55,640,928) -710
Eating & Drinking Places ($115,234,694) ($67,529,462) ($35,929,307) -1,702
Health Services ($84,301,809) ($59,034,597) ($49,914,294) -864
Miscellaneous Services ($76,117,030) ($31,485,011) ($27,294,866) -684
Households ($4,046,648) ($4,046,648) ($3,960,986) -288
Total ($2,724,734,577) ($1,579,277,927) ($953,603,182) -22,135

NOTE: Assum es a 30% reduction in netw ork coverage and the dispensing fee reductions currently proposed by the Texas
Legislature.
SOURCE: US Multi-Regional Im pact Assessm ent System , The Perrym an Group
36
The Annual Impact of Incremental Outlays for Mental Health Care Among Medicaid
Patients Associated with the Potential Network Reductions Accompanying a
"Carve-In" Approach to Medicaid Prescription Management on Business Activity in
Texas (as of 2013)


Coal Mining ($1,013,464) ($292,843) ($308,588) -2
New Construction ($3,034,567) ($1,327,989) ($1,094,347) -17
Textile Mill Products ($269,354) ($63,828) ($54,004) -1
Apparel ($3,710,117) ($2,060,797) ($1,044,238) -31
Paper & Allied Products ($3,607,211) ($1,603,571) ($724,963) -12
Rubber & Leather Products ($2,673,911) ($1,151,339) ($673,069) -14
Lumber Products & Furniture ($1,647,076) ($583,833) ($416,240) -9
Stone, Clay, & Glass Products ($2,554,146) ($1,340,189) ($700,924) -12
Primary Metal ($1,718,284) ($479,673) ($357,045) -6
Fabricated Metal Products ($3,564,472) ($1,323,505) ($854,458) -16
Machinery, Except Electrical ($2,873,917) ($1,167,524) ($834,084) -9
Motor Vehicles & Equipment ($1,527,830) ($328,029) ($213,109) -3
Transp. Equip., Exc. Motor Vehicles ($827,399) ($377,393) ($246,612) -3
Instruments & Related Products ($670,703) ($285,165) ($216,751) -3
Miscellaneous Manufacturing ($1,511,579) ($599,968) ($413,804) -7
Transportation ($15,553,351) ($10,553,151) ($6,979,480) -106
Communication ($19,893,603) ($12,184,490) ($5,201,949) -50
Wholesale Trade ($26,310,606) ($17,804,215) ($10,266,070) -126
Retail Trade ($133,484,444) ($110,611,049) ($66,141,872) -1,916
Finance ($8,046,173) ($4,409,263) ($2,567,527) -25
Insurance ($15,259,392) ($10,420,430) ($6,229,741) -82
Real Estate ($58,703,623) ($10,786,575) ($1,737,951) -17
Eating & Drinking Places ($31,817,347) ($18,639,179) ($9,917,036) -495
Health Services ($16,592,788) ($11,587,229) ($9,797,108) -179
Households ($698,254) ($698,254) ($683,478) -52
Total ($538,787,982) ($289,004,691) ($174,681,811) -3,951

Legislature.
37
The Annual Impact of Incremental Outlays for General Health Care (Excluding Mental
Health) Among Medicaid Patients Associated with the Potential Network Reductions
Accompanying a "Carve-In" Approach to Medicaid Prescription Management on
Business Activity in Texas (as of 2013)


Coal Mining ($1,207,370) ($348,294) ($367,020) -3
Crude Petroleum & Natural Gas ($9,136,836) ($2,002,997) ($923,780) -5
Apparel ($6,393,880) ($3,521,519) ($1,784,408) -51
Primary Metal ($1,458,659) ($394,174) ($293,404) -5
Machinery, Except Electrical ($1,933,220) ($778,260) ($555,993) -6
Electric & Electronic Equipment ($2,639,145) ($1,397,941) ($835,737) -7
Transportation ($21,253,170) ($14,375,676) ($9,507,558) -138
Communication ($16,566,877) ($10,231,982) ($4,368,362) -40
Wholesale Trade ($25,609,164) ($17,319,835) ($9,986,771) -117
Retail Trade ($74,456,456) ($61,709,999) ($36,900,606) -1,013
Finance ($10,333,424) ($5,540,694) ($3,226,362) -30
Insurance ($14,447,146) ($8,645,148) ($5,168,410) -65
Real Estate ($90,491,622) ($15,015,744) ($2,419,362) -23
Health Services ($248,198,480) ($169,949,155) ($143,693,585) -2,486
Households ($1,161,367) ($1,161,367) ($1,136,791) -82
Total ($786,128,602) ($418,144,126) ($290,726,153) -5,526

Legislature.
38
The Total Annual Impact of Incremental Outlays for Health Care (Mental Health and
General) Among Medicaid Patients Associated with the Potential Network Reductions
Accompanying a "Carve-In" Approach to Medicaid Prescription Management on


Coal Mining ($2,220,835) ($641,137) ($675,608) -5
Apparel ($10,103,997) ($5,582,316) ($2,828,646) -82
Lumber Products & Furniture ($3,135,715) ($1,103,065) ($786,424) -17
Primary Metal ($3,176,943) ($873,847) ($650,448) -10
Transp. Equip., Exc. Motor Vehicles ($1,763,439) ($773,859) ($505,688) -6
Instruments & Related Products ($2,753,056) ($1,113,192) ($846,128) -11
Miscellaneous Manufacturing ($3,144,991) ($1,231,923) ($849,671) -14
Transportation ($36,806,521) ($24,928,827) ($16,487,039) -244
Communication ($36,460,481) ($22,416,473) ($9,570,311) -91
Wholesale Trade ($51,919,769) ($35,124,050) ($20,252,841) -243
Retail Trade ($207,940,900) ($172,321,048) ($103,042,478) -2,930
Finance ($18,379,597) ($9,949,957) ($5,793,888) -55
Insurance ($29,706,538) ($19,065,579) ($11,398,151) -147
Real Estate ($149,195,245) ($25,802,320) ($4,157,313) -39
Health Services ($264,791,268) ($181,536,384) ($153,490,694) -2,665
Households ($1,859,621) ($1,859,621) ($1,820,270) -134
Total ($1,324,916,584) ($707,148,817) ($465,407,964) -9,477

Legislature.
39
The Annual Impact of Incremental Outlays for Mental Health Care Among Non -Medicaid
Patients Associated with the Potential Network Reductions Accompanying a "Carve -In"
Approach to Medicaid Prescription Management
on Business Activity in Texas (as of 2013)


Coal Mining ($1,209,543) ($349,500) ($368,291) -3
Apparel ($4,427,927) ($2,459,507) ($1,246,270) -37
Primary Metal ($2,050,727) ($572,477) ($426,123) -7
Transportation ($18,562,513) ($12,594,907) ($8,329,825) -127
Communication ($23,742,489) ($14,541,867) ($6,208,388) -60
Wholesale Trade ($31,401,012) ($21,248,859) ($12,252,283) -151
Retail Trade ($159,310,152) ($132,011,360) ($78,938,574) -2,287
Finance ($9,602,894) ($5,262,339) ($3,064,275) -30
Insurance ($18,211,681) ($12,436,508) ($7,435,031) -98
Real Estate ($70,061,220) ($12,873,492) ($2,074,199) -20
Health Services ($19,803,053) ($13,829,051) ($11,692,589) -213
Households ($833,348) ($833,348) ($815,713) -62
Total ($643,029,200) ($344,919,452) ($208,478,120) -4,716

Legislature. Assum es that the access effects on the general population w ill only be 20% as significant as those for Medicaid
recipients.
40
Health) Among Non-Medicaid Patients Associated with the Potential Network
Reductions Accompanying a "Carve-In" Approach to Medicaid Prescription


Coal Mining ($1,440,965) ($415,680) ($438,029) -3
Apparel ($7,630,926) ($4,202,840) ($2,129,643) -61
Primary Metal ($1,740,871) ($470,436) ($350,169) -6
Transportation ($25,365,096) ($17,156,989) ($11,347,019) -164
Communication ($19,772,130) ($12,211,600) ($5,213,524) -48
Wholesale Trade ($30,563,859) ($20,670,765) ($11,918,947) -140
Retail Trade ($88,861,810) ($73,649,251) ($44,039,897) -1,209
Finance ($12,332,668) ($6,612,672) ($3,850,577) -36
Insurance ($17,242,286) ($10,317,756) ($6,168,361) -78
Real Estate ($107,999,357) ($17,920,894) ($2,887,445) -27
Health Services ($296,218,319) ($202,829,820) ($171,494,492) -2,967
Households ($1,386,060) ($1,386,060) ($1,356,731) -98
Total ($938,223,686) ($499,043,950) ($346,973,971) -6,595

recipients.
41
General) Among Non-Medicaid Patients Associated with the Potential Network
Reductions Accompanying a "Carve-In" Approach to Medicaid Prescription


Coal Mining ($2,650,508) ($765,180) ($806,320) -6
Miscellaneous Mining ($1,005,190) ($416,283) ($244,711) -3
Apparel ($12,058,853) ($6,662,347) ($3,375,914) -98
Primary Metal ($3,791,597) ($1,042,913) ($776,293) -12
Instruments & Related Products ($3,285,699) ($1,328,565) ($1,009,831) -13
Transportation ($43,927,609) ($29,751,896) ($19,676,844) -291
Communication ($43,514,619) ($26,753,467) ($11,421,913) -109
Wholesale Trade ($61,964,871) ($41,919,624) ($24,171,230) -290
Retail Trade ($248,171,962) ($205,660,611) ($122,978,471) -3,496
Finance ($21,935,562) ($11,875,010) ($6,914,852) -66
Insurance ($35,453,967) ($22,754,264) ($13,603,392) -176
Real Estate ($178,060,577) ($30,794,386) ($4,961,643) -47
Health Services ($316,021,372) ($216,658,871) ($183,187,081) -3,180
Households ($2,219,408) ($2,219,408) ($2,172,444) -160
Total ($1,581,252,886) ($843,963,402) ($555,452,090) -11,311

recipients.
42
General) Among All Patients (Medicaid and Non-Medicaid) Associated with the Potential
Network Reductions Accompanying a "Carve-In" Approach to Medicaid Prescription
Management on Business Activity in Texas
(as of 2013)—Detailed Industrial Category


Forestry & Fishery Products ($1,108,187) ($1,024,199) ($379,859) -5
Coal Mining ($4,871,342) ($1,406,317) ($1,481,928) -10
Apparel ($22,162,850) ($12,244,663) ($6,204,559) -180
Primary Metal ($6,968,540) ($1,916,760) ($1,426,741) -23
Motor Vehicles & Equipment ($7,840,076) ($1,646,864) ($1,069,911) -16
Transp. Equip., Exc. Motor Vehicles ($3,868,057) ($1,697,439) ($1,109,214) -14
Transportation ($80,734,130) ($54,680,723) ($36,163,883) -535
Communication ($79,975,100) ($49,169,939) ($20,992,223) -200
Wholesale Trade ($113,884,640) ($77,043,675) ($44,424,071) -534
Retail Trade ($456,112,863) ($377,981,658) ($226,020,949) -6,426
Finance ($40,315,159) ($21,824,967) ($12,708,741) -121
Insurance ($65,160,505) ($41,819,842) ($25,001,542) -323
Real Estate ($327,255,822) ($56,596,705) ($9,118,957) -86
Health Services ($580,812,640) ($398,195,255) ($336,677,775) -5,845
Households ($4,079,029) ($4,079,029) ($3,992,713) -294
Total ($2,906,169,470) ($1,551,112,219) ($1,020,860,054) -20,788

recipients.
43
The Total Annual Impact of Pharmacy Losses and Incremental Outlays for Health Care
(Mental Health and General) Among All Patients (Medicaid and Non-Medicaid)
Associated with the Potential Network Reductions Accompanying a "Carve -In"
Approach to Medicaid Prescription Management on Business Activity in Texas (as of
2013)—Detailed Industrial Category


Coal Mining ($9,440,646) ($2,733,321) ($2,880,312) -19
Miscellaneous Mining ($2,555,988) ($1,031,542) ($606,392) -6
Apparel ($42,508,486) ($23,577,433) ($11,947,079) -345
Primary Metal ($11,252,376) ($3,146,966) ($2,342,470) -35
Transportation ($150,705,163) ($103,197,324) ($68,251,034) -998
Communication ($146,057,799) ($89,752,477) ($38,318,185) -361
Wholesale Trade ($194,613,536) ($131,688,953) ($75,933,042) -904
Retail Trade ($1,508,836,198) ($1,250,311,600) ($747,646,387) -20,749
Finance ($81,957,504) ($44,267,594) ($25,777,169) -241
Insurance ($116,953,569) ($72,819,251) ($43,534,151) -558
Real Estate ($634,863,978) ($111,367,278) ($17,943,686) -168
Business Services ($230,228,044) ($144,934,080) ($118,229,093) -1,529
Health Services ($665,114,448) ($457,229,852) ($386,592,069) -6,709
Miscellaneous Services ($156,039,636) ($65,263,704) ($56,578,179) -1,432
Households ($8,125,677) ($8,125,677) ($7,953,699) -582
Total ($5,630,904,047) ($3,130,390,147) ($1,974,463,237) -42,923

recipients.
44
The Annual Impact of the Consequences Other than Direct Medical Costs (such as
Homelessness, Incarceration, Unemployment, and Loss of Productivity) Resulting from
Limitations on Mental Heath Care Access Among Medicaid Patients Associated with the
Potential Network Reductions Accompanying a "Carve-In" Approach to Medicaid
Prescription Management on Business Activity in Texas (as of 2013)—Detailed
Industrial Category


Coal Mining ($6,020,443) ($1,703,881) ($1,830,720) -14
Apparel ($17,023,826) ($9,407,974) ($4,782,901) -145
Primary Metal ($12,779,678) ($3,716,463) ($2,986,812) -33
Transportation ($100,360,897) ($67,284,765) ($45,303,753) -644
Communication ($104,509,767) ($66,572,036) ($29,089,255) -278
Wholesale Trade ($145,707,279) ($104,350,533) ($61,144,105) -707
Retail Trade ($567,626,466) ($472,462,366) ($283,264,926) -8,128
Finance ($68,807,874) ($35,978,142) ($23,891,839) -242
Insurance ($66,657,026) ($43,179,288) ($25,796,071) -369
Real Estate ($474,142,746) ($95,223,238) ($15,666,189) -156
Health Services ($131,261,883) ($97,621,525) ($82,538,413) -1,481
Households ($4,361,460) ($4,361,460) ($4,003,908) -281
Total ($3,509,129,141) ($1,753,297,612) ($1,069,802,227) -21,231

Legislature.
45
The Annual Impact of the Consequences Other than Direct Medical Costs (such as
Homelessness, Incarceration, Unemployment, and Loss of Productivity) Resulting from
Limitations on Mental Heath Care Access Among Non-Medicaid Patients Associated
with the Potential Network Reductions Accompanying a "Carve-In" Approach to
Medicaid Prescription Management on Business Activity in Texas (as of 2013)—Detailed
Industrial Category


Coal Mining ($7,185,240) ($2,033,536) ($2,184,916) -17
Miscellaneous Mining ($3,665,466) ($1,662,456) ($1,175,770) -16
Apparel ($20,317,486) ($11,228,168) ($5,708,265) -173
Primary Metal ($15,252,208) ($4,435,500) ($3,564,681) -39
Transportation ($119,778,075) ($80,302,587) ($54,068,831) -769
Communication ($124,729,642) ($79,451,963) ($34,717,257) -331
Wholesale Trade ($173,897,781) ($124,539,599) ($72,973,871) -844
Retail Trade ($677,447,168) ($563,871,332) ($338,069,193) -9,700
Finance ($82,120,377) ($42,938,961) ($28,514,277) -289
Insurance ($79,553,397) ($51,533,337) ($30,786,929) -440
Real Estate ($565,876,821) ($113,646,415) ($18,697,182) -186
Health Services ($156,657,584) ($116,508,708) ($98,507,412) -1,768
Households ($5,205,288) ($5,205,288) ($4,778,558) -335
Total ($4,188,052,777) ($2,092,514,307) ($1,276,780,651) -25,338

recipients.
46
The Annual Impact of the Consequences Other than Direct Medical Costs
(such as Homelessness, Incarceration, Unemployment, and Loss of Productivity)
Resulting from Limitations on Mental Heath Care Access Among All Patients (Medicaid
and Non-Medicaid) Associated with the Potential Network Reductions Accompanying a
"Carve-In" Approach to Medicaid Prescription Management on Business Activity in
Texas (as of 2013)


Coal Mining ($13,205,683) ($3,737,417) ($4,015,636) -31
Apparel ($37,341,313) ($20,636,142) ($10,491,166) -318
Primary Metal ($28,031,887) ($8,151,962) ($6,551,492) -72
Transportation ($220,138,973) ($147,587,352) ($99,372,584) -1,413
Communication ($229,239,409) ($146,023,999) ($63,806,512) -609
Wholesale Trade ($319,605,060) ($228,890,132) ($134,117,976) -1,551
Retail Trade ($1,245,073,634) ($1,036,333,699) ($621,334,119) -17,828
Finance ($150,928,251) ($78,917,103) ($52,406,116) -531
Insurance ($146,210,424) ($94,712,625) ($56,583,000) -810
Real Estate ($1,040,019,567) ($208,869,653) ($34,363,371) -342
Hotels, Lodging Places, Amusements ($117,331,061) ($60,172,845) ($40,245,645) -1,013
Personal Services ($161,525,734) ($100,366,024) ($78,178,765) -1,486
Health Services ($287,919,466) ($214,130,233) ($181,045,826) -3,249
Households ($9,566,748) ($9,566,748) ($8,782,467) -616
Total ($7,697,181,919) ($3,845,811,919) ($2,346,582,878) -46,569

recipients.
47
Scenario II: Fee Reductions as Proposed in
the Texas Legislature
48
The Annual Impact of the Losses in the Pharmacy Sector Associated
with the Dispensing Fee Reductions Currently Proposed on Business Activity
in Texas (as of 2013)


Coal Mining ($1,054,307) ($306,189) ($322,659) -2
Miscellaneous Mining ($163,491) ($61,482) ($36,142) 0
Apparel ($4,694,490) ($2,614,889) ($1,325,011) -38
Stone, Clay, & Glass Products ($1,215,619) ($673,186) ($352,081) -5
Primary Metal ($988,439) ($283,854) ($211,293) -3
Fabricated Metal Products ($2,449,672) ($877,222) ($566,331) -10
Electric & Electronic Equipment ($1,887,810) ($984,879) ($588,799) -5
Transportation ($16,144,903) ($11,194,573) ($7,403,692) -107
Communication ($15,247,721) ($9,363,891) ($3,997,740) -37
Wholesale Trade ($18,627,140) ($12,608,685) ($7,270,284) -86
Retail Trade ($242,902,178) ($201,278,755) ($120,358,266) -3,305
Finance ($9,608,428) ($5,178,343) ($3,015,369) -28
Insurance ($11,950,574) ($7,152,709) ($4,276,158) -54
Real Estate ($70,976,569) ($12,637,595) ($2,036,191) -19
Health Services ($19,451,543) ($13,621,463) ($11,517,072) -199
Households ($933,711) ($933,711) ($913,946) -66
Total ($628,696,962) ($364,397,781) ($220,031,495) -5,107

49
The Annual Impact of Incremental Outlays for Mental Health Care Among Medicaid
Patients Associated with the Dispensing Fee Reductions Currently Proposed on

Agricultural Products & Services ($2,186,231) ($580,142) ($395,109) -7

Forestry & Fishery Products ($53,109) ($50,970) ($18,904) 0
Coal Mining ($233,844) ($67,570) ($71,203) 0
Crude Petroleum & Natural Gas ($4,540,241) ($994,369) ($458,602) -2
New Construction ($700,187) ($306,416) ($252,506) -4
Food Products & Tobacco ($4,347,775) ($1,120,414) ($572,361) -10
Textile Mill Products ($62,150) ($14,727) ($12,461) 0
Apparel ($856,061) ($475,502) ($240,944) -7
Paper & Allied Products ($832,317) ($370,003) ($167,276) -3
Printing & Publishing ($1,517,388) ($773,875) ($505,126) -9
Chemicals & Petroleum Refining ($4,492,149) ($734,909) ($345,082) -3
Rubber & Leather Products ($616,970) ($265,656) ($155,302) -3
Lumber Products & Furniture ($380,041) ($134,712) ($96,042) -2
Stone, Clay, & Glass Products ($589,336) ($309,231) ($161,729) -3
Primary Metal ($396,472) ($110,678) ($82,383) -1
Fabricated Metal Products ($822,455) ($305,382) ($197,155) -4
Machinery, Except Electrical ($663,119) ($269,391) ($192,454) -2
Electric & Electronic Equipment ($775,697) ($439,113) ($262,517) -2
Motor Vehicles & Equipment ($352,527) ($75,688) ($49,172) -1
Miscellaneous Manufacturing ($348,777) ($138,435) ($95,480) -2
Transportation ($3,588,733) ($2,435,002) ($1,610,424) -25
Communication ($4,590,189) ($2,811,412) ($1,200,282) -12
Electric, Gas, Water, Sanitary Services ($6,840,154) ($1,550,937) ($676,787) -3
Wholesale Trade ($6,070,829) ($4,108,090) ($2,368,762) -29
Retail Trade ($30,799,794) ($25,522,057) ($15,261,374) -442
Finance ($1,856,549) ($1,017,380) ($592,423) -6
Insurance ($3,520,906) ($2,404,378) ($1,437,431) -19
Real Estate ($13,545,095) ($2,488,862) ($401,010) -4
Hotels, Lodging Places, Amusements ($2,175,898) ($1,093,091) ($717,106) -19
Health Services ($3,828,569) ($2,673,602) ($2,260,555) -41
Households ($161,113) ($161,113) ($157,704) -12
Total ($124,318,299) ($66,684,063) ($40,305,549) -912

50
Health) Among Medicaid Patients Associated with the Dispensing Fee Reductions
Currently Proposed on Business Activity in Texas (as of 2013)


Coal Mining ($278,585) ($80,364) ($84,685) -1
Apparel ($1,475,304) ($812,545) ($411,729) -12
Paper & Allied Products ($1,026,586) ($451,855) ($204,281) -3
Chemicals & Petroleum Refining ($7,570,180) ($1,519,344) ($713,420) -6
Rubber & Leather Products ($1,208,935) ($515,619) ($301,428) -6
Primary Metal ($336,566) ($90,950) ($67,699) -1
Transportation ($4,903,892) ($3,317,000) ($2,193,745) -32
Communication ($3,822,591) ($2,360,896) ($1,007,943) -9
Wholesale Trade ($5,908,980) ($3,996,326) ($2,304,317) -27
Retail Trade ($17,179,856) ($14,238,777) ($8,514,334) -234
Finance ($2,384,303) ($1,278,443) ($744,441) -7
Insurance ($3,333,490) ($1,994,755) ($1,192,543) -15
Real Estate ($20,879,761) ($3,464,687) ($558,236) -5
Hotels, Lodging Places, Amusements ($1,654,933) ($865,354) ($567,702) -14
Health Services ($57,268,562) ($39,213,551) ($33,155,420) -574
Households ($267,970) ($267,970) ($262,300) -19
Total ($181,388,921) ($96,481,303) ($67,081,267) -1,275

51
General) Among Medicaid Patients Associated with the Dispensing Fee Reductions

Agricultural Products & Services ($5,156,504) ($1,366,356) ($930,564) -16

Coal Mining ($512,429) ($147,934) ($155,888) -1
Apparel ($2,331,366) ($1,288,047) ($652,673) -19
Printing & Publishing ($2,950,133) ($1,472,796) ($961,327) -18
Primary Metal ($733,038) ($201,629) ($150,082) -2
Transportation ($8,492,625) ($5,752,002) ($3,804,169) -56
Communication ($8,412,780) ($5,172,309) ($2,208,224) -21
Wholesale Trade ($11,979,810) ($8,104,416) ($4,673,079) -56
Retail Trade ($47,979,650) ($39,760,834) ($23,775,708) -676
Finance ($4,240,852) ($2,295,823) ($1,336,864) -13
Insurance ($6,854,396) ($4,399,134) ($2,629,975) -34
Real Estate ($34,424,857) ($5,953,549) ($959,246) -9
Health Services ($61,097,131) ($41,887,153) ($35,415,975) -615
Households ($429,083) ($429,083) ($420,003) -31
Total ($305,707,219) ($163,165,365) ($107,386,817) -2,187

52
The Annual Impact of Incremental Outlays for Mental Health Care Among Non -Medicaid
Patients Associated with the Dispensing Fee Reductions Currently Proposed on


Coal Mining ($279,086) ($80,643) ($84,978) -1
Apparel ($1,021,686) ($567,499) ($287,561) -9
Paper & Allied Products ($993,348) ($441,589) ($199,639) -3
Chemicals & Petroleum Refining ($5,361,261) ($877,094) ($411,846) -3
Rubber & Leather Products ($736,337) ($317,054) ($185,349) -4
Primary Metal ($473,178) ($132,092) ($98,322) -2
Transportation ($4,283,058) ($2,906,110) ($1,921,999) -29
Communication ($5,478,270) ($3,355,346) ($1,432,505) -14
Wholesale Trade ($7,245,374) ($4,902,897) ($2,827,054) -35
Retail Trade ($36,758,740) ($30,459,899) ($18,214,046) -528
Finance ($2,215,743) ($1,214,216) ($707,042) -7
Insurance ($4,202,108) ($2,869,562) ($1,715,536) -23
Real Estate ($16,165,713) ($2,970,390) ($478,594) -5
Health Services ($4,569,296) ($3,190,873) ($2,697,912) -49
Households ($192,284) ($192,284) ($188,215) -14
Total ($148,370,600) ($79,585,664) ($48,103,607) -1,088

NOTE: Assum es that the access effects on the general population w ill only be 20% as significant as those for Medicaid recipients.
53
Health) Among Non-Medicaid Patients Associated with the Dispensing Fee Reductions
Currently Proposed on Business Activity in Texas


Coal Mining ($332,484) ($95,913) ($101,069) -1
Apparel ($1,760,737) ($969,751) ($491,387) -14
Chemicals & Petroleum Refining ($9,034,810) ($1,813,297) ($851,448) -7
Primary Metal ($401,683) ($108,547) ($80,797) -1
Transportation ($5,852,665) ($3,958,751) ($2,618,177) -38
Communication ($4,562,161) ($2,817,667) ($1,202,953) -11
Wholesale Trade ($7,052,212) ($4,769,509) ($2,750,142) -32
Retail Trade ($20,503,704) ($16,993,604) ($10,161,632) -279
Finance ($2,845,602) ($1,525,788) ($888,470) -8
Insurance ($3,978,433) ($2,380,688) ($1,423,269) -18
Real Estate ($24,919,443) ($4,135,012) ($666,240) -6
Health Services ($68,348,513) ($46,800,335) ($39,570,117) -685
Households ($319,815) ($319,815) ($313,048) -23
Total ($216,482,877) ($115,147,882) ($80,059,718) -1,522

54
General) Among Non-Medicaid Patients Associated with the Dispensing Fee Reductions


Coal Mining ($611,570) ($176,555) ($186,048) -1
Apparel ($2,782,423) ($1,537,250) ($778,948) -23
Primary Metal ($874,862) ($240,639) ($179,119) -3
Transportation ($10,135,723) ($6,864,862) ($4,540,175) -67
Communication ($10,040,431) ($6,173,013) ($2,635,457) -25
Wholesale Trade ($14,297,586) ($9,672,407) ($5,577,196) -67
Retail Trade ($57,262,443) ($47,453,503) ($28,375,678) -807
Finance ($5,061,345) ($2,740,004) ($1,595,512) -15
Insurance ($8,180,540) ($5,250,250) ($3,138,805) -41
Real Estate ($41,085,156) ($7,105,403) ($1,144,834) -11
Health Services ($72,917,809) ($49,991,208) ($42,268,030) -734
Households ($512,099) ($512,099) ($501,263) -37
Total ($364,853,477) ($194,733,546) ($128,163,324) -2,610

55
General) Among All Patients (Medicaid and Non-Medicaid) Associated with the
Dispensing Fee Reductions Currently Proposed on Business Activity
in Texas (as of 2013)—Detailed Industrial Category


Coal Mining ($1,123,999) ($324,489) ($341,936) -2
New Construction ($1,535,841) ($672,116) ($553,866) -9
Apparel ($5,113,789) ($2,825,296) ($1,431,621) -42
Primary Metal ($1,607,900) ($442,267) ($329,202) -5
Transportation ($18,628,347) ($12,616,864) ($8,344,344) -123
Communication ($18,453,211) ($11,345,322) ($4,843,682) -46
Wholesale Trade ($26,277,395) ($17,776,823) ($10,250,275) -123
Retail Trade ($105,242,093) ($87,214,337) ($52,151,386) -1,483
Finance ($9,302,197) ($5,035,826) ($2,932,376) -28
Insurance ($15,034,937) ($9,649,383) ($5,768,780) -75
Real Estate ($75,510,012) ($13,058,951) ($2,104,080) -20
Health Services ($134,014,940) ($91,878,361) ($77,684,005) -1,349
Households ($941,183) ($941,183) ($921,266) -68
Total ($670,560,697) ($357,898,912) ($235,550,141) -4,797

56
The Total Annual Impact of Pharmacy Losses and Incremental Outlays for Health Care
(Mental Health and General) Among All Patients (Medicaid and Non -Medicaid)
Associated with the Dispensing Fee Reductions Currently Proposed on Business
Activity in Texas (as of 2013)—Detailed Industrial Category


Coal Mining ($2,178,306) ($630,678) ($664,594) -4
New Construction ($1,535,841) ($672,116) ($553,866) -9
Apparel ($9,808,279) ($5,440,185) ($2,756,633) -80
Primary Metal ($2,596,339) ($726,121) ($540,494) -8
Transportation ($34,773,250) ($23,811,436) ($15,748,036) -230
Communication ($33,700,932) ($20,709,213) ($8,841,421) -83
Wholesale Trade ($44,904,535) ($30,385,508) ($17,520,559) -209
Retail Trade ($348,144,271) ($288,493,092) ($172,509,651) -4,788
Finance ($18,910,625) ($10,214,170) ($5,947,746) -56
Insurance ($26,985,510) ($16,802,092) ($10,044,938) -129
Real Estate ($146,486,582) ($25,696,547) ($4,140,271) -39
Health Services ($153,466,483) ($105,499,824) ($89,201,077) -1,548
Households ($1,874,894) ($1,874,894) ($1,835,212) -134
Total ($1,299,257,658) ($722,296,693) ($455,581,637) -9,904

57
Resulting from Limitations on Mental Heath Care Access Among Medicaid Patients
Activity in Texas (as of 2013)


Coal Mining ($1,389,139) ($393,148) ($422,415) -3
Apparel ($3,928,026) ($2,170,767) ($1,103,592) -33
Primary Metal ($2,948,744) ($857,525) ($689,168) -8
Transportation ($23,156,968) ($15,525,082) ($10,453,250) -149
Communication ($24,114,266) ($15,360,629) ($6,711,966) -64
Wholesale Trade ($33,620,054) ($24,077,524) ($14,108,205) -163
Retail Trade ($130,972,403) ($109,014,528) ($65,359,687) -1,875
Finance ($15,876,519) ($8,301,487) ($5,512,730) -56
Insurance ($15,380,239) ($9,963,057) ($5,952,107) -85
Real Estate ($109,402,254) ($21,971,520) ($3,614,769) -36
Health Services ($30,286,967) ($22,524,894) ($19,044,662) -342
Households ($1,006,350) ($1,006,350) ($923,850) -65
Total ($809,685,776) ($404,550,554) ($246,842,909) -4,899

58
Resulting from Limitations on Mental Heath Care Access Among Non -Medicaid Patients
Activity in Texas (as of 2013)


Coal Mining ($1,657,900) ($469,212) ($504,141) -4
Apparel ($4,687,995) ($2,590,753) ($1,317,108) -40
Primary Metal ($3,519,248) ($1,023,434) ($822,504) -9
Transportation ($27,637,228) ($18,528,774) ($12,475,677) -177
Communication ($28,779,738) ($18,332,504) ($8,010,554) -76
Wholesale Trade ($40,124,645) ($28,735,888) ($16,837,769) -195
Retail Trade ($156,312,097) ($130,105,955) ($78,005,057) -2,238
Finance ($18,948,206) ($9,907,605) ($6,579,298) -67
Insurance ($18,355,909) ($11,890,645) ($7,103,682) -102
Real Estate ($130,568,695) ($26,222,428) ($4,314,131) -43
Health Services ($36,146,694) ($26,882,865) ($22,729,300) -408
Households ($1,201,052) ($1,201,052) ($1,102,590) -77
Total ($966,338,549) ($482,820,381) ($294,600,481) -5,846

59
Resulting from Limitations on Mental Heath Care Access Among All Patients (Medicaid
and Non-Medicaid) Associated with the Dispensing Fee Reductions Currently Proposed


Forestry & Fishery Products ($1,488,244) ($638,350) ($225,555) -4
Coal Mining ($3,047,039) ($862,360) ($926,556) -7
Apparel ($8,616,021) ($4,761,521) ($2,420,700) -73
Primary Metal ($6,467,992) ($1,880,959) ($1,511,671) -17
Transportation ($50,794,196) ($34,053,856) ($22,928,928) -326
Communication ($52,894,003) ($33,693,133) ($14,722,520) -141
Wholesale Trade ($73,744,699) ($52,813,412) ($30,945,973) -358
Retail Trade ($287,284,500) ($239,120,483) ($143,364,743) -4,114
Finance ($34,824,725) ($18,209,092) ($12,092,028) -123
Insurance ($33,736,148) ($21,853,703) ($13,055,789) -187
Real Estate ($239,970,949) ($48,193,948) ($7,928,900) -79
Health Services ($66,433,661) ($49,407,758) ($41,773,963) -750
Households ($2,207,402) ($2,207,402) ($2,026,440) -142
Total ($1,776,024,325) ($887,370,935) ($541,443,390) -10,745

60
Scenario III: Dispensing Fee Policy Changes
as Outlined by The Lewin Group
61
The Annual Impact of the Losses in the Pharmacy Sector Associated with
Implementing the Dispensing Fee Policy Recommendations of the Lewin Study


Coal Mining ($6,880,404) ($1,998,187) ($2,105,670) -13
Apparel ($30,636,220) ($17,064,753) ($8,647,018) -248
Primary Metal ($6,450,550) ($1,852,430) ($1,378,895) -18
Transportation ($105,361,560) ($73,055,728) ($48,316,456) -698
Communication ($99,506,553) ($61,108,709) ($26,089,231) -243
Wholesale Trade ($121,560,624) ($82,284,219) ($47,445,839) -558
Retail Trade ($1,585,178,449) ($1,313,544,194) ($785,457,466) -21,568
Finance ($62,704,556) ($33,793,844) ($19,678,286) -182
Insurance ($77,989,387) ($46,678,546) ($27,906,185) -353
Real Estate ($463,192,753) ($82,472,886) ($13,288,174) -123
Health Services ($126,940,674) ($88,893,604) ($75,160,358) -1,301
Households ($6,093,395) ($6,093,395) ($5,964,407) -433
Total ($4,102,873,364) ($2,378,058,178) ($1,435,924,486) -33,330

62
The Annual Impact of Incremental Outlays for Mental Health Care Among
Medicaid Patients Associated with the Pharmacy Network Effects of Implementing the
Dispensing Fee Policy Recommendations of the Lewin
Study on Business Activity in Texas (as of 2013)


Coal Mining ($1,526,063) ($440,960) ($464,668) -3
Apparel ($5,586,651) ($3,103,124) ($1,572,401) -47
Primary Metal ($2,587,372) ($722,286) ($537,633) -9
Transportation ($23,420,053) ($15,890,811) ($10,509,620) -160
Communication ($29,955,555) ($18,347,263) ($7,833,033) -76
Wholesale Trade ($39,618,201) ($26,809,378) ($15,458,528) -190
Retail Trade ($200,999,310) ($166,556,820) ($99,595,655) -2,886
Finance ($12,115,832) ($6,639,416) ($3,866,151) -38
Insurance ($22,977,414) ($15,690,962) ($9,380,670) -124
Real Estate ($88,395,227) ($16,242,298) ($2,616,987) -25
Health Services ($24,985,225) ($17,447,913) ($14,752,371) -269
Households ($1,051,423) ($1,051,423) ($1,029,173) -78
Total ($811,300,623) ($435,179,874) ($263,033,822) -5,950

63
The Annual Impact of Incremental Outlays for General Health Care (Excluding
Mental Health) Among Medicaid Patients Associated with the Pharmacy
Network Effects of Implementing the Dispensing Fee Policy Recommendations
of the Lewin Study on Business Activity in Texas (as of 2013)


Coal Mining ($1,818,044) ($524,457) ($552,655) -4
Apparel ($9,627,829) ($5,302,662) ($2,686,940) -77
Primary Metal ($2,196,431) ($593,542) ($441,804) -7
Transportation ($32,002,774) ($21,646,724) ($14,316,370) -207
Communication ($24,946,210) ($15,407,199) ($6,577,828) -61
Wholesale Trade ($38,561,978) ($26,080,005) ($15,037,963) -176
Retail Trade ($112,115,658) ($92,922,192) ($55,564,500) -1,526
Finance ($15,559,949) ($8,343,112) ($4,858,218) -45
Insurance ($21,754,343) ($13,017,763) ($7,782,531) -98
Real Estate ($136,261,223) ($22,610,532) ($3,643,047) -34
Health Services ($373,734,360) ($255,907,445) ($216,372,115) -3,743
Households ($1,748,772) ($1,748,772) ($1,711,767) -124
Total ($1,183,743,228) ($629,636,520) ($437,772,031) -8,321

64
The Total Annual Impact of Incremental Outlays for Health Care (Mental Health
and General) Among Medicaid Patients Associated with the Pharmacy


Coal Mining ($3,344,107) ($965,417) ($1,017,323) -7
Apparel ($15,214,480) ($8,405,786) ($4,259,341) -124
Primary Metal ($4,783,804) ($1,315,828) ($979,437) -16
Transportation ($55,422,828) ($37,537,536) ($24,825,989) -367
Communication ($54,901,764) ($33,754,461) ($14,410,862) -137
Wholesale Trade ($78,180,180) ($52,889,383) ($30,496,491) -367
Retail Trade ($313,114,968) ($259,479,012) ($155,160,155) -4,411
Finance ($27,675,781) ($14,982,528) ($8,724,369) -83
Insurance ($44,731,757) ($28,708,725) ($17,163,202) -222
Real Estate ($224,656,450) ($38,852,830) ($6,260,034) -59
Health Services ($398,719,585) ($273,355,358) ($231,124,486) -4,012
Households ($2,800,195) ($2,800,195) ($2,740,941) -202
Total ($1,995,043,851) ($1,064,816,394) ($700,805,853) -14,271

65
The Annual Impact of Incremental Outlays for Mental Health Care Among
Non-Medicaid Patients Associated with the Pharmacy Network Effects
of Implementing the Dispensing Fee Policy Recommendations of the Lewin
Study on Business Activity in Texas (as of 2013)


Coal Mining ($1,821,315) ($526,274) ($554,569) -4
Apparel ($6,667,520) ($3,703,496) ($1,876,619) -56
Primary Metal ($3,087,960) ($862,030) ($641,651) -10
Transportation ($27,951,214) ($18,965,263) ($12,542,953) -191
Communication ($35,751,162) ($21,896,973) ($9,348,518) -91
Wholesale Trade ($47,283,275) ($31,996,283) ($18,449,344) -227
Retail Trade ($239,887,358) ($198,781,157) ($118,864,778) -3,444
Finance ($14,459,925) ($7,923,968) ($4,614,149) -45
Insurance ($27,422,936) ($18,726,748) ($11,195,582) -148
Real Estate ($105,497,364) ($19,384,753) ($3,123,304) -30
Health Services ($29,819,205) ($20,823,622) ($17,606,564) -321
Households ($1,254,845) ($1,254,845) ($1,228,291) -93
Total ($968,265,826) ($519,375,665) ($313,923,907) -7,101

66
The Annual Impact of Incremental Outlays for General Health Care (Excluding
Mental Health) Among Non-Medicaid Patients Associated with the
Pharmacy Network Effects of Implementing the Dispensing Fee Policy
Recommendations of the Lewin Study on Business Activity in Texas


Coal Mining ($2,169,788) ($625,926) ($659,579) -5
Apparel ($11,490,559) ($6,328,587) ($3,206,792) -92
Primary Metal ($2,621,383) ($708,377) ($527,281) -8
Transportation ($38,194,464) ($25,834,793) ($17,086,208) -247
Communication ($29,772,641) ($18,388,084) ($7,850,464) -73
Wholesale Trade ($46,022,701) ($31,125,796) ($17,947,411) -210
Retail Trade ($133,807,072) ($110,900,178) ($66,314,761) -1,821
Finance ($18,570,387) ($9,957,283) ($5,798,154) -54
Insurance ($25,963,233) ($15,536,356) ($9,288,245) -117
Real Estate ($162,624,165) ($26,985,071) ($4,347,880) -40
Health Services ($446,042,070) ($305,418,764) ($258,234,394) -4,468
Households ($2,087,113) ($2,087,113) ($2,042,949) -148
Total ($1,412,766,220) ($751,454,526) ($522,469,335) -9,931

67
and General) Among Non-Medicaid Patients Associated with the Pharmacy


Coal Mining ($3,991,103) ($1,152,199) ($1,214,148) -9
Apparel ($18,158,080) ($10,032,084) ($5,083,411) -148
Primary Metal ($5,709,343) ($1,570,406) ($1,168,932) -19
Transportation ($66,145,678) ($44,800,056) ($29,629,161) -438
Communication ($65,523,803) ($40,285,057) ($17,198,982) -163
Wholesale Trade ($93,305,976) ($63,122,079) ($36,396,755) -437
Retail Trade ($373,694,430) ($309,681,335) ($185,179,539) -5,265
Finance ($33,030,312) ($17,881,251) ($10,412,304) -99
Insurance ($53,386,168) ($34,263,103) ($20,483,827) -265
Real Estate ($268,121,528) ($46,369,825) ($7,471,184) -70
Health Services ($475,861,275) ($326,242,386) ($275,840,958) -4,789
Households ($3,341,959) ($3,341,959) ($3,271,240) -241
Total ($2,381,032,047) ($1,270,830,191) ($836,393,242) -17,032

68
and General) Among All Patients (Medicaid and Non-Medicaid) Associated with
the Pharmacy Network Effects of Implementing the Dispensing Fee Policy
Recommendations of the Lewin Study on Business Activity in Texas


Coal Mining ($7,335,210) ($2,117,616) ($2,231,470) -16
Apparel ($33,372,560) ($18,437,870) ($9,342,753) -271
Primary Metal ($10,493,147) ($2,886,235) ($2,148,369) -34
Transportation ($121,568,506) ($82,337,591) ($54,455,151) -806
Communication ($120,425,567) ($74,039,518) ($31,609,843) -300
Wholesale Trade ($171,486,155) ($116,011,462) ($66,893,245) -804
Retail Trade ($686,809,398) ($569,160,347) ($340,339,694) -9,676
Finance ($60,706,093) ($32,863,780) ($19,136,673) -182
Insurance ($98,117,925) ($62,971,828) ($37,647,029) -487
Real Estate ($492,777,978) ($85,222,655) ($13,731,218) -129
Health Services ($874,580,860) ($599,597,744) ($506,965,444) -8,801
Households ($6,142,154) ($6,142,154) ($6,012,181) -443
Total ($4,376,075,898) ($2,335,646,585) ($1,537,199,095) -31,302

69
The Total Annual Impact of Pharmaceutical Losses and Incremental Outlays
for Health Care (Mental Health and General) Among All Patients (Medicaid and
Non-Medicaid) Associated with the Pharmacy Network Effects of
Implementing the Dispensing Fee Policy Recommendations of the Lewin
Study on Business Activity in Texas (as of 2013)—Detailed Industrial Category


Forestry & Fishery Products ($2,856,059) ($2,805,445) ($1,040,423) -12
Coal Mining ($14,215,614) ($4,115,803) ($4,337,140) -29
Maintenance & Repair Construction ($159,207,344) ($84,414,954) ($69,563,203) -1,045
Apparel ($64,008,780) ($35,502,623) ($17,989,771) -519
Primary Metal ($16,943,696) ($4,738,664) ($3,527,264) -53
Transportation ($226,930,066) ($155,393,320) ($102,771,607) -1,503
Communication ($219,932,121) ($135,148,227) ($57,699,074) -544
Wholesale Trade ($293,046,779) ($198,295,680) ($114,339,084) -1,362
Retail Trade ($2,271,987,847) ($1,882,704,541) ($1,125,797,160) -31,244
Finance ($123,410,649) ($66,657,624) ($38,814,959) -363
Insurance ($176,107,312) ($109,650,374) ($65,553,214) -840
Real Estate ($955,970,731) ($167,695,541) ($27,019,392) -253
Health Services ($1,001,521,534) ($688,491,347) ($582,125,802) -10,102
Households ($12,235,548) ($12,235,548) ($11,976,587) -876
Total ($8,478,949,261) ($4,713,704,762) ($2,973,123,581) -64,632

NOTE: Includes both m ental and general health care and assum es that the access effects on the general population w ill only be
20% as significant as those for Medicaid recipients.
70
(such as Homelessness, Incarceration, Unemployment, and Loss of
Productivity) Resulting from Limitations on Mental Heath Care Access Among
Medicaid Patients Associated with the Pharmacy Network Effects of
Implementing the Dispensing Fee Policy Recommendations of the Lewin Study
on Business Activity in Texas (as of 2013)—Detailed Industrial Category


Coal Mining ($9,065,513) ($2,565,683) ($2,756,677) -21
Apparel ($25,634,278) ($14,166,417) ($7,202,036) -218
Primary Metal ($19,243,490) ($5,596,206) ($4,497,506) -50
Transportation ($151,122,262) ($101,316,610) ($68,217,860) -970
Communication ($157,369,582) ($100,243,390) ($43,802,260) -418
Wholesale Trade ($219,404,311) ($157,129,808) ($92,070,075) -1,065
Retail Trade ($854,725,274) ($711,428,289) ($426,537,002) -12,238
Finance ($103,610,089) ($54,175,465) ($35,976,050) -365
Insurance ($100,371,369) ($65,018,865) ($38,843,422) -556
Real Estate ($713,958,585) ($143,386,035) ($23,589,964) -235
Health Services ($197,652,603) ($146,997,348) ($124,285,375) -2,230
Households ($6,567,436) ($6,567,436) ($6,029,038) -423
Total ($5,284,005,498) ($2,640,094,977) ($1,610,895,645) -31,969

71
Non-Medicaid Patients Associated with the Pharmacy Network Effects
of Implementing the Dispensing Fee Policy Recommendations of the Lewin
Study on Business Activity in Texas (as of 2013)—Detailed Industrial Category


Coal Mining ($10,819,449) ($3,062,075) ($3,290,021) -25
Apparel ($30,593,833) ($16,907,244) ($8,595,439) -260
Primary Metal ($22,966,596) ($6,678,923) ($5,367,654) -59
Transportation ($180,360,421) ($120,918,693) ($81,416,211) -1,158
Communication ($187,816,431) ($119,637,834) ($52,276,838) -499
Wholesale Trade ($261,853,239) ($187,530,268) ($109,883,199) -1,271
Retail Trade ($1,020,091,999) ($849,070,838) ($509,060,626) -14,606
Finance ($123,655,900) ($64,656,983) ($42,936,464) -435
Insurance ($119,790,573) ($77,598,295) ($46,358,596) -663
Real Estate ($852,090,680) ($171,127,439) ($28,153,997) -280
Health Services ($235,893,152) ($175,437,445) ($148,331,306) -2,662
Households ($7,838,061) ($7,838,061) ($7,195,497) -504
Total ($6,306,320,745) ($3,150,883,497) ($1,922,561,327) -38,154

72
All Patients (Medicaid and Non-Medicaid) Associated with the Pharmacy


Forestry & Fishery Products ($9,712,276) ($4,165,872) ($1,471,968) -26
Coal Mining ($19,884,962) ($5,627,759) ($6,046,698) -46
Maintenance & Repair Construction ($215,414,237) ($125,605,756) ($102,490,049) -1,475
Textile Mill Products ($5,052,661) ($1,184,992) ($1,011,197) -23
Apparel ($56,228,111) ($31,073,660) ($15,797,474) -478
Primary Metal ($42,210,086) ($12,275,129) ($9,865,160) -109
Transportation ($331,482,683) ($222,235,304) ($149,634,071) -2,128
Communication ($345,186,013) ($219,881,224) ($96,079,097) -917
Wholesale Trade ($481,257,550) ($344,660,076) ($201,953,274) -2,336
Retail Trade ($1,874,817,273) ($1,560,499,127) ($935,597,628) -26,845
Finance ($227,265,990) ($118,832,448) ($78,912,514) -800
Insurance ($220,161,941) ($142,617,160) ($85,202,018) -1,219
Real Estate ($1,566,049,265) ($314,513,474) ($51,743,961) -515
Hotels, Lodging Places, Amusements ($176,675,735) ($90,607,564) ($60,601,421) -1,525
Health Services ($433,545,755) ($322,434,793) ($272,616,681) -4,892
Households ($14,405,497) ($14,405,497) ($13,224,535) -927
Total ($11,590,326,243) ($5,790,978,475) ($3,533,456,972) -70,123

73
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The Economic Impact of Changing The Texas Medicaid Pharmacy Benefit Structure

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The Economic Impact of Changing The Texas Medicaid Pharmacy Benefit Structure

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The Economic Impact of Changing the

Texas Medicaid Pharmacy Benefit Structure:

Summary of Key Results from a Study by the Perryman Group

Given tight budget conditions, rising numbers of enrollees, and rapidly

Several cost-reduction strategies have been proposed which center on

However, any such changes should be carefully analyzed in a

The Perryman Group was recently asked to evaluate the potential

Highlights of Study Findings

The Perryman Group formulated three scenarios reflecting the

Scenario II refers to fee reductions proposed by the Texas

Scenario III presumes the implementation of the dispensing fee policy

Examining potential avenues for savings is a necessary exercise,

Proponents of a change to a “carve-in” system with notable network

Changing the Texas system of providing pharmacy benefits to

The Perryman Group’s Perspective

Additionally, TPG has developed numerous public policy studies

TPG also has extensive experience in analyzing all aspects of the

Texas currently uses a “carve-out” method to provide pharmacy

The advantages of a “carve-out” method include the following.

Due to federal law, manufacturers already have to offer their “best

Fees paid to pharmacies have also been reduced, with additional

A widely circulated recent study by The Lewin Group (Potential

The recommendation to transfer the Medicaid prescription program to

Several assumptions in the analysis by the THHSC are worthy of

Similarly, the THHSC comparison suggests that savings over the

Perhaps the greatest shortcoming of the comparison is that it does not

The Lewin study maintains that Texas could save approximately

The second major source of purported savings results from an increase

Moreover, over 50% of the alleged savings are derived from

From an economic perspective, reductions in fees which threaten the

Proposed Change Scenarios

These closures would cause economic harm as well as restrict the

These actions (like any economic activity) would generate multiplier or

In this case, for example, pharmacies regularly purchase products

Foregone economic activity, in turn, results in decreases in fiscal

Additional information regarding the methods and assumptions used in

Scenario I: THHSC “Carve-In” Plan with Network Access Restriction

The cost-saving measures outlined by the THHSC and the likely

The total negative effect (including these pharmacy losses and

The Annual Impact of the Potential Network Reductions

Incremental Cost for Mental $643.029 $344.919 $208.478 4,716

In addition, these losses in business activity reduce tax receipts to the

Looking beyond even the health outcomes, the network limitations of

Fee reductions proposed by the Texas Legislature (both the two

The Perryman Group estimates the reduction in annual business

The Annual Impact of Potential Network Reductions

Incremental Cost for Mental

This change in the level of Medicaid pharmacy benefits would also

Total Annual Impact on Business Activity in Texas of Pharmaceutical Losses

-$8.479 Total Expenditures

-$4.714 Gross Product

-$2.665 Retail Sales

These losses are described in further detail in the following table.

Incremental Cost for Mental $968.266 $519.376 $313.924 7,101

Yearly State revenue losses and expenditure increases were found

Examining potential avenues for savings is a necessary exercise,

Proponents of a change to a “carve-in” system with notable network

Moreover, many aspects of these benefits are achievable and even

The Perryman Group estimates that the economic cost of changes

Changing the Texas system of providing pharmacy benefits to

• The basic modeling technique employed in this study is known as input-output

Total Gross Personal Employment