Dual Pricing vs. Single Pricing CBI CONFERENCE NOVEMBER 16, 2016
Agenda Definitions How, Why and When Dual Pricing works Dual vs. Single Pricing Benefits/Challenges Pricing Considerations 2
Definitions Prices FSS is a negotiated price based on MFC disclosures FCP is a calculated price based on the statutory calculation Single Pricer A manufacturer of covered drugs that offers one price that does not exceed the FCP to all FSS purchasers. Negotiated FSS Calculated FCP Lower of FCP or OGA Negotiated Price All FSS entities receive the same price 3
Definitions Dual Pricer A manufacturer of covered drugs that offers a negotiated or OGA FSS price to non Big-4 entities, and a price that does not exceed the current FCP to the Big 4 entities Negotiated FSS OGA entities receive this price VASH/BoP/OGA Calculated FCP Big 4 entities receive this price VA/DoD/IHS/Coast Guard 4
Products Must have 42-2A products Does not impact 42-2B products More impactful on products in an inflationary pricing environment 5
Definitions Reset Year Pursuant to Public Law 102-585, Section 603, Veterans Health Care Act of 1992 (the Public Law), this notice is intended to explain the continuity of Public Law administration for Federal Supply Schedule (FSS) contracts with covered drugs awarded under an open and continuous solicitation. The first year of a multi-year contract period is an opportunity for contractors to calculate their Federal Ceiling Prices (FCP) without being subject to the limitation of a dual calculation. To meet the requirements of the Public Law, VA has determined that the first year of the new Pharmaceutical FSS multi-year contracts for purposes of the FCP calculation was 2009 and that 2014 will be the next first year, if VA does not exercise its rights under the Option To Extend Term of the contract clause. For subsequent years of the contract, excluding the designated first year, the dual calculation will apply when performing the contractor s follow-on years FCP calculations. New covered drugs added to an existing FSS contract vehicle or to a recently awarded contract vehicle shall be subject to the Department s policy on implementing provisional, temporary, and permanent FCPs 6
Definitions NFAMP/FCP Calculation Annual NFAMP Weighted Average Price for each single form or dosage Calculated Ceiling Price Annual NFAMP * 76% (mandatory discount) less any price penalty Price Penalty 3QCYNFAMP less 3QPYNFAMP adjusted for CPIU FSS Price Price Negotiated based on MFC disclosures (dual) or based on lower of negotiated or calculated (single) FSS Max Cap Price FSS price * (1+CPIU) Federal Ceiling Price In 2 nd and subsequent years the FCP is Lower of the Calculated Ceiling Price and FSS Max Cap [Dual Calculation] In 1 st year FCP is not subject to the FSS Max Cap 7
Why Dual Pricing Works Dual Pricing FSS Max Cap is based on the FSS OGA price, which is generally higher than the FCP leaving room to increase the FCP Price Allows you to recover from a price penalty more quickly Single Pricing FSS Max Cap is based on the prior year s FSS contract price, which generally is last years FCP Does not allow you to recover from a price penalty until the reset year or Negotiation of a new contract 8
Dual Pricing Comparison YEAR 1 YEAR 2 Single Dual FSS Price $92 FSS Max = FSS Price + CPIU (0%) non-famp $120 non-famp $120 $120 Price Penalty $40 Price Penalty $0 $0 FCP Price $51 FCP Price (non_famp *.76 less Price Penalty) $91 $91 Single Price takes lower of FSS or FCP FSS Price $51 Single Price takes lower of FSS Max or FCP FSS Price $51 Dual Price has 2 Price Lists Dual Price has 2 Price Lists FSS Price $92 FSS Price FCP Price $51 FCP Price $92 $91
Dual Pricing Summary Single Pricer Dual Pricer Price Increase NFAMP $120.00 $120.00 Calculated Ceiling Price $91.00 $91.00 FSS Max $51.00 $92.00 FSS Max Based On Prior Year FCP Prior Year FSS Big 4 Price $51.00 $91.00 $40.00 OGA Price $51.00 $92.00 $41.00
Dual Pricing Comparison 1 st Year (2019) YEAR 1 Single Dual YEAR 1 Single Dual FSS Price $53 $95 FSS/OGA Price non-famp $220 $220 non-famp $220 $220 Price Penalty $30 $30 Price Penalty $30 $30 FCP Price (non_famp *.76 less Price $137 $137 FCP Price Penalty) FCP Price not limited by FSS Max Single Price takes lower of FSS Max or FCP FSS Price $137 Dual Price has 2 Price Lists FSS Price FCP Price $95 $95
Dual Pricing Summary 1 st Year Single Pricer Dual Pricer NFAMP $220.00 $220.00 Calculated Ceiling Price $137.00 $137.00 FSS Max $53.00 $95.00 1st Year No Dual in Calculation - FSS Max Based On 1st Year No Dual OGA in effect Price Increase Big 4 Price $137.00 $95.00 -$42.00 OGA Price $137.00 $95.00 -$42.00
Dual Pricing Benefits Higher OGA price Negotiated OGA price is normally higher than FCP Higher FCP price Allow you to recover from price penalties more quickly Increase your FSS sales Higher FSS price/higher FCP price on same volume OGA price is used as a reference price to establish international prices Reduce your TRRx refund liability Refund is difference between NFAMP & FCP (higher FCP) 13
Dual Pricing Challenges Negotiated FSS price is there for 5 years Limited opportunity to increase OGA CPIU increases Economic Price Adjustment 1 st Year of FSS contract for FCP calculation purposes Price reductions to the OGA price could result from the Price Reduction clause 1 st year of the FSS contract for FCP calculation purposes Reset FCP to market price without FSS max limitation Dual OGA price limitation FCP price is not limited by the FSS max during the calculation OGA price limits the increase that can be recognized for a dual pricer Dual Pricers are limited by the FSS max every year one way or another Within the FCP calculation by the FSS max Outside the FCP calculation by the dual OGA price 14
Single Pricing Benefits 1 st year of the FSS contract for FCP calculation purposes Reset FCP to market price without FSS max limitation There is no Dual OGA price limitation 15
Single Pricing Challenges Single pricers are subject to price penalties until reset year or renegotiation (could be 5 years) Lower FSS Price Lower FSS sales due to lower pricing Results in a lower FSS price which is used as a reference price to establish international prices Increases your TRRx refund liability Refund is difference between NFAMP & FCP (lower FCP) 16
Date of of Award New FSS Contract Price Penalty Reset Year Price Penalty Y4 New FSS Contract Establish New FSS Price S Lower Price D Lower Price S Recover based on Reset S Lower Price D Recover (up to spread D Lower Price between FSS and FCP) S Lower Price D Recover (up to spread between FSS and FCP) Establish New FSS Price 2017 2018 2019 2020 2021 2022
Considerations Number of qualifying products (42-2A) and the dollar value they comprise of FSS sales Life cycle status Pricing Strategy Spread between OGA, MFC, Tracking Customer, and the FCP Competitive products and prices Date of Award FCP pricing resets (1 st year of FSS contract for FCP calculation purposes every 5 years next reset is 2019) Overall impact should be evaluated 18
Changing your election Dual Pricing is established when a new FSS contract is negotiated Established single pricers can change to dual pricing at any time during the contract period, or at the time a new FSS contract is established Election applies to all covered drugs on contract Maximum benefit is derived if the election is established early in the life of the contract, and in place by September 30. 19
Take Home Message Dual Pricing is really, really, really, good for Pharmaceutical Companies Higher FSS price Higher FCP price Higher FSS sales Lower TRRx Refunds Higher Reference price for international sales Dual Pricing can add millions of dollars to your company s bottom line Evaluate if Dual Pricing is right for you!!!! 20