One Year Later: State of MDRP Compliance Following the ACA Final AMP Rule

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1 CBI s 19 th Annual Medicaid & Government Pricing Congress Orlando, FL One Year Later: State of MDRP Compliance Following the ACA Final AMP Rule John Shakow jshakow@kslaw.com May 9, 2017

2 Agenda The February 1, 2016 Final Rule What Remains Outstanding Line Extensions Crack Drugs Territorial Expansion Three Open Questions Blending Authorized Generics and AMP Best Price 2

3 The February 1, 2016 Final Rule 3

4 The February 1, 2016 Final Rule Publication capped years of uncertainty and speculation In many respects, closed the loop on major changes wrought by the ACA Whether or not we agreed, provided certainty which is valuable in and of itself Still a lot of room for reasonable assumptions Reliance on those reasonable assumptions, however, has never been more defensible 4

5 What Remains Outstanding 5

6 What Remains Outstanding Line Extensions The Final Rule clarified a number of important characteristics of a LE subject to the alternative URA calculation Only oral solid dosage forms Same manufacturer Not applicable if no initial brand on the market New strengths not LEs The Final Rule did not, however, define LE beyond the language in the statute ( extended release versions ) Comments solicited, but no additional rulemaking from the Obama Administration 6

7 What Remains Outstanding Crack Drugs Non-5i drugs that are not sold to RCPs remain in limbo Final Rule and July 6, 2016 FAQ 22 fatuously declare that because of presumed inclusion and right to reasonable assumptions, AMP will likely be generated Not a crisis for drugs launched before 2Q16: calculable AMPs can be carried forward For newly-launched crack drugs, however, what is a reasonable basis for an incalculable AMP? WAC? Perhaps with enough pestering, CMS will appreciate and fill this gap 7

8 What Remains Outstanding Territorial Expansion Last year at this time we were furiously working on managing the incorporation of the territories, both transactional inputs and rebate liabilities Meeting resistance from the territorial Medicaid programs, CMS pushed expansion back to 2020 Still need to be concerned about -- waiver; contract obligations in territories; systems integration; coordination across multinational business units; what is BP exempt in territories; significant growth in rebate liability; financial viability of territorial governments. 8

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10 Blending The Medicaid statute calls on us to calculate distinct URAs with respect to each dosage form and strength of a [covered outpatient] drug. MDRP price reporting mechanics require us to calculate and report AMPs and best prices at the NDC-9 Begging the question, what are we to do if we have multiple NDC-9s for the same dosage form and strength of a drug? 10

11 Blending There is nothing in the statute or regulations about blending across NDC-9s, yet it would seem to violate the terms of the statute if we do not engage in blending Average eligible sales of both NDCs in computing AMP The lowest best price controls Share the baseline AMP (!!) Note that I m not talking here about the authorized generic context, which has its own rules Outside of the AG context, however, the statute would seem to dictate blending. The Final Rule preamble contains some language that supports this conclusion 11

12 Blending The July 6 FAQs, however, undermine that position: A23: CMS does not require that two separate NDC-9s be blended, however, the agency believes that in certain circumstances, a manufacturer may blend the AMPs of two NDC-9. As always, it is recommended that manufacturers retain written documentation of any reasonable assumptions made in the calculation of AMP. Manufacturers may contact CMS for further guidance and discussion as the facts and circumstances of each case should be evaluated independently. 12

13 Blending The July 6 FAQs, however, undermine that position: A23: CMS does not require that two separate NDC-9s be blended, however, the agency believes that in certain circumstances, a manufacturer may blend the AMPs of two NDC-9. As always, it is recommended that manufacturers retain written documentation of any reasonable assumptions made in the calculation of AMP. Manufacturers may contact CMS for further guidance and discussion as the facts and circumstances of each case should be evaluated independently. What the heck are we supposed to make of this? 13

14 Blending Let s not forget that there are three important characteristics that NDC-9s must share before blending is even reasonably required: dosage form, strength and drug This notion of being the same drug is very much in dispute A new NDA is a different drug A new ANDA is a different drug Is an snda a different drug? Major vs minor changes to the drug; FDA considers it a new drug Stay tuned to the U.S. District Court for the District of Columbia 14

15 Authorized Generics and AMP The Medicaid regulations are clear with respect to AGs and Best Price: the net transfer price from primary to secondary must be included in the primary manufacturer s Best Price (c) What s less clear, however, is when a primary manufacturer of a standard AMP drug may include net transfer prices to the secondary in AMP: The primary manufacturer must include in its calculation of AMP its sales of authorized generic drugs that have been sold or licensed to a secondary manufacturer, acting as a wholesaler for drugs distributed to retail community pharmacies

16 Authorized Generics and AMP So the question is when does a secondary act[] as a wholesaler? The statutory definition of wholesaler includes manufacturers, but only when they are engaged in the wholesale distribution of prescription drugs to retail community pharmacies. 1927(k)(11) 16

17 Authorized Generics and AMP Unhelpfully, the Final Rule answers this question only in the negative: Secondary manufacturers that relabel or repackage a drug and sell that drug to wholesalers (as opposed to engaging in the wholesale distribution to retail community pharmacies) are not wholesalers; Similarly, a secondary manufacturer that relabels the product and then sells it to wholesalers or directly to retail community pharmacies is not a wholesaler. A key appears to be relabeling, which of course is not anywhere part of the statutory definition of wholesaler upon which CMS s interpretation relies. 17

18 Authorized Generics and AMP What if the secondary manufacturer does no labeling at all, merely resells product labeled by the primary? May it then both sell to a wholesaler and still itself be a wholesaler? There is no clear, positive definition of what engaged in wholesale distribution of prescription drugs to [RCPs] actually means. Despite this confusion, primary manufacturers are responsible for determining whether a secondary manufacturer acts like a wholesaler. [Note that transfer sales of 5i AGs are included in AMP per (d)(10)] 18

19 Best Price Available or achieved? Universal industry understanding ( achieved ) threatened by recent CMS action Query whether recent alignment of authorities will give rise to threat to GP compliance 19

20 Best Price The MDRP statute reads: The term best price means the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States, excluding certain sales. 42 USC 1396r- 8(c)(1)(C)(i)(emphasis added). The implementing regulations reflect this same construction. 42 CFR (a). 20

21 Best Price Traditional treatment, however, is to look to achieved and not available. Comment: One commenter asked that if a manufacturer offers a price that is lower than any actual price paid, is best price set on the lowest price paid or the lowest price available. Response: The best price is the price from the manufacturer which is calculated to include all applicable sales and discounts; it is the price actually realized. 72 Fed. Reg (July 17, 2007) 21

22 Best Price Consistent with that comment and response, the currently applicable MDRP Rebate Agreement takes the achieved position and is the industry s best authority for current practice: Best Price means the lowest price at which the manufacturer sells the Covered Outpatient Drug to any purchaser in the United States with certain exceptions. Rebate Agreement at (I)(d) (emphasis added). 22

23 Best Price On November 7, 2016, however, CMS published a proposed revised Rebate Agreement. It has not yet been made final. The proposed Agreement abandons the language it currently uses, and instead defines Best Price with reference to the statutory and regulatory language: Best Price will have the meaning set forth in section 1927(c)(1)(C) of the Act as implemented by 42 CFR If made final, this change would remove the strongest argument on which manufacturers rely to report the lowest price at which the product is sold, rather than the lowest price made available. 23

24 Best Price CMS s July 6 FAQs do not clarify: Q24: By lowest price available for Best Price, do you mean the lowest price offered or the lowest price achieved? A24: The lowest price available means it is the lowest price available to the best price eligible entity. The best price must include applicable discounts, rebates, or other transactions that adjust prices either directly or indirectly to the best price eligible entities. See 42 CFR (b) and section 1927(c) of the Act (emphasis added) 24

25 Best Price Continuing justifications for achieved: Many prices may be literally available, but if they are not actually obtained, no sale has been made, and actual sales are the bedrock of government pricing. CMS implicitly approves of this approach because it recognizes the need to true up initial Best Prices as lagged information comes in to the manufacturer. Available prices are arguably known during the reporting quarter. 25

26 Best Price Continuing justifications for achieved: FAQ 24 seems to have missed the point of the question, unhelpfully repeating the lowest price available means the lowest price available, and launching into an example about PBM rebate inclusion or stacking. Identifying every price point that is available would be difficult to do. Identifying every bundling possibility that might be based on multiple contingencies, for instance, or every stacking possibility, would be onerous. 26

27 Best Price Continuing justifications for achieved: Finally, it would be silly if manufacturers were forced to compute Medicaid rebate liability (and 340B pricing) not with reference to actual sales made, but rather by incorporating inchoate potential price points that may have been available, but were never achieved by any customer. Should such an aspirational discount set Best Price and dictate Medicaid liability and the 340B ceiling price? That seems highly unreasonable. 27

28 John Shakow Partner, FDA & Life Sciences Practice Group John Shakow is a nationally-recognized expert in all aspects of drug pricing and price reporting. He has counseled pharmaceutical and biotechnology clients on their rights and obligations under the Medicaid, Medicare, Federal Supply Schedule, 340B and TRICARE programs for almost twenty years. John regularly advises manufacturers on the spectrum of regulatory, commercial and litigation matters relating to pricing and government payor programs. He has extensive experience helping clients resolve commercial, strategic, organizational and other legal challenges while maintaining the integrity of their government pricing compliance efforts. King & Spalding 1700 Pennsylvania Avenue, NW Washington, D.C (direct) jshakow@kslaw.com