The OIG has issued the latest in a long line of reports comparing Medicare Part B drug average sales prices (ASP) and average manufacturer prices (AMP), this time with a focus on 2013 pricing. By way of background, CMS has statutory authority to lower Part B drug reimbursement when a drug’s ASP exceeds its AMP or widely available market price (WAMP) by a threshold, currently set at 5%. In April 2013, CMS began exercising its payment substitution authority, but it applies the policy only to certain codes with complete AMP data, and when the ASP for the code exceeds the 5% threshold in two consecutive quarters or three of the previous four quarters. The OIG notes that 15 drug codes were subject to reimbursement reductions under this policy on the basis of data from 2013, which resulted in $13 million in Medicare savings from the fourth quarter of 2013 through the third quarter of 2014. If CMS had expanded its price substitution criteria to include drug codes with complete AMP data in a single quarter or certain codes with partial AMP data, the OIG estimates that CMS could have generated almost $6 million in additional savings. While recognizing CMS’s “cautious approach to price substitutions,” the OIG expressed its view “that CMS can achieve a better balance between safeguarding access to drugs and ensuring that Medicare and its beneficiaries do not overpay for drugs with ASPs that exceed the AMPs by the threshold percentage.” The OIG therefore recommends that CMS consider pursuing regulations to expand the price substitution policy to include at least some additional drug code. CMS continues to oppose such an expansion until there is more experience with the policy.
In a recent report, “Average Manufacturer Price Determinations by Selected Drug Manufacturers Generally Were Consistent With Federal Requirements,” the OIG has determined that the methodologies used by 20 selected (unnamed) drug manufacturers to determine average manufacturer price (AMP) for drugs reimbursed by Medicaid generally were consistent with federal requirements. In particular, the manufacturers consistently included transactions from retail community pharmacies rather than the more broadly-defined retail pharmacy class of trade. The OIG did note that manufacturers treated authorized generic sales to a secondary manufacturer differently, and suggested that CMS clarify this policy. The OIG also recommended that CMS permit a presumptive-inclusion methodology for wholesaler sales, since manufacturers would not have been able to calculate the AMP for a number of drugs without this methodology. Finally, the OIG recommended that CMS expand the use of a 12-month rolling average to estimate and remove indirect sales related to ineligible customers (in addition to using this for average for manufacturer price concessions).
The OIG has issued a report, “Comparing Average Sales Prices and Average Manufacturer Prices for Medicare Part B Drugs: An Overview of 2012,” which assesses CMS’s use of its authority to lower reimbursement for Medicare Part B drugs when a drug’s average sales prices (ASP) exceeds its average manufacturer prices (AMP) or widely available market price (WAMP) by a threshold, currently set at 5%. In April 2013, CMS began exercising its payment substitution authority, which currently applies only to certain codes with complete AMP data, and when the ASP for the code exceeds the 5% threshold in two consecutive quarters. The OIG estimates that CMS has generated more than $800,000 in savings under this policy, but the agency could achieve greater savings by expanding the circumstances under which it exercises its substitution authority to include drug codes with complete AMP data in a single quarter and drug codes with partial AMP data. CMS did not concur with these recommendations.
In a recent report, “Medicaid Drug Pricing in State Maximum Allowable Cost Programs,” the OIG examines options for controlling state Medicaid prescription drug costs, particularly given a surge in Medicaid enrollment expected in the coming years as a result of the ACA. The OIG highlights the value of state Maximum Allowable Cost (MAC) programs as an alternative to federal upper limit (FUL) pricing, especially since CMS is years behind in implementing AMP-based federal upper limit (FUL) amounts under the ACA. The OIG found that aggregate pre-ACA FUL amounts were on average nearly double state MAC prices in January 2012, although the post-ACA FUL amounts (which have not been implemented) were lower than MAC prices on average. The OIG also notes that states could achieve additional cost savings by using more aggressive MAC pricing formulas and inclusion criteria, particularly along the lines of Wyoming’s program, which sets MAC prices by considering (1) acquisition cost plus a markup, (2) wholesale acquisition cost (WAC) minus a percentage, (3) average wholesale price (AWP) minus a percentage, or (4) AMP plus a markup. According to the OIG, 39 states would have saved $483 million (excluding dispensing fees) in the first half of 2011 if they had used Wyoming’s MAC criteria. The OIG recommends that CMS complete implementation of the post-ACA FUL amounts; CMS concurred and said it plans to finalize these FULs in the near future. CMS also concurred with OIG's recommendation to encourage states to reevaluate their Medicaid programs to identify additional cost saving opportunities, and noted its plans to release a related informational bulletin to the states in the near future.
CMS has posted the draft February 2013 FULs and Draft February 2013 Three-Month Rolling Average FULs. CMS will continue to accept comments on the draft average manufacturer price-based FULs and the draft three-month rolling average FULs, along with the methodologies used to calculate them.
For the 29th time, the OIG has issued a report comparing Medicare Part B drug average sales prices (ASP) and average manufacturer prices (AMP), this report covering all of 2011. The OIG again concludes that the Medicare would realize savings if it exercised its authority to lower reimbursement for Part B drugs when the drugs ASP exceeds its drug's AMP or widely available market price (WAMP) by a threshold, currently set at 5%. Although CMS has finalized regulations specifying the circumstances under which AMP-based price substitutions could occur, no such substitutions have been made to date. The OIG estimates that if CMS’s price substitution policy had been in effect, Medicare would have saved about $7 million in 2011; this amount would have been doubled if the substitution policy were applied to all codes that exceeded the 5% threshold in one or more quarters of 2011 when complete AMP data were used. CMS concurred with an OIG recommendation to finalize its substitution policy, but it did not support OIG recommendations to expand the substitution policy to include all codes with complete AMP data and certain codes with partial AMP data. CMS also rejected an OIG recommendation to seek a legislative change to require manufacturers of Part B-covered drugs to submit both ASPs and AMPs.
CMS has posted the September 2012 draft average manufacturer price (AMP)-based Medicaid federal upper limit (FUL) files, along with updated three-month rolling average FUL file consisting of the weighted average of the current and two previous monthly draft AMP-based FULs. CMS continues to accept comments on the monthly and three-month rolling average draft AMP-based FULs and the methodologies used to calculate them.
The OIG has released the most recent in a series of reports comparing Part B drug average sales prices (ASP) and average manufacturer prices (AMP). The latest report (the 28th in the series) compares second quarter 2012 ASPs and AMPs and their impact on Medicare reimbursement for the fourth quarter of 2012. By way of background, the Social Security Act requires the OIG to notify the HHS Secretary if the ASP for a drug exceeds the drug's AMP or widely available market price (WAMP) by a threshold, currently set at 5%. If that threshold is met, the Secretary may disregard the drug’s ASP and substitute the lesser of the WAMP or 103% of AMP. The 2012 final Medicare physician fee schedule (MPFS) rule specified the circumstances under which AMP-based price substitutions could occur beginning January 2012 (although CMS has not announced any such substitutions to date), and the final 2013 MPFS updated this policy. The new OIG report announces the OIG’s findings that for 29 drug codes exceeded AMPs by at least 5% in the second quarter of 2012, of which 19 had complete AMP data. If reimbursement for these 19 codes had been based on 103% of AMPs in the fourth quarter of 2012, Medicare would have saved an estimated $553,000 in that quarter. According to the OIG’s calculations, under CMS’s adopted policy, reimbursement for 6 of the 19 drugs would have been reduced, saving about $477,000 in that quarter, and the agency suggests that greater savings could be achieved if the price substitution policy was applied to codes with partial AMP data. The OIG also addresses CMS’s prior comments questioning the utility of OIG’s quarterly pricing comparisons, and OIG chastises the agency for its inaction on prior recommendations. Specifically, the OIG acknowledges that while savings identified in any single report “may be modest relative to total expenditures for Part B drugs, significant savings would have accrued had CMS taken action immediately after OIG issued its first pricing comparison.” Moreover, the OIG argues that over the long term, “savings achieved through price substitution could reduce waste and conserve taxpayer funds at a time when increased focus has been placed on rising health care costs and fiscal responsibility.”
The OIG has released its latest report comparing Part B drug average sales prices (ASP) and average manufacturer prices, this one comparing first quarter 2012 ASPs and AMPs and their impact on Medicare reimbursement for the third quarter of 2012. By way of background, the Social Security Act requires the OIG to notify the HHS Secretary if the ASP for a particular drug exceeds the drug's AMP or widely available market price (WAMP) by a threshold, currently set at 5%. If that threshold is met, the Secretary is authorized to disregard the drug’s ASP and substitute the lesser of the WAMP or 103% of AMP. CMS’s 2012 Medicare physician fee schedule (MPFS) rule specified the circumstances under which AMP-based price substitutions could occur beginning January 2012 (although CMS has not announced any such substitutions to date), and the final 2013 MPFS updated this policy. According to the recent OIG report, ASPs for 28 drug codes exceeded AMPs by at least 5% in the first quarter of 2012, of which 22 had complete AMP data. If reimbursement for these 22 codes had been based on 103% of AMPs in the third quarter of 2012, Medicare would have saved an estimated $739,000 in that quarter.
The OIG has issued a report on Medicaid pharmacy reimbursement that compares FUL amounts based on published prices to FUL amounts based on AMP and pharmacy acquisition costs. According to the OIG, FUL amounts based on published prices (from the fourth-quarter 2011 Redbook file) were more than four times greater than sampled pharmacy acquisition costs. Moreover, FUL amounts based on AMPs were 61 percent lower than FUL amounts based on published prices, at the median, but still exceeded sampled pharmacy acquisition costs by 43 percent in the aggregate. Notably, however, the study was subject to a number of limitations, including use of AMP-based FULs that have not been published by CMS (data for November 2010 was used, whereas CMS began releasing draft FULs in September 2011). While CMS has been issuing draft AMP-based FUL amounts for review and comment, the OIG recommends that CMS complete implementation of AMP-based FUL amounts, in conformance with the ACA. CMS concurred, and stated that it plans to implement FUL amounts based on AMPs “in the near future.”
CMS has posted the August 2012 draft average manufacturer price (AMP)-based Medicaid federal upper limit (FUL) files, along with updated three-month rolling average FUL file consisting of the weighted average of the current and two previous monthly draft AMP-based FULs. CMS continues to accept comments on the monthly and three-month rolling average draft AMP-based FULs and the methodologies used to calculate them.
On October 5, 2012, CMS released a number of draft Medicaid drug pricing files and related documents for review and comment. Among other things, CMS has posted the June 2012 and July 2012 draft average manufacturer price (AMP)-based Medicaid federal upper limit (FUL) files. Based on comments that month-to-month fluctuations in the AMP-based FULs “may create problems for pharmacies because they will be unable to predict resulting state reimbursement rates,” CMS has developed a draft three-month rolling average FUL file consisting of the weighted average of the current and two previous monthly draft AMP-based FULs. CMS is posting these draft files, and the draft methodology used to calculate the draft three-month rolling average FUL, for review and comment only. While CMS expects three-month rolling average FULs to fluctuate less than monthly FULs, CMS observes that “the draft three-month rolling average FULs incorporates pricing data older than the current monthly pricing that may be less reflective of pharmacies’ current purchase prices.” CMS is accepting comments on the monthly and three-month rolling average draft AMP-based FULs and the methodologies used to calculate them.
CMS also released for comment draft National Average Retail Price (NARP) data, which reflects prices paid for drugs to retail community pharmacies for individuals with Medicaid, cash paying customers, and those with certain third party insurance. CMS expects the reference pricing to assist states in comparing their current pricing policies to that reflected in the draft NARP. In addition, CMS has posted for comment draft National Average Drug Acquisition Cost (NADAC) data, which is based on a voluntary survey of pharmacy invoices, and a draft Monthly New Drug Report that shows newly marketed single source drugs that are currently generally available through wholesalers. CMS states that after it considers comments on all of these files (a comment deadline is not specified), the agency plans to release these data files in final form, with updated files posted on at least a monthly basis. States can use the monthly AMP-based FUL, or the three-month rolling average FUL, once finalized, to develop a pharmacy reimbursement methodology that will allow their pharmacy payments to remain within the FUL in the aggregate. CMS points out that any state that wants to change its pharmacy reimbursement methodology must submit a state plan amendment to CMS for review and approval.
CMS has posted updated draft Medicaid drug federal upper limit (FUL) files, reflecting May 2012 average manufacturer price data. CMS invites comments on the draft FUL files, but a comment deadline is not specified.
CMS has posted updated draft Medicaid drug federal upper limit (FUL) files, reflecting April 2012 average manufacturer price (AMP) data. CMS continues to invite comments on the draft FUL files; a comment deadline is not specified.
CMS has posted updated draft Medicaid drug federal upper limit (FUL) files, reflecting March 2012 average manufacturer price (AMP) data. CMS continues to invite comments on the draft FUL files.
CMS has posted the December 2011 and January 2012 draft Medicaid drug federal upper limit (FUL) files. Comments are invited but a comment deadline is not specified. This informal comment opportunity is separate from the formal comment period associated with CMS’s February 2, 2012 proposed rule implementing ACA provisions relating to Medicaid drug payment policy; comments on the proposed rule are due April 2, 2012.
CMS has posted the November 2011 draft Medicaid drug federal upper payment limit files. CMS continues to invite comments on the draft FUL files, although a comment deadline is not specified. Note that this feedback opportunity is separate from the formal comment period associated with CMS’s February 2, 2012 proposed rule implementing ACA provisions relating to pharmaceutical manufacturer payment of Medicaid rebates on covered outpatient drugs and limits on Medicaid reimbursement to pharmacies. Comments on the proposed rule are due April 2, 2012.
CMS Releases Long-Awaited Proposed Rule to Implement ACA Medicaid Manufacturer Rebate and Pharmacy Reimbursement Provisions
On Friday, January 27, 2012, the Centers for Medicare & Medicaid Services (“CMS”) released its long-awaited proposed rule to implement the provisions of the Affordable Care Act (“ACA”) relating to pharmaceutical manufacturer payment of Medicaid rebates and limits on Medicaid reimbursement to pharmacies. The proposed rule addresses a number of important policy issues relevant to pharmaceutical manufacturers, pharmacies, and other providers, and also would pose significant operational challenges for pharmaceutical manufacturers with respect to the Medicaid Drug Rebate Program (“MDRP”).
The official version of the proposed rule, titled “Medicaid Program; Covered Outpatient Drugs” (the “Proposed Rule”), will be published in the Federal Register on February 2, 2012. Comments on the Proposed Rule are due no later than 5:00 PM EST on April 2, 2012. Notably, the CMS Press Release indicates that CMS plans to issue a final rule in 2013.
We have identified below some of the key items addressed in the Proposed Rule, and we will be issuing a more detailed health care client bulletin in the near future.
MDRP Related Items
- “Build-up” – Manufacturers typically calculate average manufacturer price (“AMP”) by beginning with the universe of wholesaler sales, and then carving out the AMP-excluded sales, which the manufacturer identifies based on chargeback data. In the Proposed Rule, CMS noted that it considered proposing this so-called "presumed inclusion" policy, however ultimately decided against such a proposal and instead is proposing a “build up” approach where only specifically identified retail community pharmacy (“RCP”) sales may be included.
- RCP – CMS is proposing to include specialty pharmacies, home infusion pharmacies, and home health care providers to the definition of retail community pharmacy (“RCP”), as it believes such entities conduct business as wholesalers or RCPs which should be included in AMP. The agency did not propose to define specialty pharmacy, however.
- Baseline AMP Restatements – In light of the significant changes to AMP resulting from the ACA, CMS is proposing to allow manufacturers the option, on a product-by-product basis, to recalculate base AMP in accordance with the new regulatory definition, for a period of four calendar quarters following the publication of the final rule.
- Covered Outpatient Drugs – CMS appears to be suggesting that a product manufactured pursuant to a New Drug Application (“NDA”) automatically falls into the category of an “S” (single-source) or an “I” (innovator multiple source) drug. This appears to contrast with the agency’s historical positions, and may create “brand” rebate liability with respect to pre-1962 drugs which are subsequently approved through expedited procedures in response to FDA’s unapproved drug initiative, even where the products are not innovators in the traditional sense.
- 5-I Drugs – The statute calls for an alternative AMP calculation for inhaled, infused, instilled, implanted, or injected drugs that are not generally dispensed through a RCP. CMS is proposing to adopt a 90% standard for manufacturers’ determinations as to what constitutes “generally” dispensed through a RCP. Unlike the 90% policy related to non-federal average manufacturer price, CMS is proposing that manufacturers make a determination each month and quarter as to whether a drug meets the standard. Such a policy has the potential to raise concerns for manufacturers with respect to the additional rebate (also known as the “inflation penalty”) which is derived from a product’s base AMP.
- Line Extensions / New Formulations – The ACA established an alternative unit rebate amount calculation for line extensions of an S or I drug that is an oral solid dosage form. Although CMS’s discussion on this topic raises a number of new questions, some questions raised by the statutory language itself have been clarified. For example, CMS notes that both the initial and new drugs must be oral solid dosage forms, and also that a new strength does not constitute a new formulation.
- Bona Fide Service Fees (“BFSFs”) – CMS is retaining the traditional definition for BFSFs, while specifically referencing those types of fees described in the ACA. However, the agency expressed concern that certain fees may be “used as a vehicle to provide discounts”, and declined to define “fair market value”, noting that manufacturers should make appropriate reasonable assumptions in this regard.
- “Smoothing” – CMS is proposing that manufacturers be required to use a 12-month rolling percentage to estimate the value of lagged price concessions in their calculations of the monthly and quarterly AMPs.
- Geographic scope – CMS is proposing to add the territories (i.e. the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa) to the definition of “States” and “United States” for purposes of rebate payments as well as price reporting.
The Proposed Rule also addresses a myriad of other MDRP related items not discussed above, e.g. authorized generics, nominal pricing, bundling, best price, pricing recalculations, penalties for non-compliance, 340B issues as they relate to the MDRP, etc.
State Pharmacy Reimbursement Related Issues
- Actual Acquisition Cost (“AAC”) – CMS is proposing to replace the defined term “estimated acquisition cost” (“EAC”) with AAC in the regulations governing maximum pharmacy reimbursement under State Medicaid programs. The agency is also proposing to replace the defined term “dispensing fee” with “professional dispensing fee”, and proposes to require states to reconsider their dispensing fee methodologies as they change their payment for ingredient cost. The provisions relating to AAC would provide that, when proposing changes to the ingredient cost reimbursement or professional dispensing fee reimbursement, "States must provide [to CMS] adequate data, including, but not limited to, a State or national survey of retail pharmacy providers or other reliable data which reflects the pharmacy's actual or average acquisition cost as a base to support any proposed change in ingredient cost reimbursement." CMS does not elaborate on what "adequate data" means with respect to the professional dispensing fee element. These provisions would govern Medicaid reimbursement for brand drugs—changes which were not mandated by the ACA.
- Federal Upper Limit (“FUL”) Provisions – CMS would establish the FULs governing reimbursement for most generic drugs based upon 175% of monthly AMPs, with no upward adjustment in any situation. According to the Proposed Rule, CMS believes that calculating FULs at weighted AMP times 175% represents “more than adequate reimbursement to the pharmacies.”
- Nationwide Availability – The statute requires that a drug product be “available on a nationwide basis” in order for an FUL to be established. Consistent with its previously released draft FUL methodology, CMS proposes to address this requirement only by disregarding the AMP of a national drug code (“NDC”) which has been terminated, and does not propose to incorporate any provisions to address the issue of drug shortages.
- FUL Smoothing – CMS considered but declined to propose a specific methodology to smooth the FULs. CMS noted that because AMPs are based on prices paid to manufacturers by wholesalers for drugs distributed to RCPs and by RCPs that purchase drugs directly from the manufacturer, they are subject to fluctuations and variances in the generic drug market, which likewise may result in fluctuations in the AMP-based FUL from month to month. CMS asserts that such changes may exist even if a smoothing process is implemented.
Notably, CMS did not provide any information as to when the AMP-based FULs would be effective. CMS noted that four draft FUL files as well as comments and responses had been posted, yet the agency failed to address most of the important issues that have been raised in publicly available comments submitted to the agency regarding the draft FUL methodology and files.
A number of other items not noted above were also discussed in the Proposed Rule, such as the federal offset of rebates for states, and rebates and utilization relating to Medicaid managed care organizations.
CMS invites comments on many of the issues discussed above. Reed Smith is in the process of conducting a full review of the Proposed Rule and will release shortly a client bulletin providing a detailed analysis of the proposal. In the meantime, please contact Joe Metro (202-414-9284 or email@example.com), Bob Hill (202-414-9402 or firstname.lastname@example.org), Vicky Gormanly (202-414-9277 or email@example.com), or any other member of the Reed Smith Health Care Group with whom you work, if you would like additional information or if you have any questions.
As previously reported, the ACA modified the statutory federal upper limit (FUL) provisions for Medicaid reimbursement for multiple source drugs. While CMS has not yet promulgated regulations to implement this policy, the agency has issued several sets of draft FUL reimbursement files, including the draft methodology used to calculate the FULs in accordance with the ACA and the weighted average of monthly average manufacturer prices (AMP) in a FUL group. The most recent draft FUL prices – which are for review and comment only -- are based on the manufacturer reported and certified October 2011 monthly AMP and AMP unit data. CMS also has posted a modified FUL methodology and data guide. Following a period of releasing the FULs in draft format, CMS plans to publish the final ACA FULs. No timeline has been announced for the final FULs, although CMS sent the proposed rule to the Office of Management and Budget for regulatory clearance in June 2011.
The Social Security Act requires the OIG to notify the HHS Secretary if the average sales price (ASP) for a particular drug exceeds the drug's AMP or widely available market price (WAMP) by a threshold, currently set at 5%. If that threshold is met, the Secretary is authorized to disregard the drug’s ASP and substitute the lesser of the WAMP or 103% of AMP. The OIG has released a series of reports comparing Medicare Part B drug ASPs with AMPs. While CMS has made no price adjustments in response to these reports to date, CMS’s 2012 Medicare physician fee schedule rule specifies the circumstances under which AMP-based price substitutions will occur beginning January 2012 (CMS is not implementing a price substitution policy based on the comparison of WAMP to ASP for 2012 in light of complicated operational issues). According to a recent OIG report comparing second quarter 2011 ASPs and AMPs, under CMS’s price substitution policy, reimbursement for 7 drugs would have been reduced in the fourth quarter of 2011, saving an estimated $696,000 (the savings would have been higher if additional drugs with partial AMP data were included). Separately, the OIG has issued a report comparing ASPs to WAMPs for 14 drugs that have been identified in previous OIG reports as repeatedly exceeding the 5% ASP-AMP threshold. According to the OIG, “limitations and irregularities in the sales data provided by the distributors and manufacturers of the 14 drugs called into question the data's accuracy and reliability, and prevented us from measuring AMPs against the threshold.” For instance, some sales data did not reflect discounts and rebates passed on to providers, and the reported total number of units sold differed substantially from the number reported through quarterly ASP submissions. To fulfill its statutory mandate, the OIG will consider alternative methodologies to conduct pricing comparisons, including directly surveying providers.