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.

AMP Final Rule: Puerto Rico in the Balance

The 2016 Final Rule expanded our definition of “states, allowing the five US territories to join the MDRP. John Shakow’s stimulating presentation at the Medicaid Drug Rebate Program summit 2016, on September 21, dealt with this component of the Final Rule, and identified several areas for concern, and evaluations that manufacturers need to do prior to the April 1, 2017 day of decision.

Expansion

Territories:

• May join MDRP
• May waive participation

Drug Activity:

• Utilization - Subject to Medicaid rebates
• Transactions - Eligible for inclusion in AMP and BP calculations

** Manufacturers must include transactions regardless of waiver status**

Demographics

Puerto Rico is the largest of the territories, with 3.5 million people. The other four territories total 348 thousand, less than 10% of Puerto Rico’s population.

Economics

Puerto Rico is very poor, and almost half are enrolled in Managed Medicaid (1.67 million). Comparable state Medicaid enrollments:
WA 1.8 million

• AZ 1.8 million
• NJ 1.7 million
• TN 1.5 million

Puerto Rico has a $72 billion debt crisis. All public obligations are threatened with default.

Congress passes law in June 2016 to address this, called PROMESA (Puerto Rico Oversight, Management and Economic Stability Act). PROMESA (committee of 7) has the power to set fiscal policy, including waivers and Medicaid payments, and to cancel contracts.

Politics

Gubernatorial election is set for November 8. Current governor is not running, and neither candidate for office has taken a position on the waiver. The lame duck period runs into January 2017.

Applicable Medicaid Organizations

ASES - Puerto Rican Health Insurance Administration (Administracion de Seguros Salud de Puerto Rico) – responsible for Medicaid.

PSG - The Government Health Plan (Plan de Salud de Gobierno) - Puerto Rico’s Medicaid program

Abarca Health - The PBM that maintains, among other things, the prescription drug list and pharmacy benefit for PSG.

DACO - Puerto Rican Department of Consumer Affairs (Departamento de Asuntos del Consumidor de Puerto Rico) has price control authority over wholesalers and pharmacies (Regulation 3707).

Medicaid in Puerto Rico

Manufacturers contract with Abarca Health for PDL access, and pay rebates for inclusion.

Many contracts expire December 31, 2016, but can be automatically renewed.
John Shakow has seen Abarca contracts with “Best Price rip cord clauses” and “termination provisions.”

Price Controls - DRACO

Targeted drugs

• High volume drugs
• Chronic disease drugs
• Drugs used by elderly or infants
• Currently 75 drugs (innovator and generic)
• List can be changed

Pharmacies must maintain public price lists

Waiver Decision

• The decision to participate in MDRP lies with AES leaders (appointed by governor)
• Decision in January, AFTER new governor is sworn in

Considerations in Decision

• Abarca rebates – Will they be higher or lower than the MDRP URAs?
• If lower, will AES set up supplemental rebates to compensate?

Implications for Manufacturers

• Waiver executed – Abarca rebates remain
• No waiver

• URAs due on every unit reimbursed under PSG, possibly exceeding Abarca amounts
• May join consortium of states to obtain supplemental rebates

All of this is up in the air. So many variables or outcomes make planning difficult, but mandatory. Manufacturers need to look at commercial pricing concessions for best price impact, and model potential liabilities for either scenario.

One more thought. After considering John’s presentation, it could be déjà vu. If manufacturers decide that doing business in Puerto Rico is no longer in their financial best interest, or offering rebates to these purchasers is no longer attractive, they may refuse to sell there. The CMS FAQ36 answer to this requirement to sell to the Territories was “The final rule does not require that a drug manufacturer sell its drugs to certain purchasers.” If enough manufactures apply this tactic to a territory with such a large vulnerable population, will we see another version of the Veteran’s Health Care Act of 1992?

John Bliss is a contributing writer for the Medicaid Drug Rebate Program Summit. He has extensive experience in the pharmaceutical industry, including AstraZeneca, Sanofi Aventis, Merck, Pfizer, Daiichi Sankyo, and Bristol-Myers Squibb (BMS). The bulk of John’s career was at BMS. When OBRA90 hit, Government Pricing took over his life. Government pricing, managed care contracting, rebates, and chargebacks continue to extend challenges and provide meaningful employment. John now works as a consultant, primarily subcontracted by other consulting firms, providing value added services to each of them and their clients.

Unintended Consequences – AMP and 5i

It had humble beginnings. In 1991, Congress passed the Omnibus Budget Reconciliation Act (OBRA 90), setting up the Medicaid Drug Rebate Program (MDRP). The goal was to enlist the aid of pharmaceutical manufacturers in lowering the cost of pharmaceuticals prescribed to Medicaid patients, and financed by the Federal and state governments. Access to manufacturers’ “best price” was the goal, to help balance the Federal budget. The metric used to measure the best price differential was Average Manufacturer Price, or AMP.

AMP was defined in the statute as the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail class of trade. The calculation methodology worked reasonably well for the first fourteen years, without the benefit of regulations from CMS. CMS did provide some guidance through manufacturer notices, dealing with the classes of trade to be included in the retail class, and identifying the credits that could be applied to correctly compute this metric.

All that changed in 2007. In July, CMS released a final rule implementing the price reporting provisions of the Deficit Reporting Act (DRA) of 2005. The DRA modified the customer classes, and discounts, that could be included in AMP calculations. Not a huge deal. However, the DRA burdened the AMP with a new task; it was to become the basis for the Federal Upper Limit (FUL).

FULs are used to determine reimbursement values for generic drugs dispensed in the Medicaid program. Prior to this, FULs had always used Average Wholesaler Price (AWP) as the metric for paying pharmacies. CMS was concerned, for valid reasons, that AWP did not reflect marketplace reality, and that CMS was funding these transactions based upon some “suggested retail” pricing at the government’s expense.


The reaction in the retail industry was immediate. On December 19th, 2007, the U.S. District Court in Washington issued a preliminary injunction order to prevent the implementation of the new AMP rules and the AMP-based FUL, in response to a lawsuit filed by the National Association of Chain Drug Stores (NACDS). NACDS claimed the drug stores were likely to suffer irreparable harm if these rules were implemented.

ACA Proposed Rule…”Average Manufacturer Price (AMP) means, with respect to a covered outpatient drug of a manufacturer (including those sold under an NDA approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act (FFDCA)), the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies that purchase drugs directly from the manufacturer.” This rule was finalized this year intact, and solidified the concept of RCP.

Narrowly defining the marketplace class of drugs led to an obvious question…what happens to the drugs that rarely or never go through an RCP? Are they subject to the same calculation parameters? To resolve this dilemma, CMS had defined drugs that are “injected, infused, inhaled, instilled, or implanted.”

These are the new “5i” drugs, with their own AMP calculation methodologies, including which discounts are included, and how the entity classification is to be determined, all on a monthly basis. It raises several concerns, such as sharing the same Base AMP with “standard” AMP, determining the true split between pharmacy types when RCPs dispense 5i drugs, and the ability to make this determination monthly.
The beat goes on.


About the author:

John Bliss is a contributing writer for the Medicaid Drug Rebate Program Summit. He has extensive experience in the pharmaceutical industry, including AstraZeneca, Sanofi Aventis, Merck, Pfizer, Daiichi Sankyo, and Bristol-Myers Squibb (BMS). The bulk of John’s career was at BMS. When OBRA90 hit, Government Pricing took over his life. Government pricing, managed care contracting, rebates, and chargebacks continue to extend challenges and provide meaningful employment. John now works as a consultant, primarily subcontracted by other consulting firms, providing value added services to each of them and their clients.

MDRP 2016: Why You Can’t Miss It

It’s hard to believe that we’re only about two weeks away from the 21st Annual Summit on the Medicaid Drug Rebate Program (MDRP 2016), arguably the biggest Government Pricing event of the year. This event always provides invaluable insight into the challenges facing the GP community, and this year is no different. Here are a few things that set MDRP 2016 apart from all the others.

First, the biggest names in Government Pricing will be in attendance. Not only will subject matter experts from law firms, consulting firms, and third party vendors be speaking, Knect365 (former IIR) has also secured a number of pharma industry speakers and panelists to share their experiences. Additionally, members of key federal agencies like HHS, HRSA and a number of state Medicaid agencies will provide clarity into their rules, regulations, and processes. Are you looking for assistance from external counsel but don’t know anyone? This is the perfect opportunity to get to know the true experts in the field. If you are looking for a GP system provider, in the process of implementing a system, or want to ensure your system has been updated to reflect recent rulemaking, walk through the exhibit hall and strike up a conversation with one of the many vendors who offer these types of services. And besides the great networking opportunity to find out how your organization compares to your peers, or to larger or smaller manufacturers, there are opportunities to attend panel discussions that present multiple viewpoints. And if you want to hear more about recent rulemaking directly from agency heads, this is the place.

Second, the MDRP 2016 offerings are more innovative and exciting than ever. This year, Knect365 (former IIR) has organized its sessions into streams like Fundamentals of Government Pricing Programs, 340B Guidance Symposia for Pharmaceutical Manufacturers, Generic Drug Manufacturers Workshop, and the AMP Rule Symposia. But you’re not “stuck” to one track. To help you pick the sessions that will best meet your needs, Knect365 has created a fantastic Interactive Agenda to allow you to mix and match the presentations right for you. The agenda even allows you to select the format, to allow you to identify presentations, panel discussions, and networking events. Don’t just pick a track and hope it tells you what you want to know. Pull up the interactive agenda before you head to MDRP and build your own customized track. If you are representing your GP team at the conference, you can also ask your teammates to pull up the agenda and create a wish list of sessions they would like you to attend. With its new agenda, Knect365 has given you the tools to ensure you won’t miss out – take advantage of it!

And last but not least, you just can’t miss MDRP 2016 because this year, after 6 years of holding our breaths, we finally got the AMP Final Rule we’d been waiting for! But it’s not just the AMP Rule GP teams have been talking about, this year we also got the 340B Drug Pricing Program Ceiling Price Proposed Rule, as well as a number of CMS Manufacturer Releases and FAQs that have been included in alerts by GPS. If all these changes in such a short period of time make your head spin, you’re not alone. Come to MDRP 2016 to make sure none of this information falls through the cracks, potentially putting your organization at risk.

We look forward to seeing you at MDRP 2016 at the Palmer House Hilton in Chicago. If you have not already registered, do so today and use code XP2158MISC to get an additional $100 off of the current registration fee. GPS will be onsite and blogging for the 2nd year in a row, so we look forward to seeing you there!

Value Based Purchasing Session Added to MDRP Agenda

Increasingly, manufacturers have been reaching out to us at Government Pricing Specialists (GPS) to discuss value based purchasing (VBP) arrangements, and how this could impact their Government Pricing (GP) calculations. In response to these inquiries, IIR has added a session on VBP to its agenda for the upcoming conference in Chicago, 21st Annual Summit on the Medicaid Drug Rebate Program (MDRP), which will be led by Stephanie Trunk, Partner at Arent Fox. This session will cover the potential impact of VBP on manufacturer’s GP calculations, with a Q&A to allow attendees to ask questions and voice concerns.

Background:

So what do we mean by value based purchasing arrangements? In this type of agreement, payment is linked to an outcome of a medication instead of another value such as a contract price based on volume or formulary. The better the outcome, the higher the price. Of course, in this type of agreement, there must be clearly defined standards regarding how the outcomes will be defined and measured. Products that are more likely to fall under this type of arrangement are those such as medications for high cholesterol, asthma, hypertension, or treatment of tumors – conditions that can be objectively measured.

In 2010, the Affordable Care Act established CMS’ Hospital VBP program, which rewards hospitals with incentive payments for the quality of care they provide to Medicare beneficiaries. On July 14, 2016, CMS issued Manufacturer Release No. 99 and State Technical Release No. 176, encouraging states “to consider entering into (VBP) arrangements as a means to address, as well as offset, Medicaid’s high cost drug treatments,” and reminding states “that they may extend their Medicaid supplemental rebate agreement to some or all of their managed care prescription claims.” These VBP arrangements are meant to reduce the government’s health spending, but it is unclear what impact they will have on pharmaceutical manufacturers.

Best Price Implications:

On the commercial side, if a manufacturer enters into a VBP agreement and a drug is shown to be less effective than anticipated, there could be an impact to Best Price (BP). Manufacturer Release No. 99 and State Technical Release No. 176 also respond to questions pharmaceutical manufacturers have raised about this possibility. The releases note that “CMS has concluded that the impact on a manufacturer’s best price will differ depending on the structure of the VBP arrangement,” and “recommends that when manufacturers negotiate such arrangements with entities, they consult both the statute and implementing regulations regarding the determination of best price.” CMS specifically references Section 1927(c)(1)(C) of the Social Security Act, 42 CFR 447.505(a), and 42 CFR 447.510 for BP requirements.

The releases also encourage manufacturers to enter into VBP arrangements with state Medicaid programs, noting that supplemental rebates provided as a result of VBP would be excluded from BP.

Additional Guidance:

Although CMS has not offered definitive guidance on VBP’s impact to BP, the agency did say it is available to address questions on specific arrangements, and encourages manufacturers to submit questions to the CMCS Division of Pharmacy at RxDRUGPolicy@cms.hhs.gov. CMS also indicated that additional guidance based on manufacturer feedback could be forthcoming in future releases.

If your company is exploring VBP arrangements, or you just want to network with you peers and to hear more on this and other hot topics, I strongly recommend you attend IIR’s 21st Annual Summit on the Medicaid Drug Rebate Program (MDRP) . This event is one of the best well-attended conferences each year and attracts top speakers from the industry. And if you register using code XP2158MISC, you get an additional $100 off of the current registration fee. GPS will be onsite and blogging for the 2nd year in a row, so we look forward to seeing you there!



About the Authors:
Katie Lapins & Dana Zelig Collins, Government Pricing Specialists, LLC, 303.993.6456, K.Lapins@GP-Specialists.com. ; D.Collins@gp-specialists.com