On 27 January 2012, the US Centers for Medicare and Medicaid Services (CMS) published a much-anticipated proposed average manufacturer price (AMP) rule for implementing related prescription drug provisions of the Patient Protection and Affordable Care Act (PPACA). The new rule will create serious financial, administrative, and operational challenges for the life-sciences industry.

Nearly two years later, the final rule has not been issued. Without official direction, we can look back at the proposed rule’s purpose and recommendations for manufacturers based on that. It aims to lower costs for states and taxpayers by

• aligning reimbursement rates to better reflect the actual prices that pharmacies pay for drugs

• increasing rebates paid by drug manufacturers that participate in Medicaid

• providing rebates for drugs dispensed to individuals enrolled in a Medicaid managed-care organization.

Manufacturers should focus on some major items included in the rule that will fundamentally change the way they do business. First, it would include US territories in the AMP calculations. Rebate agreements would include prescriptions paid by Medicaid and fee-for-service. That would require Medicaid managed-care plans to capture use data and provide those data to the states, exempting only prescriptions dispensed by health-maintenance organizations (HMOs). Sales to wholesalers could not be included in AMP calculations unless manufacturers have documented evidence that drugs sold to wholesalers were distributed to “retail community pharmacies.” Specialty pharmacies and home healthcare distributors would be included within that classification.

Manufacturers would need to exclude from their AMP calculations all rebates paid to insurers, but not the underlying pharmacy sales. “Best price” would include discounts and rebates “associated” with sale of a drug to a customer (rather than the price available to customers). And companies would have to include in their AMP calculations all direct sales of authorized-generic–labeled drugs to manufacturers/distributors selling under their own national drug codes.

To benefit from those sorts of situations, manufacturers should not only continue focusing on compliance with changing federal legislations such as this rule, but also consider how doing so can best be leveraged to optimize their business. Because legislative and regulatory change entails reductions in reimbursement and margins, manufacturers need to leverage their compliance infrastructure to maintain sales volumes, profitability, and competitive advantage. Doing so provides additional efficiencies in data-driven analytics to enable better real-time quantitative decision making.

Texas Leads the Way

Reporting and calculation requirements will vary by state, considering that all states are enacting individual levels of requirements in addition to the new federal mandates. Under the new Texas regulations, for example, manufacturers will submit pricing data for eligible pharmacies located in Texas (if readily available) rather than those located in the entire United States. If a manufacturer has no single price point for a given product, it must report the price range and then calculate a weighted average for each product and each period. Texas is expanding its price reporting to include direct prices to pharmacies (hospital, chain, and long-term care) and wholesalers/distributers. Manufacturers should not include prices excluded from “Medicaid Best Price,” including those to 340b-covered entities, when determining price points. I expect more states to follow Texas and its actions for enacting new regulations and revising and expanding reporting obligations.

Monthly Reporting: Manufacturers are responsible for the accuracy of their products’ average wholesale price (AWP), even though they play no role in the third-party price reporting compendia’s decision regarding AWP publications. All price updates must be provided — except AMP updates — to the state’s commission by the 10th day of each month. Forecasted price concessions must be included in calculations for a product launch if a manufacturer has such information in its internal business records. And manufacturers must update the commission with all changes to formulation, product status, or availability.

A Holding Pattern

As we continue to wait for a final rule, those guidelines enacted by the state of Texas may well be the standard that all states follow in lieu of any official federal mandates coming from CMS. Opinions differ regarding when exactly we’ll see that final CMS rule. At this writing, some members of the US House of Representatives continue to seek further delay in implementation or even full defunding of the PPACA itself. The general consensus is that we may see a final rule published sometime in early 2014. Manufacturers should stay ahead of the curve in the meantime and actively monitor this situation so they can ultimately take full advantage of opportunities and mitigate risks involved in the uncertainty of this legislation.

Author Details
Jim Burke is senior vice president of contracting and pricing solutions at Alliance Life Sciences Consulting Group, Inc., 265 Davidson Avenue #310, Somerset, NJ 08873; 1-908-947-4100.