Part D + AMP = Trouble

The Democrat-controlled Committee on Oversight and Government Reform kicked off another round of predictable complaints about Medicare Part D with their report on private Medicare drug plans. Even Ed Silverman at Pharmalot felt the need to join the industry-bashing with his pejorative headline Medicare Part D Is A Costly Mess.

Although it’s a little early for Halloween, I want to give you some scary nightmares about a new monster that could walk among us very soon.

As I see it, the Part D debate and the Average Manufacturer Price (AMP) debate will soon converge. This potent combination would disrupt the retail pharmacy and drug wholesale industry while simultaneously crippling the innovative capacity of the pharmaceutical industry.

AWP Lives!

Page 14 of the new report on private Medicare drug plans provides some interesting data about pharmacy economics under Part D. The 12 Prescription Drug Plans (PDPs) in the Committee’s report reimburse pharmacies using the following formulas and payments:

• Discount off AWP: 13.5% to 16.5%


• Dispensing fees: $1.70 to $4.00

The Committee found that the average pharmacy payment from Part D insurers = AWP-15% + $2.10. Thus, a pharmacy would receive a payment (reimbursement) from the PDP of $87.10 for filling a Part D script with an AWP of $100.

NCPA keeps complaining about "low and slow" payments under Part D. I discussed the "slow" myth last month. Seems like they should turn down the rhetoric on "low" payments, too. What do pharmacists want -- AWP + 250%??

As an aside, the report incorrectly states that this amount represents a cost to the Medicare beneficiary. In fact, only beneficiaries in the “donut hole” would pay this amount as an out-of-pocket cost, assuming they had no additional coverage. According to IMS’ Part D report, just 6% of beneficiaries fell into this category. That’s not “typical” (common, average) based on my definition, although the headline to Figure 7 claims to show the “Flow of Payments for a Typical Brand Name Drug.” Whatever.

The Part DAMP Monster

Let’s review a few themes from the past few months of Drug Channels:

• The AWP system is wounded and can not be repaired. (Sorry to be the bearer of bad news…) The new Part D report trashes AWP in Section D.
  
• CMS and the states currently pay for 40 percent of U.S. retail prescription drugs through Medicaid, SCHIP, and Medicare. It'll be 50% within 10 years.
  
• CMS is launching a new pricing benchmark called Average Manufacturer Price (AMP).


• CMS is encouraging states to adopt AMP-based reimbursement methodologies for pharmacies.


• AMP is widely opposed by everyone in the industry. Therefore, anti-pharma advocates will assume that AMP has merit.
• The Democrats have been critical of the Part D benefit design, despite its popularity. (Hey, I warned you to watch out in July 2006!)

Now add politics into the mix. If the Democrats take back the White House, then we will have a new CMS Administrator in 2009. We may also have a Democrat-controlled Congress, too.

What if CMS requires Part D PDPs to adopt AMP-based methodologies for pharmacy reimbursement? Or mandates the use of AMP-based Federal Upper Limits (FUL) for both brands and generics in Part D?

The possibilities for mischief are virtually unlimited.

Spooky.

Time for Jeff Kindler to rethink his campaign contribution strategy?