CMS has been persuaded to exclude pharmacy benefit manager price concessions, other than mail-order, from Medicaid AMPs, because PBMs do not take possession of drug products in most cases nor are their financial transactions easily tracked by manufacturers.

The agency had been considering including an array of PBM fees and discounts in Medicaid average manufacturer prices, the system for linking payment for multiple source drug products to the least expensive therapeutic equivalent.

The change in thinking is reflected in final regulations governing the Medicaid AMP methodology, released July 6 and slated for July 17 Federal Register publication.

The rules are aimed at limiting spending on Medicaid outpatient drugs. They define AMP as the "average price paid to the manufacturer ... by wholesalers for drugs distributed to the retail pharmacy class of trade." Manufacturers are responsible for reporting AMPs to Medicaid.

In its December proposed AMP rules, CMS had noted previous views that inclusion of PBM price concessions should be limited to situations where the organizations act as wholesalers. But the agency said it was interested in comments on whether it should include more PBM price concessions, saying that there may be other types of "indirect" price concessions that in effect reduce the net price at retail, and thus should be taken into account for AMPs (¹ Also see "Medicaid AMPs May Include More PBM Discounts, If CMS Can Figure Out How" - Pink Sheet, 1 January, 2007., p. 21).

The agency noted that the HHS Office of Inspector General had found that manufacturers have widely varying approaches to accounting for PBM rebates and fees in AMPs, and said as well that PBMs have taken on a "significant role" in drug distribution in recent years.

CMS received about 1,600 comments on the overall proposed rule. "Many" commenters urged that PBMs generally be excluded from AMPs because many of their concessions are not available to retailers and thus "PBMs are not included within the retail pharmacy class of trade," the agency says in the preamble to the final rules.

"They argued that, in light of the rationale used by CMS to exclude nursing facility sales from [AMPs] ... CMS should similarly exclude PBMs sales, discounts, rebates and other price concessions." Nursing home sales are excluded from AMPs in both the proposed and final regulations on the rationale that these facilities do not dispense prescriptions to the general public and thus are not part of the retail trade.

In the end, CMS decided to exclude PBM price concessions from AMPs except for when they actually provide drug products through mail-order. "Only in their role as mail-order pharmacies do PBMs participate directly in the purchase or delivery of prescription drugs." Other types of mail-order pharmacy sales are also included in AMPs, under the final rule.

CMS took note of comments on the difficulty for manufacturers to track and report all PBM price concessions.

"The degree to which manufacturer rebates are passed through or shared with PBM clients is privately held, competitively sensitive information that can differ from contract to contract," the agency remarks. "Drug manufacturers are not privy to this information and would need to review thousands of rebate arrangements to require PBMs to share this information."

In its comments on the December proposed rules, the Pharmaceutical Research and Manufacturers of America agreed to the concept of including more PBM price concessions than those actually provided to retail pharmacies but expressed reservation about tracking price concessions throughout the distribution chain.

While there should be a "presumption that AMP calculations should include all PBM price concessions," PhRMA said, manufacturers "can track what price concessions are provided [by manufacturers themselves] to PBMs, but it is neither realistic nor appropriate to track which price concessions are provided by the PBM to the retail pharmacy class of trade" (² Also see "PhRMA Endorses Proposed AMP Rule In Principle But Perhaps Not In Practice" - Pink Sheet, 12 March, 2007., p. 11).

In general, manufacturers benefit from a broader definition of retail class of trade. They are separately required to provide Medicaid with a rebate based on a percentage of AMP or the difference between AMP and their "best price" to private payers. Thus, including more low-priced sales lowers AMPs and in turn "best price" liability for manufacturers.

The AMP rule implements provisions of the 2005 Deficit Reduction Act, which sets a ceiling on federal reimbursement to states for multiple source drugs. Payment is set at 250 percent of the average manufacturer price for the lowest price drug in a multi-source group, thus promoting generic drug utilization. About 600 drug products are subject to the ceiling, known as federal upper limits. States can set payment rates that differ from AMPs, but their share of federal funding is capped by FULs. The final regulations take effect Oct. 1 and manufacturers must begin reporting their AMPs monthly. CMS recently said companies must report September AMPs by Oct. 30 and the agency would publish FULs by Nov. 30 (³ 'The Pink Sheet' June 25, 2007, In Brief).

Authorized Generics Provision Modified

In another change from the proposed rules, CMS is narrowing the way prices for authorized generics are included in AMPs.

The agency had proposed that brand manufacturers be required to include sales of "authorized generic" versions of their products in reporting Medicaid prices, whether the generic version was sold by a company subsidiary or by another company (⁴ [A#00690010012], p. 24). Innovator companies should feel the competitive impact from generics whether they sell the rights to a product or license them, CMS said, suggesting that manufacturers might "circumvent" the competitive intent by licensing arrangements.

Since then, the agency received "numerous and detailed comments" leading it to agree that "these requirements would be unduly burdensome on manufacturers, call into question the veracity of manufacturer pricing information reported to CMS, and potentially violate antitrust statutes because they would require manufacturers to share pricing information and engage in anti-competitive practices," CMS reports.

Explaining its final approach, CMS says it limits "the application of this requirement to the sale of an authorized generic product from the primary manufacturer, that is, the manufacturer that markets and sells the authorized generic drug. This eliminates the need for manufacturers to share information on sales to other entitles and potential competitors."

CMS believes "that the sale price of the drug from the primary to the secondary manufacturer will generally be lower than the lowest price paid for the authorized generic drug for subsequent purchasers." Thus, at "this time, we do not require that subsequent sales of an authorized generic product by a secondary manufacturer be included in the AMP calculation of the primary manufacturer."

Regarding sales through mail-order pharmacies, both pharmacy and chain store groups opposed their inclusion in AMPs, saying mail-order discounts often are not available to retailers and do not reflect dispensing costs.

CMS received mixed comments on its proposal to include mail-order sales in AMPs. As elsewhere in the rules, the agency looks to whether sales are available to the "general public."

"After consideration of all comments received, we continue to believe that mail-order pharmacies are part of the retail pharmacy class of trade inasmuch as they are accessible and dispense prescriptions to the general public."

While many commenters objected that discounts offered to mail-order pharmacies may not be offered to other pharmacies, CMS says the Deficit Reduction Act does not "precondition" the definition of AMPs on "whether other entities outside the retail pharmacy class of trade can get these same discounts."

Although the rules are final, CMS will take comment on some aspects, such as a newly proposed definition of "outlier" prices. CMS suggests excluding from the calculation of FULs any drug for which the AMP is less than 40 percent of the next highest AMP. In such cases, the FUL would be calculated as 250 percent of the second-lowest priced product.

Overall, CMS projects that the rules will yield $8.4 billion in combined state and federal Medicaid funding over five years. Even so, Medicare outpatient prescription drug spending will total $140 billion over those years.

- Denise Peterson (d.peterson@elsevier.com)

Medicaid AMPs Exclude PBM Discounts Outside Of Mail Order – Final Rules

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