Additional Rebate for Generic Products Starts Q1 2017

Effective with the Q1 2017 Medicaid rebates, manufacturers of non-innovator products will be subject to an inflation penalty similar to the one already imposed on innovator products. This inflation penalty occurs when manufacturers raise their prices that go into the AMP calculation faster than inflation. Historically, price increases have not been an issue with generic products but in more recent years, for some drugs, increases are more common. This change was included in the Bipartisan Budget Act of 2015 (H.R. 1314).

To calculate the rebate for existing products, the baseline AMP will be the AMP reported by the manufacturer for Q3 2014. For new products, it will be the AMP of the fifth full quarter after the drug’s market date quarter. In response to this change, manufacturers questioned whether the additional penalty would apply retroactively to the first four quarters of sales under the new rule; however, in Manufacturer Release No. 101 CMS clarified that the inflation penalty is only applicable as of Q1 2017 for existing products or for new products, the quarter in which the baseline AMP is established.

In Release No. 101, CMS provides several examples of the timeline for calculating the additional penalty, and also notes that manufacturers must obtain baseline data, such as Market Date and Baseline AMP, for drug products approved under an NDA or ANDA that were purchased from other manufacturers. To determine if drugs should have the same baseline data, manufacturers may access the FDA Online Label Repository at http://labels.fda.gov/, and enter each drug’s NDC to determine if the drugs have the same NDA/ANDA.

For manufacturers, there are a few important things to keep in mind:

1. Accruals may need to be increased as of Q1 2017 to account for the Medicaid rebate liability.

2. Any inflation penalty assessed in Q1 2017 will impact the Q3 0217 PHS/340B prices.

3. If you are in the midst of a restatement that includes Q3 2014 (or the baseline AMP quarter), you’ll want to try to complete that prior to the Q1 2017 URA calculations by CMS

If you have not already done so, determining the impact of this new penalty is critical as it could significantly affect your organization’s total rebate liability. Be sure to communicate this to your finance team and other key leaders within your organization so they are not caught by surprise if there is an impact to your organization.

This year’s MDRP was full of information for manufacturers and as always, there’s a lot going on in the government programs, so if you need help or are overwhelmed by all of the information, give me a call. I can help you figure out what is relevant and how to ensure you’ve accounted for these potential changes! Katie Lapins, Government Pricing Specialists, LLC, 303.993.6456, K.Lapins@GP-Specialists.com.