The Pharmaceutical Research and Manufacturers of America is supporting CMS' proposal to broadly define the "retail class of trade" for the purpose of calculating Medicaid average manufacturer prices, but raises concern about manufacturers' potential responsibility to track the various sales and price concessions through the drug distribution network.

As part of the Deficit Reduction Act, CMS is charged with defining AMP for regulatory purposes by July 1. The agency's proposed rule would include in the benchmark's calculation sales to a range of outpatient dispensing entities and price concessions (¹ Also see "Medicaid AMPs May Include More PBM Discounts, If CMS Can Figure Out How" - Pink Sheet, 1 January, 2007., p. 21).

In comments on the proposed rule, PhRMA endorses CMS' decision to extend the definition of the retail class of trade beyond traditional retail pharmacies.

"PhRMA believes that the definition of retail class of trade which includes a specific list of entities and also a broader 'catch all' to include any 'outlet that purchases or arranges for the purchase of, drugs from a manufacturer, wholesaler, distributor or other licensed entity and subsequently sells or provides the drugs to the general public' is appropriately detailed and will give manufacturers greater clarity in the future."

The trade association, however, cautions that implementation of CMS' proposed reporting requirements would impose "serious administrative difficulties" on manufacturers.

While PhRMA supports "the concept that PBM and other price concessions associated with drugs that are distributed to the retail class of trade should be included in AMP," the group is concerned about the practicality of tracking the flow of price concessions through the drug distribution network to the point of sale. Specifically, the group is concerned about requirements that would make manufacturers accountable for information that relies upon pharmacy benefit manager transparency.

CMS' proposed rule solicited input on whether it is "operationally feasible" to track what portion of manufacturer price concessions are ultimately passed through to pharmacies.

PhRMA instead proposes to include all manufacturer price concessions in the calculation, regardless of whether they affect pharmacy acquisition costs.

"PhRMA believes that there should be a presumption that AMP calculations should include all PBM price concessions. Manufacturers can track what price concessions are provided to PBMs, but it is neither realistic nor appropriate to track which price concessions are provide by the PBM to the retail pharmacy class of trade."

PhRMA Vs Pharmacy AMP Tug Of War

PhRMA's stance that AMP values should reflect more than the acquisition cost of Medicaid outpatient drugs by retail pharmacies puts it at odds with pharmacy groups and voices from Capitol Hill.

With the implementation of the Deficit Reduction Act, AMP will serve a dual role, which may pit the interests of drug manufacturers against pharmacies in determining how the metric is calculated. Under Medicaid, manufacturers pay rebates to the states for outpatient brand drugs at the larger of 15.1 percent of AMP or the difference between AMP and best price; DRA sets the upper limit for federal payments for pharmacies for multiple-source outpatient drugs at 250 percent of AMP.

Pharmacy groups contend that CMS' proposed definition unfairly minimizes manufacturer rebate liabilities at the expense of pharmacy reimbursement (² Also see "Legislators AMPlify Pharmacy Medicaid Concerns" - Pink Sheet, 26 February, 2007., p. 19).

In comments on the proposed rule, the National Association of Chain Drug Stores and the National Community Pharmacists Association request that CMS revise its proposed calculation methodology and include only sales to retail pharmacies in AMP calculations.

Including prices and discounts that are not available to retail pharmacies "creates an artificial deflation of AMP," Pharmaceutical Care Management Association Policy Consultant Carrie Gavora said during a recent Avalere audioconference. "It is inappropriate to lump those two together for the purposes of just getting a lower AMP, and ... that's what CMS is attempting to do."

NACDS asserts that CMS significantly underestimates the impact of the DRA on pharmacies' bottom lines, noting that rather than the one percent loss of revenue projected by the agency, the DRA cuts "would equate to a nearly 17 percent decrease in revenues."

"The negative impacts of this rule upon independent pharmacies, Medicaid beneficiaries, and the communities they serve ... will be far greater than the impact of the implementation of the prescription drug sections of the" Medicare Modernization Act, NCPA predicts.

Pharmacies' concern about a calculation methodology that results in low AMP values goes beyond the risk that federal upper limits will be set below acquisition cost for generic drugs. The industry has much more at stake given the likelihood that AMP will be adopted as a broader reimbursement metric.

All Aboard The AMP Bandwagon

The full adverse effect on pharmacies of CMS' broad definition leading to lower AMP values would be realized when AMP data are publicly disclosed.

CMS plans to release AMP data this spring, and pharmacy groups as well as several members of Congress are asking the agency to delay publication until the final AMP rule is issued (³ Also see "Pharmacy Groups Urge Pilot Project Approach To AMP Disclosure" - Pink Sheet, 5 March, 2007., p. 20).

Once AMP data are publicly available, states are expected to begin to switch from an average wholesale price or wholesale acquisition cost metric to an AMP-based reimbursement methodology for brand drugs.

"What could then happen ... is that Part D plans, commercial payers, etc. start to take the AMP values that are publicly available and begin to use them for purposes of reimbursement," Avalere Health Director Lauren Barnes said.

Barnes noted that a similar trend occurred following the publication of average sales price data under the Medicare Part B program.

"I don't think AWP is necessarily dead yet, but even if it isn't, if there's a great amount of credibility that surrounds these AMP data ... then I think it may be just a natural evolution for payers to move to AMP," NACDS VP-Policy and Programs John Coster said during the Avalere call, adding that using AMP as a benchmark for reimbursement "could significantly underpay pharmacies."

However, "there are a lot of things that have to shake out here before AMP is credibly used as a benchmark," he added.

A Bundle Of PhRMA Concerns

PhRMA's comments on the proposed rule address several other issues of concern to manufacturers relating to clarifying and simplifying AMP calculation and reporting requirements.

One point of contention involves modifications to the definition of a bundled sale under the Medicaid Rebate Agreement.

"The new proposed definition arguably would extend to arrangements where the only condition for the discount is including drugs on a formulary ... even if there is no requirement to purchase any or all of the formulary drugs," PhRMA notes.

"This definition is overbroad and could implicate as a 'bundled sale' any contract covering more than one product. ... This interpretation could create absurd results and thus, PhRMA strongly disagrees that a single contract that covers multiple products where there is no purchase requirement should be deemed a bundled sale."

The trade group similarly criticizes CMS' proposal to expand the definition of bundled sales relating to contracts with market share requirements. "Under this language, it is difficult to understand what arrangements would not represent a 'bundled sale,' since almost any contract would presumably offer a discount greater than what would have been available to the purchaser outside the contract."

PhRMA also suggests that CMS makes a false distinction in determining which manufacturer coupons should be included in AMP calculations. The group states that such coupons do not benefit entities in the retail class of trade regardless of whether they are redeemed by a consumer or an entity in the distribution chain, and proposes they be excluded from the benchmark.

In addition, PhRMA requests that CMS adopt a "uniform definition of bona fide service fee that will apply to ASP, AMP, and Best Price calculations." The group requests that fees paid to group purchasing organizations be included in such a list.

- Brian Marson (b.marson@elsevier.com)

PhRMA Endorses Proposed AMP Rule In Principle But Perhaps Not In Practice

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