Changes to AMP

1
Changes to AMP Best Price Impact on 340B
Pricing
4th Annual 340B Coalition Winter Conference
February 1, 2008 Long Beach, California
Stephen W. Schondelmeyer, Pharm.D.,
Ph.D. Director, PRIME Institute
University of Minnesota
2
Overview
What will be discussed?

• Medicaid AMP
• Deficit Reduction Act AMP the Final Rule
• Deficit Reduction Act The Preliminary Injunction
• Impact of DRA Preliminary Injunction on 340B

3
Medicaid OBRA 90Creation of AMPAverage
Manufacturer Price
4
Medicaid AMP
Medicaid Payment Policy Changes

• OBRA 90 Required Manufacturers to Pay
  Rebates to Medicaid
• Minimum rebate
• Best Price rebate
• Inflation adjustment rebate
• Veterans Health Care Act of 1992
• Set Federal Ceiling Price for Big 4
• Established 340B Pricing
• Based on AMP (Minimum and Best Price)
• Federal Ceiling Price
• Negotiated Price

5
Medicaid Rx Expenditures Rebates 1990 to 2002
(Current Dollars)
Expenditures
29.3 bil.
5.9 bil.
Total Rx Expenditures
23.4 bil.
Rebates
7.1 bil.
0.9 bil.
Total Rx Expenditures - Rebates
6.2 bil.
SOURCE Compiled by the PRIME Institute,
University of Minnesota from data found in
Pharmaceutical Benefits Under State Medical
Assistance Programs, National Pharmaceutical
Council, 1976 to 2002.
6
Drug Rebates as a of Total Drug Expenditures
of Medicaid Drug Expenditures
of Drug Product Cost (AMP)
of Total Drug Expenditures
Source Compiled by the PRIME Institute,
University of Minnesota from data found in
Pharmaceutical Benefits Under Medical Assistance
Programs, National Pharmaceutical Council, 1975
to 1998 and in HCFA Form 64.
7
Estimated Prices of Selected Public
Purchasers(2001)
of AWP
AMP
SOURCE Estimated by PRIME Institute, University
of Minnesota and reported in Pharmaceutical
Discounts Under Federal Law State Program
Opportunities, Public Health Institute, May 2001.
8
Medicaid theDeficit Reduction Act of 2005
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Dual Role for AMP
AMP now has 2 roles in Medicaid

• Basis for Manufacturer Rebates to Medicaid
• Minimum rebate of 15.1 of AMP
• Best price rebate
• Inflation adjustment payment
• State supplemental rebates
• Basis for Setting FULs for Generics
• New FULs to begin mid-2007
• Lowest AMP of all generic equivalents x 250
• Updated monthly posted on web site
• Applies to any drug with 2 or more equivalents

10
Medicaid Prescription Payment Gap
Manufacturer
AMP
Rebates
State Medicaid Program
Payment Gap (Wholesaler Operation Margin
other costs)
Wholesaler
AAC
Provider/ Pharmacy
Patient
No !
Does AMP Pharmacy AAC ?
11
AMP as a Independent Invoice Acquisition Cost
(CBO, January 2007)
of Acquisition Cost
AMP Range 2 to 10 Below Actual Cost
AMP Range 2 to 27 Below Actual Cost
AMP Range 8 to 61 Below Actual Cost
SOURCE Independent invoice acquisition cost
based on IMS invoice data from CBO January 2007.
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GAO Study of AMP (December 22, 2006)
FULs set as 250 above the lowest AMP are

• Below Average Retail Acquisition Cost
• 65 Below for Highest Spend Generics
• 15 Below for Most Prescribed Generics
• 28 Below for Most Prescribed High Use Drugs
• 59 of 77 Generics Studied
• AMP-based FULs was below average retail
• pharmacy acquisition cost

13
AMP Final Rule
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The Final Rule for AMP
The CMS Final Rule

• Proposed Rule published (Dec. 2006)
• Final Rule published (July 2007)
• AMP Regulation Takes Effect (Oct 2007)
• Lawsuit Filed by NACDS / NCPA (Nov 2007)
• CMS to Report AMP to States Website
• (Jan 2008)

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Winners Losers with AMP
AMP as defined in the CMS Final Rule

• The Final Rule AMP benefits
• Manufacturers with less rebate liability
• 340B with lower AMP from broad definition of
  retail
• The Final Rule hurts
• Medicaid program with less rebates
• Traditional retail pharmacy with AMP-based FULs
• (payment below acquisition cost in many
  cases)
• 340B rebates lower due to exclusion of
• wholesaler prompt pay discounts

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CMS Proposed Rule on AMP(December 22, 2006)
Proposed Rule Expected Impact Includes

• Savings from Use of AMP to Set FULs
• 800 million in savings in 2007
• 8.04 billion in savings over 5 years
• 90 of savings would come from pharmacy
• Pharmacies Will Feel the Impact
• 18,000 pharmacies will be significantly impacted
• 350 pharmacies in Minnesota will have
• significant impact
• High Medicaid pharmacies will be affected most
• Rural Low-income area pharmacies will be hit

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The Lawsuit Preliminary Injunction
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The Lawsuit Alleges
Preliminary Injunction Alleges CMS Final Rule

• Violates Admin. Procedure Act
• Definition of Retail Class of Trade Violates
  Statute
• Definition of Wholesaler Violates Statute
• Prices in Each State, Not United States to
  be Considered
• FUL Used for Non-equivalent Multiple Source Drugs

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The CMS Final Rule
Overly broad self-styled CMS definitions

• Firms not licensed as wholesalers are
  wholesalers
• Firms not licensed as pharmacies are pharmacies
• Physicians, clinics, hospital outpatient, home
  infusion are called retail pharmacies
• Manufacturers are wholesalers retail
  pharmacies
• Consumers are wholesalers retail pharmacies

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Exhibit 3C. Pharmaceutical Market Structure
Distinct Market Segments Classes of Trade
Manufacturers, Marketers, Distributors
Drug Manufacturers Marketers
Wholesalers
Chain Warehouse
National Wholesalers
Regional Wholesalers
Chain Pharmacy
Mass Merchant Pharmacy
Food Drug Pharmacy
Independent Pharmacy
Mail Order Pharmacy
Health Plan Pharmacy
Clinic Drs Office
Long Term Care Pharmacy
Hospital
Government Facilities Other
Mail Pharmacy
Retail Pharmacy
Outpatient Providers
Institutional Providers
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Exhibit 3D. Pharmaceutical Market Structure
Wholesalers
Drug Manufacturers Marketers
Wholesalers
Chain Warehouse
National Wholesalers
Regional Wholesalers
Chain Pharmacy
Mass Merchant Pharmacy
Food Drug Pharmacy
Independent Pharmacy
Mail Order Pharmacy
Health Plan Pharmacy
Clinic Drs Office
Long Term Care Pharmacy
Hospital
Government Facilities Other
Manufacturer Direct Sales, Pt. Assistance, Coupons
, Vouchers
Hospital Outpatient
Non-Profit Entities
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Exhibit 3E. CMS Final Rule Wholesalers
Drug Manufacturers Marketers
Wholesalers
Wholesalers
Wholesalers
Chain Warehouse
National Wholesalers
Regional Wholesalers
Chain Pharmacy
Mass Merchant Pharmacy
Food Drug Pharmacy
Independent Pharmacy
Mail Order Pharmacy
Health Plan Pharmacy
Clinic Drs Office
Long Term Care Pharmacy
Hospital
Government Facilities Other
Manufacturer Direct Sales, Pt. Assistance, Coupons
, Vouchers
Hospital Outpatient
Non-Profit Entities
Wholesalers
Wholesalers
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Exhibit 3F. Pharmaceutical Market Structure
Retail Pharmacy Class of Trade
Drug Manufacturers Marketers
Chain Warehouse
National Wholesalers
Regional Wholesalers
Chain Pharmacy
Mass Merchant Pharmacy
Food Drug Pharmacy
Independent Pharmacy
Mail Order Pharmacy
Health Plan Pharmacy
Clinic Drs Office
Long Term Care Pharmacy
Hospital
Government Facilities Other
Manufacturer Direct Sales, Pt. Assistance, Coupons
, Vouchers
Retail Pharmacy Class of Trade
Hospital Outpatient
Non-Profit Entities
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Exhibit 3G. CMS Final Rule Retail Pharmacy
Class of Trade
Drug Manufacturers Marketers
Chain Warehouse
National Wholesalers
Regional Wholesalers
Chain Pharmacy
Mass Merchant Pharmacy
Food Drug Pharmacy
Independent Pharmacy
Mail Order Pharmacy
Health Plan Pharmacy
Clinic Drs Office
Long Term Care Pharmacy
Hospital
Government Facilities Other
Manufacturer Direct Sales, Pt. Assistance, Coupons
, Vouchers
Retail Pharmacy Class of Trade
Hospital Outpatient
Non-Profit Entities
Retail Pharmacy by Final Rule Definition
25
Preliminary Injunction Order by Judge R. C.
Lamberth
Plaintiffs are likely to succeed on the merits
Unless enjoined plaintiffs are likely to suffer
irreparable harm for which no adequate remedy
exists in law
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Preliminary Injunction Order by Judge R. C.
Lamberth
statute is clear enough
does not provide the ambiguity for the
wholesale re-writing of the words by the Agency
wholesale
CMS is enjoined from
any and all action to implement the AMP rule
to the extent such action affects Medicaid
reimbursement rates for retail pharmacies
Posting AMP on a public website or . . . to
states
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What Can We Expect?
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What Can We Expect?
In the Next Year

• May have settlement of legislative intervention
• Without above the lawsuit will proceed to trial
• CMS may implement other aspects of DRA AMP
• Manufacturers will continue to report AMP
• AMP may be implemented for 340B pricing purposes

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PRIME Institute P R I M E
harmaceutical esearch n anagement
conomics
University of Minnesota