Manufacturers who were hoping CMS’ rule on average manufacturer prices for drugs would provide clarity on what qualifies as a bona fide service fee and what constitutes fair market value for such a fee when calculating AMP for Medicaid won’t find many hard answers in the proposed version of the rule.

The proposed rule lists the examples of bona fide services fees provided in the law, but does not further expand on them. The rule also avoids defining “fair market value” for such fees, leaving that to the “reasonable assumptions” of those reporting AMPs. Understanding bona fide service fees is important because the Affordable Care Act specifically excludes them from the calculation of AMP, which otherwise is to be inclusive of all price discounts and rebates provided to retail pharmacies, and inaccurately reporting AMPs can subject manufacturers to fraud investigations.

For that reason, executives responsible for submitting manufacturers’ monthly AMP data to CMS have been waiting for the rule in the hope that it would be specific about what ACA means by “bona fide service fees” beyond the examples provided in the statutory language Also see "CMS’ Long-Awaited AMP Rule Seeks To Clarify Uncertainties In Affordable Care Act’s Definition" - Pink Sheet, 27 January, 2012..

The proposed rule on Medicaid-covered outpatient drugs was released Jan. 27 and is scheduled for publication in the Federal Register Feb. 2, with comments due April 2. It covers a range of topics related to the changes made in the Affordable Care Act to the AMP calculation, the AMP-based reimbursement rates to pharmacies for drugs dispensed to Medicaid recipients and the AMP-based rebates manufacturers pay on Medicaid drugs Also see "In Absence Of AMP Rules From CMS, Manufacturers Make Their Own" - Pink Sheet, 24 January, 2011..

CMS’ definition of a bona fide service fee follows the law’s language, saying it “means a fee paid by a manufacturer to wholesalers or retail community pharmacies; that represents fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement; and that is not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug.”

The law did provide a few examples, which CMS includes in its definition: “The fee includes, but is not limited to, distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative service agreements and patient care programs (such as medication compliance programs and patient education programs).”

In its explanation of the definition, CMS says that administrative and other fees not specifically excluded in ACA but that meet the definition of bona fide service fees should be excluded from AMP. However, “we are not proposing to further define the type of fees used as examples in the definition of bona fide service fees because we believe that these terms can be read in concert with the current definition of bona fide service fee.”

The rule does specify one type of payment that should not be excluded from AMP: “retroactive price adjustments, sometimes also known as price appreciation credits, do not meet the definition of bona fide service fee as they do not reflect any service or offset of a bon fide service performed on behalf of the manufacturer.”

Manufacturers To Use “Reasonable Assumptions”

When it comes to defining what it means by “fair market value” for the fees, CMS is deliberately vague in the proposed rule, even though it professes to be concerned that such fees could be used for providing discounts.

CMS writes that it is “concerned that these fees could be used as a vehicle to provide discounts, as opposed to fees at ‘fair market value’ for bona fide services.” However, “we have chosen not to define ‘fair market value’ at this time.”

“Due to the rapidly changing market in which new types of arrangements arise, we believe that manufacturers should appropriately determine fair market value and make reasonable assumptions consistent with adequate documentation that will support their payment for these services at fair market rates sufficient that an outside party can determine the basis for the fair market value determination.”

CMS is providing clarity on one question left unanswered in ACA: whether bona fide service fee exclusions apply to fees paid to group purchasing organizations. The rule proposes that fees meeting its definition of bona fide service fees that are paid to GPOs should be excluded from the determination of AMP and are not considered to be price concessions.

AMP Rule Tells Manufacturers To “Make Reasonable Assumptions” In Determining Fair Market Value For Service Fees

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