medicaid price calculations & rebates 1.0: mastering the essentials … · mastering the...
TRANSCRIPT
Medicaid Price Calculations & Rebates 1.0: Mastering the Essentials
ACI Rx Drug Pricing Master Course
November 1, 2016
William Sarraille
Sidley Austin LLP
Rick ZimmererKPMG LLP
Disclaimer
• This presentation is not intended as legal advice.
• This presentation is for discussion purposes only.
• This presentation does not create an attorney-client relationship.
• This presentation summarizes, but should not be taken as an endorsement of,
the positions taken by the Agency in the Final Rule.
For Discussion Purposes Only │ Not Intended as Legal Advice
Agenda
• Average Manufacturer Price (AMP)
• Bona Fide Service Fees (BFSF)
• Best Price (BP)
• Unit Rebate Amount (URA)
• State Medicaid Programs
• Drug Formularies & Reimbursement
• Class of Trade (COT)
• State Invoices
SIDLEY AUSTIN LLP 3For Discussion Purposes Only │ Not Intended as Legal Advice
Overview and Scope of the Final Rule
• Key Issues in the Final Rule
– RCP and 5i AMP Calculations
– Authorized Generics
– Line Extensions
– Bundled Sales
– Bona Fide Service Fees
– Interplay with 340B: Best Price Exclusion
SIDLEY AUSTIN LLP 4For Discussion Purposes Only │ Not Intended as Legal Advice
“…for a covered outpatient drug of a manufacturer (including those sold under an
NDA approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act),
the average price paid to the manufacturer for the drug in the United States by
wholesalers for drugs distributed to retail community pharmacies and retail
community pharmacies that purchase drugs directly from the manufacturer.”
§ 447.504(a)
• The Average Manufacturer Price (AMP) means:
5
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Average Manufacturer Price (AMP)Calculation Mechanics: Lead Calculation
Transaction Category Reference
Dollars Units
1 2
Gross Direct Sales A A1 A2
Direct Sale Adjustments1 B B1 B2
Adjusted Direct Sales C = A - B C1 = A1 - B1 C2 = A2 - B2
Excluded Direct Sales2 D D1 D2
Eligible Direct Sales E = C – D E1 = C1 - D1 E2 = C2 - D2
Lagged Exempt Sales (Smoothed?) 2 F F1 F2
Gross Eligible Sales G = E - F G1 = E1 - F1 G2 = E2 - F2
Price Concessions (Smoothed) 3 H H1 N / A
Net Eligible Sales I I1 = G1 - H1 I1 = H2
AMP J = I1 / I2
1. Direct sale adjustment examples are price corrections & order corrections.
Some may be lagged without units and may be treated as lagged price concessions.
2. Excluded direct and indirect sales examples are 340B, Government, and non-RCP.
3. Price concession examples are rebates & non bona fide service fees.
For each NDC9 (or blended group), every month, after unbundling, smoothing and pro-rating / factoring:
Quarterly AMP =
Weighted Average of
Monthly AMPs
For Discussion Purposes Only │ Not Intended as Legal Advice
6
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Average Manufacturer Price (AMP)Calculation Mechanics: Unbundling
Product WAC
Contract
Price Discount
Discount
Allocation %
Allocated
Discount
Reallocated
Net Price
REF A B C=A-B D=A/SUM(A) E=D*SUM(C) F=A-E
A $10 $8 $2 40% $6 $4
B $15 $2 $13 60% $9 $6
Total $25 $10 $15 100% $15 $10
Raw data used as input Discounts are reallocatedReallocated data are used in CMS calculations (AMP, BP,
ASP)1
Ultimate financial impact could go in either direction
1 VA does not currently require bundled discount reallocation.
Basic System/Data Process Flow Factors Complicating Math Include:
• Quantification of direct sale discount
• Calculation impact of bundles encompassing
both direct & indirect sales
• Valuation of certain non-drug products within
the bundle
• Multi-contract bundles
• Cross-entity bundles
For Discussion Purposes Only │ Not Intended as Legal Advice
7
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Average Manufacturer Price (AMP)Calculation Mechanics: Smoothing
Smoothing Mechanics(CMS “Style”)
SmoothingOverview
Smoothing creates a steadier relationship between sales and lagged price concessions during each calculation period.
It utilizes historical relationships (i.e. the ratio of the lagged price concessions data to sales) to calculate an estimated* current period
amount.
* The historical period utilized rolls-forward by one period with each calculation but the amount utilized in any particular period is never
trued-up to actuals.
Smoothing Illustration
Prior 12 Month Lagged Transactions
Prior 12 Month Eligible Sales
Current Periods
Eligible Sales
Estimated Current Period
Lagged Transactions=
$ 400 Rebates
$1,000 Sales* $ 150 Sales $60 Amount for Q4=
Period Sales
Rebates
Paid
Q1 $275 $ 0
Q2 $225 $ 75
Q3 $350 $100
Q4 $150 $225
Total: $1,000 $400
Relevant Issue
Many lagged price concessions are paid in patterns that can vary significantly from sales recognized in the same period.
Reasons include seasonal products, initial product stocking, significant commercial changes (e.g. patent expiry), disputed
payments, system issues, vacations, etc.
May create significant fluctuations in averaged price metrics (AMP, ASP & Non-FAMP) which may be undesirable
particularly when applied to upfront pricing (e.g. Part B payment limits, 340B prices, FULs, etc.).
*
VA smoothing is generally implemented in a different but algebraically equivalent manner where current period sales are divided by prior year sales and multiplied by
prior period lagged price concessions.
For illustrative purposes only. For simplicity, omits the lag built into the smoothing process.
Sales
Rebates
SmoothedRebates
For Discussion Purposes Only │ Not Intended as Legal Advice
8
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Average Manufacturer Price (AMP)Calculation Mechanics: Pro-Rating / Factoring
Factoring MechanicsExample
FactoringOverview
Factoring is the process of estimating the includable portion of the price concession.
There is no government guidance on its calculation. Many manufacturers utilize historical relationships (i.e. the ratio of includable to
excludable sales) to calculate an estimated* current period includable amount in a manner broadly similar to smoothing.
* Similar to smoothing, the historical period utilized generally rolls-forward by one period with each calculation but the amount utilized in
any particular period is never trued-up to actuals.
Factoring Illustration
Prior 12 Month Ineligible Indirect Sales
Prior 12 Month Wholesaler Sales
Current Periods
Price Concessions
Estimated Current Period
Includable Price
Concession
=
Relevant Issue
• Price concession may be paid on sales that are partly in the calculation and partly out.
• May not be able to tie the price concession, or a specific portion of it, to the specific excludable sale
Example is rebate (or non-bona fide fee) paid to wholesaler in Q2 based on all sales to the wholesaler in Q1 while some of
those sales removed from the calculation over various subsequent quarters because the secondary customer was excluded
(e.g. indirect sales to 340B, government, etc.)
*
Manufacturer
40% 60%
Wholesaler
Sales to Excluded End
Customers
Sales to Included End
Customers
$100,000 60% 60,000
Whls.
Attribut.
Rebates
Factoring
Ratio
Est.
Includable
Rebates
For Discussion Purposes Only │ Not Intended as Legal Advice
9
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Average Manufacturer Price (AMP)Calculation Mechanics: Lead CalculationFor each NDC9 (or blended group), every quarter, after unbundling, :
Direct
Sales
B
P
Initial
Final
W/in 30 Days
All Data Avail.
Calc SubmittedLagged Incentives
Estimated
Actual
RCP.
COTID
2
1
3
VA
Whslr.
Sale Price Concessions
Disc Rebate
ExclusionsPPU
IE ReasonContract
Com.
FCP
Whslr.
Volume
FFS
On- Inv% &
CFG
PPD
I
E
I
None
Gov.
None
3.00
1.00
9.00
Indirect
Sales
Clinic4
5
6
Intl.
Com.
340B
Com.
Com.
OOS
Volume & CFG
& Bundle
CBK
CBK
CBK
E
E
I
340B
Intl.
None
1.00
2.00
0.014000
Imputed
Prices
SPAP7
8 PBM
SPAP
PBM
RPU
Admin-Srv Fee/
PlacementI
None
None
3.00
4.00
Pricing
Basis
WAC
FCP
WAC
WAC
WAC
(Intl)
WAC
WAC
(Low)
WAC
(Cont)
2.00
E
For Discussion Purposes Only │ Not Intended as Legal Advice
Retail Community Pharmacy AMP
• Key Takeaway: The definition of retail community pharmacy has not been
expanded to include entities “conducting business as” RCPs.
• Importantly, specialty pharmacies are not automatically treated as a
RCP.
• CMS declined to address the calculation of AMP for orals not sold
through RCPs.
SIDLEY AUSTIN LLP 10
Included in RCP Definition Not Included in RCP Definition
Independent pharmacy, Pharmacies dispensing “primarily
through the mail”
Chain pharmacy, Nursing home pharmacies
Supermarket pharmacy, or Long-term care facilities pharmacies
Mass merchandiser pharmacy, Clinics and Hospital pharmacies
That is licensed as a pharmacy by the
State and that dispenses medications to
the general public at retail prices.
Charitable not-for profit pharmacies
Government pharmacies
Pharmacy benefit managers
For Discussion Purposes Only │ Not Intended as Legal Advice
RCP AMP: Key Definitions
• “Wholesaler”: “[A] drug wholesaler that is engaged in wholesale distribution of
prescription drugs to retail community pharmacies, including but not limited to” all
of the following:
– manufacturers, repackers, and distributors
– own-label distributors and private-label distributors
– jobbers, brokers, and warehouses (including manufacturer’s and distributor’s
warehouses, chain drug warehouses, and wholesale drug warehouses)
– independent wholesale drug traders
– retail community pharmacies that conduct wholesale distributions
• “Manufacturer”: An entity that “holds the NDC for a covered outpatient drug or
biological product” (emphasis added) and meets other specified criteria.
– Must be engaged in certain type(s) of activities, among which labeling or relabeling are
enumerated
– Additional criteria relating to authorized generic products and for drugs subject to private
label arrangements
SIDLEY AUSTIN LLP 11
For Discussion Purposes Only │ Not Intended as Legal Advice
5i AMP: When It Applies
• What is behind the “5i” and “5i AMP” concepts
• The many changes between the proposed and final versions of the rule:
• Interaction with presumed inclusion/build-up approaches
• What about non-5i drugs not dispensed through RCPs?
SIDLEY AUSTIN LLP 12
Issue Proposed Rule Final Rule
Identification of
“5i” Drugs
List of FDA routes of administration on
CMS website
Manufacturer’s understanding of how
its drug is administered
Standard for “Not
Generally Dispensed”90/10 standard 70/30 standard
Type of Measurement “Sales” NDC-9 units
Time Period for
Evaluation“During the reporting period”
“Over a period of time, such as a 12-
month period”
Frequency of
EvaluationMonthly and quarterly
Monthly (with quarters based on
weighted months)
For Discussion Purposes Only │ Not Intended as Legal Advice
5i AMP: How It Is Calculated
• What is included:
– Those sales (and associated discounts, rebates, payments, or other financial
transactions) included in RCP AMP and those to:
• Physicians; PBMs; HMOs; MCOs; insurers; hospitals; clinics and outpatient facilities; mail order
pharmacies; long-term care providers; hospices; and “manufacturers, or any other entity that does
not conduct business as a wholesaler or [RCP]”
• What is excluded:
– Those sales and prices (and associated discounts, rebates, payments, or other financial
transactions) to or under many government entities or programs and to:
• Patients, charitable and not-for-profit pharmacies, and outside the U.S.
– Many transactions also excluded from RCP AMP, such as:
• Prompt pay discounts to wholesalers; reimbursement for unsalable returned goods; and patient
programs meeting certain criteria
• Question with BFSFs
SIDLEY AUSTIN LLP 13For Discussion Purposes Only │ Not Intended as Legal Advice
Authorized Generics
• CMS finalized its proposed definition:
• Primary manufacturer means “a manufacturer that holds the NDA of the
authorized generic drug.”
• Secondary manufacturer applies to “a manufacturer that is authorized by the
primary manufacturer to sell the drug but does not hold the NDA.”
SIDLEY AUSTIN LLP 14
For Discussion Purposes Only │ Not Intended as Legal Advice
Authorized Generics
• A manufacturer must include the best price of an AG in calculating best price and
must include sales of an AG in computing AMP under some circumstances.
SIDLEY AUSTIN LLP 15
For Discussion Purposes Only │ Not Intended as Legal Advice
Calculating AMP Determining Best Price
The primary manufacturer must
include in its calculation of AMP
its sales of authorized generic
drugs that have been sold or
licensed to a secondary
manufacturer, acting as a
wholesaler for drugs distributed
to retail community pharmacies,
or when the primary
manufacturer holding the NDA
sells directly to a wholesaler.
A primary manufacturer holding
the NDA must include the best
price of an authorized generic
drug in its computation of best
price for a single source or an
innovator multiple source drug
during a rebate period to any
manufacturer, wholesaler,
retailer, provider, HMO, non-profit
entity, or governmental entity in
the United States, only when
such drugs are being sold by the
manufacturer holding the NDA.
Questions
Remain
Authorized Generics
• “. . . sold or licensed to a secondary manufacturer, acting as a wholesaler for
drugs distributed to retail community pharmacies…”
– In response to questions of when a secondary manufacturer is “acting as a wholesaler,”
CMS states as follows in the Final Rule:
• Circumstances in which a secondary manufacturer would not engage in
relabeling or repackaging of the AG?
– Does the example swallow the rule?
SIDLEY AUSTIN LLP 16For Discussion Purposes Only │ Not Intended as Legal Advice
“If the secondary manufacturer is not
engaged in the wholesale distribution of
prescription drugs to retail community
pharmacies; for example, it relabels or
repackages the drug and sells the
repackaged authorized generic to
wholesalers (as opposed to engaging in the
wholesale distribution to retail community
pharmacies) the price of the drug paid by the
secondary manufacturer would not be
included in the primary manufacturer’s AMP.”
Line Extensions: Definition/Identification
• CMS has declined to finalize its proposed regulatory definition of “line extension
drug” and its proposed process for identifying line extension drugs.
• CMS seeks additional comments on defining and identifying line extensions, as
CMS “may” address these issues in future rulemaking.
– Comments due 60 days after publication of the Rule in the Federal Register.
SIDLEY AUSTIN LLP 17
“Therefore, at this time, manufacturers are to rely on the statutory
definition of line extension at section 1927(c)(2)(C) of the Act, and where
appropriate, are permitted to use reasonable assumptions in their
determination of whether their drug qualifies as a line extension.”
For Discussion Purposes Only │ Not Intended as Legal Advice
Line Extensions: New Strengths
• CMS states that new strengths of the same formulation of the initial brand name
listed drug are not line extensions.
• However, CMS adds that, because the Agency is not finalizing a definition of line
extension in this final rule, this exclusion is not included in the final regulatory
text.
• CMS also states that it “do[es] not see any reason to exclude a new strength of a
line extension drug from being a line extension drug” (emphasis added).
SIDLEY AUSTIN LLP 18
“If the sole difference between a drug and the corresponding
initial brand name listed drug is the strength, then the drug will
not be considered a line extension drug and will not be subject to
the alternative URA calculation for line extension drugs.”
For Discussion Purposes Only │ Not Intended as Legal Advice
Line Extensions: Other Issues
• Line Extensions Marketed by a Different Manufacturer:
– CMS was persuaded by concerns from commenters about a line extension policy that
would require manufacturers to share pricing data with competitors and/or to collect
pricing information from unrelated parties.
• Inactive or Terminated Drugs
– CMS states that no alternative URA is calculated for a drug qualifying as a line extension
where the initial brand name drug is not active or has been terminated from the MDRP.
– Termination is effective as the first month after the last lot expiration.
• Authorized Generics (AGs):
– CMS states that an authorized generic can be a line extension drug.
SIDLEY AUSTIN LLP 19
“[I]n light of the comments received,
a drug marketed by a manufacturer will be treated as a line
extension of a drug of another manufacturer only where there is a
corporate relationship between the manufacturers.”
For Discussion Purposes Only │ Not Intended as Legal Advice
“Bundled Sale” Defined
• What has changed? Stayed the same? Are the changes relevant?
Bundled sale means anany arrangement regardless of physical packaging under which the
rebate, discount, or other price concession is conditioned upon the purchase of the same
drug, drugs of different types (that is, at the nine-digit National Drug Code national drug
code (NDC) level) or another product or some other performance requirement (for
example, the achievement of market share, inclusion or tier placement on a formulary), or
where the resulting discounts or other price concessions are greater than those which
would have been available had the bundled drugs been purchased separately or outside
the bundled arrangement. For bundled sales,
(1) tThe discounts in a bundled sale, including but not limited to those discounts resulting
from a contingent arrangement, are allocated proportionally to the total dollar value of the
units of all drugdrugs or products sold under the bundled arrangement.
(2) For bundled sales where multiple drugs are discounted, the aggregate value of all the
discounts in the bundled arrangement shallmust be proportionally allocated across all the
drugs or products in the bundle.
Yellow = Comparison of 2007 Final Rule to 2012 Proposed Rule
Green = Comparison of 2012 Proposed Rule to 2016 Final Rule
20SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
Other “Bundled Sale” Guidance
• What is not a bundled sale?
– When multiple products are discounted under a single contract, a bundled sale
arrangement does not exist if:
• A discount or price concession is established independently for each product within the contract;
• The purchase price under the contract is not contingent upon any other product in the contract or
upon some other performance requirement (such as the achievement of market share or inclusion
or tier placement on a formulary); and
• The discount provided for any product under the contract is no greater than if the product was
purchased outside of the contract.
• What was not addressed in the final rule?
SIDLEY AUSTIN LLP 21For Discussion Purposes Only │ Not Intended as Legal Advice
Bona Fide Service Fees (BFSF)
• In the Final Rule, CMS revised the proposed BFSF definition:
– Removed the reference to “wholesalers and retail community pharmacies”
– Replaced that language with “an entity”
• The four-part test
• No additional guidance on determining fair market value
• Manufacturers may use “any documentation” to support its FMV determinations, and such documentation should be contemporaneous with the manufacturer’s agreement to pay the fee.
• Revisions to “no pass through” prong intended to align with Average Sales Price calculations
• If a manufacturer has determined that a fee paid meets the other elements of the definition of BFSF, then the manufacturer may presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client or customer of any entity.
SIDLEY AUSTIN LLP 22
“Bona fide service fee means a fee paid by a manufacturer to an entity 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.”
For Discussion Purposes Only │ Not Intended as Legal Advice
Bona Fide Service Fees (BFSF)
• Treatment of price appreciation credits
– Proposed Rule: “[R]etroactive price adjustments, sometimes also known as price
appreciation credits, do not meet the definition of a bona fide service fee as they do not
reflect any service or offset of a bona fide service performed on behalf of a
manufacturer.”
– Final Rule: “We continue to believe that price appreciation credits would likely not meet
the definition of bona fide service fee. Based on our experience with the program, it is
our understanding that price appreciation credits are not issued for the purposes of
payment for any service or offset for a bona fide service performed on behalf of the
manufacturer, but rather are issued by the manufacturer to adjust (increase) the
wholesaler’s purchase price of the drugs in such instances when the drugs were
purchased at a certain price and are remaining in the wholesaler’s inventory at the time
the manufacturer’s sale price of the drug increased. In such situations, these credits
would amount to a subsequent price adjustment affecting the average price to the
manufacturer and should be recognized for purposes of AMP in accordance with
§447.504(f).”
– Relationship between the Streck litigation and the position CMS is taking on this issue.
SIDLEY AUSTIN LLP 23For Discussion Purposes Only │ Not Intended as Legal Advice
Interplay with 340B: Best Price Exclusion
• Best price exclusion for sales to 340B covered entities
– Proposed Rule language: Problematic “under the 340B program” phrasing
– Final Rule language: “[A]s long as the entity meets the definition of a [340B] covered
entity [under the 340B statute] . . . any prices charged by manufacturers and paid for by
covered entities shall be excluded from best price.”
– Subceiling prices
– Drugs purchased for inpatient use
– Orphan drugs
SIDLEY AUSTIN LLP 24For Discussion Purposes Only │ Not Intended as Legal Advice
“We are not requiring that manufacturers enforce HRSA requirements in
this final rule, nor are we imposing a requirement for manufacturers to
oversee whether a covered entity is compliant and/or conducting
business in accordance with the 340B program’s requirements in
accordance with section 340B(a)(4) and (5) of the PHSA.”
Interplay with 340B: Additional Issues
• Duplicate discounts
– Significant ongoing issues in this area
– Medicaid Managed Care Organization drugs purchased through the 340B program
• State reimbursement policies and methodologies
– Replacement of estimated acquisition cost (EAC) with actual acquisition cost (AAC)
– Requirement for states to describe the Medicaid agency’s payment methodology for
drugs dispensed by 340B covered entities and contract pharmacies
SIDLEY AUSTIN LLP 25For Discussion Purposes Only │ Not Intended as Legal Advice
Components of Rebate Calculation: BP
• In general, BP is defined as the lowest single price to any commercial
customer.
• BP is only determined for “single source” and “innovator multiple source”
drugs, including authorized generics, of a manufacturer.
• BP must be determined net of associated rebates, discounts, and other price
concessions provided by the manufacturer unless they are specifically
excluded by statute or regulation.
• Manufacturers must also consider any subsequent adjustments to the price available to a
commercial customer.
• BP is a critical concept in the MDRP and can have a huge impact on rebates
to State Medicaid programs.
For Discussion Purposes Only │ Not Intended as Legal AdviceSIDLEY AUSTIN LLP 26
Determination of BP: Exclusions
• BP excludes:
– Prices charged to:
• Indian Health Service (“IHS”),
• VA,
• State homes under 17 U.S.C. § 1741,
• DoD,
• PHS,
• 340B covered entities,
• Disproportionate Share Hospitals (“DSH”), and
• Designated state pharmaceutical assistance programs (“SPAP”)
– Prices under:
• FSS and
• Manufacturer-sponsored drug discount card programs
– Prices negotiated by:
• Prescription drug plans (“PDPs”) under Part D,
• Medicare Advantage (“MA”) prescription drug plans under Part C, and
• Qualified Retiree Prescription Drug Plans (with respect to enrollees under Part A or
B)
27SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
Determination of BP: Exclusions
• BP excludes rebates:
– Under the MRA or a CMS-authorized supplemental rebate agreement paid to a State
Medicaid program
– To Managed Medicaid
– To Medicaid demonstration projects, meeting certain criteria
– To PBMs, except those on mail order business or those “designed to” adjust prices at
the retail level
• BP excludes other transactions, including:
– Coupons for consumers, so long as certain conditions are met
– * Free goods “not contingent on a purchase requirement”
– * Nominal (sales at 10% of AMP) sales to:
• 340B covered entities
• Intermediate Care Facilities for the Mentally Retarded (“ICFs/MR”)
• State-owned or operated nursing facilities
– * Bona fide service fees
* Have been the focus of enforcement efforts
For Discussion Purposes Only │ Not Intended as Legal AdviceSIDLEY AUSTIN LLP 28
29
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Unit Rebate Amount (URA)MDRP Basic
Basic
Rebate
Additional
Rebate
URA
Single Source (S)
Innovator Multi-Source (I)
Greater of:
(1) Quarterly AMP – BP
(2) Quarterly AMP * 23.1%
(17.1% for Exclsuvely Pediatric and
Blood Clotting Indications)
Base AMP = AMP for first quarter
after market date
Current AMP – (Base AMP * Current
CPI / Base CPI)
Quarterly AMP * 13%
Historically & Currently N/A
New 2017 inflation penalty
similar to S/I except Base AMP
is 5th quarter AMP (3Q 2014 for
pre-4/1/15 drugs)
1) Basic Rebate + Additional Rebate
2) Where relevant, use line extension rebate if higher
3) If resulting URS is > AMP, use AMP
Drug TypeNon-Innovator Multi-
Source (N)
30
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Unit Rebate Amount (URA)Line Extension
When does it apply?
COD Final Rule: Line Extensions
Line
Ext
ensi
on
Def
initi
on
Act
ive
Sta
tus
Initi
al B
rand
Dru
g F
orm
New
Stre
ngth
Rea
sona
ble
Ass
umpt
ion
Dru
g F
orm
Dru
g T
ype
Not a Line Extension Drug
Line Extension Drug
Single Source (“S”) or Innovator Multisource
(“I”)
Oral Solid Dosage
(e.g. Capsule)
Line Extension
Oral Solid Dosage
(e.g. Capsule)
Not New Strength of Initial Brand
Drug
Status in MDRP
Non-Innovator (“N”)
Other Drug Form
Manufacturer's Policy for identifying line extensions
Other Drug Form
First Month After Last Lot Expiration
New Strength of Initial Brand Drug
Crit
eria
for
Dru
g
Bei
ng E
valu
ated
Crit
eria
for
Initi
al
Bra
nd D
rug Applies only
when there is a corporate
relationship between the
manufacturers
How is it calculated?
Calculate the Standard URA.
Calculate the Alternative URA.
a) Calculate the inflation rebate as a
percentage of AMP for all strengths of
the original drug.
b) Calculate the Alternative URA as the
product of the AMP of the line
extension drug and the highest
inflation percentage of AMP for the
original drug determined in Step 2, a)
above.
Select the greater of the Standard Medicaid
URA and Alternative URA as the Line
Extension URA.
Determine if URA is greater than 100% of
AMP.4
3
2
1
Understanding State Medicaid Programs
• If you’ve seen one Medicaid program, you’ve seen one Medicaid program
– Identifying the unique features and key differences of the various state programs
– Each state sets its own limits for prescription drugs and its own reimbursement
methodology for prescription drugs, some states have supplemental rebate programs
• Understanding how drugs in various states are actually reimbursed
– Ingredient Costs
– Dispensing Fees
– Co-pays/Co-insurance
• Federal matching funds/state matching funds
– States can describe services and limits as well as reimbursement subject to CMS
approval
– Challenge for states is to come up with the state matching funds used to draw down the
federal funds
SIDLEY AUSTIN LLP 31For Discussion Purposes Only │ Not Intended as Legal Advice
Complying With State Reporting Requirements
• What states have reporting requirements?
• What are the reporting requirements?
– Federal rebates
– Must be familiar with state’s requirements (http://www.medicaid.gov/Medicaid-CHIP-
Program-Information/By-Topics/Benefits/Prescription-
Drugs/Downloads/StateDrugContact2Q2013.pdf)
• How will changes to the AMP definition impact manufacturers’ reporting
requirements
For Discussion Purposes Only │ Not Intended as Legal Advice32SIDLEY AUSTIN LLP
State Pharmaceutical Assistance Programs (SPAPs)
• State Pharmaceutical Assistance Programs
– State funded
– Provide pharmaceutical coverage to low-income elderly or disabled persons who are not Medicaid
eligible
– Many dual eligibles previously covered by SPAPs now eligible for Medicare Part D coverage
– Eligible for Medicaid Equivalent Rebates
– Rebates are exempt from Medicaid Best Price
• SPAPs can “wrap around” Medicare
– Fill gaps in coverage
– Help with cost sharing
– Cover drugs not on Part D formulary
• SPAP still covers eligible participants
• Part D alleviates state costs for “dual eligibles”
– Federal government now pays majority of costs
• SPAP payments count toward TrOOP
SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
33
Duplicate Rebates
• Most manufacturers currently paying SPAP rebates
– Based on pre-MMA contracts
– If qualified SPAP, exempt from Medicaid Best Price
– Usually equal amount of Medicaid rebate
• Now, also paying rebates to Part D plans that may cover same beneficiaries
SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
34
CMS SPAP Guidance
• States may
– Help beneficiaries choose Part D plan
• States may NOT
– Steer beneficiaries toward preferred PDP
– Automatically enroll all SPAP beneficiaries in single PDP
– Use prior authorization to facilitate manufacturer rebates
SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
35
Lingering SPAP Rebate Questions
• Under what circumstances is it permissible for a manufacturer to pay rebates
to SPAPs where Part D beneficiaries are involved?
• What is the level of legal risk for manufacturer in paying rebates to SPAPs in
this circumstance?
• What are the potential ways for manufacturers to mitigate risk?
SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
36
Supplemental Drug Rebate Agreements
• In addition to federal rebates that are negotiated with the Secretary of Health and Human Services
and outside the control of the State, Supplemental Rebates are negotiated by the States to gain
additional discounts on the purchase price of certain drugs.
• Under SSA § 1927(a)(1), the Secretary may authorize a state to enter directly into separate or
supplemental rebate agreements with manufacturers
– Once approved, states may submit a State Plan Amendment (SPA) in order to implement prior authorization
programs to require authorization prior to dispensing covered outpatient drugs to Medicaid beneficiaries
– States may also establish preferred drug lists (PDLs) of covered outpatient drugs that will not be subject to prior
authorization and may, with CMS authorization, require manufacturers to enter into supplemental rebate
agreements as a condition of including the manufacturer’s covered outpatient drugs on the state’s PDL
• In order for CMS to approve these supplemental rebate agreements, the agreements must generate
rebates that are at least as large as the rebates set forth in the Secretary’s national rebate
agreement with drug manufacturers
• In CMS’s Sept. 18, 2002 State Medicaid Director letter, CMS instructed that “supplemental drug
rebates must be ‘considered to be a reduction in the amount expended under the State plan in the
quarter for medical assistance’ as required by section 1927(b)(1)(B) of the Act.”
• Unlike the Medicaid Rebate Program, manufactures are not required to enter into state
supplemental drug rebate agreements as a condition of participation in the National Drug Rebate
Program
SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
37
Getting a Drug on Formulary
• Must participate in the Federal rebate program
• State P&T Committees/Medicaid agencies
• Criteria/Considerations
– Safety/Efficacy
– Price (with/without rebate)
• What are Preferred Drug Lists (PDLs) and What Criteria Are Evaluated before
a drug is placed on a PDL?
– Safety and efficacy of the drug
– Pricing
– Safe, inexpensive drugs have best chance to make the PDL
– Medicaid may pay for non-preferred drugs but will likely require a prior authorization
from the PBM or state contractor with specific physician orders justifying the non-
preferred drug.
– PDL encourages manufacturers to offer their best price.
SIDLEY AUSTIN LLPFor Discussion Purposes Only │ Not Intended as Legal Advice
38
39
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Class of Trade (COT)Introduction
GP calculation compliance depends on accurate class of trade assignment
Challenges are increasing exponentially and include:
Customers’ rapid pace of diversification, innovation, and consolidation
Changing regulations/requirements
Expansion & evolution of governmental & commercial sources of COT relevant
data
A renewed focus by enforcement personnel
40
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Class of Trade (COT)Bill-To vs. Ship-To
Sale Type Bill-To Ship-To Comments
340B Contract
Pharmacy
Covered
Entity
Pharmacy Bill-to easier to track & maintain?
Integrated Delivery
Network (IDN)
Hospital? Clinic, HH,
Pharmacy?
Ship-to provides more granular &
accurate information? Does it matter
outside of RCP AMP?
Oversees Billing
Agent
International &
Non-Provider
Domestic
Provider
Ship-to may provide more accurate
information?
Drop-Ship:
Wholesaler pays
WAC
Wholesaler End
Customer
Chargeback processed so use bill-to
for direct filtering?
Drop-Ship:
Wholesaler pays
Contract Price
Wholesaler End
Customer
Ship-to better for CMS? What about
VA (where it’s still a wholesaler
sale?)
• Is context-specific filter necessary? Is it reasonable?
• How does this analysis impact the fundamental way in which COT is utilized for GP?
• What workarounds and/or reasonable assumptions can be employed?
41
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Class of Trade (COT)RCP Definition
RCP Exclusions:
• Pharmacies dispensing prescription medications
to patients primarily through the mail
• Nursing home pharmacies
• Long-term care facility pharmacies
• Hospital pharmacies
• Clinics
• Charitable or not-for-profit pharmacies
• Government pharmacies
• Pharmacy benefit managers
Regulatory Definition:
1.An independent pharmacy, a chain pharmacy,
a supermarket pharmacy, or a mass
merchandiser pharmacy;
2.Licensed as a pharmacy by the state;
3.Dispenses medications to the general public;
and
4.Dispenses medications at retail prices.
CMS Guidance:
• No percentage threshold
established for pharmacies to be
considered “primarily dispensing
through the mail.”
• Surveys to determine the overall
percentage of mail order, retail, or
non-retail purchases are not
required.
• If an RCP: (1) does not offer
prescriptions primarily through the
mail; and (2) has a home delivery
service as an additional service to
send prescriptions directly to the
patient’s home, such sales would
be included in AMP.
• CMS does not believe that a RCP
must have a ‘‘brick and mortar’’
store front.
42
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
Class of Trade (COT)Wholesaler Definition
Calculation Impact
Areas
Smoothing &
Factoring
Treatment of
Prompt Pay
Inclusion of
Authorized
Generic Sales
Significant Areas of
Concern
Reasonable
Assumptions
Required
Conducting wholesale
distributionDistribution to RCP
Conducting wholesale
distributionDistribution to RCP
“Wholesaler means a drug wholesaler that is engaged in wholesale distribution of
prescription drugs to retail community pharmacies, including but not limited to
manufacturers, repackers, distributors, … chain drug warehouses, … and retail
community pharmacies that conduct wholesale distributions.”
43
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 613559
State InvoicesGeneral Overview
Validations
• Entity: 340B
• FFS: OPA carve-in list (& advanced)
• FFS: Other advanced analytics
• Mgd Care: Focus area
• Product: Generic dispensed but brand
billed: Amount reimbursed by state
• Units: Commonly UOM, particularly J-
code claims.
• Units per script
• Claim level detail (states or vendors)
• Amount: Mgd care on date dispensed
• Calc AMP and BP
• Submit to CMS
• Validate claims
• Dispute
• Pay rebates
Mfr
• Calculate rebates amount
• Submit invoice to mfr.
State
• Test for reasonableness
• Calculate URA
• Distribute URAs to the States
CMS
AMP
and BP
URA
Invoice
ROSI
PQA
$’s
Reconciliation of State Invoice (ROSI)
• Details why payment differs from invoice
• RPU: DDR master, rounding, missing, etc.
• Units Adjusted: Agreed prior to payment
• Units Disputed: Provide reason code
• Amount Paid
Prior Quarter Adjustment (PQA)
• URA: AMP & BP changes, master date, etc.
• Units: Resolved disputes, etc.
• Adjustment & dispute reason codes
• Amount Paid: Negatives offset against
• State’s subsequent invoices get PQA
Mainly
Manual
Process
1,900 LAWYERS and 20 OFFICESlocated in commercial, financial
and regulatory centersaround the world
Beijing Chicago Houston New York Singapore
Boston Dallas London Palo Alto Sydney
Brussels Geneva Los Angeles San Francisco Tokyo
Century City Hong Kong Munich Shanghai Washington, D.C.
© 2015 KPMG LLP, a Delaware limited liability partnership and a member firm of the
KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. 38867WDC
The KPMG name, logo and "cutting through complexity" are registered trademarks
or trademarks of KPMG International Cooperative ("KPMG International").