sps, rcps and amp
TRANSCRIPT
CBI Final Rule ForumPhiladelphia, PA
Definition of Specialty Pharmacy,Threshold for 5i and Business Implications
John Shakow+1 202 626 5523
[email protected] 20, 2015
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Agenda
• Primer on AMP Methodology Determination and Inclusion/Exclusion
• Proposed Rule Expansion of RCP• Legality/Justification for Expansion, and
Counterarguments• Implications for AMP and URA
Primer on AMP Methodology Determination and Inclusion/ Exclusion
Primer
• Two AMP Methodologies: Standard and 5i– Standard AMP
• Includes sales to Retail Community Pharmacies (“RCPs”) and sales to wholesalers for drugs distributed to RCPs
• RCP is defined in the Medicaid statute:
“an independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses medications to the general public at retail prices. Such term does not include a pharmacy that dispenses 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, or pharmacy benefit managers.” Section 1927(k)(10)
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Primer
• Two AMP Methodologies: Standard and 5i– Standard AMP
• Includes sales to Retail Community Pharmacies (“RCPs”) and sales to wholesalers for drugs distributed to RCPs
• RCP is defined in the Medicaid statute:
“an independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses medications to the general public at retail prices. Such term does not include a pharmacy that dispenses 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, or pharmacy benefit managers.” Section 1927(k)(10)
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Primer• Two AMP Methodologies: Standard and 5i
– 5i AMP
• Applies to products that are both (a) inhaled, infused, instilled, implanted or injected, and (b) “not generally dispensed” through RCPs.
• What is meant by “not generally dispensed” is in some dispute: CMS has proposed it to mean when dispensed through RCPs less than 10% of the time; during the pendency of the Proposed Rule, manufacturers use other thresholds: 25%, 30%, 50%, etc.
• 5i AMP includes sales and price concessions to RCPs and almost all other non-government purchasers.
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Primer• Two AMP Methodologies: Standard and 5i
– Implications• Innovator drugs are not generally discounted to RCPs.
Therefore, standard AMP is often very high, very close to WAC.
• Innovator drugs are often discounted to other purchasers and payors, however, including PBMs, HMOs, insurers, hospitals, mail order and others. Therefore, 5i AMP is often considerably lower than Standard AMP.
• Given the Medicaid URA calculation rules, the lower the AMP, the lower the Medicaid rebate liability. All other things being equal, a standard AMP product will have higher rebate liability than a 5i AMP product.
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Proposed Rule Expansion of RCP
Proposed Rule Expansion of RCP
• The Proposed Rule seeks to create a new category of entities for use in Medicaid price reporting: entities that “conduct business as [] wholesalers or retail community pharmacies.”
• These entities “include[] but [are] not limited to specialty pharmacies, home infusion pharmacies and home healthcare providers.”
• Sales to these entities are to be included in standard AMP
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Proposed Rule Expansion of RCP
• Sales to these entities are (presumably) to be counted in the “not generally dispensed” analysis for 5i.
• Neither CMS’s Proposed Rule preamble discussion about the “not generally dispensed” element of the 5i determination nor the proposed regulation on 5i determination mention entities “doing business as” RCPs. Instead, they focus on drugs dispensed through RCPs.
• Nevertheless, we should be wary of definition creep in the Final Rule that might sweep entities “doing business as” RCPs into the 5i determination analysis.
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Legality/Justification for Expansion, and Counterarguments
Legality/Justification and Counterarguments
• Justification:
1. The Negative Gives Us a Positive
The statutory definition of AMP excludes “payments received from and rebates or discounts provided to … any other entity that does not conduct business as a wholesaler or retail community pharmacy” (emphasis added). To give this provision meaning, CMS posits, sales to entities that do conduct business as RCPs must be included in AMP.
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Legality/Justification and Counterarguments
• However,
1. The Negative Gives Us a Positive
This construction out of the negative creates an enormous loophole in the carefully constructed definition of RCP set out in the statute. Section (k)(10) does not include a “doing business as” provision, and is in fact quite clear about the entities that are included in and excluded from the definition of RCP. CMS’s proposal opens the door to a whole host of non-RCP entities that may, at CMS’s discretion, be considered to be “doing business as” RCPs and includable in AMP.
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Legality/Justification and Counterarguments
• Justification:
2. Our Examples are Close to Those in the Statute
CMS suggests that specialty pharmacies, home infusion pharmacies and home health care providers conduct business as RCPs “inasmuch as they dispense medications to the general public at retail prices and are licensed by the State as a pharmacy… [T]he drugs dispensed by these pharmacies are sold in the retail marketplace and are available to any member of the general public…” That is, the three new types of entities “fit” within the statutory definition of an RCP.
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Legality/Justification and Counterarguments
• However:
2. Our Examples are Close to Those in the Statute
These points are debatable on the merits. At the very least, we are sure that specialty pharmacies, home infusion pharmacies and home health care providers are not independent pharmacies, chain pharmacies, supermarket pharmacies, or mass merchandiser pharmacies (the entities modified in the statute by the licensure, general public and retail pricing requirements of the statute). Specialty pharmacies in particular do not “fit” within (k)(10) because they dispense “prescription medications to patients primarily through the mail,” a specific statutory exclusion from the definition of RCP.
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Legality/Justification and Counterarguments
• Justification:
3. We Need to Capture “Crack Drugs”
CMS suggests that because some oral (that is, non-5i) covered outpatient drugs are not dispensed through RCPs but only through specialty pharmacies (including, for example, some REMS drugs), in order to calculate AMPs and therefore Medicaid rebates for these products it must expand the list of includable entities to those “doing business as” RCPs.
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Legality/Justification and Counterarguments
• However:
3. We Need to Capture “Crack Drugs”
Perhaps limiting this expanded conception of RCP would be reasonable “for those drugs for which an AMP could not otherwise be calculated.” Expanding the definition of RCP in all contexts, however, even where there are sufficient actual RCP sales to establish an AMP, is unwarranted. Many manufacturers of “crack” drugs utilize the 5i methodology to fix this disconnect.
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Implications for AMP and URA
Implications for AMP and URA
• If the Proposed Rule is made final as written:
– Standard AMPs (and the URAs that flow from them) may indeed be lower for a number of innovator products because these entities that traditionally receive discounts would be included in the calculation of AMP.
– “Crack” drugs would have an obvious path to AMP calculation.
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Implications for AMP and URA
• If the Proposed Rule is made final as written:
– Many inhaled, infused, instilled, implanted or injected products that would otherwise “pass” the “not generally dispensed” test would fail because the universe of RCPs is so much larger (that is, much easier to exceed the threshold set by CMS).
– Pushed into standard AMP, the AMPs and associated URAs would likely be much higher than they would be if left in 5i AMP (even if standard AMP included specialty pharmacies, home infusion pharmacies and home healthcare providers).
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Implications for AMP and URA
• If the Proposed Rule is made final as written:
– Negatively affected manufacturers of 5i products may consider taking legal action to reverse the expansion.
– Recent victories by NACDS in 2007 and PhRMA in 2015 suggest that courts are open to reversing rulemakings that misconstrue the statute.
– Query whether PhRMA/BIO would be interested in this issue given that rebate liability for non-5i manufacturers may fall.
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John Shakow Partner, FDA & Life Sciences Practice Group
John Shakow is a nationally-recognized expert in all aspects of drug pricing and price reporting. He has counseled pharmaceutical and biotechnology clients on their rights and obligations under the Medicaid, Medicare, Federal Supply Schedule, 340B and TRICARE programs for almost twenty years. John regularly advises manufacturers on the spectrum of regulatory, commercial and litigation matters relating to pricing and government payor programs. He has extensive experience helping clients resolve commercial, strategic, organizational and other legal challenges while maintaining the integrity of their government pricing compliance efforts.
King & Spalding1700 Pennsylvania Avenue, NWWashington, D.C. 20006
202-626-5523 (direct)
[email protected]/in/JohnShakowhttp://www.kslaw.com/practice_areas/pags/PharmaGovPricingCompliance.PDF