By: Chris Cobourn, VP Regulatory Affairs
ChrisCobourn@CIS-partners.com

As was announced by our blog Friday, (The Proposed AMP Rule is Published), CMS has issued the long anticipated Proposed AMP Rule, which proposes regulations to define Medicaid Average Manufacturer Price under the Patient Protection and Affordable Care Act (PPACA).

The Proposed Rule can be found on the CMS Website (along with the press release on the rule). The Proposed Rule is open for Comment until April 2.  CMS announced in the press release Friday that it anticipates a Final Rule effective in 2013 (which suggests that things may take a bit longer than the process in 2007).

As background, CMS issued a DRA Final AMP Rule in July of 2007, which was effective October 1, 2007.  That Rule was subsequently put under an court injunction, with the court agreeing in principle to the position put forward by the Retail Industry that AMP, as defined by the Final Rule, did not reflect the actual price in the Retail Industry.  AMP was subsequently redefined under legislative language of the PPACA, which provided a definition much closer to the position of the Retail Industry (such as basing AMP on the newly defined Retail Community Pharmacy Class of Trade) that was expressed in court leading to the injunction.  As the newly defined PPACA AMP was in conflict with the 2007 Final Rule, CMS withdrew the AMP sections in the 2007 Rule in November of 2010.  That put industry in a position where we had to adhere to the legislative definitions in the PPACA, with no substantive regulations to define AMP, what we have often referred to as a “sub-regulatory environment.”  Pharmaceutical Manufacturers, therefore, have been eagerly anticipating the PPACA AMP Rule to replace the withdrawn DRA AMP Rule and provide clear guidance.

CIS will be holding a special GP Forum Call on Thursday, February 2nd, at 2:00 pm EST, to provide some initial information on the Rule.  Joe Metro of Reed Smith will join the call as well as a guest speaker.  To participate, Dial: #888-206-2266 and enter 9449409# when asked for the participant code.  CIS will also be conducting a more thorough Webinar on February 9th at 2pm EST. To register, Click Here.

We will all certainly be reading a great deal over the next few months to understand the Proposed Rule in detail, and to provide our thoughtful comments to CMS.

As I did my initial read over the weekend, I focused on a few of the key areas where industry had the most questions.  I have provided a few thoughts below and I welcome your feedback.

• A  Build up vs. Gross to Net methodology (pages 45-49)

This is the  major item we were looking for, would CMS propose a fundamental change to our “Gross to Net” approach (which CMS refers to as the “presumed inclusion” methodology) with a “build up” methodology.  Manufacturers have felt in general that a build up methodology would be very difficult with available data, as well as being inconsistent with the statutory approach to ASP and NonFAMP.

• In the Proposed Rule, CMS expresses concern that the presumed inclusion approach would result in “the inclusion of sales by a manufacturer to entities not contemplated in the statutory definition” and therefore proposes a framework for a build up approach.  CMS acknowledges the data challenges and seeks input specifically in this area, especially around the use of distribution (i.e., 867) data
• Bona Fide Fees for Service (BFFS)

The 4 part test that was part of the 2007 Rule is still in effect, even after new language in the PPACA defining certain types of fee by category (i.e., Distributer Service Agreements and Bona Fide Service Fees). Industry has generally continued to follow the 4 part test, while also adding qualitative criteria of the type of fee according to the PPACA.    Since this provided multiple views of how to evaluate BFFS we looked to the Proposed Rule to provide clarity on how to reconcile the 2 approaches.

• In the Proposed Rule, the broad definitions are included, along with the original BFFS test. I still worry about the general classification by the “type” of fee (i.e., Distributor Service Agreement), as there is a risk of excluding something just by what it is called, a concern CMS appears to share, based on the discussion of the Fair Market Value aspect of BFFS evaluations. (P 56)
• The Proposed Rule specifically does NOT define Fair Market Value, and states that manufacturers should make reasonable assumptions in this area and document the assumptions such “that an outside party can determine the basis for the fair market value determination.”
• The Proposed Rule also specifically excludes GPO admin fees that meet the definition of BFFS
• Alt 5i AMP

The 3 key areas we anticipated in this area were how to specifically define products that would quality as 5i drugs (such as whether manufacturers would make the determination, or whether CMS would provide a list), how to define “not generally sold to retail,” and whether there would be an established frequency for determining if a drug qualifies as an Alt 5i AMP drug.

• A 90% standard, based off the rationale of the VA approach (specifically a quantitative approach, no qualitative aspect) included in the Proposed Rule
• Identify 5i drugs based upon FDA route of administration
• Monthly/quarterly check (this is troubling and challenging to me)
• Retail Community Pharmacy (RCP) COT
  • Inclusion of Specialty Pharmaceutical Distributor as RCP (I see this as shift from the general industry approach that has was established as of October 2010)
  • Also added: Home Infusion and Home Healthcare Providers

Note: While these additions provide clarification for manufacturers of non-retail, non-5i products, they also move “retail community pharmacy” closer to the definition of “retail” that the Retail Industry objected to under the DRA (with the Retail Industry wanting a more narrow definition of RCP).

• Ability to Restate Base AMP

With the new definition of AMP under the PPACA, as based upon the RCP COT, which results in a overall higher AMP for Branded drugs, this created a significant CPI-U Base AMP penalty for many manufacturers, as well as indirectly impacting the Public Health Services (PHS) Price, resulting in “Penny Pricing.”  Manufacturers hoped that CMS would provide for a onetime restatement of Base AMP, as they did with the 2007 Final Rule.

• P 103 – CMS establishes the principle of restating Base AMP, but without much clarification.  One important point to consider: if the “build up” approach is implemented – and especially if the use of 867 data is mandated – manufacturers may not have the data that would be required to calculate a new Base AMP.
• Authorized Generics Sales in AMP

This is a significant area, as it impacts whether sales from the Branded (Primary) Manufacturer to a Secondary Generic Manufacturer should be included in AMP (this can create a significant lowering of AMP, as it brings a significant volume of lower priced sales in to the AMP calculation).  In the Proposed Rule:

• Secondary Manufacturer sales included in AMP of Primary Manufacturer (holder of the NDA)
• P 77 – “all sales of its authorized generic drug products sold or licensed to a secondary manufacturer… when the secondary manufacturer is acting as a wholesaler….”
• Manufacturer still falls under definition of wholesaler (p35)
• OTC Drugs

Although there is some refining of the definitions, it appears that OTCs with an ANDA or NDA that are prescribed are still “covered.”

• Smoothing Ineligible sales

Not addressed in prior rule making, and not addressed in the Proposed Rule.

• New parameters for recalculations outside of the 3 year window
  The 3 year window, as established in the 2007 Final Rule, provided “standard” window where manufacturers could update reported AMP and BP values in CMS’ DDR system without prior approval of CMS.  This provided a means for manufacturers to proactively identify and correct errors (where before the 3 year window, manufacturers often had to wait years for approval from CMS to make changes).

There certainly were open questions, however, on when, how, and why a manufacturer should, or technically could, update reported values outside of the 3 year window.  The Proposed Rule provides some parameters for manufacturers to go beyond the 3 year window.

• Recalculations including good cause
• Unites States

This is dramatic language, as not only does it expand the Medicaid program significantly, it also adds cost and burden to the manufacturer, including additional claims (the cost of these claims, as well as the cost of processing the claims), and the fact that for the calculation of AMP, manufacturers would now have to include data that is now considered “non-domestic.”

• P 34 – United States is defined the 50 States, DC, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa
• The Proposed Rule would expand the Medicaid program – including rebates, AMP calculations, and BP determinations – to the 50 states, DC, and the territories described above.
• BP Exclusions
• P 75 – CMS is proposing to expand its definition of excluded 340B sales to  “drugs purchased under the 340B Drug Pricing program… where the covered entities meet the conditions set by PHSA” which would include newly defined entity types, but would not include purchases made by covered entities outside the constraints of the 340B program.

Lastly, I would like to editorialize on my thoughts on the section of the Proposed Rule on “Anticipated Effects on Drug Manufacturers,” which starts on page 146.  In my opinion, the Proposed Rule greatly underestimates the impact on manufacturers (a net $8.6 million impact across manufacturers, or an average of $38,850 per manufacturer in year 1 and $24,000 per manufacturer in subsequent years).  It quantifies the impact on manufacturers based upon the rate of a systems analyst at $60/hour.  I feel that this greatly understates the overall approach that manufacturers will have to take to implement the changes, included external legal opinion, consultants, methodology updates, internal staffing costs, and systems changes.  It also fails to address the cost of processing Medicaid claims from the territories.

“The estimated one-time cost to labelers is $8.6 million. This information is required for the new base AMP and the new best price. This is based on the Bureau of Labor Statistics (BLS) average rate of $60.00 an hour for a computer systems analyst.” (P 147)

This is my first pass at some of the key areas of the Proposed Rule.  We will continue to provide information to industry through our various venues, such as Webinars and our Monthly GP Forum.  We can also provide consultative support to conduct an analysis of your current methodology compared to the components of the proposed methodology, and coordinate with your internal or external counsel on whether they may be actions that you should take now.

Thank you and I welcome your feedback

Chris