Take this AMP and Shove it

Looks like the Average Manufacturer Price (AMP) battle ain’t over yet.

The National Community Pharmacists Association (NCPA) kicked off the latest round with a letter to CMS complaining about the new AMPs and asking for another fix. Here's the press release: Pharmacists to Federal Medicaid Officials: Revamp Proposed Generic Drug Federal Upper Limits to Preserve Pharmacy Access for Patients.

I have some sympathy for pharmacies because the new Federal Upper Limits (FULs) were lower than almost anyone (including me) expected—primarily because generic drugs are even cheaper than anyone believed!

Sigh. It was only a year ago that NCPA and NACDS patted themselves on the back for “reducing what would have been major cuts to pharmacy reimbursement.” I guess healthcare reforms are like the squeaky door to my daughter's bedroom. No matter how many times you try, some things just won’t stay fixed.

Read on for my analysis of the letter.

WHAT'S THE PROBLEM?

Here are the main problems that NCPA identifies in its letter along with my comments. As always, I encourage you to read the letter for yourself here.

AMP is not related to Cost of Goods. This is not really true. AMP is a benchmark representing sales by the upstream manufacturer. Add wholesale costs/margins (from a wholesaler or a chain warehouse) and you end up with a pharmacy's acquisition cost of goods.

Regular readers will recall that pharmacy associations are strongly opposed to CMS’ efforts to gather acquisition cost data (as I discuss in CMS Moves Ahead with Pharmacy Acquisition Cost Survey), so where does that leave us?

Many generic drugs are sold at absurdly cheap prices by manufacturers, making list-minus pricing very unreliable. The data from Hello, Transparency: CMS Publishes its First AMP Data show more than two-thirds of the AMPs being sold for less than 25 cents per pill. Many top selling generics sell for pennies per pill.

Purchasing Capabilities of Small Pharmacies. NCPA is on more solid ground here. The letter includes a small table showing that pharmacies will see reimbursement cuts of 38% to 44% under the new FULs. NCPA’s figures are comparable to the independent estimates for ingredient cost reductions that I cite in The Pharmacy Reimbursement Hit from AMP-Based FULs. So much for the “clear, unequivocal victory."

Inconsistency in Manufacturer AMP Calculations. NCPA also has a good point here. Last November (!), CMS withdrew now-obsolete provisions related to AMP and noted that a formal rule-making process will occur at an unspecified future date. See What’s Happening with AMP and Pharmacy Profits!!

Alas, CMS has still not released the new guidance for manufacturers. As Chris Cobourn of CIS has pointed out to me, the draft FULs are based on the interim AMP methodologies, putting manufacturers into a squirrelly-sounding “sub-regulatory environment.” You can read more of Chris’ AMP compliance musings in CMS Publishes its Draft Federal Upper Limit Guidelines Under the PPACA.

Outdated Data. All transaction-related data will have a built-in lag because of the time required for data collection. While NCPA focuses on the negative aspect of rising prices, the reverse could also be true. Pharmacies would benefit when acquisition costs fall more quickly than reported manufacturer selling prices. In other words, AMP could theoretically play the same role in outpatient pharmacy that Average Sales Price (ASP) plays in the buy-and-bill world. Done right, an average price benchmark can guarantee profits for the drug channel. See Profits from Generic Injectables: Too High or Just Right?

Technical issues. NCPA highlights three issues that I classify as technical computation problems: Lack of Smoothing of Data; No Indication that Nationally-Available Products Used; and Inclusion of Non Generics in Calculations. These technical complaints suggest potentially viable lines of attack if the pharmacy associations try to sue CMS and block implementation of the new FULs. Hey, it worked in 2007!

WHAT HAPPENS NOW?

CMS is playing a sly game by forcing pharmacies to fight on multiple fronts: AMP, the acquisition cost survey, and the still-to-come Survey of Retail Prices. CMS threw the AMP data out there without much warning or even a proper commenting process.

Pharmacy lobbyists will probably look for a bigger mark-up by focusing on the PPACA’s “not less than 175 percent” language. I can think of many numbers that are not less than 175%. The easiest sell would be 250% because Congress already included this figure in the Deficit Reduction Act of 2005.

Meanwhile, the pharmacy associations need to take down the "Mission Accomplished" banner, rally their membership (again) to get excited about funding another AMP fight, and of course hire Johnny Paycheck to keynote the next annual meeting.