Since the Centers for Medicare and Medicaid Services (CMS) released the long-awaited final rule that implements new statutory provisions for the calculation of Average Manufacturer Price (AMP) and Best Price (BP), we have been busy reading and digesting the AMP final rule, and we have our initial analysis to share with you.
For your reference, the Federal Register version of AMP Final rule is available here.
It is important to note that the effective date of the rule is April 1, 2016, with one exception: the inclusion of U.S. territories in the Medicaid Drug Rebate program will be effective on April 1, 2017. This provides manufacturers with a short implementation timeframe: only 71 days until April 1, 2016.
Industry stakeholders are provided an opportunity to comment within 60 days of publication in the Federal Register on one subject area: definition and identification of line extension drugs.
Preliminary Key Takeaways
The following are highlights of the provisions of the AMP final rule from our initial review that are expected to be of particular interest to manufacturers:
- Presumed inclusion AMP calculation approach: Based on numerous comments provided by industry stakeholders, CMS has reconsidered its proposed rule suggested approach of a ‘build-up’ methodology for calculating AMP. Manufacturers will be allowed to maintain the ‘presumed-inclusion’ methodology. Manufacturers may make reasonable assumptions and presume, in the absence of guidance and adequate documentation to the contrary, that prices paid to manufacturers by wholesalers are for drugs distributed to retail community pharmacies (“RCPs”).
- Bundled sale definition: CMS revises language in the proposed rule definition to remove “including but not limited to” from: “The discounts in a bundled sale, including but not limited to those discounts resulting from a contingent arrangement, are allocated proportionally to the total dollar value of the units of all drugs sold under the bundled arrangement.” The revision reflects that manufacturers do not need to allocate non-contingent discounts provided on drugs included in bundled sales.
- RCP definition: CMS did not finalize the proposed rule’s RCP definition, which included specialty pharmacies, home infusion pharmacies, and home health care providers that conduct business as RCPs. However, CMS states that these entities may qualify on an individual basis as a RCP if they operationally meet the definition of RCP.
- Bona Fide Service Fees definition: CMS amended the definition in the proposed rule to refer to fees paid by a manufacturer to an entity (as opposed to fees paid to only wholesalers or RCPs), as there is no indication that Congress intended to limit the definition of bona fide service fees for BP. The finalized definition can now be applied to both AMP and BP. CMS maintains the standards of the pre-existing four-part bona fide service fees test and declares that a manufacturer may presume that the fee is not passed on to a client or customer of any entity if there is no knowledge to dispute the presumption. CMS declines to provide guidance on determination of fair market value.
- 5i AMP:
- 5i AMP determination:
- CMS modifies the proposed rule’s 90/10 standard to a 70/30 standard for determining which inhalation, infusion, instilled, implanted or injectable drugs are not generally dispensed through a RCP and qualify for a 5i AMP calculation approach (i.e., 5i drugs with 70% or more sales based on NDC-9 units to entities other than RCPs or wholesalers for drugs distributed to RCPs qualify for the 5i AMP calculation approach).
- CMS requires manufacturers to perform the 70/30 evaluation for 5i drugs on a monthly basis. CMS specifies in the preamble that manufacturers are permitted but not required to apply a 12-month smoothing approach as part of the evaluation.
- Quarterly AMP considerations for 5i drugs:
- The final rule does not address implications and manufacturer concerns for 5i drugs that potentially could switch between 5i AMP and standard AMP calculation approaches across months within a single quarter, when calculating quarterly AMP.
- Smoothing considerations for 5i drugs:
- The final rule is silent on the 12-month rolling average smoothing approach manufacturers should apply for 5i drugs that potentially switch between 5i AMP and standard AMP calculation approaches across months. It is unclear whether CMS intends for manufacturers to use a combination of 5i AMP and standard AMP values in the smoothing process (which could have unintended consequences on resulting values), or to maintain two sets of prior period monthly values (based on 5i AMP and standard AMP approaches) for smoothing purposes (which could present significant operational challenges for manufacturers).
- Single baseline AMP:
- The final rule does not permit manufacturers to maintain two baseline AMPs, one using the 5i AMP approach and another using the standard AMP approach. This could have unintended impacts on Medicaid rebates for 5i drugs.
- 5i AMP determination:
- Smoothing in AMP:
- Lagged price concessions:
- The AMP final rule specifies that smoothing of lagged AMP-eligible price concessions using a 12-month rolling average should be performed for each NDC-9 (and not each NDC-11). Both the pre-existing Deficit Reduction Act final rule and the proposed rule did not specify that smoothing should be performed at the NDC-9 level. Manufacturers that are currently smoothing at the NDC-11 level should evaluate the potential impacts of this provision.
- CMS also includes an illustrative example for smoothing of lagged AMP-eligible price concessions using a 12-month rolling average, which is similar to CMS’ example in Averages Sales Price regulations. Curiously, CMS’ example shows the resulting AMP calculated to five decimal places rather than the six decimal places required in the CMS Drug Data Reporting System.
- Ineligible indirect sales:
- CMS specifies in the preamble to the AMP final rule that manufacturers may opt to smooth ineligible indirect sales in AMP but doing so is not mandatory. CMS does not provide guidance on a methodology for smoothing ineligible indirect sales.
- Lagged price concessions:
- TRICARE treatment in AMP: CMS clarifies that TRICARE utilization should be included in AMP (sales dollars and units should not be deducted), and TRICARE rebates/refunds paid by the manufacturer should be ignored (and not deducted as a price concession) for purposes of the AMP calculation.
- Baseline AMP recalculations: CMS provides manufacturers with the option to recalculate baseline AMP by April 1, 2017 (four quarters from the April 1, 2016 effective date) on a product-by-product basis. Actual and verifiable pricing records must be used for calculating baseline AMP. As noted earlier, CMS does not address nor provide the option for manufacturers to calculate two revised baseline AMPs, one using a 5i AMP approach and another using a standard AMP approach.
- Line extension definition: CMS removed the definition that was included in the proposed rule, leaving the pre-existing statutory definition of a line extension. As noted earlier, CMS requests comments within 60 days from the Federal Register publication date on the sole topic of “the definition and identification of line extension drugs”. The AMP final rule requires calculation of the line extension alternate rebate only if the manufacturer of the line extension drug also manufactures the initial brand name drug or has a corporate relationship with the manufacturer of the initial brand name drug. This provision addresses concerns raised by stakeholders regarding access to and confidentiality of data from a separate manufacturer that has no corporate relationship with the manufacturer of the initial brand name drug.
- 340B treatment in Best Price: In the proposed rule, CMS limited BP exclusions for 340B entities to only those sales “under the 340B drug pricing program”. In response to concerns raised by commenters, CMS widened the exclusion in the final rule to exempt “any prices” to a 340B covered entity from BP, which could include sub-ceiling prices, above-ceiling prices, and voluntary discounted prices (e.g., 340B discounted pricing on orphan drugs).
- Medicaid Drug Rebate Program expansion to include U.S. Territories: CMS expands the definition of “States” and “United States” to now include the U.S. Territories, specifically, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa effective April 1, 2017, one year following the effective date of the rest of the AMP final rule. U.S. Territories are to be included in AMP and BP as well as in utilization subject to Medicaid rebates.
We will provide additional insights on the AMP final rule in the near future, along with an announcement of upcoming webinars that will address the operational considerations for manufacturers.