Current VA Pricing and FSS Issues

Transcription

1 Current VA Pricing and FSS Issues CBI Federal Pricing and Contracts for Bio/Pharmaceutical Companies Philadelphia, PA December 9-10, 2014 Marci Anderson, VA OIG Joy Sturm, Hogan Lovells US LLP

2 Why VA and Why FSS? If you manufacture or sell covered drugs : under Public Law offering those drugs to FSS is mandatory to receive any revenue from the Federal Government for your covered drugs, regardless of whether the drugs are purchased through the Federal Supply Schedule (FSS). If you sell drugs that are not covered drugs, : VA FSS is still an important program: the VA has a purchasing hierarchy that will benefit sellers with FSS contracts over sellers without FSS contracts. December 10,

3 Terms FSS Federal Supply Schedules OGA- Other Government Agencies For a dual pricer the OGA price is synonymous with the FSS price. VA requires that quarterly sales reports distinguish between sales to VA and sales to other government agencies, which is any other entity purchasing products or services from the FSS. The sales reporting terms are different than the terms attached to customers for pricing eligibility. December 10,

4 Terms Ceiling Price This is the term used to describe the calculated statutory price for covered drugs. The term is only used when referring to pricing for covered drugs. Synonymous with Big 4 price. For a single pricer the ceiling price will also be called the FSS price. SIN-Special Item Number 42-2A is for Covered Drugs (innovators & biologics) 42-2B is for non-covered Drugs (generics) December 10,

5 First things First Determine whether you must offer your products to FSS (i.e. whether your company sells covered drugs) If yes, must have a Master Agreement and Pharmaceutical Pricing Agreement and Federal Ceiling Prices on file with Pharmaceutical Benefits Management You must also determine whether you want to establish dual pricing (one price for Big4 that does not exceed the FCP and one price for all other users) If not, determine whether your company wants to submit an offer to list their drugs on the FSS December 10,

6 FSS Pricing Pricing for covered drugs is a statutory price based on a calculation. Pricing for non-covered drugs is a negotiated price based on the offeror s commercial sales practices. The negotiation objective is Most Favored Customer (MFC). December 10,

7 The Federal Ceiling Price December 10,

8 FCP Defined The Federal Ceiling Price is the maximum amount that a Manufacturer may charge for a covered drug sold to the Federal Agencies listed in 38 U.S.C. 8126(b). The FCP is effective for a calendar year (or that portion of a calendar year in which the covered drug is marketed) and is derived from the calculations prescribed in 38 U.S.C. 8126(a)(2), (c) and (d). December 10,

9 Basic formula: FCP Defined Annual non-famp *.76 minus any additional discount. Calculated separately for each NDC-11 Maximum price to Big Four entities: VA, DoD, PHS and Coast Guard December 10,

10 The additional discount for price increases in excess of the CPI-U New non-famp(current Year 3Q) minus Old non-famp (Last Year 3Q) = change in non-famp (A) (Hint: If negative can t compute an additional discount). Additionally, if a product has not attained permanent status by 9/30 there will be no 3Q calculation Allowable change is Old non-famp times the change in CPI-U (B) (Hint: If no Old non-famp or negative Old non-famp can t compute an additional discount). A B equals the additional discount. December 10,

11 The additional discount for price increases in excess of the CPI-U FCP Calculation Annual Non-FAMP $ x FCP % (76%) less: Additional Discount 0.54 FCP Maximum $ New Non-FAMP (3rd Quarter) $ Less: Old Non-FAMP (3rd Quarter) Difference $ 2.50 Old Non-FAMP x CPI-U 1.96 Additional Discount $ 0.54 Additional Discount If the increase between the benchmark 3 rd quarter Non-FAMPs ( New Non-FAMP vs. Old Non-FAMP ) is greater than the inflation adjusted Old Non- FAMP, an additional discount must be provided to the VA. In this example the CPI-U is 2.65 percent. December 10,

12 The FCP Calculation: 1 st FSS Contract Year First FSS Contract Year : (Annual Non-FAMP * 0.76) minus "Additional Discount" Additional Discount = (New Q3 Old Q3) (Old Q3 * CPI-U) Q3 Non-FAMP for current year minus Q3 Non-FAMP for last year minus Q3 Non-FAMP for last year times % increase in CPI- U (Consumer Price Index Urban) This is called the FCP calculated ceiling Dual calculation is not performed First Year is static every 5 years and has nothing to do with the award year of you FSS contract December 10,

13 The FCP Calculation: Second & Subsequent FSS Contract Years Second & Subsequent FSS Contract Years: Lesser of: The FCP calculated ceiling, and Last year s FSS contract price (price in effect on September 30, w/o the IFF) increased by the % allowable increase in CPI-U known as the FSS Max Cap If the product did not have a permanent FCP as of 9/30 there can be no dual calculation (new product launches between April 2 and September 30) December 10,

14 The Non-Federal Average Manufacturer Price December 10,

15 The Non-FAMP: Definition Non-Federal average manufacturer price = the weighted average price of a drug that is paid by wholesalers in the United States to the manufacturer, taking into account any cash discounts or similar price reductions during that period, but not taking into account (A) any prices paid by the Federal Government (B) any prices found by the Secretary to be merely nominal in amount 15

16 Wholesaler Wholesaler = A merchant middleman, including a prime vendor or similar distribution entity, who submits chargebacks to manufacturers in the normal course of business and sells chiefly to retailers, other merchants, or industrial, institutional, and commercial users mainly for resale or business use Note: For drugs with unit sales of 90% or greater to retailers, other merchants, industrial, institutional, or commercial users, those other customers (and not wholesalers) are included in the calculation 16

17 The Non-FAMP Equation Non-FAMP must be calculated as a weighted average price of a single package unit of the drug as identified by the 11-digit NDC Calculation begins with wholesaler sales dollars and units Non-FAMP = non-federal sales to wholesalers net of chargebacks non-federal units 17

18 Non-FAMP Start with Domestic Wholesaler Sales Dollars and Units: Sales to wholesalers in Puerto Rico and U.S. territories may be excluded if they are not recorded as U.S. sales in the general ledger (Dear Manufacturer Letter dated June 14, 1993, and Annual Calculation Letter dated October 19, 1993) Location of wholesaler, not end customer, is key (10/18/2006 Dear Manufacturer Letter) 18

19 Non-FAMP Exclude Indirect sales (dollars and units) to the Federal Government: FSS/other Federal Contract Sales Exclude at WAC or Avg. wholesaler/direct sales price? PHS 340B program only if at PHS ceiling price subceiling PHS only excludable if through PHS PV Inpatient sales are NOT PHS sales, but may be excluded as Federal if safe harbor is met Tricare retail pharmacy utilization Based on payment due date established by DoD Reasonable to remove at WAC based on dispense date 19

20 Non-FAMP Reduce wholesaler sales dollars (where applicable): Prompt payment discount extended to wholesaler this can be taken at a policy rate or at an actual rate and can be applied prior to or subsequent to removing Government sales Chargebacks to commercial customers VA permits smoothing of chargebacks in quarterly Non-FAMP Smoothing is optional Must obtain VA approval of smoothing methodology Cannot cherry-pick: smooth for all or none of company s NDCs VA approved method for determining Current Qtr. CBs 20

21 Non-FAMP Further reduce wholesaler sales dollars (where applicable): 21 Rebates or other incentives/fees paid to wholesalers Any concessions granted the wholesaler that affect the price paid should be considered in the calculation Many rebates paid by the company to customers will not flow into Non-FAMP because they are not paid to/through wholesalers Payments not directly associated at a transactional level allocation required Two fundamental criteria: Who receives it (wholesaler or end user?) is it a reduction of price or payment for service?

22 Non-FAMP Wholesaler Fees charged by general wholesalers are excludable as long as they are defined service charges imposed on manufacturers generally. (10/18/2006 Dear Manufacturer Letter) But percentage-of-sales incentive fees offered to wholesalers, to achieve business goals of the manufacturer, are not excludable from Non-FAMP (10/26/2007 Dear Manufacturer Letter) VA generally skeptical of any percentage-of-sales fees VA does not follow CMS fair market value for bona fide service test to determine whether fees may be excluded Fees for standard wholesaler services generally excludable Lack of clear guidance Not practical to send each agreement to VA for a determination 22

23 Non-FAMP Further reduction of wholesaler Sales Dollars and Units: Credits and Adjustments Where credits/adjustments are given to the wholesaler generally and are not tied to specific transactions, manufactures may wish to only subtract the percentage of the credits/adjustments attributable to non-federal wholesaler sales based on ratio of non-federal wholesaler sales units to total wholesaler sales units 23

24 24 Non-FAMP Calculation Other Non-FAMP considerations Returns Not required to be identified and excluded from Non-FAMP Units (and associated dollars) can be extracted if process is documented Out-of-policy returns treatment: VA has not spoken to this issue Free Goods if contingent on product Purchase include If PDMA samples do not include Nominal Sales Less than 10% of prior Q3 Non-FAMP Usually below cost, designed to benefit the public by financially aiding disadvantaged, not-for-profit covered drug dispensaries or researchers using the drug for an experimental or non-standard purpose

25 Non-FAMP Anomalies Negative/False Positive/Zero Non-FAMP If Q3 Non-FAMP is negative, zero, or false positive, there can be no additional discount in the FCP calculation If Annual Non-FAMP is negative, zero, or false positive, VA cannot calculate an FCP, so default rules will apply 25

26 Compliance Considerations December 10,

27 Maintaining Compliance Controls NonFAMPs and FCPs Initiate a compliance program with quality checks built in to support accurate reporting of FCPs Look for variances in calculated prices from period to period and investigate changes that exceed a percentage identified for each product. Test the system performing the calculations to ensure the system is providing accurate information. Take steps to ensure that the process used by the program to calculate the prices is consistent with the terms of your internal compliance policies. December 10,

28 Compliance with Contract Provisions During the life of the FSS contract there are several administrative responsibilities Ensure compliance with the Price Reductions Clause and complying with the requirements in the award letter to notify the CO of any tracking customer changes. Ensuring modification requests for increases comply with the Economic Price Adjustments Clause Ensuring accuracy of TAA certification/other certifications December 10,

29 Compliance with Contract Provisions During the life of the FSS contract there are many administrative, reporting, and programmatic responsibilities File non-famps on a timely basis. Submitting new covered drug filings on a timely basis. Report FSS sales and submit IFF timely. Small Business Subcontracting Plan/EO requirements December 10,

30 Interaction Between FCPs and the Price Reduction/Economic Price Adjustment Clause December 10,

31 FSS Price Reduction Clause Application to VHCA Covered Drugs The function of the Price Reduction Clause changes for those items on the schedule at the statutory price. The impact of the Price Reduction clause is different for a single pricer (i.e. FSS is the same as FCP) because the price is set by law or regulation. The PRC ratio for Big4 pricing at the statutory price is always 1:1 and only applies once the TC price falls below the FCP December 10,

32 Price Reduction - Dual Pricer For OGA (negotiated) pricing, Price Reductions Clause works in the usual way. For Big 4 pricing set at FCPs, Price Reductions Clause is applied such that if a price reduction to the tracking customer causes the OGA pricing to dip below the FCP, then the Big 4 pricing must be reduced to match the OGA pricing This is only true if the negotiated TC ratio for the OGAs is less than 1:1 December 10,

33 Price Reduction and FCPs An example with numbers (all are rounded, without IFF): OGA Big 4 TC Ratio $ $75.00 $ $76.00 $75.00 $80.00 $74.00 $74.00 $78.00 December 10,

34 Price Reduction - Dual Pricer What happens when the OGA ratio is greater than 1:1? There is the potential for the Big 4 price to be affected prior to the OGA price. December 10,

35 Price Reduction and FCPs An example with numbers (all are rounded, without IFF): OGA Big 4 TC Ratio $ $75.00 $ $96.00 $75.00 $80.00 $84.00 $70.00 $70.00 December 10,

36 Price Reduction and FCPs What if the Big 4 price was a negotiated price, rather than a statutory price? The tracking customer ratio is established based on the relationship at the time of award. Any price reductions will apply immediately. If price reductions result in an FSS price that is less than the FCP max the FSS Max cap will govern. However, because the FSS Max cap includes the CPI-U, the FSS price may still be less than the FCP. December 10,

37 Price Reduction Clause: Dual Pricers where ratio is less than 1:1 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 All FSS purchasers pay the FSS price once the price falls below FCP FCP FSS TC December 10,

38 Price Increases - Dual Pricers Price increases can be requested only for the prices extended to non big-4 agencies not eligible to receive the FCP. During the first year of a multi-year contract, price increases can be requested without ceiling limitation, and at least 30 days must pass between requests. In this instance, the first year is the actual first year of the FSS contract. Not the first year for the purposes of the Public Law calculation. December 10,

39 Price Increases: Dual Pricers In the second and subsequent year of a multi-year contract price increases are limited to the increase to the tracking customer or the FSS Max-Cap, whichever is less. This is unique to the Pharmaceutical schedule. December 10,

40 Price Increases: Dual Pricers (First Year) $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 FCP FSS TC December 10,

41 Price Increases: Dual Pricers (Second and Subsequent Years) $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 FCP FSS TC December 10,

42 Price Reduction Clause: Single Pricers If the price established is the submitted FCP, the price reduction clause does not apply because the price is set by law or regulation. As stated previously, when the tracking customer price falls below the statutorily set price, price reductions apply at a ratio of 1:1. In subsequent years, FCPs are recalculated and if tracking customer price ends up higher than next year s FCP, FSS price may be reset to be at the next year s FCP. December 10,

43 Price Reduction Clause: Single Pricers Once the TC falls below the FCP the FSS price becomes the price paid for all purchasers FCP TC December 10,

44 VA/FSS Issues for 2015 Treatment of Lagged Quarterly Tricare Utilization Direct Calculation of NFAMP: treatment of nonpossession-takers health plans, PBMs, health plans/ exchanges, Part D Flux in 340B Program (orphan drugs): potential NFAMP impact? Penny Pricing Sales anomalies, supply issues Equitable relief? Price Reductions Clause Defining the tracking relationships and ratio given increasingly complicated commercial arrangements Defining entities within a class (e.g. GPOs ) December 10,

45 Questions? Marci Anderson, Senior Auditor VA Office of Inspector General Joy Sturm, Partner Hogan Lovells, US LLP (202) December 10,