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.

Medicaid Drug Rebate Program Summit: A Final Review

For the last few years, the final session at the Medicaid Drug Rebate Program Summit (MDRP) has been handled by John Shakow (King and Spalding) who highlights many of the “hot topics” from the various presentations during the conference. This review gives a good overview of the key takeaways and is very helpful if you want to review any of the slides provided by the speakers from this last week. Some of the slides he referenced included:

All of Miree Lee’s Government Pricing Basics, since understanding the basics is critical for manufacturers to be able to understand the impact of anything discussed during the conference.

Elizabeth M. Wicyk-McGovern of Hospira discussed the requirements for manufacturers when it comes to 340B Ceiling Price reporting. One of her slides shows the complicated nature of the PHS/340B program and the way covered entities (CE) can order, such as through a GPO contract, at the 340B price, or for a non-340B outpatient, and how it has to all be tracked by the CE.

Jeremy Docken from Kalderos gave an outstanding presentation regarding duplicate discounts and managed markets. John found it difficult to identify a single slide as the entire presentation showed how there is still significant revenue leakage within the industry when it comes to the PHS/340B Program.

John Gould of Arnold & Porter gave a presentation regarding bundling and one slide especially highlighted the difficulty when durable medical equipment (DME) is involved. Of issue is how do you address GP concerns with a drug and a DME if the DME is free with a purchase, even if it’s required to dispense the product.

When it comes to Mergers & Acquisitions, Sanjida Chowdhury (Fresenius Kabi USA) and Kathleen Peterson (Hogan Lovells) not only gave a number of considerations regarding what to consider but also showed how dangerous it can be to blindly purchasing a company or even a product without doing the full due diligence.

All of the slides from Alice Valder Curran (Hogan Lovells) provided a great review of the current environment surrounding pharmaceutical manufacturers and pricing, including the political nature of what we do.

And John even mentioned his own slide on Puerto Rico and the Medicaid Program, showing how there remains a high level of uncertainty as to how this may impact manufacturers’ contracting strategies and bottom line.

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 fully and accurate implemented the Final Rule! Katie Lapins, Government Pricing Specialists, LLC, 303.993.6456, K.Lapins@GP-Specialists.com.

Read more about MDRP 2016 here:

MDRP 2016 Pre-Conference, Track C: The AMP Final Rule
Track D: 340B Guidance for Pharmaceutical Manufacturers: Fundamentals, Operations, and Compliance
Drug Pricing is Today's Environment
MDRP 2016: Day One - Government Agency Sessions
A Review with Some of the Top GP Legal Experts
Farewell to 2016's MDRP Summit

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.

340B Helps the Needy Every Day

As we prepare for the 21st MDRP Summit, which will include a full day workshop on the 340B drug discount program, it’s worth taking a look at the current state of 340B and the role it plays to help vulnerable and low-income Americans get access to vital healthcare services.

Twenty seven million Americans remain uninsured, according to new numbers from the Centers for Disease Control. Among those under 65 with private insurance, 40 percent are enrolled in high-deductible plans. That’s an increase of 15 percent since 2010.

The result is that safety-net providers are seeing more patients who either lack insurance altogether or who cannot pay the deductibles their policies require. 340B hospitals treat these patients regardless. But treating the poor and underinsured is staggeringly expensive. 340B facilities provide 60 percent of all uncompensated care despite the fact that they represent only about one third of all hospitals. That figure comes to nearly $25 billion annually.

Safety-net hospitals care for nearly twice the number of low-come patients as other providers and more than two times the number of disabled, African American, Hispanic and Native Americans. Add to this the fact that 340B disproportionate share hospitals are more likely to provide money-losing services such as labor and delivery, HIV/AIDS care and trauma centers and the picture becomes crystal clear.

The 340B law is structured so that hospitals access savings by providing discounted drugs to all patients, including those with insurance. Congress wrote the law this way, and that’s how it’s been implemented since the beginning of the program more than twenty years ago. In addition to the documented evidence that 340B hospitals provide more uncompensated care and treat more low income patients, hospitals report using their drug discount savings in numerous ways that meet the program's purpose – enabling providers to stretch dollars so they can serve more patients and improve care.

340B makes it possible for Boston Medical Center to increase the number of Naloxone opioid overdose rescue kits dispensed. In Richmond, Va., 340B enables Virginia Commonwealth University Health System to operate primary care clinics and coordinate services for uninsured individuals. MetroHealth System in Cleveland, Ohio uses program savings to provide free and low-cost oncology care, as well as reduced prices on insulin and rescue inhalers.

The program saves lives. Jack Custalow of Richmond, VA, received treatment for a defective heart valve. Tammy Willette of Greensburg, IN, faced aggressive breast cancer with no insurance. Dorian-Gray Alexander couldn’t afford his HIV medications.

340B has been a highly successful partnership that results in better care for the underserved in America. Safety-net providers treat all patients who walk in the door.

The 340B program is essential to continuing that mission.

The author:

Maureen Testoni, Senior Vice President and General Counsel at Safety Net Hospitals for Pharmaceutical Access. 

IIR's MDRP Summit 2015 | Day 2 – External Counsel

Friday morning, IIR arranged for a session made up of group of attorneys who serve as external counsel to pharmaceutical manufacturers, focusing in part on the government healthcare programs.  This powerhouse group was moderated by Sabrina Yohai (Pfizer), and the panelists were Alice Valder Curran (Hogan Lovells), John Shakow (King & Spalding) Jeff Handwerker (Arnold & Porter), and Bill Saraille (Sidley Austin).

First, Alice walked the attendees through the legislative process for those areas that affect pharmaceutical manufacturers, explaining the differences between legislation, regulations, rules, and guidance, and also the actual contracts with the government and the preamble of rules. Sabrina emphasized the need for manufacturers to understand all of the “documents” that can affect their operations.

The panelists then discussed the questions that are most frequently being asked of them these days:
John S – bona fide service fees, and when a drug manufacturer should blend AMPs across an NDC-9;
John H – also bona fide service fees, free goods/PAP, especially in the context of a past purchase vs. a future purchase, and outcomes-based contracting;
Bill – same as the others with the comment that outcomes-based contracting is fast becoming a big issue, and the other area is ESI offers;
Alice – besides the issues previously mentioned, she also sees questions around limited distribution plans for the 340B program.

With regards to the Final Rule, what issues are most concerning to you, and what would cause you the most heartburn:

John H – the proposed change to the definition of “bundled sales” with the possibility of it being applied retroactively, and the BP exclusions that currently allow any price to a 340B entity, but the proposed rule narrows to sales under the 340B contract.
Bill – agrees with John, especially with regards to bundled sales, and the lack of compliance by the Covered Entities in the 340B Program.
Alice – potential expansion beyond three years for restatement periods and when that might be allowed, Medicaid MCO reporting, and the potential for CMS to make rules based on the ease of implementation, not always the statutory standard.
John S – agreed with the list and added the issue of how specialty pharmacies are treated within the context of retail community pharmacies.

With regards to enforcement and settlements, the panel sees the following as “HOT TOPICS”:

Bill – bona fide service fees remain a focal point as well as a shift from Best Price to AMP and ASP issues, and with regards to defending against potential investigations, the importance of documenting your methodology and assumptions.
John H - agrees with Bill and emphasized that the standard is reasonable, but the government has shifted to what you subjectively believed at the time of a submission. Documentation is the best way to demonstrate this, including advice of counsel.
Sabrina asked about how to submit assumptions and the panel agreed that it should be focused on those areas most critical to you, and when things change.
John S - ASP submissions should include reasonable assumptions.
Bill - submit early and often!
Alice - don’t assume, a prosecutor understands or interprets the statute/regulations like CMS, so make sure, you document your interpretations.
John H - US Attorney might look at how something impacts the government’s budget even if a pharmaceutical manufacturer does not consider this when making assumptions.
Sabrina - remember that being “conservative” in one program may not be conservative in another program and make sure, your internal documentation is solid.

If you were named general counsel of a major pharma tomorrow, what would you do to strengthen the GP area:

Alice – make sure, the rest of the business understands what you do and the importance of their role in GP (regulatory with product master, rebate team with BP and tracking customers.)
John S – educate company executives to understand the issues GP folks deal with (size, way commercial programs impact GP, risks of failing to fulfill the requirements.)
John H – look at documentation (policies, SOPs, assumptions) to make sure, it is sufficient for a government audit.
Bill – would add the need to audit the system setup for GPcalcs.

What’s a good way to get the conversation started with senior executives within an organization:

John S – focus on small pieces;
Alice – look at the gross-to-net impact of the programs to highlight this as a bigger piece of the business;
John H – has seen an increased focus by senior executives.

Questions form the audience were related to Texas price reporting, co-pay cards/programs, the new DOJ policy about filing criminal charges, and The First Amendment within the context of off-label promotion.

Final advice or comments from the attorneys: understand what it is others within your company do; the importance of making sure the GP team members feel valuable, especially for the women in this arena; we can be proud that we work in an industry that saves lives, and our job within these organizations is to make sure, our products are available to the most needy in a compliant manner.

As always, MDRP Summit has provided a vast amount of information and great opportunities for networking with others in the industry. If you would like more information on any of the topics that were covered this week, please contact me. As always, there’s a lot going on in the government programs, and I can help your organization figure out what is relevant, and how to ensure you’re ready for an audit! Katie Lapins, Government Pricing Specialists, LLC, 303.993.6456, K.Lapins@GP-Specialists.com.

How can $3,000 Save Your Company $30 Million?

Government fines are no laughing matter. The latest fine that made headlines was for a staggering $1.5 BILLION. Fines like these go well beyond the cost of doing business. With company budgets shrinking, you can’t afford to make a mistake that could cost your company millions of dollars in fines.

At the Medicaid Drug Rebate Program Summit, we gather USDOJ, HHS, OIG and industry senior in-house counsel representatives to explain who is getting caught, why, and how to avoid actionable behaviors. You might think you’re prepared, but if you haven’t been through an audit, how can you know?

Given the new complexities and number of changes in government reimbursement programs, and consequences for failing to follow and correctly implement these changes, these MDRP Summit sessions will show you if your compliance program covers all the bases:

• - Timely Updates from the Office of the Inspector General: Sources say the OIG will have some exciting new reports to discuss. The MDRP Summit is your opportunity to get these updates directly from OIG officials so you will know what to focus on in the coming year to ensure compliance that stands up to increasing OIG scrutiny.
• - Current Criminal and Civil Enforcement Activities to Improve Corporate Compliance: Avoid getting caught in the DOJ’s crosshairs and owing them millions with an update from Marilyn May, Healthcare Fraud Coordinator and Assistant US Attorney with the USDOJ, and a panel of experts who will review lessons learned from 2011-2012 civil and criminal Medicaid investigations and new trends the DOJ is seeing in current investigations
• - Industry Legal Roundtable: Current Legal Trends Affecting Pharmaceutical Manufacturers: Know how to work with your legal team on compliance issues, saving you both time and money in this first-ever session with Harvey Kaish, VP and Assistant General Counsel at BMS, Sabrina Yohai, Senior Corporate Counsel at Pfizer, and Steven Benz, Assistant General Counsel at Eli Lilly, who will identify best practices in dealing with GP-related compliance issues including changes in laws, policy documentation, and systems.

Download the brochure here to find out more about the sessions and the rest of the summit.  Last year's MDRP summit sold out early. Register now for the one event that will deliver compliance initiatives you can take back to the office and potentially save millions.

As a reader of this blog, you receive an exclusive discount of 25% off of the standard price when you register to join us this September 10-12, 2012 in Chicago, IL. Simply use priority code XP1758BLOG. Do you have any questions about the event? Feel free to email Jennifer Pereira.

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Now in its 17th year, the Medicaid Drug Rebate Program Summit is the must-attend meeting for pharmaceutical and generic manufacturers’ contracting, compliance and pricing executives. With over $3 billion in fines paid by pharma manufacturers in 2011 alone, compliance remains the #1 priority to avoid these fines. At MDRP, we gather OIG and USDOJ officials, along with industry legal heads to explain who is getting caught, why, and how to avoid actionable behaviors. MRDP will take place September 10-12, 2012.

And 2012 has proved to be a pivotal year for government rebates with the release of the long-awaited AMP Proposed Rule. Industry experts will be on hand to interpret these rules and discuss proposals for operationalization.

And don’t forget that with more CMS officials than any other MDRP event, you will get the most up to date information on MDRP operations, policies and data systems.

This event attracts the most industry, state and federal government professionals providing you unparalleled access to the government regulators creating the rules, and the pharmaceutical executives implementing them so that you have the most current updates and industry practices to navigate the regulatory hurdles and optimize your budget.

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