Drug manufacturers could be forced to undertake a major retooling of their Medicaid price reporting procedures under CMS’ proposed stance on how average manufacturer price calculations should account for drugs distributed through wholesalers, two experts who work with pharma stakeholders say. Possible outcomes of all that effort might be little change in reported AMPs and concerns about risk of non-compliance if the new procedures are carried out incorrectly.

At issue is a proposal to prohibit manufacturers from presuming how much of the drugs they sell to wholesalers end up being sold through retail community pharmacies for the purpose of reporting average manufacturer price. It is one of the key items in a proposed rule CMS issued to implement the Affordable Care Act’s changes to how AMPs, and in turn, drug rebates and pharmacy reimbursement under Medicaid, are calculated. The rule was released in February, with public comments due April 2 Also see "Calculating AMP: Medicaid Proposed Rule Provides Answers, Some Detailed, Some Vague, To Manufacturers’ Questions" - Pink Sheet, 6 February, 2012.. CMS specifically requested comment on the “presumed inclusion” issue for accounting for sales through wholesalers to retail community pharmacies.

Many drug manufacturers immediately recognized certain proposals in the rule as ones they wanted to address in upcoming comments, one of which is presumed inclusion, according to Sidley Austin partner Bill Sarraille, whose clients include manufacturers and whose practice includes a focus on pharmaceutical price reporting. In an interview, Sarraille provided insights on manufacturers’ thoughts about the proposed rule as they prepare to submit their comments.

CMS notes in the proposed rule that it is aware that manufacturers have said they do not have data tracking the final sales point for their drugs after they go to wholesalers. Currently, manufacturers use presumed inclusion, or what is commonly known as the “default rule,” which presumes that drugs sent to wholesalers and not accounted for in special rebate contracts, such as those for 340B covered entities, are sold through retail pharmacies. Nonetheless, CMS proposed to disallow such presumed inclusion and to require manufacturers to calculate AMP on sales to wholesalers for drugs distributed to retail community pharmacies or sales directly to retail community pharmacies.

Manufacturers would have to completely change their current practices at great cost and effort if the proposed change goes forward, very likely with a negligible effect on the final reported AMP, Sarraille says.

The change “may sound trivial to folks who aren’t involved with the systems,” Sarraille said, but the rule as written “so fundamentally changes the way the system works that it would require entirely new policies and procedures, systems, from a data perspective, and a massive retooling of the way that the mechanism of price reporting works.”

This challenging implementation “couldn’t possibly be done in the time that CMS is likely to give manufacturers to actually comply with the final rule, and that would yield, in almost every circumstance that I can think of and certainly in most circumstances … AMP numbers that would be either the same or not in any significant way changed from the AMP figures that are reported under the current system, which operates under the default rule,” the Sidley attorney said.

Manufacturers are “adamantly opposed to that,” Sarraille said.

GPHA Sees Potential For Liability With States

Generic Pharmaceutical Association Executive VP Bob Billings seconded that view. In an interview, Billings said “the proposal to go on actual sales is a complete reversal of the current approach, and in light of distribution data that actually is received by the manufacturers, which is very slight, it's going to make it really tough on the manufacturers to make sure that the AMP is adequate.”

“We have to attest to the AMPs that we report, and if we're not careful, we could end up somehow reporting AMPs that are not as accurate as they should be. That’s because we don’t have all of the data,” he said.

This could put manufacturers at risk of being in non-compliance and subject to lawsuits by the states, which base their Medicaid drug rebates on reported AMPs, Billings said. He noted that manufacturers already have some experience with having to pay financial settlements related to reporting of another pricing measure, average wholesale price. GPhA has other concerns with the rule specific to generic drug manufacturers ([A#00120326012])

Sarraille noted that some drug company representatives have already been making their case about the regulatory burden to members of Congress, but that he is “hopeful that the agency, just unaware of the operational challenges that would be posed here, once they hear about those challenges, will appreciate the issue and will promulgate a final rule that is fully supportive of the default rule.”

Disagreement With Drug Line Extension Definition

Manufacturers also disagree with how CMS proposes to define a line extension of an existing drug for the purpose of charging rebates for Medicaid, Sarraille said. ACA directs that rebates on a drug must include sales for products considered to be a line extension of that drug. CMS plans to define a line extension as “a single source or innovator multiple source drug that is an oral solid dosage form that has been approved by the FDA as a change to the initial brand name listed drug in that it represents a new version of the previously approved drug, such as a new ester, a new salt, or other noncovalent derivative; a new formulation of a previously approved drug; a new combination of two or more drugs; or a new indication for an already marketed drug” ([A#00120206005]).

It even notes that formulations that incorporate abuse deterrent technologies would be considered line extensions. CMS requested comments on its proposed definition of line extensions.

Sarraille maintained this definition goes beyond legislative intent. He contended that the legislative history shows that Congress’ previous wording for the provision was to apply the extension for “slight modifications” of pre-existing products. ACA uses the term “new formulations,” and gives only the example of an extended-release formulation.

He noted that only one of the four categories listed in CMS’ definition is a “new formulation,” while the other three are “not new formulations … so clearly were not what Congress was looking at when it enacted this provision.”

By including the other categories, which manufacturers consider to be innovative improvements, not simply new formulations, “a lot of manufacturers think it’s a fundamental challenge to innovation and that there are disturbing potential implications here from an innovation perspective,” Sarraille said.

Defining Drugs “Generally” Dispensed At Retail

A third area that manufacturers quickly seized upon is the definition of drugs “not generally dispensed through a retail community pharmacy,” a term used in the statute to establish which drugs would be subject to an alternative AMP methodology. Many specialty drugs – known as the “5i drugs” for the statutory reference to drugs that are inhaled, infused, instilled, implanted or injected – would not be able to have an AMP calculation under the proposal that is applied for most other kinds of drugs, since AMP is to be based only on prices paid by retail community pharmacies.

CMS proposes a 90% threshold for the 5i drugs, meaning that if 90% or more of a drug’s sales is to outlets other than retail community pharmacies during a quarter, the AMP calculation will be based on sales to those other entities, including physicians, hospitals and mail-order pharmacies, among others. CMS specifically asked for comments on this 90% threshold and whether a different threshold would be more appropriate.

Sarraille said, “It’s very hard to understand how CMS should ultimately finalize its proposal because it essentially defines 10% as ‘generally, and ‘generally’ just as a plain language meaning has to mean 50% or more. … I think when people address that and sort of help CMS to focus on the ‘generally’ part of what they’re trying to answer here, that they’ll realize that they have to have a significantly different test.”

He added, however, that manufacturers should be pleased that CMS did not propose to broadly interpret “retail community pharmacy” to include specialty pharmacies, home infusion pharmacies and home health care providers for 5i drugs as it did in the context of calculating AMP for drugs dispensed at retail community pharmacies.

“That’s a really important distinction for manufacturers who make 5i products, and it’s something that some people have, I think, been confused about in reading the rule, and so I think it would be good” to give CMS credit for that, he said.

Manufacturers See AMP Rule’s “Presumed Inclusion” Proposal As Certainly Challenging

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