Medicaid Price Calculations & Rebates 1.0: Mastering the Essentials

Transcription

1 ACI Rx Drug Pricing Master Course Medicaid Price Calculations & Rebates 1.0: Mastering the Essentials November 1, 2016 William Sarraille Sidley Austin LLP Rick Zimmerer KPMG LLP

2 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.

3 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 3

4 Overview and Scope of the Final Rule The Average Manufacturer Price (AMP) means: 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 (a) 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 4

5 Average Manufacturer Price (AMP) Calculation Mechanics: Lead Calculation For each NDC9 (or blended group), every month, after unbundling, smoothing and pro-rating / factoring: Dollars Units Transaction Category Reference 1 2 Gross Direct Sales A A1 A2 Direct Sale Adjustments 1 B B1 B2 Adjusted Direct Sales C = A - B C1 = A1 - B1 C2 = A2 - B2 Excluded Direct Sales 2 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. Quarterly AMP = Weighted Average of Monthly AMPs 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

6 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 Ultimate financial impact could go in either direction Raw data used as input Basic System/Data Process Flow Discounts are reallocated Reallocated data are used in CMS calculations (AMP, BP, ASP) 1 1 VA does not currently require bundled discount reallocation. 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 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

7 Average Manufacturer Price (AMP) Calculation Mechanics: Smoothing 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.). Smoothing Overview 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 Mechanics (CMS Style ) Prior 12 Month Lagged Transactions Prior 12 Month Eligible Sales * Current Periods Eligible Sales = Estimated Current Period Lagged Transactions 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. Smoothing Illustration $ 400 Rebates $1,000 Sales Period Sales Rebates Paid Q1 $275 $ 0 Q2 $225 $ 75 Q3 $350 $100 Q4 $150 $225 Total: $1,000 $400 * $ 150 Sales = $60 Amount for Q4 Sales Rebates Smoothed Rebates For illustrative purposes only. For simplicity, omits the lag built into the smoothing process 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

8 Average Manufacturer Price (AMP) Calculation Mechanics: Pro-Rating / Factoring 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.) Factoring is the process of estimating the includable portion of the price concession. Factoring Overview 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 Mechanics Example Prior 12 Month Ineligible Indirect Sales Prior 12 Month Wholesaler Sales * Current Periods Price Concessions = Estimated Current Period Includable Price Concession Factoring Illustration Manufacturer Wholesaler 40% 60% Whls. Attribut. Rebates Factoring Ratio Est. Includable Rebates $100,000 60% 60,000 Sales to Excluded End Customers Sales to Included End Customers 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

9 Average Manufacturer Price (AMP) Calculation Mechanics: Lead Calculation For each NDC9 (or blended group), every quarter, after unbundling, : Calc Lagged Incentives Submitted B P Initial Final Estimated Actual W/in 30 Days All Data Avail. ID Sale COT Contract Pricing Basis Price Concessions Disc Rebate PPU IE Exclusions Reason 1 VA FCP FCP 1.00 E Gov. Direct Sales 2 RCP. Com. WAC On- Inv% & CFG Volume 3.00 I None 3 Whslr. Whslr. WAC PPD FFS 9.00 I None Indirect Sales Clinic Intl. Com. 340B Com. Com. WAC WAC (Intl) WAC CBK CBK CBK OOS Volume & CFG & Bundle E E I 340B Intl. None Imputed Prices 7 SPAP 8 PBM SPAP PBM WAC (Low) WAC (Cont) RPU Admin-Srv Fee/ Placement E I None None 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

10 Retail Community Pharmacy AMP Key Takeaway: The definition of retail community pharmacy has not been expanded to include entities conducting business as RCPs. Included in RCP Definition Independent pharmacy, Chain pharmacy, Supermarket pharmacy, or Mass merchandiser pharmacy, That is licensed as a pharmacy by the State and that dispenses medications to the general public at retail prices. Not Included in RCP Definition Pharmacies dispensing primarily through the mail Nursing home pharmacies Long-term care facilities pharmacies Clinics and Hospital pharmacies Charitable not-for profit pharmacies Government pharmacies Pharmacy benefit managers 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

11 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

12 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: 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 Frequency of Evaluation During the reporting period Monthly and quarterly Over a period of time, such as a 12- month period Monthly (with quarters based on weighted months) Interaction with presumed inclusion/build-up approaches What about non-5i drugs not dispensed through RCPs? SIDLEY AUSTIN LLP 12

13 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 13

14 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

15 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. Calculating AMP 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. Determining Best Price 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 SIDLEY AUSTIN LLP 15

16 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: 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. 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 16

17 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. 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. 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

18 Line Extensions: New Strengths CMS states that new strengths of the same formulation of the initial brand name listed drug are not line extensions. 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. 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

19 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. [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. 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

20 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 SIDLEY AUSTIN LLP 20

21 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 21

22 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 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. 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

23 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 (f). Relationship between the Streck litigation and the position CMS is taking on this issue. SIDLEY AUSTIN LLP 23

24 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. 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. Subceiling prices Drugs purchased for inpatient use Orphan drugs SIDLEY AUSTIN LLP 24

25 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 25

26 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. SIDLEY AUSTIN LLP 26

27 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) SIDLEY AUSTIN LLP 27

28 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 SIDLEY AUSTIN LLP 28

29 Unit Rebate Amount (URA) MDRP Basic Drug Type Basic Rebate 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) Non-Innovator Multi- Source (N) Quarterly AMP * 13% Additional Rebate Base AMP = AMP for first quarter after market date Current AMP (Base AMP * Current CPI / Base CPI) Historically & Currently N/A New 2017 inflation penalty similar to S/I except Base AMP is 5 th quarter AMP (3Q 2014 for pre-4/1/15 drugs) URA 1) Basic Rebate + Additional Rebate 2) Where relevant, use line extension rebate if higher 3) If resulting URS is > AMP, use AMP 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

30 Unit Rebate Amount (URA) Line Extension Criteria for Drug Being Evaluated Criteria for Initial Brand Drug Line Extension Definition Reasonable Assumption New Strength Initial Brand Drug Form Drug Form Drug Type Active Status When does it apply? How is it calculated? COD Final Rule: Line Extensions 1 Calculate the Standard URA. Single Source ( S ) or Innovator Multisource ( I ) Oral Solid Dosage (e.g. Capsule) Non-Innovator ( N ) Other Drug Form 2 Calculate the Alternative URA. a) Calculate the inflation rebate as a percentage of AMP for all strengths of the original drug. Line Extension Not New Strength of Initial Brand Drug Oral Solid Dosage (e.g. Capsule) Status in MDRP Manufacturer's Policy for identifying line extensions New Strength of Initial Brand Drug Other Drug Form First Month After Last Lot Expiration Applies only when there is a corporate relationship between the manufacturers 3 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. Line Extension Drug Not a Line Extension Drug 4 Determine if URA is greater than 100% of AMP 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

31 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 31

32 Complying With State Reporting Requirements What states have reporting requirements? What are the reporting requirements? Federal rebates Must be familiar with state s requirements ( Program-Information/By-Topics/Benefits/Prescription- Drugs/Downloads/StateDrugContact2Q2013.pdf) How will changes to the AMP definition impact manufacturers reporting requirements SIDLEY AUSTIN LLP 32

33 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 LLP 33

34 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 LLP 34

35 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 LLP 35

36 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 LLP 36

37 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 LLP 37

38 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 nonpreferred drug. PDL encourages manufacturers to offer their best price. SIDLEY AUSTIN LLP 38

39 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 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

40 Class of Trade (COT) Bill-To vs. Ship-To Sale Type Bill-To Ship-To Comments 340B Contract Pharmacy Integrated Delivery Network (IDN) Oversees Billing Agent Drop-Ship: Wholesaler pays WAC Drop-Ship: Wholesaler pays Contract Price Covered Entity Hospital? International & Non-Provider Wholesaler Wholesaler Pharmacy Clinic, HH, Pharmacy? Domestic Provider End Customer End Customer Bill-to easier to track & maintain? Ship-to provides more granular & accurate information? Does it matter outside of RCP AMP? Ship-to may provide more accurate information? Chargeback processed so use bill-to for direct filtering? 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? 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

41 Class of Trade (COT) RCP Definition 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. 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 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 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

42 Class of Trade (COT) Wholesaler Definition 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. Calculation Impact Areas Smoothing & Factoring Treatment of Prompt Pay Inclusion of Authorized Generic Sales Significant Areas of Concern Conducting wholesale distribution Distribution to RCP Reasonable Assumptions Required Conducting wholesale distribution Distribution to RCP 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

43 State Invoices General Overview Calc AMP and BP Submit to CMS CMS Test for reasonableness Calculate URA AMP and BP Distribute URAs to the States Mfr URA Invoice Validate claims Dispute Pay rebates ROSI PQA $ s State Calculate rebates amount Submit invoice to mfr. 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 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 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

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