It's going to be a hot summer and it's not just because we are based out of Scottsdale, Arizona where temperatures regularly reach 115+ in July. That temperature is hot any way you cut it but what will really heat things up this summer in the midst of BBQs, fly fishing and summer vacations will be the U.S. Supreme Court decision on the constitutionality of the Patient Protection and Affordable Care Act ("PPACA").
Since the enactment of PPACA and supplemental legislation, "health care reform" has been an incredibly divisive topic, which makes for interesting dinner conversations particularly after a cocktail or two. From the constitutionality of the individual mandate and the possibility of the individual mandate to be severed from PPACA, to the constitutionality of Medicaid expansion, we expect the highest court to come to a decision shortly and the finish line for PPACA is in sight. Or is it?
The court's decision may have a profound impact on the industry from legal, policy, operational and financial perspectives particularly if PPACA is struck down materially or in totality. Following are some areas to consider:
- • Increase in Medicaid Rebates: For non-innovator multiple source drugs, the Medicaid rebate increased from 11% of AMP to 13% of AMP. For single source and innovator multiple source drugs, the "greater of" calculation remains in effect (e.g. greater of AMP less Best Price and AMP multiplied be x%). However, the x% increased from 15.1% of AMP to 23.1% of AMP with the exception of blood clotting factors and drugs exclusively with pediatric indications where the x% is now 17.1% of AMP. The benefit between the difference between the "new" and "old" rebate rates goes to the Feds presumably to help offset federal expenditures associated with PPACA.
- o Policy: Do methodology documents need to be revised? What impact will this change have on 340B drug pricing since the 340B ceiling price is directly tied to AMP and the Medicaid rebate from two quarters prior?
- o Operations: Do systems need to be revised once again to accommodate changes to the URA calculations? Is CMS going to revise the URAs and submit to the state, which would precipitate hundreds of PQAS?
- o Finance: Will we be entitled to refunds due to overpayments associated with the rebate rate change? How should we accrue for Medicaid rebates going forward (e.g. temporary decrease in accruals and expect additional legislation)?
- • Managed Care Medicaid Rebates: Post-PPACA, Managed Care Medicaid Utilization is subject to the Medicaid rebate. To date, there are some key states, such as California, that have yet to submit Managed Care Medicaid utilization. If PPACA is struck down, will this be the end of the Medicaid rebates for Managed Care Medicaid utilization? My prediction would be "no" given prior legislative actions such as the Drug Rebate Equalization Act of 2009 that attempted to require manufacturer rebates for Managed Care Medicaid utilization. An interesting question will be whether the states will further revise the pharmacy benefit to be carved in or carved out of Managed Care Medicaid. From a manufacturer perspective, does this once again change the relationship between manufacturers and its contracting relationships with Managed Care Medicaid organizations?
- • Line extensions and alternative rebate calculation: For companies that have implemented the alternative URA methodology, if PPACA is struck down, can such manufacturers recover the difference in rebates paid post-PPACA vs. rebates that would have been due pre-PPACA? In addition, manufacturer systems would likely need to be reconfigured to revert to the pre-PPACA URA calculation. Lastly, what impact would there be to 340B pricing?
- • AMP definition: Perhaps one of the most complex ramifications associated with PPACA was the change in the AMP definition. If the law is declared unconstitutional, do we revert back to the Deficit Reduction Act of 2005 AMP methodology and the Final Rule of 2007. But wait...was not the Final Rule of 2007 withdrawn? Where does that leave us? Do we revise AMP inclusion and exclusion filters on a prospective basis? If so, do we need to restate prior period AMPs? Do we need to re-calculate smoothing of lagged price concessions to only includes discounts to pre-PPACA AMP eligible entities? What is the financial impact of reverting to the prior AMP definition? What are the costs associated with changing AMP filters and systems reconfigurations? What impact will the change to AMP have on 340B pricing?
- • Federal Upper Limit: Post-PPACA the FUL is no less than 175% of average weighted AMP for pharmaceutically equivalent and therapeutically equivalent multiple source products that are available for purchase by retail community pharmacies on a nationwide basis. However, the DRA FUL was 250% of lowest AMP in a group of 2 or more multi-source drugs with the DRA FUL subject to litigation. How will the change to the FUL impact reimbursement?
- • 340B New Covered Entities: PPACA included the following new covered entities Children's Hospitals (impact of Medicare and Medicaid Extenders Act of 2010 and ability to purchase orphan drugs at 340B ceiling prices), Free Standing Cancer Hospitals, Critical Access Hospitals, Rural Referral Centers and Sole Community Hospitals. If PPACA is struck down, do manufacturers who have sold single source and innovator multiple source covered outpatient drugs at 340B ceiling prices now a Best Price issue? What happens to all of the 340B program integrity provisions (manufacturer and covered entity compliance)?
- • Medicare Part D Coverage Gap Discount Program: Beginning January 1, 2011, participating manufacturers of branded drugs agreed to provide a 50% of negotiated price (excluding dispensing fee) POS discount to Part D patients in the Part D coverage gap. Does the coverage gap discount program now cease to exist? Is this a contracting opportunity for Part D Plan Sponsors?
- • Annual Branded Drug Fee: If PPACA is overturned, are manufacturers in a position to request a refund from the IRS? After all, the industry paid $2.5B in 2011 and will pay an additional $2.8B in 2012.
Now before we all cancel summer vacations to the Jersey Shore (definitely not referring to the MTV gang), Outer Banks or fly fishing trips to Montana or Maine, a big deep breath or two or three is in order. Given the potential material impact of the Supreme Court decision on the industry, it is not too late to analyze and assess the potential legal, policy, operational and financial impact of the decision to your organization. Over the course of the past several months, there have been some incredibly insightful discussions and presentations from counsel of the law firms of Epstein Becker Green, Hogan Lovells, King & Spalding, and Reed Smith. It might be a great opportunity to engage in discussions and commence contingency planning.
Closing Brain Teaser: Retail Community Pharmacy Chain Warehouses...a retail community pharmacy, right?