Steve Schondelmeyer Fri 830 Onsite

Changes to AMP & Best Price:

Impact on 340B Pricing

February 1, 2008Long Beach, California

4th Annual 340B CoalitionWinter Conference

University of Minnesota

Stephen W. Schondelmeyer, Pharm.D., Ph.D.Director, PRIME Institute

Overview

• Medicaid & AMP

• Deficit Reduction Act: AMP & the Final Rule

• Deficit Reduction Act: The Preliminary Injunction

• Impact of DRA & Preliminary Injunction on 340B

What will be discussed?

Medicaid & OBRA ’90:

Creation of AMP[Average Manufacturer Price]

Medicaid Payment Policy Changes

Medicaid & AMP

OBRA ’90 Required Manufacturers to

Pay Rebates to Medicaid

Minimum rebate

Best Price rebate Inflation adjustment rebate

Veterans Health Care Act of 1992 Set Federal Ceiling Price for Big 4 Established 340B Pricing

Based on AMP (Minimum and Best Price)

Federal Ceiling Price Negotiated Price

Medicaid Rx Expenditures & Rebates: 1990 to 2002 (Current Dollars)

$0

$5,000,000,000

$10,000,000,000

$15,000,000,000

$20,000,000,000

$25,000,000,000

$30,000,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Expenditures

Total RxTotal RxExpendituresExpenditures

SOURCE: Compiled by the PRIME Institute, University of Minnesota from data found in Pharmaceutical Benefits Under State Medical Assistance Programs, National Pharmaceutical Council, 1976 to 2002.

Total RxTotal RxExpendituresExpenditures- Rebates- Rebates

RebatesRebates

$6.2 bil.$0.9 bil.$7.1 bil.

$29.3 bil.

$5.9 bil.

$23.4 bil.

Drug Rebates as a % of Total Drug Expenditures

20.2%

23.3% 23.8%

12.6%

2.0%

18.8%17.9%

19.4%

22.3%

0.0%

2.7%

17.1%

24.9%

0%

5%

10%

15%

20%

25%

30%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

% of Drug Product Cost (AMP)

% of Total Drug Expenditures

% of MedicaidDrug Expenditures

Source: Compiled by the PRIME Institute, University of Minnesota from data found in Pharmaceutical Benefits Under Medical Assistance Programs, National Pharmaceutical Council, 1975 to 1998 and in HCFA Form 64.

Estimated Prices of Selected Public Purchasers(2001)

44.8%47.9%49.0%

51.7%

60.5%

67.9%

80.0%

100.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AWP AMP Medicaid(Min.)

Medicaid(Net)

FSS 340B FCP VAContract

% of AWP

SOURCE: Estimated by PRIME Institute, University of Minnesota and reported in Pharmaceutical Discounts Under Federal Law: State Program Opportunities, Public Health Institute, May 2001.

AMP

Medicaid & theDeficit Reduction Act

of 2005

AMP now has 2 roles in Medicaid:

Dual Role for AMP

Basis for Manufacturer Rebates to Medicaid

Minimum rebate of 15.1% of AMP

Best price rebate Inflation adjustment payment State supplemental rebates

Basis for Setting FULs for Generics New FULs to begin mid-2007 Lowest AMP of all generic equivalents x 250% Updated monthly & posted on web site Applies to any drug with 2 or more equivalents

Provider/Pharmacy

Medicaid Prescription Payment Gap

Patient

Wholesaler

ManufacturerAMP

AAC

StateMedicaidProgram

Does AMP = Pharmacy AAC ?

Payment Gap(Wholesaler Operation & Margin & other costs)

No !

Rebates

AMP as a % Independent Invoice Acquisition Cost

(CBO, January 2007)

62.0%

88.0%

95.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Single Source Multi-Source Brands Multi-Source Generics

% of Acquisition Cost

SOURCE: Independent invoice acquisition cost based on IMS invoice data from CBO January 2007.

AMP Range

2% to 10%

Below

Actual Cost

AMP Range

2% to 27%

Below

Actual CostAMP Range

8% to 61%

Below

Actual Cost

FULs set as 250% above the lowest AMP are:

GAO Study of AMP (December 22, 2006)

Below Average Retail Acquisition Cost

65% Below for Highest Spend Generics

15% Below for Most Prescribed Generics 28% Below for Most Prescribed & High Use Drugs

59 of 77 Generics Studied AMP-based FULs was below average retail

pharmacy acquisition cost

AMP Final Rule

The CMS Final Rule:

The Final Rule for AMP

Proposed Rule published (Dec. 2006)

Final Rule published (July 2007)

AMP Regulation Takes Effect (Oct 2007)

Lawsuit Filed by NACDS / NCPA (Nov 2007)

CMS to Report AMP to States & Website

(Jan 2008)

AMP as defined in the CMS Final Rule

Winners & Losers with AMP

The Final Rule AMP benefits:

Manufacturers with less rebate liability

340B with lower AMP from broad definition of retail

The Final Rule hurts: Medicaid program with less rebates

Traditional retail pharmacy with AMP-based FULs

(payment below acquisition cost in many cases)

340B rebates lower due to exclusion of

wholesaler prompt pay discounts

Proposed Rule Expected Impact Includes:

CMS Proposed Rule on AMP(December 22, 2006)

Savings from Use of AMP to Set FULs

$800 million in savings in 2007

$8.04 billion in savings over 5 years 90% of savings would come from pharmacy

Pharmacies Will Feel the Impact 18,000 pharmacies will be significantly impacted 350 pharmacies in Minnesota will have

significant impact High Medicaid pharmacies will be affected most Rural & Low-income area pharmacies will be hit

The Lawsuit & Preliminary Injunction

Preliminary Injunction Alleges CMS Final Rule:

The Lawsuit Alleges:

Violates Admin. Procedure Act

Definition of Retail Class of Trade Violates Statute

Definition of Wholesaler Violates Statute

Prices in Each State, Not “United States” to

be Considered

FUL Used for Non-equivalent Multiple Source Drugs

Overly broad & self-styled CMS definitions:

The CMS Final Rule:

Firms not licensed as wholesalers are wholesalers

Firms not licensed as pharmacies are pharmacies

Physicians, clinics, hospital outpatient, & home

infusion are called “retail pharmacies”

Manufacturers are wholesalers & retail pharmacies

Consumers are wholesalers & retail pharmacies

Exhibit 3C. Pharmaceutical Market Structure: Distinct Market Segments & Classes of Trade

ChainPharmacy

Mass Merchant

Pharmacy

Food & DrugPharmacy

IndependentPharmacy

Mail OrderPharmacy

Health PlanPharmacy

Clinic &Drs’ Office

Long TermCare

PharmacyHospital

GovernmentFacilities &

Other

Chain Warehouse

RegionalWholesalers National Wholesalers

Drug Manufacturers & Marketers

Retail PharmacyMail

Pharmacy

Outpatient Providers

Wholesalers

Institutional Providers

Manufacturers,

Marketers, &Distributors

Exhibit 3D. Pharmaceutical Market Structure: Wholesalers

ChainPharmacy

Mass Merchant

Pharmacy

Food & DrugPharmacy

IndependentPharmacy

Mail OrderPharmacy

Health PlanPharmacy


Long TermCare

PharmacyHospital


Other

Chain Warehouse



HospitalOutpatient

ManufacturerDirect Sales,

Pt. Assistance,Coupons, &Vouchers

Non-ProfitEntities

Wholesalers

Exhibit 3E. CMS Final Rule: Wholesalers

ChainPharmacy

Mass Merchant

Pharmacy

Food & DrugPharmacy

IndependentPharmacy

Mail OrderPharmacy

Health PlanPharmacy


Long TermCare

PharmacyHospital


Other

Chain Warehouse



HospitalOutpatient



Non-ProfitEntities

Wholesalers

Wholesalers

WholesalersWholesalers

Wholesalers

Exhibit 3F. Pharmaceutical Market Structure: Retail Pharmacy Class of Trade

ChainPharmacy

Mass Merchant

Pharmacy

Food & DrugPharmacy

IndependentPharmacy

Mail OrderPharmacy

Health PlanPharmacy


Long TermCare

PharmacyHospital


Other

Chain Warehouse



HospitalOutpatient



Non-ProfitEntities

Retail Pharmacy Class of Trade

Exhibit 3G. CMS Final Rule: Retail Pharmacy Class of Trade

ChainPharmacy

Mass Merchant

Pharmacy

Food & DrugPharmacy

IndependentPharmacy

Mail OrderPharmacy

Health PlanPharmacy


Long TermCare

PharmacyHospital


Other

Chain Warehouse



HospitalOutpatient



Non-ProfitEntities

Retail Pharmacy Class of Trade Retail Pharmacy by

Final Rule Definition

Preliminary Injunction Order by Judge R. C. Lamberth

“Unless enjoined plaintiffs are likely to suffer

irreparable harm for which no adequate remedy

exists in law”

“Plaintiffs are likely to succeed on the merits”

CMS is enjoined from:

Preliminary Injunction Order by Judge R. C. Lamberth

“does not provide the ambiguity for the

wholesale re-writing of the words by the

Agency”

“statute is clear enough”

“any and all action to implement the AMP rule

to the extent such action affects Medicaid

reimbursement rates for retail pharmacies”

“Posting AMP on a public website or . . . to states”

wholesale

What Can We Expect? What Can We Expect?

What Can We Expect?

May have settlement of legislative intervention

Without above the lawsuit will proceed to trial

CMS may implement other aspects of DRA & AMP

Manufacturers will continue to report AMP

AMP may be implemented for 340B pricing purposes

In the Next Year:

PRIME Institute

P R I M E

PRIME Institute

P R I M E

harmaceutical esearch n anagement & conomics

harmaceutical esearch n anagement & conomics

University of MinnesotaUniversity of Minnesota

Steve Schondelmeyer Fri 830 Onsite

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