On January 21, 2016, CMS released an advance-print copy of the long-awaited final rule on the Medicaid Drug Rebate Program (MDRP). The final rule implements various statutory amendments, revises the calculation of Average Manufacturer Price (AMP), makes certain changes to the determination of Best Price and addresses other issues relating to Medicaid price reporting and reimbursement. The final rule also discusses the definition of a “covered outpatient drug” and other issues with implications for both Medicaid and the 340B Drug Pricing Program.
Of the many clarifications provided by the AMP Final Rule; there are 4 major changes (ranked in order of items to be evaluated; not weighted by complexity and effort) that appear to have the most impact across manufacturers from a regulatory system (Revitas or Model N) perspective.
1. Price reporting and rebating in Territories to begin April 1, 2017 – 10 Potential Changes (Most likely to be resource intensive)
Effective April 1, 2017 the CMS definition of “States” will include Puerto Rico and other US territories. This change, although seemingly simple, impacts contracting systems in multiple ways. At a high level, manufacturers have to ensure that the sales, chargebacks and rebates data for all additional “states” is moving downstream to the government pricing systems and is getting classified properly for use in GP calculations. Including the other financial liability, methodology and Medicaid processing considerations, there are at least 10 items manufacturers should evaluate to ensure that the regulatory system is capable of meeting business requirements
2. 70/30 threshold for determination of 5i classification-6 Potential Changes (Most likely to have high complexity in implementation)
Based on the final rule, 5i classification is to be based on a NDC 9 70/30 threshold for units. A product with 70% or more of its units sold to non-RCPs at the NDC 9 level would be deemed to be “not generally dispensed to RCPs” and subject to the 5i AMP methodology. Manufacturers are obligated to conduct and report assessment on a monthly basis. Definition of 5i entities has also changed to include RCP entities as well as physicians, pharmacy benefit managers, health maintenance organizations, insurers, hospitals, clinics and outpatient facilities, mail order pharmacies, long-term care providers, hospices, manufacturers or any other entity that does not conduct business as a wholesaler or RCP.
Quarterly AMP is to be calculated by applying a weighted average to the three months in a quarter.
This rule has 6 potential changes that manufacturers should evaluate to ensure go-forward compliance. Most of the considerations are related to product classification, methodology determination, and calculation implementation and reporting. However, given the limited implementation window (April 1, 2016), this is one of the more important changes to be evaluated.
3. Manufacturers allowed to restate Baseline AMP until April 1, 2017-6 Potential Changes (Most likely to require patch deployment and regression testing)
Manufacturers have the option to recalculate Baseline AMP on a case by case basis. In order to decide whether to restate Baseline AMP, manufacturers have to gather historical data if not already available, load it into test systems to simulate calculations, and forecast impact. Apart from the modeling considerations, this change will most likely require deployment of a software patch to ensure appropriate attributes are available to populate restated data and use in inflation calculations.
4. Specialty pharmacies, home infusion pharmacies and home health providers not automatically included in the definition of “retail community pharmacy” (RCP). Also, sales to RCPs that give rise to TRICARE, Medicaid, SPAP and Part D rebates are to be included in standard AMP- 3 Potential Changes- 3 Potential Changes (Most likely to require coordination with upstream customer team)
CMS changed the definition of Retail community pharmacies in the final rule; as a result manufacturers should evaluate the Class of Trade classification and assignment criteria with the outside counsel. From a system perspective, manufacturers need to ensure that a streamlined process exists to assign specific Class of Trades to all customers and the GP calculations are modified to account for the customer classification changes
The table below summarizes the final rule items and the associated system impact:
Given the limited time most manufacturers have to implement final rule provisions, it is imperative to start evaluating the system impact as soon as possible so that the resources can be aligned to minimize compliance risk.