AMP Final Rule is Coming … in August

Last January, CMS issued its proposed AMP rule to implement a teeny part of the March 2010 healthcare legislation. See New AMP Rule Targets Bona Fide Service Fees. Are you ready for AMP’s next act?

Well, pull up a chair. According to this just-posted page at the Office of Information and Regulatory Affairs, it looks like the Final Rule won't arrive until August 2013. That's much later than most people (including me) expected.

While I presume that CMS doesn’t feel tardy, we can start thinking about what the final numbers mean. As I explain below:

• The AMP final rule probably won’t have catastrophic effects on the drug channel. However, it will reduce Medicaid pharmacy reimbursement in the few states that are currently overpaying for generic drugs.
• AMP will probably not become a primary reimbursement metric.
• AMP-based upper limits have a slight upward bias vs. acquisition cost metrics.

The Final Rule could also have some unexpected implications. I’m curious to see how (if?) CMS clarifies its guidance on bona fide service fees for distribution services and inventory management, because it could affect whether manufacturers can offer financial terms that would be attractive to chain warehouses seeking to purchase brand-name drugs directly.

WON’T GET FULED AGAIN

The Patient Protection and Affordable Care Act (PPACA) directs CMS to use a new formula for computing the Federal Upper Limit (FUL)—the federally established maximum amount that a state Medicaid agency can reimburse a pharmacy for dispensing a multiple source drug to a patient covered by Medicaid.

The FUL is currently computed as 150% of the lowest published list price plus a “reasonable” dispensing fee. The PPACA redefined the FUL to equal the Weighted Average Average Manufacturer Price (WAAMP) multiplied by “no less than 175 percent.”

In September 2011, CMS began publishing draft monthly FULs for multisource product groups. The FULs data are still in draft form, so they are not yet being used for reimbursement. See Post-Election AMP Analysis: Generic Prices Are Falling for my most recent analysis of these data.

There is a long, tangled backstory to the whole AMP-based FUL issue. If you have some spare time, you can browse through the Drug Channels archives for the articles tagged Average Manufacturer Price (AMP).

YOU BETTER YOU BET

Pharmacy associations keep trying to fight AMP, but much of the economic damage has already been done.

Nearly all state Medicaid programs already use their own State Maximum Allowable Cost (SMAC) lists instead of FULs. Plus, pharmacies have already been self-MACing through the retail generic price war. See Generic Plavix: Let's Do the Price Limbo.

An October 2012 Office of Inspector General (OIG) study found that the FUL amounts based on AMPs exceeded pharmacy acquisition costs by 43 percent. CMS will lean on such reports to justify implementation. See Analyzing Changes To Medicaid Federal Upper Limit Amounts.

BTW, the delay also means that manufacturers will have to contend with vague AMP rules and unclear guidance for most of 2013.

AMP, REIGN O'ER ME?

I see two factors limiting AMP’s broader adoption as a primary pharmacy reimbursement benchmark:

• AMP is reported only for multi-source drugs. There are no data available for single-source drugs, which are usually brand-name products. Thus, the AMP data will be useless for establishing reimbursement benchmarks for the category of prescription drugs that account for the majority of spending.

• The published AMP data include price data from all manufacturers of a given product, including manufacturers of the brand-name version. Thus, the published AMP will generally be *higher* than the actual (unobserved) average of manufacturers’ generic selling price. While the sales volume of brand-name manufacturers is generally very low following the loss of patent exclusivity, the large price discrepancy will increase AMP by some unknown amount *above* a weighted-average of generic manufacturers.

The second point is VERY IMPORTANT, but often overlooked. Consider Lipitor (atorvastatin), which first faced generic competition in November 2011. The August AMP data release identifies 18 unique NDCs for atorvastatin 20mg tablets (product group 6775). These 18 NDCs represent different package sizes sold by 10 companies, one of which is the original patent holder (Pfizer). Due to the weighting, the brand-name version contributes an ever-diminishing but potentially meaningful contribution to the published AMP. There is no separate AMP computed for Lipitor vs. its generic alternatives.

Despite my reservations about National Drug Acquisition Cost (NADAC), acquisition cost-based methods are likely to win the day. I explain more in the forthcoming 2012-13 Economic Report on Retail, Mail and Specialty Pharmacies. Unlike the Final Rule, the new report will be available in less than two weeks.

P.S. Hat tip to the good folks at the Pharma Compliance Blog for spotting the OIRP page.