Changes to AMP & Best Price: Impact on 340B Pricing

4th Annual 340B Coalition Winter Conference

February 1, 2008 Long Beach, California

Stephen W. Schondelmeyer, Pharm.D., Ph.D. Director, PRIME Institute

University of Minnesota

Overview
What will be discussed?

Medicaid & AMP Deficit Reduction Act: AMP & the Final Rule Deficit Reduction Act: The Preliminary Injunction Impact of DRA & Preliminary Injunction on 340B

Medicaid & OBRA 90:

Creation of AMP [Average Manufacturer Price]

Medicaid & AMP

Medicaid Payment Policy Changes

OBRA 90 Required Manufacturers to

Pay Rebates to Medicaid

Minimum rebate Best Price rebate Inflation adjustment rebate

Veterans Health Care Act of 1992

Set Federal Ceiling Price for Big 4 Established 340B Pricing
Based on AMP (Minimum and Best Price) Federal Ceiling Price

Medicaid Rx Expenditures & Rebates:

1990 to 2002 (Current Dollars)
Expenditures
$30,000,000,000 $25,000,000,000 $20,000,000,000 $15,000,000,000 $10,000,000,000 $5,000,000,000 $0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2001 2002 1990 2000

$29.3 bil. $5.9 bil.

Total Rx Expenditures

$23.4 bil.

$7.1 bil. $0.9 bil. $6.2 bil.

Rebates Total Rx Expenditures - Rebates

SOURCE: Compiled by the PRIME Institute, University of Minnesota from data found in Pharmaceutical Benefits Under State Medical Assistance Programs, National Pharmaceutical Council, 1976 to 2002.

Drug Rebates as a % of Total Drug Expenditures

% of Medicaid Drug Expenditures

30% 25% 20% 15% 10% 5% 0%

0.0% 2.7% 2.0% 12.6% 17.1% 18.8% 24.9%

% of Drug Product Cost (AMP)

22.3% 23.3% 23.8%

17.9%

19.4%

20.2%

% of Total Drug Expenditures

1990199119921993199419951996199719981999200020012002
Source: Compiled by the PRIME Institute, University of Minnesota from data found in Pharmaceutical Benefits Under Medical Assistance Programs, National Pharmaceutical Council, 1975 to 1998 and in HCFA Form 64.

Estimated Prices of Selected Public Purchasers

% of AWP

(2001)
100.0%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

80.0% 67.9% 60.5% 51.7% 49.0%

AMP

47.9%

44.8%

AW P

AMP

Medicaid Medicaid (Min.) (Net)

FSS

340B

FCP

VA Contract

SOURCE: Estimated by PRIME Institute, University of Minnesota and reported in Pharmaceutical Discounts Under Federal Law: State Program Opportunities, Public Health Institute, May 2001.

Medicaid & the Deficit Reduction Act of 2005

Dual Role for AMP

AMP now has 2 roles in Medicaid:

Basis for Manufacturer Rebates to Medicaid

Minimum rebate of 15.1% of AMP Best price rebate Inflation adjustment payment State supplemental rebates

Basis for Setting FULs for Generics

New FULs to begin mid-2007 Lowest AMP of all generic equivalents x 250% Updated monthly & posted on web site

Medicaid Prescription Payment Gap

AMP
Payment Gap
(Wholesaler Operation & Margin & other costs)

Manufacturer
Rebates

Wholesaler

State Medicaid Program

AAC

Provider/ Pharmacy

Patient

Does AMP = Pharmacy AAC ?

No !

% of Acquisition Cost

AMP as a % Independent Invoice Acquisition Cost

(CBO, January 2007)
95.0% AMP Range 2% to 10% Below Actual Cost 88.0% AMP Range 2% to 27% Below Actual Cost

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Single Source Multi-Source Brands Multi-Source Generics
SOURCE: Independent invoice acquisition cost based on IMS invoice data from CBO January 2007.

62.0% AMP Range 8% to 61% Below Actual Cost

GAO Study of AMP

(December 22, 2006)

FULs set as 250% above the lowest AMP are:

Below Average Retail Acquisition Cost

65% Below for Highest Spend Generics 15% Below for Most Prescribed Generics 28% Below for Most Prescribed & High Use Drugs

59 of 77 Generics Studied

AMP-based FULs was below average retail

pharmacy acquisition cost

AMP Final Rule

The Final Rule for AMP

The CMS Final Rule:

Proposed Rule published (Dec. 2006) Final Rule published (July 2007) AMP Regulation Takes Effect (Oct 2007) Lawsuit Filed by NACDS / NCPA (Nov 2007) CMS to Report AMP to States & Website
(Jan 2008)

Winners & Losers with AMP

AMP as defined in the CMS Final Rule

The Final Rule AMP benefits:

Manufacturers with less rebate liability 340B with lower AMP from broad definition of retail

The Final Rule hurts:

Medicaid program with less rebates Traditional retail pharmacy with AMP-based FULs
(payment below acquisition cost in many cases)

340B rebates lower due to exclusion of

wholesaler prompt pay discounts

CMS Proposed Rule on AMP

(December 22, 2006)

Proposed Rule Expected Impact Includes:

Savings from Use of AMP to Set FULs

$800 million in savings in 2007 $8.04 billion in savings over 5 years 90% of savings would come from pharmacy 18,000 pharmacies will be significantly impacted 350 pharmacies in Minnesota will have
significant impact High Medicaid pharmacies will be affected most

Pharmacies Will Feel the Impact

The Lawsuit & Preliminary Injunction

The Lawsuit Alleges:

Preliminary Injunction Alleges CMS Final Rule:

Violates Admin. Procedure Act Definition of Retail Class of Trade Violates Statute Definition of Wholesaler Violates Statute Prices in Each State, Not United States
to be Considered

FUL Used for Non-equivalent Multiple Source Drugs

The CMS Final Rule:

Overly broad & self-styled CMS definitions:

Firms not licensed as wholesalers are wholesalers Firms not licensed as pharmacies are pharmacies Physicians, clinics, hospital outpatient, & home
infusion are called retail pharmacies

Manufacturers are wholesalers & retail pharmacies Consumers are wholesalers & retail pharmacies

Exhibit 3C. Pharmaceutical Market Structure: Distinct Market Segments & Classes of Trade
Manufacturers, Marketers, & Distributors Wholesalers

Drug Manufacturers & Marketers

Chain Warehouse

Regional Wholesalers

National Wholesalers

Chain Pharmacy

Mass Merchant

Pharmacy

Food & Drug Pharmacy

Independent Pharmacy

Mail Order Pharmacy

Health Plan

Pharmacy

Clinic & Drs Office

Long Term Care Pharmacy

Hospital

Government Facilities & Other

Retail Pharmacy

Outpatient Providers Pharmacy

Mail

Institutional Providers

Exhibit 3D. Pharmaceutical Market Structure: Wholesalers

Drug Manufacturers & Marketers
Wholesalers

Chain Warehouse

Regional Wholesalers

National Wholesalers

Chain Pharmacy

Mass Merchant

Pharmacy

Food & Drug Pharmacy

Independent Pharmacy

Mail Order Pharmacy

Health Plan

Pharmacy

Clinic & Drs Office

Long Term Care Pharmacy

Hospital

Government Facilities & Other

Manufacturer Direct Sales, Pt. Assistance, Coupons, & Vouchers

Hospital Outpatient

Non-Profit Entities

Exhibit 3E. CMS Final Rule: Wholesalers

Drug Manufacturers & Marketers
Wholesalers Wholesalers

Chain Warehouse

Regional Wholesalers

National Wholesalers

Chain Pharmacy

Mass Merchant

Pharmacy

Food & Drug Pharmacy

Independent Pharmacy

Mail Order Pharmacy

Health Plan

Pharmacy

Clinic & Drs Office

Long Term Care Pharmacy

Hospital

Government Facilities & Other

Wholesalers

Manufacturer Direct Sales, Pt. Assistance, Coupons, & Vouchers

Wholesalers

Hospital Outpatient

Non-Profit Entities

Exhibit 3F. Pharmaceutical Market Structure: Retail Pharmacy Class of Trade

Drug Manufacturers & Marketers

Chain Warehouse

Regional Wholesalers

National Wholesalers

Chain Pharmacy

Mass Merchant

Pharmacy

Food & Drug Pharmacy

Independent Pharmacy

Mail Order Pharmacy

Manufacturer Direct Sales, Pt. Assistance, Coupons, & Vouchers

Health Plan

Pharmacy

Clinic & Drs Office

Long Term Care Pharmacy

Hospital

Government Facilities & Other

Retail Pharmacy Class of Trade

Hospital Outpatient

Non-Profit Entities

Exhibit 3G. CMS Final Rule: Retail Pharmacy Class of Trade

Drug Manufacturers & Marketers

Chain Warehouse

Regional Wholesalers

National Wholesalers

Chain Pharmacy

Mass Merchant

Pharmacy

Food & Drug Pharmacy

Independent Pharmacy

Mail Order Pharmacy

Manufacturer Direct Sales, Pt. Assistance, Coupons, & Vouchers

Health Plan

Pharmacy

Clinic & Drs Office

Long Term Care Pharmacy

Hospital

Government Facilities & Other

Retail Pharmacy Class of Trade

Retail Pharmacy by Final Rule Definition

Hospital Outpatient

Non-Profit Entities

Preliminary Injunction Order by Judge R. C. Lamberth

Plaintiffs are likely to succeed on the merits Unless enjoined plaintiffs are likely to suffer irreparable harm for which no adequate remedy exists in law

Preliminary Injunction Order by Judge R. C. Lamberth

statute is clear enough does not provide the ambiguity for the wholesale re-writing of the words by the Agency CMS is enjoined from: any and all action to implement the AMP rule to the extent such action affects Medicaid reimbursement rates for retail pharmacies
Posting AMP on a public website or . . . to states

What Can We Expect?

What Can We Expect?

In the Next Year: May have settlement of legislative intervention
Without above the lawsuit will proceed to trial CMS may implement other aspects of DRA & AMP Manufacturers will continue to report AMP AMP may be implemented for 340B pricing purposes

PRIME Institute P harmaceutical Research In Management & Economics

University of Minnesota