Average Sales Price and Medicare Part B. Lisa C. McNair Senior Finance Manager Contracting & Reimbursement Indivior, Inc.

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1 Average Sales Price and Medicare Part B Lisa C. McNair Senior Finance Manager Contracting & Reimbursement Indivior, Inc. May, 2016

2 Disclaimer The views and opinions expressed in this presentation are those of Lisa C. McNair and do not necessarily represent the official policy or position of Indivior, Inc.

3 Medicare Part B Medicare Part B pays for medical services by doctor s. Covers prescription drugs administered in a doctor s office or hospital outpatient department. The Medicare Prescription Drug, Improvement, and Modernization Act 2003 (MMA) was signed into law in December Drugs paid under this program fall under three (3) categories: Drugs furnished at a doctor s office or outpatient setting; Drugs administered via a covered item of durable medical equipment; Drugs explicitly identified by law.

4 Medicare Part B Medicare and Medicare beneficiaries spent over $20B in 2014 and $19B in 2013 on Part B drugs. Expansion established the Average Sales Price (ASP) calculation for reimbursement for Part B drugs, effective January Medicare Part D expanded the prescription drug benefit Medicare beneficiaries. Medicare pays for most Part B covered drugs based on ASP + 6%.

5 Definition of ASP Defined as the manufacturer s sales to all purchasers in the United States for the NDC for a quarter divided by the total number of units of that NDC sold by the manufacturer in the quarter.

6 ASP Calculation ASPs are reported at NDC level but paid at the HCPCS/J-Code level. Multiple NDCs share the same ASP payment rate per billing unit. Differential pricing and discounting across NDCs (assigned to same J-Code) affect ASP payment rates.

7 ASP Reimbursement Beginning 1Q2005, ASP is the basis of reimbursement for prescription drugs administered by doctor s under Part B: Single-source became the lesser of 106% of either the two-quarter lagged volume-weighted ASP for all drugs sharing the same reimbursement code (HCPCS code) or 106% of the HCPCS code WAC. Multiple-source became 106% of the two-quarter lagged volumeweighted ASP for all drugs sharing the same reimbursement code (HCPCS).

8 GENERAL ASP METHODOLGY Quarterly Sales $ Quarterly Packages US Direct Gross Sales (Less Exempt Direct Sales) $100,000 30,000 LESS Nominal Direct Sales $1, LESS Ineligible Direct Sales $5,000 1,500 LESS Free Goods (not contingent on purchase) $0 50 LESS Financial Adjustments $ EQUALS ASP Eligible Direct Sales $93,000 27,900 LESS Smoothed Ineligible Indirect Sales $1, EQUALS ASP Eligible Sales $92,100 27,500 LESS Smoothed Financial Adjustment Price Concessions $300 - LESS Smoothed Eligible Chargebacks $100 - LESS Smoothed Eligible Rebates $500 - LESS Smoothed Eligible Service or Admin Fees (Non-Bona Fide) $200 - LESS Smoothed Eligible SPAP Rebates (Non-Qualified) $100 - LESS Customary Prompt Pay Discounts $500 - EQUALS Net ASP Eligible Sales $90,400 27,500

9 General ASP Methodology ASP = $90,400/27,500 = 3.287

10 Nothing Stays the Same Proposed Rule: Merit-Based Incentive Payment System (MIPS) and Alternative Payment Models (APMs) in Medicare Fee-for-Service To establish a new physician reimbursement system for Medicare beginning in The goal is to adjust reimbursement to reward/penalize providers based upon the quality of care they provide. Medicare Part B providers have the option to: Participate in the Quality Payment Program through MIPS: Providers will receive a quality performance score that could lead to reductions or increases in their Medicare reimbursement. Participate in an Alternative Payment Model (APMs): Providers are exempted from MIPS reporting requirements and eligible for financial bonuses. APMs include Comprehensive Primary Care Plus (CPC+) Model Next Generation ACO Model Other models under which providers may receive rewards for improving the quality of care while reducing costs

11 Wait House & Energy Committee Meeting Advocates tell the Committee this change will be costly not only to providers but also to patients. I am disappointed that CMS has masked their effort to control rising drug costs by suggesting physicians are not providing their patients with the most appropriate, highest quality medical care but instead prescribe more expensive drugs for profit.

12 Biosimilars 2016 Medicare Physician Fee Schedule (PFS) Final Rule Finalized use of a single, blended ASP payment amount for all biosimiliar products Part B reimbursement

13 Bona-Fide Service Fees Per , in order for a service fee paid by a manufacturer to an entity to be considered bona-fide and excluded from ASP: 1. The fee paid represents fair market value. 2. The fee paid must be for bona-fide, itemized service that is actually performed on behalf of the manufacturer. 3. The manufacturer would otherwise perform or contract for the service in the absence of the service agreement. 4. The fee is not passed on in whole or in part to a client or customer of any entity, whether or not the entity takes title to the drug.

14 Price Changes and ASP WAC increases impact ASP with a two-quarter lag. Increasing WAC leads to higher acquisition costs for providers. Discounts further complicates the reimbursement landscape. Sensitivity to reimbursement varies by product, disease state, and provider.

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