SI Final Rule - White Paper

February 22, 2016

IT Supplement: 2016 Medicaid Program- Covered Outpatient Drug Final Rule Key Implementation Considerations for Manufacturers

Confidential and Proprietary © 2016 IMS Health Incorporated and its affiliates. All rights reserved. Trademarks are registered in the United States and in various other countries.

© 2016 IMS Health Incorporated and its affiliates. All rights reserved. Trademarks are registered in the United States and in various other countries.

Authors Ari Ilan, Susan Dunne, Gladys Arnold, Julian Barron, Jay Patel, Daniel Choi, Nicholas Torre, Matthew Schroyer, and Adam Kaufman


Table of Contents Introduction .................................................................................... 4 1.0 Master Data Considerations ................................................... 7 2.0 Monthly AMP Methodology Determination ........................... 10 3.0 Quarterly AMP Considerations ............................................. 12 4.0 Price Type Filters ................................................................. 16 5.0 Base Date AMP ................................................................... 20 6.0 Bundled Sales Arrangements............................................... 21 7.0 Authorized Generics ............................................................ 22 8.0 Medicaid Rebates ................................................................ 24


Introduction Intended Audience

The target audience for this guide is Government Pricing (GP) and Medicaid Rebates Business Technology professionals; however, we encourage all stakeholders impacted by the Final Rule to embrace these considerations. We believe this will provide crucial cross-functional insight into the Business Technology thought process, which may facilitate a more efficient implementation of changes.

Overview

On January 25, 2016, IMS Health distributed a white paper entitled “2016 Medicaid Program; Covered Outpatient Drug Final Rule Key Operational Considerations for Manufacturers” to assist manufacturers in analyzing the Center for Medicaid and Medicare Services (“CMS”) Covered Outpatient Drug Final Rule [CMS-2345-F].

This document is an IT supplement and serves to assist technology teams in understanding the business requirements that may need to be implemented in a manufacturer’s chosen software solution. While many of the provisions may appear straightforward from a business perspective, there are typically substantial and cumbersome SDLC requirements which must be met.

In this supplement IMS provides analysis of the Final Rule’s potentially broad reach on business processes, technology systems, reports, and other downstream enterprise integrations. We do not provide specific, prescriptive solutions because systems and processes are not identical among all manufacturers. Instead we offer a set of considerations for stakeholders to discuss when evaluating implementation options.

As we are always striving to enhance our understanding of issues that manufacturers face, we encourage you to provide detailed feedback. Please also reach out if you would like to discuss any questions, concerns, or for assistance with IT implementation of any specific provisions in the Final Rule. Contact information for your local IMS leadership can be found at the end of the document.


Notes

• This document is for informational purposes only. IMS does not engage in the practice of law and does not make any formal legal interpretation of statutes, regulations, and other government-issued guidance.

• The information contained herein is neither comprehensively exhaustive nor specific to any individual manufacturer. IMS recommends a full analysis and review of the Final Rule with your company’s relevant stakeholders and Legal Counsel.

• Most, if not all, of the considerations provided may have an impact on your business processes and associated documentation. Manufacturers should make updates to business processes and documentation in accordance with your company’s compliance policies and change management requirements.

• Our analysis of what constitutes a configuration change versus a core code change assumes newer versions of GP and Medicaid commercially available systems, which have configurable user interfaces (as opposed to back-end updates via SQL packs). Some recommendations may not be applicable to older versions of these software applications or homegrown systems solutions, which may require robust code changes.

• This document is vendor neutral. No software vendors participated in the creation of this document, which is strictly based on the IMS team’s experience with a wide variety of tools.

• The considerations in this guide may lead to system changes. Manufacturers will need to document and test all changes in accordance with their company’s SDLC.


Format and Structure Our analysis of each issue is presented using the following structure:

Metric Definitions

Complexity Relative level of difficulty to implement

Cost Relative level of costs to implement

Time Relative level of resource hours required to implement

Configuration Change Can be implemented using out-of-box system functionality

Code Change May require a patch/hotfix from the system vendor to implement

Customization Change Code change that is specific to one manufacturer (not applicable to all manufacturer deployments, as in the case of a patch/hotfix)

Reporting Change May require modifications to the application reporting layer

Interface Change May require modifications to inbound/outbound interfaces

Impacted Functionality Relevant system functionality or module to which the changes apply

1

2

7

8

3

4

5

6

9


1.0 Master Data Considerations

The provisions of the Final Rule may require manufacturers to make changes to Master Data tables, including elements of the Customer Master(s) and the Product Master(s).

1.1 Pediatric Indication Definition

The definition of “Pediatric Indication” was broadened. Drugs that were not previously considered “pediatric” may now qualify for the reduced 17.1% minimum rebate. Considerations:

• Does the Product Master have a way to flag drugs as “pediatric”?

o Is there a way to add additional related attributes (e.g. Effective Date) to the Product Master?

• If changes are made to the Product Master, do any interfaces need to be reconfigured?

• Does the Medicaid Rebates system allow for calculation of the 17.1% base rebate for these products?

1.2 Identification of a Line Extension that is an Oral Solid Dosage Form

Manufacturers are required to identify line extensions of S/I drugs that are an Oral Solid Dosage (OSD) form of the original drug. Line extensions that are an OSD form may be subject to the alternative Unit Rebate Amount (URA) calculation. OSD is defined to mean capsules, tablets, or similar drug products intended for oral use.

Considerations: • Does the Product Master have the ability to identify line

extensions? o Does the Product Master need to be modified to

identify the link(s) between the original S/I drug and the associated line extensions?

• Does the Product Master have a field to capture whether or not a drug is an OSD?

o Is this field populated manually or via an interface? • Does the Product Master require a field to identify corporate

relationship(s) between the S/I drug and the associated line

Configuration Change

Code Change

Customization Change

Reporting Change

Interface Change

Product Master

Medicaid

Section 1.1 Complexity: Low Cost: Low Time: Low Effective Date: 04/01/2016

Section 1.2 Complexity: High Cost: Medium Time: High Effective Date: 04/01/2016


extensions? • Does the URA formula need to be updated to account for

these changes to the Product Master?

1.3 Distinguishing Mail Order Pharmacies and RCPs

A distinction is drawn between an RCP that provides a home delivery service versus an entity that owns both a retail community pharmacy and a mail order pharmacy.

• Pharmacies that offer home delivery as a service, and do not offer prescriptions primarily through the mail, should be included in AMP.

o Manufacturers have latitude in how they determine whether or not an entity dispenses covered drugs primarily through the mail.

• If an entity owns both an RCP and a mail order pharmacy, the mail order pharmacy sales should be excluded when calculating AMP.

Considerations:

• How are parent-child relationships between RCPs and mail order pharmacies captured?

• Did the Business create new Classes of Trade or any other customer attributes to distinguish each of the following?:

o A) an entity that owns both an RCP and a mail order pharmacy

o B) a pharmacy that provides a home delivery service and does not dispense primarily through the mail

o C) a pharmacy that provides a home delivery service and does dispense primarily through the mail

• Did the Business make updates to the system price type policies to capture these changes?

o Are calculation filter configuration updates required?


Code Change


Reporting Change

Interface Change

Product Master

Medicaid


Code Change


Reporting Change

Interface Change

Customer Master

Government Pricing

Section 1.3 Complexity: Low Cost: Low Time: Medium Effective Date: 04/01/2016


1.4 Covered Outpatient Drugs (“CODs”) CMS confirmed the multi-step process that manufacturers should use to determine when a drug is a COD. Notably, radiopharmaceuticals may be considered as CODs. Considerations:

• Are there any products that are now CODs, but were not previously consider CODs and vice versa?

• In the case of S/I drugs that are now CODs, is the necessary data available to perform base date AMP calculations and historical Best Price calculations?

• How will the required Government Pricing calculations be performed if they were not previously done so? How will Medicaid Rebate claims be received, validated, and paid?


Code Change


Reporting Change

Interface Change

Government Pricing

Section 1.4 Complexity: High Cost: High Time: High Effective Date: Retroactive to start of MDR program?


2.0 Monthly AMP Methodology Determination The Final Rule requires manufacturers to determine whether a 5i drug is “not generally dispensed” by Retail Community Pharmacies (RCPs) using a 70% threshold (“70/30 test”).

Considerations: • Should the system perform the 70/30 test before or after

AMP calculations? o If after- 5i and RCP AMP both may need to be

calculated. o If before- only one AMP calculation may be

necessary. • What methodology and data should be used to calculate the

70/30 ratio? See Section 2.1 • How often should the ratio be calculated? See Section 2.2

2.1 Methodology and Data

Manufacturers have the option to perform the 70/30 test using a smoothing process. The application of a smoothing process should minimize the likelihood of “flip-flopping” between 5i/RCP designations. Manufacturers have latitude in determining the time span of historical data used for smoothing.

Considerations: • What data should be used to calculate the ratio?

o Transactional sales versus 3rd party data • What time span of historical data should be used when

calculating the ratio? • What, if any, smoothing methodology should be used when

calculating the ratio? • What filters should be applied to the data when calculating

the ratio?

2.2 Frequency of Calculations and Reporting

Manufacturers must perform the 70/30 test on a monthly basis and report which methodology was used and should therefore assess their GP and Master Data Management (MDM) system’s readiness to handle alternating 5i versus RCP designation


Code Change


Reporting Change

Interface Change

Government Pricing

Section 2.1 Complexity: High Cost: Medium Time: Medium Effective Date: 04/01/2016

Section 2.2 Complexity: Medium Cost: Medium


changes.

Considerations: • How will the 70/30 ratio be calculated within the GP

system? • How will the ratio be used to automate the choice of

Average Manufacturer Price (AMP) methodology? • Where will the 5i designation be stored (e.g., MDM)? • How will historical 5i designation changes be stored and

maintained for restatements and auditing?


Code Change


Reporting Change

Interface Change

Government Pricing

MDM

Time: High Effective Date: 04/01/2016


3.0 Quarterly AMP Considerations

Provisions of the Final Rule may require manufacturers to reconfigure their quarterly AMP price type. Considerations:

• How does the 70/30 test requirement affect quarterly AMP? See Section 3.1

o How does the business interpret CMS’ expected method for calculating quarterly AMP?

• How does the interpretation impact quarterly AMP price type configuration? See Section 3.2

3.1 Impact of 70/30 Test to Quarterly AMP

Monthly AMP methodologies may now switch between 5i and RCP within a single-quarter depending on the results of the monthly 70/30 test, and a single quarterly AMP calculation may include monthly AMPs calculated using both methodologies. See Figure 1 below for an illustration of a quarterly AMP calculation with “flip-flopping” monthly AMP methodologies.

Considerations: • How can the quarterly AMP price type be configured to

include 5i and RCP monthly AMP in the same reporting period?


Code Change


Reporting Change

Interface Change

Government Pricing

Section 2.0 Complexity: High Cost: High Time: High Effective Date: 04/01/2016

Section 3.1 Complexity: Medium Cost: Low Time: Low Effective Date: 04/01/2016


Figure 1: Monthly AMP Methodology Impact to Quarterly AMP Determination

Mon

th 1

Mon

th 2

Mon

th 3

qAM

P

RCP AMP

5i? Y 70/30?

N Y

5i AMPN

RCP AMP

5i? Y 70/30?

N Y

5i AMPN

RCP AMP

5i? Y 70/30?

N Y

5i AMPN

qAMP


3.2 Quarterly AMP Mechanics Considerations

Manufacturers are now expected to use the following calculation for quarterly AMP:

Quarterly AMP = (month 1 AMP × month 1 AMP units) + (month 2 AMP × month 2 AMP units) + (month 3 AMP × month 3 AMP units)

month 1 AMP units + month 2 AMP units + month 3 AMP units

If month 𝑛 AMP = month 𝑛 AMP $month 𝑛 AMP units

then the above is an exact mathematical transformation of the following formula:

Quarterly AMP = (month 1 AMP $ + month 2 AMP $ + month 3 AMP $)

month 1 AMP units + month 2 AMP units + month 3 AMP units

However, CMS clarifies that the second formula is inconsistent with their expectation of how manufacturers should calculate quarterly AMP. CMS’s comments imply that it expects manufacturers to use reported monthly AMP values when calculating quarterly AMP, which may be different than the manufacturer’s calculated values (e.g. when there are calculation exceptions).

See Figure 2 below for an illustration of the CMS expectation for the quarterly AMP calculation using reported monthly AMP values where the manufacturer data leads to calculation exceptions.

Considerations: • Are changes to the quarterly AMP price type configuration

required to reflect the expected quarterly AMP methodology?


Code Change


Reporting Change

Interface Change

Government Pricing



Figure 2: Effects of Exceptions on Calculated and Reported Monthly AMP N

egat

ive

Dol

lars

Neg

ativ

e U

nits

Fals

e Po

sitiv

e

Calculated RCP AMP

Y 70/30?

N

N Calculated 5i AMP

Exception?

5i?Start

Y

Exception?

Y

N

Y

N RCP mAMP$/Units

Month 3

Prior Month AMP

Month 2

5i AMP$/Units

Month 1

Calculated RCP AMP

Y

70/30?

N

N Calculated 5i AMP

Exception?

5i?Start

Y

Exception?

Y

N

Y

N RCP mAMP$/Units

Month 3

Prior Month AMP

Month 2

5i AMP$/Units

Month 1

Calculated RCP AMP

Y 70/30?

N

N Calculated 5i AMP

Exception?

5i?Start

Y

Exception?

Y

N

Y

N RCP mAMP$/Units

Month 3

Prior Month AMP

Month 2

5i AMP$/Units

Month 1

When using calculated values (not reported values), monthly AMP is the same under both methods. Using reported values may yield different results when there are calculation exceptions.


4.0 Price Type Filters

Provisions of the Final Rule may require manufacturers to make various adjustments to price type calculation filters.

4.1 Sales and Price Concessions to U.S. Territories in AMP and Best Price

The definition of “United States” and “States” will include Puerto Rico and the U.S. territories (U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands).

Many manufacturers’ IT systems may already be equipped to handle these configuration changes if their data for Puerto Rico and the U.S. territories is already included in Non-FAMP calculations. However, there may be instances where sales to these regions are excluded from Non-FAMP but included in AMP and Best Price (e.g. transfer prices from the U.S. parent to a foreign subsidiary for drugs dispensed in Puerto Rico and the U.S. territories).

Considerations: • Do the business circumstances require transactional data

for sales to Puerto Rico and the U.S. territories to be included in the calculations?

o Where is that data stored? Can it be accessed? • Do price type configurations require updates to include

these sales and discounts? o How will this data be included in applicable discount

reallocation, smoothing, and factoring processes? o Do reports need to be updated to reflect this

additional data?


Code Change


Reporting Change

Interface Change

Government Pricing

Section 4.1 Complexity: Medium Cost: Low Time: Medium Effective Dates: 04/01/2017


4.2 Returned Goods in AMP and Best Price

The AMP and Best Price definitions are modified with regard to what constitutes a return as follows: “reimbursement by the Manufacturers for recalled, damaged, expired, or otherwise unsalable returned goods, including (but not limited to) reimbursement for the cost of goods and any reimbursement of costs associated with return goods handling and processing, reverse logistics, and drug destruction, but only to the extent that such payment covers only these costs.”

Considerations: • Do the reason codes and transaction types in the data

contain the required specificity? • Do new reason codes and transaction types need to be

configured? • Are there any price type filter updates required? • Can the system maintain a history of reason code and

transaction type changes for restatement purposes?

4.3 Exclusion of Customary Prompt Pay Discounts (CPPDs) from AMP

The Final Rule confirms that CPPDs occur only between a Manufacturer and a Wholesaler (as narrowly defined in the regulation). CPPDs to Wholesalers only are excluded from AMP; CPPDs to non-Wholesalers are included.

Considerations: • Do the following attributes exist in the PPD transactional

data for calculation filtering? o PPD Type: Customary versus Non-customary o Customer Type: Wholesaler, RCP, and Non-RCP

• If the CPPD value is contained in the direct sales data, are any changes to the interface required?

• Do changes need to be made to monthly AMP calculation filters?


Code Change


Reporting Change

Interface Change

Government Pricing


Code Change


Reporting Change

Interface Change

Government Pricing


Section 4.3 Complexity: Low Cost: Low Time: Low Effective Dates: 04/01/2016


4.4 Exclusion of Sales to Charitable or Not-for-Profit Pharmacies from AMP

Transactions to “charitable” and/or not-for-profit pharmacies are excluded from 5i and RCP AMP. Notably, these entity types are listed under the exclusions list for both Standard and 5i AMP.

Considerations: • Is there a way to determine “charitable” and/or not-for-profit

status? o How often should verification occur for “charitable”

and/or not-for-profit status? o Can this check be automated on a set schedule?

• Is the customer data granular enough to filter “charitable” and/or not-for-profit pharmacies?

• Is the system able to capture effective and expiration dates of entity designation?

4.5 Exclusion of Bona Fide Service Fees to Wholesalers and RCPs from 5i AMP

Bona Fide Service Fees (BFSFs) paid to Wholesalers and RCPs are excluded from 5i AMP calculations.

Considerations: • What is the company’s position on BFSFs to non-

wholesalers and non-RCPs? • Does the BFSF data contain attributes necessary to identify

payments to Wholesalers versus payments to RCPs versus payments to other customer types?

o Does the BFSF data contain attributes to identify the type of payment (e.g. data fees, inventory management fees, etc.)

• Do the 5i AMP calculation filters need to be updated to exclude BFSFs to Wholesalers and RCPs?


Code Change


Reporting Change

Interface Change

Government Pricing


Code Change


Reporting Change

Interface Change

Government Pricing




4.6 Any Prices to Covered Entities Excluded from AMP and Best Price

Manufacturers are required to exclude “any prices” provided to 340B covered entities from AMP and Best Price.

Considerations: • How does the business define “any prices”? • Does the customer data contain filterable attributes

necessary to identify all purchases at all prices for eligible covered entities?

• If there is a business requirement to include prices to the expansion entities, does the data contain attributes to filter on covered entity type?

• How are these purchases excluded from AMP and Best Price?

4.7 Clarification of Nominal Sales Excluded from Best Price

All transactions that satisfy the “nominal sales” definition are excluded from Best Price.

Considerations: • Does the system have a way to flag Best Price excludable

nominal sales? • Does the system utilize price filters to exclude nominal sale

transactions from Best Price determination? • Are there any nominal sales reports that need to be updated?


Code Change


Reporting Change

Interface Change

Government Pricing


Code Change


Reporting Change

Interface Change

Government Pricing




5.0 Base Date AMP

Base date AMP may be restated on a product-by-product basis if the necessary transaction data is available to do so. There may be application implementation considerations when deciding to restate base date AMP.

5.1 Base Date AMP Restatement

Manufacturers may recalculate base date AMP on a product-by-product basis. Considerations:

• Is the historical data required to restate base date AMP available?

o Do the COT definitions from that data align to the ACA definitions (e.g., wholesaler)?

• Can a new field for ACA base date AMP be added to the Product Master?

• Does the system allow for inflationary penalties to be calculated using more than one base date AMP field?

• Are there systems or interfaces accessing new fields? • Do adjustments need to be made to the reporting layer(s) to

account for the modification of existing fields or the addition of new fields to the Product Master?


Code Change


Reporting Change

Interface Change

Product Master

Section 5.1 Complexity: Medium Cost: Medium Time: Medium Effective Date: 04/01/2016


6.0 Bundled Sales Arrangements

Discounts in bundled sales arrangements may need to be reallocated in accordance with the regulation. Manufacturers may need to make changes to the way they are currently reallocating discounts in their software application. Many manufacturers may be using custom solutions for discount reallocation, and the associated system changes are likely more complex than User Interface (UI) configuration updates.

6.1 Discount Reallocation

All discounts in a bundled sale arrangement must be allocated proportionally to the total dollar value of the units of all products sold under the bundled arrangement.

CMS also added “or products” when referring to the total dollar value of the units in the bundled sale. This change means manufacturers should reconsider whether other products that are not Covered Outpatient Drugs (CODs) but are part of the bundled sale arrangement should be included in the unbundling process.

Considerations: • Will the business be making changes to its discount

reallocation methodology? • How will these changes be implemented in the system?

o Do contract attributes need to be created or modified?

o Does the unbundling logic need to be updated? o Are there devices that need to be unbundled with

drugs? o Are there any discount reallocation interfaces that

need to be updated?


Code Change


Reporting Change

Interface Change

Contracting

Discount Reallocation



7.0 Authorized Generics The business requirements for including sales of authorized generics in AMP calculations are complex and may require manufacturers to make system changes. Detailed analysis should be performed to determine the necessary transactional data and price type calculation logic.

7.1 Sales from Primary Manufacturers to Secondary Manufacturers

Manufacturers are required to include sales of authorized generic drugs from a Primary Manufacturer to a Secondary Manufacturer (both as defined in the regulation) in its AMP calculation, if the Secondary Manufacturer engages in wholesale distribution of drugs to RCPs. The Primary Manufacturer is to include sales of authorized generics in its Best Price determination of the branded product, provided the authorized generic drug is sold by the Primary Manufacturer.

Considerations: • Is the company a Primary Manufacturer of a drug for which

there is also an authorized generic drug in the marketplace?

o If so, is it also selling the authorized generic version through a related legal entity? How can it be determined if the related entity is

functioning as a wholesaler to RCPs? Can a quantitative analysis be performed to

make this determination? • What data should be used?

Can the determination be made on a product-by-product basis?

How frequently should this determination be made?

o Should the Secondary Manufacturer’s lagged exempt sales, price concessions, and royalty payments be included in the GP calculations for the branded AMP? Should there be combined or separate

smoothing ratios? o What changes need to be made to the price type

filters and calculation logic?



o Do any changes need to be made to the Master Data to account for Secondary Manufacturers that act as wholesalers to RCPs for some authorized generics, but not others?


Code Change


Reporting Change

Interface Change

Government Pricing

Master Data


8.0 Medicaid Rebates

Provisions of the Final Rule may require manufacturers to make changes to their Medicaid Rebate system. Considerations:

• How will the inclusion of Puerto Rico and the U.S. Territories impact the system? See Section 8.1

• How will the system calculate alternative URA for line extensions? See Section 8.2

• Can the system effectively validate Medicaid MCO rebate claims? See Section 8.3

8.1 Inclusion of Puerto Rico and U.S. Territories for Medicaid Rebate Processing

As noted above in Section 4.1, the definition of “States” is expanded to include Puerto Rico and the U.S. Territories (Virgin Islands, Guam, Northern Mariana Islands, and American Samoa). Manufacturers will need to pay rebates to the additional States for the associated Medicaid rebate claims.

Considerations: • How will claims from the additional States be received and

validated? • Does the Medicaid Rebate system allow for payment of

claims to the additional States? • Can the system handle supplemental rebate contracts with

the additional States?

8.2 Alternative Unit Rebate Amount (“URA”) for Line Extension Drugs

As noted above in Section 1.2, manufacturers are required to calculate an alternative URA for line extensions that are an Oral Solid Dosage form of the original S/I drug.

This alternative URA is the product of the AMP of the line extension drug and the highest additional rebate (calculated as a percentage of AMP) for any strength of the original S/I drug.


Code Change


Reporting Change

Interface Change

Medicaid

Section 8.2 Complexity: Low Cost: Medium Time: Medium Effective Dates: 04/01/2016

Section 8.1 Complexity: Medium Cost: Medium Time: High Effective Dates: 04/01/2017


Considerations: • Does the system have the ability to calculate alternative

URA? • Can the system compare alternative URA to “standard”

URA?

8.3 Managed Care Organizations (“MCO”) Utilization – Date of Service

States that have participating Medicaid MCOs must provide utilization data with rebate claims based on the date dispensed (i.e. date of service) as opposed to the claim paid date.

Considerations: • Can the system validate that invoices received from Medicaid

MCOs are processed based on the date dispensed (date of service)?


Code Change


Reporting Change

Interface Change

Medicaid


Code Change


Reporting Change

Interface Change

Medicaid



Practice Leadership New York

Ari Ilan [email protected]

Los Angeles

Cynthia Hwang [email protected]

Washington, DC

Susan Dunne [email protected]

San Francisco

David Chan [email protected]

Chicago

Jeremy Docken [email protected]

Philadelphia

Kathleen Kulp [email protected]

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