Buried in the President’s FY2008 is a proposal to reduce the Federal Upper Limit for generic drugs from 250 percent of average manufacturers price (AMP) to 150 percent of AMP. (Fellow budget geeks can read it for themselves on page 159 of Major Savings and Reforms in the President's 2008 Budget.)
I’ve been pondering the impact of AMP on the supply chain for some time now. But to be honest, I missed this specific proposal in the budget. Keep in mind that the definition of AMP is not even finalized yet!
As I noted last week in Trouble Ahead for Independent Pharmacies, the Deficit Reduction Act will hammer independent pharmacies by lowering gross margins on generic prescriptions. But the 2008 budget proposal is not a surprise if you recall President Bush’s comment last year: “It’s not immoral to make sure that prescription drug pharmacists don’t overcharge the system.” Needless to say, that sentiment did not endear him to the pharmacy lobby.
I still predict that private payers will be migrating away from AWP to AMP-based pharmacy reimbursement, but I’m skeptical about other proposed metrics such as WAC. Take another look at my popular November post The Attack on Generic Profits in Drug Channels for strategic planning questions to help you figure out the pharmacy supply chain’s future market structure.
Since I don’t charge for this blog, I must also remind you that free advice costs nothing until you act on it. Caveat lector!