CMS publishes the long-awaited AMP rule

The blizzard that inundated Washington a week ago was not the only source of business paralysis: there was also the final Average Manufacturer Price (AMP) rule issued by CMS, which is targeted primarily at how drugs reimbursed under Medicaid are to be calculated, but which will have broader implications for state programs, other public health programs and some aspects of commercial insurance reimbursements. It’s a big deal—federal and state spending on Medicaid drugs was $45 billion in 2014—and one that has been years in coming. However, unlike other federal-agency pronouncements that cause near-immediate reaction, for the entire past week, the most that most interested parties could do was to say, “we’re studying it,” and to schedule webinars for their clients or members:

• National Assn. of Chain Drug Stores (NACDS), whose members will be directly affected by AMP formulas for how pharmacists are reimbursed for filling Medicaid prescriptions, said it “will work with member companies to review the rule and to determine exactly where we stand.”
• HDMA, in a news release, opined that the rule “strikes an appropriate balance between ensuring continued access to necessary treatments for Medicaid recipients as well as fair reimbursement policies for pharmacy providers,” and scheduled a Feb. 4 webinar to explain its implications
• CIS by Deloitte (formerly, Compliance Implementation Services, acquired a year ago by Deloitte) will be holding a webinar on Feb. 5; registration information is here.
• Model N, a Redwood City, CA IT firm that provides pricing and analytical tools for pharma companies, is holding a webinar on Feb. 4; registration information is here.

Adam Fein, president of Pembroke Consulting (Philadelphia; he is also a member of the Editorial Board of Pharmaceutical Commerce) posted a Jan. 26 entry on his DrugChannels.net blog, identifying several key business implications of the rule, including:

• Pharmacy profitability, which could be affected beneficially by use of an “actual acquisition cost” formula, in addition to greater emphasis given to “professional dispensing fees” that pharmacies will be able to charge;
• Manufacturers’ channel strategies, which entail new considerations of the “price appreciation credits” that manufacturers obtain from wholesalers (who might be holding inventory that, due to a price increase, is now worth more than when it was acquired), and a possible change in how “prompt pay discounts” are factored into the AMP calculation that could favor direct-to-pharmacy sales over sales to wholesalers.

A fairly detailed analysis of the AMP rule was posted on Jan. 28 at the website of Arent Fox, a Washington law firm that tracks government pricing policies closely (Arent Fox will also be featured in the HDMA webinar). According to Arent Fox partner Stephanie Trunk and associate, Erin Atkins, manufacturers will have to make determinations as to whether their drugs are “Single Source,” “Innovator Multiple Source” or “Noninnovator Multiple Source” products; these categories affect rebate percentages. Another key factor is the definition of a “retail community pharmacy” (RCP) and the exclusion of specialty pharmacies, home infusion pharmacies and home healthcare pharmacies from AMP calculations. In a somewhat parallel manner, there is special treatment of what has been statutorily defined as “5i Drugs”—those that are “injected, infused, inhaled implanted or instilled” and are not typically dispensed by RCPs. “Per CMS, manufacturers may use a myriad of resources to identify 5i Drugs, including prescribing information, drug package inserts, and the FDA Structured Product Labeling Routes of Administration,” write the Arent Fox authors.

Other factors associated with the AMP rule include definitions and exclusions of the calculation of Best Price, and another pricing mechanism, FUL (Federal Upper Limit), and effects of the 340B program (which allows hospital pharmacies certain discounts if they qualify).

Parts of the AMP rule are open for additional commentary and new rulings by CMS. As Fein puts it, aspects of the rule are “good news for lawyers” who will be racking up billable hours making sense of all this for manufacturers and their trading partners.