November 17, 2010—The Centers for Medicare and Medicaid Services (CMS) published a final rule this week withdrawing its regulations and guidelines for determining the average manufacturer price (AMP) of prescription drugs subject to Medicaid rebates and 340B discounts. CMS initially announced the withdrawal in a proposed rule published in the Sept. 3Federal Register. AMP is the statutory benchmark used to calculate Medicaid rebates and 340B ceiling prices. The final rule takes effect on Dec. 15.
In addition to withdrawing the AMP definition, the new rule also withdraws CMS’s definition of a multiple source drug and its prior rule setting the federal upper Medicaid reimbursement limit on such drugs. CMS’s decision to revisit these two definitions was initially prompted by a 2007 lawsuit challenging the legality of the regulations. While publication of the final rule should bring that lawsuit to a close, it also paves the way for implementation of provisions in the Affordable Care Act (ACA) that redefined AMP and the term “multiple source drug.” The final rule made clear that CMS will address the implementation of ACA’s AMP-related provisions in another forthcoming regulation.
CMS Declines to Address 340B Provider Comments
Safety Net Hospitals for Pharmaceutical Access (SNHPA) and other 340B provider organizations submitted comments to CMS in September in response to the proposed rule. Among other points, they urged CMS to keep the 340B program in mind during implementation of a new AMP definition. AMP calculations directly affect 340B prices because a drug’s 340B ceiling price is generally its AMP minus its Medicaid unit rebate amount. CMS, however, declined to address the 340B groups’ comments on the grounds that they were beyond the scope of the rule.
Health care reform redefined AMP as the average price that wholesalers pay manufacturers for drugs distributed to retail community pharmacies and the prices that such pharmacies pay when they buy directly from manufacturers. In contrast to its earlier AMP rules, Congress defined “retail community pharmacy” for the first time and listed non-retail transactions that it wanted excluded from the calculation of AMP. Those exclusions include payments received from, and rebates or discounts provided to, pharmacy benefit managers, managed care organizations, insurance companies, hospitals and clinics, mail order pharmacies, and other non-retail purchasers of drugs.
Congress revisited the AMP definition this summer after stakeholders warned that the exclusion of non-retail sales could distort or even invalidate AMP calculations for drugs sold mainly outside of the retail class of trade. It amended the definition to expressly permit the use of the above non-retail transactions in calculating AMP for inhalation, infusion, instilled, implanted and injectable drugs “not generally dispensed through a retail community pharmacy.” President Obama signed legislation creating the exception for the so-called “five I” medications in August.
340B providers urged CMS to carry Congress’ new AMP definition over to 340B price calculations to avoid two definitions of AMP – one for the 340B program and the other for the Medicaid rebate program. In particular, they stressed the importance of using the new AMP formula for calculating 340B ceiling prices applicable to the “five I” drugs. Hemophilia treatments centers commented, for example, that calculating AMP for the “five I” medicines based solely on retail community pharmacies’ prices would have a “devastating impact” on 340B discount prices for factor replacement product (FRP) because only about 1 to 2 percent of FRP is distributed through retail community pharmacies.
Drug Companies Displeased
CMS said in the rule that it “expects to develop” regulations implementing the changes to AMP made by the ACA, but it did not say when. In the meantime, with the old rules withdrawn, the rule said “drug manufacturers would be advised to base their AMP calculations on the definitions set forth” in the ACA “instead of on the AMP and AMP-related definitions provided in existing regulations and guidance.”
Drug manufacturers have expressed concerns over the uncertainly CMS has left in this area. For example, a consulting firm that helps companies comply with drug pricing program rules has referred to the situation as an “interim AMP” with “too much gray area.”
“Regulations are required to give us the detail to make appropriate assumptions and develop methodologies,” Chris Cobourn of Compliance Implementation Services (CIS) wrote in the firm’s blog. “[W]e must proceed with establishing a defendable position now on an AMP-methodology that we feel aligns with [the health reform law] but also realize that the regulations will come and we will then have to make major changes again.”
Effect on 340B Prices Yet to be Seen
Experts generally agree that, apart from the “five I” medicines, the changes Congress made will probably increase AMPs, which will tend to raise prices for 340B providers. The health care law, however, also significantly raised the minimum Medicaid rebate percentage on most brand-name drugs – the other half of the 340B ceiling price equation – which will tend to reduce 340B providers’ costs. The minimum rebate percentage on generics was also raised, but not as much as for brand-name pharmaceuticals.
Drug manufacturers must submit their first price reports based on the new AMP definitions to CMS by Nov. 30. As a result, the new AMPs will probably begin to affect 340B ceiling prices beginning in the first or second quarter of 2011.