Medicaid Price Calculations & Rebates 1.0: Mastering the Essentials … · Mastering the Essentials...

Medicaid Price Calculations & Rebates 1.0: Mastering the Essentials

ACI Rx Drug Pricing Master Course

November 1, 2016

William Sarraille

Sidley Austin LLP

Rick ZimmererKPMG LLP

Disclaimer

• This presentation is not intended as legal advice.

• This presentation is for discussion purposes only.

• This presentation does not create an attorney-client relationship.

• This presentation summarizes, but should not be taken as an endorsement of,

the positions taken by the Agency in the Final Rule.

For Discussion Purposes Only │ Not Intended as Legal Advice

Agenda

• Average Manufacturer Price (AMP)

• Bona Fide Service Fees (BFSF)

• Best Price (BP)

• Unit Rebate Amount (URA)

• State Medicaid Programs

• Drug Formularies & Reimbursement

• Class of Trade (COT)

• State Invoices

SIDLEY AUSTIN LLP 3For Discussion Purposes Only │ Not Intended as Legal Advice

Overview and Scope of the Final Rule

• Key Issues in the Final Rule

– RCP and 5i AMP Calculations

– Authorized Generics

– Line Extensions

– Bundled Sales

– Bona Fide Service Fees

– Interplay with 340B: Best Price Exclusion


“…for 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),

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.”

§ 447.504(a)

• The Average Manufacturer Price (AMP) means:

5

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Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559

Average Manufacturer Price (AMP)Calculation Mechanics: Lead Calculation

Transaction Category Reference

Dollars Units

1 2

Gross Direct Sales A A1 A2

Direct Sale Adjustments1 B B1 B2

Adjusted Direct Sales C = A - B C1 = A1 - B1 C2 = A2 - B2

Excluded Direct Sales2 D D1 D2

Eligible Direct Sales E = C – D E1 = C1 - D1 E2 = C2 - D2

Lagged Exempt Sales (Smoothed?) 2 F F1 F2

Gross Eligible Sales G = E - F G1 = E1 - F1 G2 = E2 - F2

Price Concessions (Smoothed) 3 H H1 N / A

Net Eligible Sales I I1 = G1 - H1 I1 = H2

AMP J = I1 / I2

1. Direct sale adjustment examples are price corrections & order corrections.

Some may be lagged without units and may be treated as lagged price concessions.

2. Excluded direct and indirect sales examples are 340B, Government, and non-RCP.

3. Price concession examples are rebates & non bona fide service fees.

For each NDC9 (or blended group), every month, after unbundling, smoothing and pro-rating / factoring:

Quarterly AMP =

Weighted Average of

Monthly AMPs


6



Average Manufacturer Price (AMP)Calculation Mechanics: Unbundling

Product WAC

Contract

Price Discount

Discount

Allocation %

Allocated

Discount

Reallocated

Net Price

REF A B C=A-B D=A/SUM(A) E=D*SUM(C) F=A-E

A $10 $8 $2 40% $6 $4

B $15 $2 $13 60% $9 $6

Total $25 $10 $15 100% $15 $10

Raw data used as input Discounts are reallocatedReallocated data are used in CMS calculations (AMP, BP,

ASP)1

Ultimate financial impact could go in either direction

1 VA does not currently require bundled discount reallocation.

Basic System/Data Process Flow Factors Complicating Math Include:

• Quantification of direct sale discount

• Calculation impact of bundles encompassing

both direct & indirect sales

• Valuation of certain non-drug products within

the bundle

• Multi-contract bundles

• Cross-entity bundles


7



Average Manufacturer Price (AMP)Calculation Mechanics: Smoothing

Smoothing Mechanics(CMS “Style”)

SmoothingOverview

Smoothing creates a steadier relationship between sales and lagged price concessions during each calculation period.

It utilizes historical relationships (i.e. the ratio of the lagged price concessions data to sales) to calculate an estimated* current period

amount.

* The historical period utilized rolls-forward by one period with each calculation but the amount utilized in any particular period is never

trued-up to actuals.

Smoothing Illustration

Prior 12 Month Lagged Transactions

Prior 12 Month Eligible Sales

Current Periods

Eligible Sales

Estimated Current Period

Lagged Transactions=

$ 400 Rebates

$1,000 Sales* $ 150 Sales $60 Amount for Q4=

Period Sales

Rebates

Paid

Q1 $275 $ 0

Q2 $225 $ 75

Q3 $350 $100

Q4 $150 $225

Total: $1,000 $400

Relevant Issue

Many lagged price concessions are paid in patterns that can vary significantly from sales recognized in the same period.

Reasons include seasonal products, initial product stocking, significant commercial changes (e.g. patent expiry), disputed

payments, system issues, vacations, etc.

May create significant fluctuations in averaged price metrics (AMP, ASP & Non-FAMP) which may be undesirable

particularly when applied to upfront pricing (e.g. Part B payment limits, 340B prices, FULs, etc.).

*

VA smoothing is generally implemented in a different but algebraically equivalent manner where current period sales are divided by prior year sales and multiplied by

prior period lagged price concessions.

For illustrative purposes only. For simplicity, omits the lag built into the smoothing process.

Sales

Rebates

SmoothedRebates


8



Average Manufacturer Price (AMP)Calculation Mechanics: Pro-Rating / Factoring

Factoring MechanicsExample

FactoringOverview

Factoring is the process of estimating the includable portion of the price concession.

There is no government guidance on its calculation. Many manufacturers utilize historical relationships (i.e. the ratio of includable to

excludable sales) to calculate an estimated* current period includable amount in a manner broadly similar to smoothing.

* Similar to smoothing, the historical period utilized generally rolls-forward by one period with each calculation but the amount utilized in

any particular period is never trued-up to actuals.

Factoring Illustration

Prior 12 Month Ineligible Indirect Sales

Prior 12 Month Wholesaler Sales

Current Periods

Price Concessions

Estimated Current Period

Includable Price

Concession

=

Relevant Issue

• Price concession may be paid on sales that are partly in the calculation and partly out.

• May not be able to tie the price concession, or a specific portion of it, to the specific excludable sale

Example is rebate (or non-bona fide fee) paid to wholesaler in Q2 based on all sales to the wholesaler in Q1 while some of

those sales removed from the calculation over various subsequent quarters because the secondary customer was excluded

(e.g. indirect sales to 340B, government, etc.)

*

Manufacturer

40% 60%

Wholesaler

Sales to Excluded End

Customers

Sales to Included End

Customers

$100,000 60% 60,000

Whls.

Attribut.

Rebates

Factoring

Ratio

Est.

Includable

Rebates


9



Average Manufacturer Price (AMP)Calculation Mechanics: Lead CalculationFor each NDC9 (or blended group), every quarter, after unbundling, :

Direct

Sales

B

P

Initial

Final

W/in 30 Days

All Data Avail.

Calc SubmittedLagged Incentives

Estimated

Actual

RCP.

COTID

2

1

3

VA

Whslr.

Sale Price Concessions

Disc Rebate

ExclusionsPPU

IE ReasonContract

Com.

FCP

Whslr.

Volume

FFS

On- Inv% &

CFG

PPD

I

E

I

None

Gov.

None

3.00

1.00

9.00

Indirect

Sales

Clinic4

5

6

Intl.

Com.

340B

Com.

Com.

OOS

Volume & CFG

& Bundle

CBK

CBK

CBK

E

E

I

340B

Intl.

None

1.00

2.00

0.014000

Imputed

Prices

SPAP7

8 PBM

SPAP

PBM

RPU

Admin-Srv Fee/

PlacementI

None

None

3.00

4.00

Pricing

Basis

WAC

FCP

WAC

WAC

WAC

(Intl)

WAC

WAC

(Low)

WAC

(Cont)

2.00

E


Retail Community Pharmacy AMP

• Key Takeaway: The definition of retail community pharmacy has not been

expanded to include entities “conducting business as” RCPs.

• Importantly, specialty pharmacies are not automatically treated as a

RCP.

• CMS declined to address the calculation of AMP for orals not sold

through RCPs.

SIDLEY AUSTIN LLP 10

Included in RCP Definition Not Included in RCP Definition

Independent pharmacy, Pharmacies dispensing “primarily

through the mail”

Chain pharmacy, Nursing home pharmacies

Supermarket pharmacy, or Long-term care facilities pharmacies

Mass merchandiser pharmacy, Clinics and Hospital pharmacies

That is licensed as a pharmacy by the

State and that dispenses medications to

the general public at retail prices.

Charitable not-for profit pharmacies

Government pharmacies

Pharmacy benefit managers


RCP AMP: Key Definitions

• “Wholesaler”: “[A] drug wholesaler that is engaged in wholesale distribution of

prescription drugs to retail community pharmacies, including but not limited to” all

of the following:

– manufacturers, repackers, and distributors

– own-label distributors and private-label distributors

– jobbers, brokers, and warehouses (including manufacturer’s and distributor’s

warehouses, chain drug warehouses, and wholesale drug warehouses)

– independent wholesale drug traders

– retail community pharmacies that conduct wholesale distributions

• “Manufacturer”: An entity that “holds the NDC for a covered outpatient drug or

biological product” (emphasis added) and meets other specified criteria.

– Must be engaged in certain type(s) of activities, among which labeling or relabeling are

enumerated

– Additional criteria relating to authorized generic products and for drugs subject to private

label arrangements



5i AMP: When It Applies

• What is behind the “5i” and “5i AMP” concepts

• The many changes between the proposed and final versions of the rule:

• Interaction with presumed inclusion/build-up approaches

• What about non-5i drugs not dispensed through RCPs?


Issue Proposed Rule Final Rule

Identification of

“5i” Drugs

List of FDA routes of administration on

CMS website

Manufacturer’s understanding of how

its drug is administered

Standard for “Not

Generally Dispensed”90/10 standard 70/30 standard

Type of Measurement “Sales” NDC-9 units

Time Period for

Evaluation“During the reporting period”

“Over a period of time, such as a 12-

month period”

Frequency of

EvaluationMonthly and quarterly

Monthly (with quarters based on

weighted months)


5i AMP: How It Is Calculated

• What is included:

– Those sales (and associated discounts, rebates, payments, or other financial

transactions) included in RCP AMP and those to:

• Physicians; PBMs; HMOs; MCOs; insurers; hospitals; clinics and outpatient facilities; mail order

pharmacies; long-term care providers; hospices; and “manufacturers, or any other entity that does

not conduct business as a wholesaler or [RCP]”

• What is excluded:

– Those sales and prices (and associated discounts, rebates, payments, or other financial

transactions) to or under many government entities or programs and to:

• Patients, charitable and not-for-profit pharmacies, and outside the U.S.

– Many transactions also excluded from RCP AMP, such as:

• Prompt pay discounts to wholesalers; reimbursement for unsalable returned goods; and patient

programs meeting certain criteria

• Question with BFSFs


Authorized Generics

• CMS finalized its proposed definition:

• Primary manufacturer means “a manufacturer that holds the NDA of the

authorized generic drug.”

• Secondary manufacturer applies to “a manufacturer that is authorized by the

primary manufacturer to sell the drug but does not hold the NDA.”



Authorized Generics

• A manufacturer must include the best price of an AG in calculating best price and

must include sales of an AG in computing AMP under some circumstances.



Calculating AMP Determining Best Price

The primary manufacturer must

include in its calculation of AMP

its sales of authorized generic

drugs that have been sold or

licensed to a secondary

manufacturer, acting as a

wholesaler for drugs distributed

to retail community pharmacies,

or when the primary

manufacturer holding the NDA

sells directly to a wholesaler.

A primary manufacturer holding

the NDA must include the best

price of an authorized generic

drug in its computation of best

price for a single source or an

innovator multiple source drug

during a rebate period to any

manufacturer, wholesaler,

retailer, provider, HMO, non-profit

entity, or governmental entity in

the United States, only when

such drugs are being sold by the

manufacturer holding the NDA.

Questions

Remain

Authorized Generics

• “. . . sold or licensed to a secondary manufacturer, acting as a wholesaler for

drugs distributed to retail community pharmacies…”

– In response to questions of when a secondary manufacturer is “acting as a wholesaler,”

CMS states as follows in the Final Rule:

• Circumstances in which a secondary manufacturer would not engage in

relabeling or repackaging of the AG?

– Does the example swallow the rule?


“If the secondary manufacturer is not

engaged in the wholesale distribution of

prescription drugs to retail community

pharmacies; for example, it relabels or

repackages the drug and sells the

repackaged authorized generic to

wholesalers (as opposed to engaging in the

wholesale distribution to retail community

pharmacies) the price of the drug paid by the

secondary manufacturer would not be

included in the primary manufacturer’s AMP.”

Line Extensions: Definition/Identification

• CMS has declined to finalize its proposed regulatory definition of “line extension

drug” and its proposed process for identifying line extension drugs.

• CMS seeks additional comments on defining and identifying line extensions, as

CMS “may” address these issues in future rulemaking.

– Comments due 60 days after publication of the Rule in the Federal Register.


“Therefore, at this time, manufacturers are to rely on the statutory

definition of line extension at section 1927(c)(2)(C) of the Act, and where

appropriate, are permitted to use reasonable assumptions in their

determination of whether their drug qualifies as a line extension.”


Line Extensions: New Strengths

• CMS states that new strengths of the same formulation of the initial brand name

listed drug are not line extensions.

• However, CMS adds that, because the Agency is not finalizing a definition of line

extension in this final rule, this exclusion is not included in the final regulatory

text.

• CMS also states that it “do[es] not see any reason to exclude a new strength of a

line extension drug from being a line extension drug” (emphasis added).


“If the sole difference between a drug and the corresponding

initial brand name listed drug is the strength, then the drug will

not be considered a line extension drug and will not be subject to

the alternative URA calculation for line extension drugs.”


Line Extensions: Other Issues

• Line Extensions Marketed by a Different Manufacturer:

– CMS was persuaded by concerns from commenters about a line extension policy that

would require manufacturers to share pricing data with competitors and/or to collect

pricing information from unrelated parties.

• Inactive or Terminated Drugs

– CMS states that no alternative URA is calculated for a drug qualifying as a line extension

where the initial brand name drug is not active or has been terminated from the MDRP.

– Termination is effective as the first month after the last lot expiration.

• Authorized Generics (AGs):

– CMS states that an authorized generic can be a line extension drug.


“[I]n light of the comments received,

a drug marketed by a manufacturer will be treated as a line

extension of a drug of another manufacturer only where there is a

corporate relationship between the manufacturers.”


“Bundled Sale” Defined

• What has changed? Stayed the same? Are the changes relevant?

Bundled sale means anany arrangement regardless of physical packaging under which the

rebate, discount, or other price concession is conditioned upon the purchase of the same

drug, drugs of different types (that is, at the nine-digit National Drug Code national drug

code (NDC) level) or another product or some other performance requirement (for

example, the achievement of market share, inclusion or tier placement on a formulary), or

where the resulting discounts or other price concessions are greater than those which

would have been available had the bundled drugs been purchased separately or outside

the bundled arrangement. For bundled sales,

(1) tThe 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 drugdrugs or products sold under the bundled arrangement.

(2) For bundled sales where multiple drugs are discounted, the aggregate value of all the

discounts in the bundled arrangement shallmust be proportionally allocated across all the

drugs or products in the bundle.

Yellow = Comparison of 2007 Final Rule to 2012 Proposed Rule

Green = Comparison of 2012 Proposed Rule to 2016 Final Rule

20SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice

Other “Bundled Sale” Guidance

• What is not a bundled sale?

– When multiple products are discounted under a single contract, a bundled sale

arrangement does not exist if:

• A discount or price concession is established independently for each product within the contract;

• The purchase price under the contract is not contingent upon any other product in the contract or

upon some other performance requirement (such as the achievement of market share or inclusion

or tier placement on a formulary); and

• The discount provided for any product under the contract is no greater than if the product was

purchased outside of the contract.

• What was not addressed in the final rule?


Bona Fide Service Fees (BFSF)

• In the Final Rule, CMS revised the proposed BFSF definition:

– Removed the reference to “wholesalers and retail community pharmacies”

– Replaced that language with “an entity”

• The four-part test

• No additional guidance on determining fair market value

• Manufacturers may use “any documentation” to support its FMV determinations, and such documentation should be contemporaneous with the manufacturer’s agreement to pay the fee.

• Revisions to “no pass through” prong intended to align with Average Sales Price calculations

• If a manufacturer has determined that a fee paid meets the other elements of the definition of BFSF, then the manufacturer may presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client or customer of any entity.


“Bona fide service fee means a fee paid by a manufacturer to an entity that

represents fair market value for a bona fide, itemized service actually performed on

behalf of the manufacturer that the manufacturer would otherwise perform (or

contract for) in the absence of the service arrangement, and that is not passed on

in whole or in part to a client or customer of an entity, whether or not the entity

takes title to the drug.”


Bona Fide Service Fees (BFSF)

• Treatment of price appreciation credits

– Proposed Rule: “[R]etroactive price adjustments, sometimes also known as price

appreciation credits, do not meet the definition of a bona fide service fee as they do not

reflect any service or offset of a bona fide service performed on behalf of a

manufacturer.”

– Final Rule: “We continue to believe that price appreciation credits would likely not meet

the definition of bona fide service fee. Based on our experience with the program, it is

our understanding that price appreciation credits are not issued for the purposes of

payment for any service or offset for a bona fide service performed on behalf of the

manufacturer, but rather are issued by the manufacturer to adjust (increase) the

wholesaler’s purchase price of the drugs in such instances when the drugs were

purchased at a certain price and are remaining in the wholesaler’s inventory at the time

the manufacturer’s sale price of the drug increased. In such situations, these credits

would amount to a subsequent price adjustment affecting the average price to the

manufacturer and should be recognized for purposes of AMP in accordance with

§447.504(f).”

– Relationship between the Streck litigation and the position CMS is taking on this issue.


Interplay with 340B: Best Price Exclusion

• Best price exclusion for sales to 340B covered entities

– Proposed Rule language: Problematic “under the 340B program” phrasing

– Final Rule language: “[A]s long as the entity meets the definition of a [340B] covered

entity [under the 340B statute] . . . any prices charged by manufacturers and paid for by

covered entities shall be excluded from best price.”

– Subceiling prices

– Drugs purchased for inpatient use

– Orphan drugs


“We are not requiring that manufacturers enforce HRSA requirements in

this final rule, nor are we imposing a requirement for manufacturers to

oversee whether a covered entity is compliant and/or conducting

business in accordance with the 340B program’s requirements in

accordance with section 340B(a)(4) and (5) of the PHSA.”

Interplay with 340B: Additional Issues

• Duplicate discounts

– Significant ongoing issues in this area

– Medicaid Managed Care Organization drugs purchased through the 340B program

• State reimbursement policies and methodologies

– Replacement of estimated acquisition cost (EAC) with actual acquisition cost (AAC)

– Requirement for states to describe the Medicaid agency’s payment methodology for

drugs dispensed by 340B covered entities and contract pharmacies


Components of Rebate Calculation: BP

• In general, BP is defined as the lowest single price to any commercial

customer.

• BP is only determined for “single source” and “innovator multiple source”

drugs, including authorized generics, of a manufacturer.

• BP must be determined net of associated rebates, discounts, and other price

concessions provided by the manufacturer unless they are specifically

excluded by statute or regulation.

• Manufacturers must also consider any subsequent adjustments to the price available to a

commercial customer.

• BP is a critical concept in the MDRP and can have a huge impact on rebates

to State Medicaid programs.

For Discussion Purposes Only │ Not Intended as Legal AdviceSIDLEY AUSTIN LLP 26

Determination of BP: Exclusions

• BP excludes:

– Prices charged to:

• Indian Health Service (“IHS”),

• VA,

• State homes under 17 U.S.C. § 1741,

• DoD,

• PHS,

• 340B covered entities,

• Disproportionate Share Hospitals (“DSH”), and

• Designated state pharmaceutical assistance programs (“SPAP”)

– Prices under:

• FSS and

• Manufacturer-sponsored drug discount card programs

– Prices negotiated by:

• Prescription drug plans (“PDPs”) under Part D,

• Medicare Advantage (“MA”) prescription drug plans under Part C, and

• Qualified Retiree Prescription Drug Plans (with respect to enrollees under Part A or

B)

27SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice

Determination of BP: Exclusions

• BP excludes rebates:

– Under the MRA or a CMS-authorized supplemental rebate agreement paid to a State

Medicaid program

– To Managed Medicaid

– To Medicaid demonstration projects, meeting certain criteria

– To PBMs, except those on mail order business or those “designed to” adjust prices at

the retail level

• BP excludes other transactions, including:

– Coupons for consumers, so long as certain conditions are met

– * Free goods “not contingent on a purchase requirement”

– * Nominal (sales at 10% of AMP) sales to:

• 340B covered entities

• Intermediate Care Facilities for the Mentally Retarded (“ICFs/MR”)

• State-owned or operated nursing facilities

– * Bona fide service fees

* Have been the focus of enforcement efforts

For Discussion Purposes Only │ Not Intended as Legal AdviceSIDLEY AUSTIN LLP 28

29



Unit Rebate Amount (URA)MDRP Basic

Basic

Rebate

Additional

Rebate

URA

Single Source (S)

Innovator Multi-Source (I)

Greater of:

(1) Quarterly AMP – BP

(2) Quarterly AMP * 23.1%

(17.1% for Exclsuvely Pediatric and

Blood Clotting Indications)

Base AMP = AMP for first quarter

after market date

Current AMP – (Base AMP * Current

CPI / Base CPI)

Quarterly AMP * 13%

Historically & Currently N/A

New 2017 inflation penalty

similar to S/I except Base AMP

is 5th quarter AMP (3Q 2014 for

pre-4/1/15 drugs)

1) Basic Rebate + Additional Rebate

2) Where relevant, use line extension rebate if higher

3) If resulting URS is > AMP, use AMP

Drug TypeNon-Innovator Multi-

Source (N)

30



Unit Rebate Amount (URA)Line Extension

When does it apply?

COD Final Rule: Line Extensions

Line

Ext

ensi

on

Def

initi

on

Act

ive

Sta

tus

Initi

al B

rand

Dru

g F

orm

New

Stre

ngth

Rea

sona

ble

Ass

umpt

ion

Dru

g F

orm

Dru

g T

ype

Not a Line Extension Drug

Line Extension Drug

Single Source (“S”) or Innovator Multisource

(“I”)

Oral Solid Dosage

(e.g. Capsule)

Line Extension

Oral Solid Dosage

(e.g. Capsule)

Not New Strength of Initial Brand

Drug

Status in MDRP

Non-Innovator (“N”)

Other Drug Form

Manufacturer's Policy for identifying line extensions

Other Drug Form

First Month After Last Lot Expiration

New Strength of Initial Brand Drug

Crit

eria

for

Dru

g

Bei

ng E

valu

ated

Crit

eria

for

Initi

al

Bra

nd D

rug Applies only

when there is a corporate

relationship between the

manufacturers

How is it calculated?

Calculate the Standard URA.

Calculate the Alternative URA.

a) Calculate the inflation rebate as a

percentage of AMP for all strengths of

the original drug.

b) Calculate the Alternative URA as the

product of the AMP of the line

extension drug and the highest

inflation percentage of AMP for the

original drug determined in Step 2, a)

above.

Select the greater of the Standard Medicaid

URA and Alternative URA as the Line

Extension URA.

Determine if URA is greater than 100% of

AMP.4

3

2

1

Understanding State Medicaid Programs

• If you’ve seen one Medicaid program, you’ve seen one Medicaid program

– Identifying the unique features and key differences of the various state programs

– Each state sets its own limits for prescription drugs and its own reimbursement

methodology for prescription drugs, some states have supplemental rebate programs

• Understanding how drugs in various states are actually reimbursed

– Ingredient Costs

– Dispensing Fees

– Co-pays/Co-insurance

• Federal matching funds/state matching funds

– States can describe services and limits as well as reimbursement subject to CMS

approval

– Challenge for states is to come up with the state matching funds used to draw down the

federal funds


Complying With State Reporting Requirements

• What states have reporting requirements?

• What are the reporting requirements?

– Federal rebates

– Must be familiar with state’s requirements (http://www.medicaid.gov/Medicaid-CHIP-

Program-Information/By-Topics/Benefits/Prescription-

Drugs/Downloads/StateDrugContact2Q2013.pdf)

• How will changes to the AMP definition impact manufacturers’ reporting

requirements

For Discussion Purposes Only │ Not Intended as Legal Advice32SIDLEY AUSTIN LLP

State Pharmaceutical Assistance Programs (SPAPs)

• State Pharmaceutical Assistance Programs

– State funded

– Provide pharmaceutical coverage to low-income elderly or disabled persons who are not Medicaid

eligible

– Many dual eligibles previously covered by SPAPs now eligible for Medicare Part D coverage

– Eligible for Medicaid Equivalent Rebates

– Rebates are exempt from Medicaid Best Price

• SPAPs can “wrap around” Medicare

– Fill gaps in coverage

– Help with cost sharing

– Cover drugs not on Part D formulary

• SPAP still covers eligible participants

• Part D alleviates state costs for “dual eligibles”

– Federal government now pays majority of costs

• SPAP payments count toward TrOOP

SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice

33

Duplicate Rebates

• Most manufacturers currently paying SPAP rebates

– Based on pre-MMA contracts

– If qualified SPAP, exempt from Medicaid Best Price

– Usually equal amount of Medicaid rebate

• Now, also paying rebates to Part D plans that may cover same beneficiaries


34

CMS SPAP Guidance

• States may

– Help beneficiaries choose Part D plan

• States may NOT

– Steer beneficiaries toward preferred PDP

– Automatically enroll all SPAP beneficiaries in single PDP

– Use prior authorization to facilitate manufacturer rebates


35

Lingering SPAP Rebate Questions

• Under what circumstances is it permissible for a manufacturer to pay rebates

to SPAPs where Part D beneficiaries are involved?

• What is the level of legal risk for manufacturer in paying rebates to SPAPs in

this circumstance?

• What are the potential ways for manufacturers to mitigate risk?


36

Supplemental Drug Rebate Agreements

• In addition to federal rebates that are negotiated with the Secretary of Health and Human Services

and outside the control of the State, Supplemental Rebates are negotiated by the States to gain

additional discounts on the purchase price of certain drugs.

• Under SSA § 1927(a)(1), the Secretary may authorize a state to enter directly into separate or

supplemental rebate agreements with manufacturers

– Once approved, states may submit a State Plan Amendment (SPA) in order to implement prior authorization

programs to require authorization prior to dispensing covered outpatient drugs to Medicaid beneficiaries

– States may also establish preferred drug lists (PDLs) of covered outpatient drugs that will not be subject to prior

authorization and may, with CMS authorization, require manufacturers to enter into supplemental rebate

agreements as a condition of including the manufacturer’s covered outpatient drugs on the state’s PDL

• In order for CMS to approve these supplemental rebate agreements, the agreements must generate

rebates that are at least as large as the rebates set forth in the Secretary’s national rebate

agreement with drug manufacturers

• In CMS’s Sept. 18, 2002 State Medicaid Director letter, CMS instructed that “supplemental drug

rebates must be ‘considered to be a reduction in the amount expended under the State plan in the

quarter for medical assistance’ as required by section 1927(b)(1)(B) of the Act.”

• Unlike the Medicaid Rebate Program, manufactures are not required to enter into state

supplemental drug rebate agreements as a condition of participation in the National Drug Rebate

Program


37

Getting a Drug on Formulary

• Must participate in the Federal rebate program

• State P&T Committees/Medicaid agencies

• Criteria/Considerations

– Safety/Efficacy

– Price (with/without rebate)

• What are Preferred Drug Lists (PDLs) and What Criteria Are Evaluated before

a drug is placed on a PDL?

– Safety and efficacy of the drug

– Pricing

– Safe, inexpensive drugs have best chance to make the PDL

– Medicaid may pay for non-preferred drugs but will likely require a prior authorization

from the PBM or state contractor with specific physician orders justifying the non-

preferred drug.

– PDL encourages manufacturers to offer their best price.


38

39



Class of Trade (COT)Introduction

GP calculation compliance depends on accurate class of trade assignment

Challenges are increasing exponentially and include:

Customers’ rapid pace of diversification, innovation, and consolidation

Changing regulations/requirements

Expansion & evolution of governmental & commercial sources of COT relevant

data

A renewed focus by enforcement personnel

40



Class of Trade (COT)Bill-To vs. Ship-To

Sale Type Bill-To Ship-To Comments

340B Contract

Pharmacy

Covered

Entity

Pharmacy Bill-to easier to track & maintain?

Integrated Delivery

Network (IDN)

Hospital? Clinic, HH,

Pharmacy?

Ship-to provides more granular &

accurate information? Does it matter

outside of RCP AMP?

Oversees Billing

Agent

International &

Non-Provider

Domestic

Provider

Ship-to may provide more accurate

information?

Drop-Ship:

Wholesaler pays

WAC

Wholesaler End

Customer

Chargeback processed so use bill-to

for direct filtering?

Drop-Ship:

Wholesaler pays

Contract Price

Wholesaler End

Customer

Ship-to better for CMS? What about

VA (where it’s still a wholesaler

sale?)

• Is context-specific filter necessary? Is it reasonable?

• How does this analysis impact the fundamental way in which COT is utilized for GP?

• What workarounds and/or reasonable assumptions can be employed?

41



Class of Trade (COT)RCP Definition

RCP Exclusions:

• Pharmacies dispensing prescription medications

to patients primarily through the mail

• Nursing home pharmacies

• Long-term care facility pharmacies

• Hospital pharmacies

• Clinics

• Charitable or not-for-profit pharmacies

• Government pharmacies

• Pharmacy benefit managers

Regulatory Definition:

1.An independent pharmacy, a chain pharmacy,

a supermarket pharmacy, or a mass

merchandiser pharmacy;

2.Licensed as a pharmacy by the state;

3.Dispenses medications to the general public;

and

4.Dispenses medications at retail prices.

CMS Guidance:

• No percentage threshold

established for pharmacies to be

considered “primarily dispensing

through the mail.”

• Surveys to determine the overall

percentage of mail order, retail, or

non-retail purchases are not

required.

• If an RCP: (1) does not offer

prescriptions primarily through the

mail; and (2) has a home delivery

service as an additional service to

send prescriptions directly to the

patient’s home, such sales would

be included in AMP.

• CMS does not believe that a RCP

must have a ‘‘brick and mortar’’

store front.

42



Class of Trade (COT)Wholesaler Definition

Calculation Impact

Areas

Smoothing &

Factoring

Treatment of

Prompt Pay

Inclusion of

Authorized

Generic Sales

Significant Areas of

Concern

Reasonable

Assumptions

Required

Conducting wholesale

distributionDistribution to RCP

Conducting wholesale

distributionDistribution to RCP

“Wholesaler means a drug wholesaler that is engaged in wholesale distribution of

prescription drugs to retail community pharmacies, including but not limited to

manufacturers, repackers, distributors, … chain drug warehouses, … and retail

community pharmacies that conduct wholesale distributions.”

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State InvoicesGeneral Overview

Validations

• Entity: 340B

• FFS: OPA carve-in list (& advanced)

• FFS: Other advanced analytics

• Mgd Care: Focus area

• Product: Generic dispensed but brand

billed: Amount reimbursed by state

• Units: Commonly UOM, particularly J-

code claims.

• Units per script

• Claim level detail (states or vendors)

• Amount: Mgd care on date dispensed

• Calc AMP and BP

• Submit to CMS

• Validate claims

• Dispute

• Pay rebates

Mfr

• Calculate rebates amount

• Submit invoice to mfr.

State

• Test for reasonableness

• Calculate URA

• Distribute URAs to the States

CMS

AMP

and BP

URA

Invoice

ROSI

PQA

$’s

Reconciliation of State Invoice (ROSI)

• Details why payment differs from invoice

• RPU: DDR master, rounding, missing, etc.

• Units Adjusted: Agreed prior to payment

• Units Disputed: Provide reason code

• Amount Paid

Prior Quarter Adjustment (PQA)

• URA: AMP & BP changes, master date, etc.

• Units: Resolved disputes, etc.

• Adjustment & dispute reason codes

• Amount Paid: Negatives offset against

• State’s subsequent invoices get PQA

Mainly

Manual

Process

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Medicaid Price Calculations & Rebates 1.0: Mastering the Essentials … · Mastering the Essentials...

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