Ideal Systems Medicaid Rebate Presentation
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  • Section 4401 of OBRA 1990 amended Title XIX of the Social Security Act by adding Section 1927, the Medicaid Drug Rebate Program
  • CMS – formerly Health Care Financing Administration (HCFA).
  • PHS = Public Health Service, DVA = Department of Veterans Affairs Specifically: Veterans Health Care Act of 1992: Requires manufacturers to enter into pricing agreement with PHS and that manufacturers of S and I drugs enter into a master pricing agreement with the Dept. of Veterans Affairs in order to continue receiving Medicaid coverage of their products Prevents a manufacturer from paying a Medicaid rebate on discounted drugs sold to PHS covered entities Increases the rebate calculation for S and I drugs to 15.7% of AMP through December 1993 and removes the 50% CAP of AMP beginning 1/1/93 Requires manufactures to exclude prices charged to specific entities from BP OBRA 1993: Changes the definition of baseline AMP and baseline CPI-U for drugs approved by the FDA after 10/1/90, which ultimately impacts the calculation of the URA NOTE: specifics of how baseline AMP and CPI-U are defined for differing rebate periods and FDA approval dates is covered in later slide
  • UPPS = smallest unit sold; generally 1 for “breakable” packages (i.e. pharmacist can sell any number of pills) and number of pills in bottle for “unbreakable” packages (i.e. most over the counter products) Unit type : 8 values (injectable anti-hemophilic factor units, capsule, suppository, gram, milliliter, tablet, transdermal patch, each) Drug category : S, I, N Correction Flag – left blank unless previously sent data is being corrected. If so, then this field contains a “1” Therapeutic equivalency code : AX for therapeutically equivalent drug (same active ingredients, dosage form and strength as another drug), BX for drug not therapeutically equivalent to anything else DESI Indicator : value of 2-6; DESI drug is drug deemed less than effective (LTE) or Identical, Similar, Related (ISR); value of 2 is safe and effective or non-DESI drug; DESI values 2-4 are rebatable, values 5-6 are non-rebatable Drug Type : 1 = prescription drug, 2 = over the counter Termination date = date product pulled from shelves or expiration date of last lot produced. In all cases, manufacturers are required to submit pricing to CMS for 4 full quarters after the termination date. Note: “Expiration date” is one year after termination date – this is the date after which the drug is no longer eligible for Medicaid rebate.
  • Consumer Price Index – Urban (CPI-U) is the index of consumer prices developed and updated by the U.S. Department of Commerce N drugs: There is no best price calculation for “N” drugs, thus the unit rebate amount is always a flat percentage of AMP, currently 11% URA is calculated to 5 decimal places and rounded to 4 decimal places Note: prior to 1/1/94, the URA calculation for N drugs was 10% of AMP
  • Note: ONLY POSITIVE VALUES that result from the “creep” calculation are used as the additional rebate. If the calculation produces a negative value, there is no additional rebate (the URA = the greater of 15.1% of AMP or AMP-BP). In this case, the product price increase has not outpaced inflation, thus there is no “inflation penalty” in the form of a higher rebate.
  • Note: Manufacturer can terminate product for safety or health reasons voluntarily; termination date is then the “removal date” or date product is literally removed from all shelves.
  • Background: 340B Program (as well as Big 4 FCP) were enacted as a result of the fact that the MDRP gave manufacturers a disincentive to continue giving deep discounts on drugs, because these discounts drove down best price, and thus drove up rebates. As manufacturers’ prices rose to other government payors of drugs, savings to federal/state governments from the MDRP were wiped out. Congress thus initiated legislation under the Veterans Health Care Act of 1992 to correct this situation and provide relief to other government payors of drugs. Administration: OPA is within the within the Bureau of Primary Health Care (BPHC), which is within the Health Resources and Services Administration (HRSA). All of these agencies (OPA, BPHC, HRSA) are agencies within HHS.
  • Specifically, Section 340B requires manufacturers whose drugs are covered by the Medicaid program to enter into an agreement with the Sec of HHS obligating manufactures to comply with Section 340B of the Public Health Service Act. The MDRP has a parallel provision. In other words, if a manufacturer wants to participate in one program, the company must also participate in the other.
  • Eligibility of covered entities: manufacturers are required to check the OPA website each quarter to determine which covered entities are participating in the Program. Covered entities website: www.bphc.hrsa.gov/opa Note: manufacturers may not charge more than the PHS price, regardless of whether the covered entity purchases drugs through a wholesaler or directly from the manufacturer Note: The PHS pricing is a 2 Q lag behind Medicaid pricing. In other words, 4Q AMP is used to set 2Q PHS pricing. UPPS = units per package size
  • PHS grantees also include Federally Qualified Health Center (FQHC) “look-alikes” and the Ryan White CARE Act Title I, Title II and Title III programs
  • Fact 1: OPA guidelines contain a definition for a “patient” of a covered entity Fact 2: OPA has 2 mechanisms in place to keep PHS drugs from being included in MDRP data. Most commonly, covered entities submit their Medicaid pharmacy numbers to OPA for use by state Medicaid agencies in identifying covered entity pharmacy bills and excluding them from the MDRP.
  • FSS prices are available to federal departments, agencies, institutions and other kinds of entities such as the District of Columbia, U.S. territorial governments and numerous Native American tribal governments. Note: FSS-OGA refers to FSS prices for government entities NOT including the Big 4, who may pay different prices (FSS-Big 4) due to discount program established under the Veterans Health Care Act of 1992, Section 603. Details in later slides. There are more than 100 FSS schedules; Schedule 65 IB=pharmaceuticals Crux of negotiations over FSS prices revolve around whether government is actually similar to any of manufacturer’s customers/who is a comparable customer, in order to arrive at “most favored customer” price = starting point Note: Section 603 of Veterans Health Care Act of 1992 requires manufacturers to list all of their brand name drugs on the FSS as a condition for having their drugs covered by the Medicaid program. Because the Medicaid program is substantial in size, this has kept manufacturers from picking and choosing which drugs to list and sell through the FSS Also, manufacturers are required to disclose discount and pricing info to the VA. The VA uses this info to analyze and compare prices to other customers, and to target prices for negotiations. If any prices are below FSS price, the manufacturer must disclose the discounts for all customers or class of customers receiving the lower price, in addition to any deviations from the discounts.
  • If dual pricing is adopted by a manufacturer (discussed in detail in future slides, under Big 4 FCP), the IFF is charged for all sales on both FSS schedules maintained by the manufacturer [FSS-Big 4 and FSS-OGA (other government agencies)]
  • VA = Department of Veterans Affairs DOD = Department of Defense PHS = Public Health Service IHS = Indian Health Service
  • Note: Big 4 “customers” will pay either the FCP or a negotiated contract price < FCP.
  • NFAMP = Non-Federal Average Manufacturer Price Annual NFAMP is calculated using data from the last quarter of the preceding year and the 1 st 3 quarters of the current year
  • Additional discount under FCP program = amount by which the change in non-federal price exceeds the amount equal to: NFAMP of the drug during the 3-month period that ends 1 year before the last day of the month preceding the month during which the contract for the covered drug goes into effect . . . multiplied by % increase in the CPI-U between the last month of the period described in (1) and the last month preceding the month during which the contract goes into effect for which CPI-U data is available Nominal price interpretation: VA has interpreted “nominal” pricing as pricing, usually below cost, designed to benefit the public by financially aiding disadvantaged, non-for-profit covered drug dispensaries or researchers using a drug for an experimental or non-standard purpose. (See VA letter to manufacturers, 10/7/1996, paragraph 1) The bottom line here is that manufacturers cannot exclude sales at nominal prices to commercial entities when calculating NFAMP.

Ideal Systems Medicaid Rebate Presentation Ideal Systems Medicaid Rebate Presentation Presentation Transcript

  • Developing a Medicaid Rebate Processing Strategy for your Organization Christopher C. BiddleAll programs and calculations which are detailed within this presentation Have been directly derived from CMS guidelines
  • Medicaid Drug Rebate Program (MDRP):Medicaid Drug Rebate Program (MDRP): BackgroundBackground • Program was sponsored by David Pryor (D-AR)Program was sponsored by David Pryor (D-AR) • Program was enacted on November 5, under SectionProgram was enacted on November 5, under Section 4401 of the Omnibus Reconciliation Act (OBRA) of 19904401 of the Omnibus Reconciliation Act (OBRA) of 1990 • Program was effective January 1, 1991Program was effective January 1, 1991 • Program is administered at the federal level by theProgram is administered at the federal level by the Centers for Medicare and Medicaid Services (CMS)Centers for Medicare and Medicaid Services (CMS)
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: RequirementsRequirements • Manufacturers must provide rebates to statesManufacturers must provide rebates to states on a quarterly basis for products dispensed byon a quarterly basis for products dispensed by prescription to Medicaid patientsprescription to Medicaid patients • Manufacturers must give the federalManufacturers must give the federal government unrestricted audit accessgovernment unrestricted audit access • Manufacturers must pay significant monetaryManufacturers must pay significant monetary penalties for any late, incomplete or “knowingly”penalties for any late, incomplete or “knowingly” false pricing submissionsfalse pricing submissions View slide
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: AmendmentsAmendments Veterans Health Care Act of 1992Veterans Health Care Act of 1992  Requires pricing agreement with PHS & VARequires pricing agreement with PHS & VA (in order to participate in MDRP)(in order to participate in MDRP)  Prevents double discountsPrevents double discounts  Changes rebate percentageChanges rebate percentage  Excludes prices charged to certain entities fromExcludes prices charged to certain entities from Best Price (BP)Best Price (BP) OBRA 1993OBRA 1993  Changes parameters for calculating rebates forChanges parameters for calculating rebates for products approved by FDA after 10/1/90products approved by FDA after 10/1/90 View slide
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: Reporting RequirementsReporting Requirements • ManufacturersManufacturers mustmust report Baseline Data for all eligiblereport Baseline Data for all eligible NDCs within 30 days of end of quarter in which rebateNDCs within 30 days of end of quarter in which rebate agreement signedagreement signed • ManufacturersManufacturers mustmust report Average Manufacturer Pricereport Average Manufacturer Price (AMP) and Best Price (BP, for S and I drugs only) to CMS(AMP) and Best Price (BP, for S and I drugs only) to CMS within 30 days after the end of each quarter for all coveredwithin 30 days after the end of each quarter for all covered NDCsNDCs • ManufacturersManufacturers mustmust report Baseline and AMP/BP data forreport Baseline and AMP/BP data for all new products as well as pricing adjustments for priorall new products as well as pricing adjustments for prior quarters with quarterly submissionsquarters with quarterly submissions
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: Baseline DataBaseline Data •NDC NumberNDC Number •Product NameProduct Name •Units PerUnits Per Package SizePackage Size (UPPS)(UPPS) •TherapeuticTherapeutic Equivalency CodeEquivalency Code •Unit TypeUnit Type •DESI IndicatorDESI Indicator •Drug CategoryDrug Category •FDA ApprovalFDA Approval DateDate •Date EnteredDate Entered MarketMarket •Drug TypeDrug Type •Correction FlagCorrection Flag •Termination DateTermination Date
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: AMP/BP DefinitionsAMP/BP Definitions • AMPAMP –– “average unit price charged to wholesalers or“average unit price charged to wholesalers or distributors for sale to the retail class of trade.distributors for sale to the retail class of trade. Manufacturer must apply cash discounts and all otherManufacturer must apply cash discounts and all other price reductions which reduce the ‘actual’ price paid”price reductions which reduce the ‘actual’ price paid” • BPBP –– “lowest effective price the manufacturer sells the“lowest effective price the manufacturer sells the covered outpatient Single Source or Innovator Multi-covered outpatient Single Source or Innovator Multi- source drug to any purchaser, including wholesalers,source drug to any purchaser, including wholesalers, retailers, providers, HMOs, non-profit agencies and stateretailers, providers, HMOs, non-profit agencies and state government agencies”government agencies”
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: AMP ExclusionsAMP Exclusions (page P1 of CMS guide)(page P1 of CMS guide) The AMP calculation excludes:The AMP calculation excludes:  Direct sales to hospitalsDirect sales to hospitals  Direct sales to HMOsDirect sales to HMOs  Direct sales to wholesalers where the drugDirect sales to wholesalers where the drug is relabeled under the distributor’s NDCis relabeled under the distributor’s NDC  Federal Supply Schedule pricesFederal Supply Schedule prices
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: BP ExclusionsBP Exclusions (page P2 of CMS guide)(page P2 of CMS guide) Best Price excludes prices charged to:Best Price excludes prices charged to:  The Indian Health Service (IHS)The Indian Health Service (IHS)  The Department of Veterans Affairs (VA)The Department of Veterans Affairs (VA)  State homes receiving funds under section 1741State homes receiving funds under section 1741 of title 38, United States codeof title 38, United States code  The Department of Defense (DOD)The Department of Defense (DOD)  The Public Health Service (PHS) or any entitiesThe Public Health Service (PHS) or any entities described in section 340B(a)(4) of the PHS Actdescribed in section 340B(a)(4) of the PHS Act  The Federal Supply ScheduleThe Federal Supply Schedule  State pharmaceutical assistance programsState pharmaceutical assistance programs  Nominal Sales (prices < 10% of AMP)Nominal Sales (prices < 10% of AMP)
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: Rebate CalculationRebate Calculation • For N drugsFor N drugs, Unit Rebate Amount (URA) = 11% of AMP, Unit Rebate Amount (URA) = 11% of AMP • For S or I drugsFor S or I drugs, URA = Basic Rebate + Additional, URA = Basic Rebate + Additional RebateRebate  Basic Rebate = the greater of 15.1% of AMPBasic Rebate = the greater of 15.1% of AMP oror AMP –AMP – BPBP  Additional Rebate (CPI-U “creep” calculation) = InflationAdditional Rebate (CPI-U “creep” calculation) = Inflation “adjustment” used if the product’s price increase has“adjustment” used if the product’s price increase has exceeded the rate of inflation, measured against theexceeded the rate of inflation, measured against the Consumer Price Index (CPI-U)Consumer Price Index (CPI-U)
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: CPI-U “Creep” CalculationCPI-U “Creep” Calculation • ““Creep” calculation is designed to compensate for aCreep” calculation is designed to compensate for a rise in product price that outpaces inflationrise in product price that outpaces inflation • Value of additional rebate depends on how baselineValue of additional rebate depends on how baseline (BL) values used in calculation are defined, which has(BL) values used in calculation are defined, which has changed throughout the history of the MDRPchanged throughout the history of the MDRP • Additional Rebate =Additional Rebate = Current AMP – ((BL AMP/BL CPI-U)*Current CPI-U)Current AMP – ((BL AMP/BL CPI-U)*Current CPI-U)
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: URA Baseline ValuesURA Baseline Values Rebate Quarter Market Date Baseline AMP Baseline CPI-U 4Q1993 - present Greater than 9/30/93 AMP for 1st Qtr. After Market Date CPI-U for month prior to 1st Qtr. after Market Date 4Q1993 - present Greater than 9/30/90; less than 10/1/93 AMP for 1st Qtr. After Market Date CPI-U for month prior to 1st Qtr. after Market Date 1Q1991 - 3Q1993 Greater than 9/30/90; less than 10/1/93 AMP for 1st day of 1st full month on the market CPI-U for the month before 1st full month 1Q1991 - present Equal or less than 09/30/90 3Q1990 AMP 132.7 (value for 9/90)
  • URA Calculation Example (S or I Drug):URA Calculation Example (S or I Drug): Basic URABasic URA:: 0.357911 * 15.1% = 0.0540450.357911 * 15.1% = 0.054045 0.357911 – 0.299563 (BP) =0.357911 – 0.299563 (BP) = 0.0583480.058348 Additional URAAdditional URA:: 0.244795/153.5 = 0.0015950.244795/153.5 = 0.001595 0.001595*174.00 = 0.2774870.001595*174.00 = 0.277487 0.357911 – 0.277487 = 0.080424 (additional URA)0.357911 – 0.277487 = 0.080424 (additional URA) Total URATotal URA = 0.058348 + 0.080424 == 0.058348 + 0.080424 = 0.1388000.138800 BaselineBaseline AMPAMP BaselineBaseline CPI-UCPI-U CurrentCurrent AMPAMP QuarterlyQuarterly CPI-UCPI-U 0.2447950.244795 153.5153.5 0.3579110.357911 174.00174.00
  • Medicaid Drug Rebate Program: ClaimsMedicaid Drug Rebate Program: Claims • Program requires that manufacturers submit paymentProgram requires that manufacturers submit payment to the states based on all undisputed invoice entriesto the states based on all undisputed invoice entries within 30 days of receipt of invoice or 38 days fromwithin 30 days of receipt of invoice or 38 days from invoice postmark dateinvoice postmark date • Interest on rebate is payable to the state beginningInterest on rebate is payable to the state beginning on the 38on the 38thth day after the postmark dateday after the postmark date • Interest is also due the state on disputed units ifInterest is also due the state on disputed units if resolved in the state’s favor, if manufacturer does notresolved in the state’s favor, if manufacturer does not pay resolved dispute within 38 days of notifying statepay resolved dispute within 38 days of notifying state of disputeof dispute
  • Medicaid Drug Rebate Program: Key DatesMedicaid Drug Rebate Program: Key Dates Termination Date for Covered DrugTermination Date for Covered Drug  If product is pulled from shelf by FDA orIf product is pulled from shelf by FDA or manufacturer, the termination date is the “removalmanufacturer, the termination date is the “removal date” of the productdate” of the product  If product is discontinued by manufacturer, theIf product is discontinued by manufacturer, the termination date is last lot expiration datetermination date is last lot expiration date Expiration Date for Covered DrugExpiration Date for Covered Drug  1 year past Termination Date1 year past Termination Date  The expiration date is the the date on which theThe expiration date is the the date on which the product isproduct is no longerno longer eligible for a Medicaid Rebateeligible for a Medicaid Rebate
  • Medicaid Drug Rebate Program: ReportsMedicaid Drug Rebate Program: Reports Reconciliation of State Invoice (ROSI)Reconciliation of State Invoice (ROSI)  Used by manufacturers to explain adjusted rebateUsed by manufacturers to explain adjusted rebate payments to states for thepayments to states for the current quarter onlycurrent quarter only  Must accompany rebate payment within 38 days ofMust accompany rebate payment within 38 days of postmark date on state’s current quarter invoicepostmark date on state’s current quarter invoice Prior Quarter Adjustment Statement (PQAS)Prior Quarter Adjustment Statement (PQAS)  Used by manufacturers to reconcile and explain priorUsed by manufacturers to reconcile and explain prior quarter actions, payments or credits to statesquarter actions, payments or credits to states
  • Medicaid Drug Rebate Program: TimelineMedicaid Drug Rebate Program: Timeline Manufacturer submit pricing and new product baseline Information to CMS for previous quarter CMS: validates manufacturers data, calculates URA and generates data for States States generate invoices and send to manufacturers States send utilization data to CMS Manufactures must submit rebates to States within 38 days of postmark date Day 30 Day 45 Day 60 Day 90 End of Quarter Day 90 + 38
  • Medicaid Drug Rebate Program:Medicaid Drug Rebate Program: Fines and PenaltiesFines and Penalties • $10,000 per$10,000 per dayday perper itemitem for failure to provide timelyfor failure to provide timely AMP and BP reporting to CMSAMP and BP reporting to CMS • $100,000 for$100,000 for eacheach itemitem of false information reportedof false information reported to CMSto CMS • $100,000 for$100,000 for eacheach itemitem if manufacturer refuses aif manufacturer refuses a CMS “request for information”CMS “request for information” • CMS may terminate the manufacturer’s rebateCMS may terminate the manufacturer’s rebate agreement for failure to submit quarterly pricing data,agreement for failure to submit quarterly pricing data, nonpayment of rebates or for other “good cause”nonpayment of rebates or for other “good cause”
  • PHS Drug Discount Program/340BPHS Drug Discount Program/340B Program: BackgroundProgram: Background • Genesis in rising prices for “non-Medicaid” federal &Genesis in rising prices for “non-Medicaid” federal & state payors of drugs after MDRP was enactedstate payors of drugs after MDRP was enacted • Program enacted under Section 602 of the VeteransProgram enacted under Section 602 of the Veterans Health Care Act of 1992, Public Law No. 102-585 &Health Care Act of 1992, Public Law No. 102-585 & Section 340B of the Public Health Service ActSection 340B of the Public Health Service Act • Administered by the Office of Pharmacy Affairs (OPA)Administered by the Office of Pharmacy Affairs (OPA)
  • PHS Drug Discount Program/340BPHS Drug Discount Program/340B Program:Program: RequirementsRequirements • Manufacturers cannot participate in the 340B ProgramManufacturers cannot participate in the 340B Program unless their drugs are covered by the Medicaid Programunless their drugs are covered by the Medicaid Program • Manufacturers agree to provide discounts on drugsManufacturers agree to provide discounts on drugs purchased by PHS covered entitiespurchased by PHS covered entities • Discount is calculated using MDRP formulaDiscount is calculated using MDRP formula • Covered entities are free to negotiate discounts greaterCovered entities are free to negotiate discounts greater than than the Medicaid rebate amountthan than the Medicaid rebate amount
  • PHS Drug Discount Program/340BPHS Drug Discount Program/340B Program:Program: PricingPricing • Manufacturer sells at a discounted price to coveredManufacturer sells at a discounted price to covered entities, rather than paying a rebate to statesentities, rather than paying a rebate to states  For S & I drugs, price = (AMP - URA) * UPPSFor S & I drugs, price = (AMP - URA) * UPPS  For N & OTC drugs, price = AMP - (11% * AMP)For N & OTC drugs, price = AMP - (11% * AMP) • Prices calculated & reported quarterlyPrices calculated & reported quarterly • Manufacturers responsible for verifying eligibility ofManufacturers responsible for verifying eligibility of covered entities each quartercovered entities each quarter
  • PHS Drug Discount Program/340BPHS Drug Discount Program/340B Program:Program: Covered EntitiesCovered Entities • Certain non-profit disproportionate shareCertain non-profit disproportionate share hospitalshospitals owned by (or under contract with) state &owned by (or under contract with) state & local governmentslocal governments • Specified PHS GranteesSpecified PHS Grantees, such as:, such as:  Certain Federally Qualified Health CentersCertain Federally Qualified Health Centers  State operated AIDS drug assistance programsState operated AIDS drug assistance programs  Tuberculosis, black lung, family planning,STD clinicsTuberculosis, black lung, family planning,STD clinics  Hemophilia treatment centersHemophilia treatment centers  Public housing primary care clinics & homelessPublic housing primary care clinics & homeless clinicsclinics  Urban Indian clinics & Native Hawaiian health centersUrban Indian clinics & Native Hawaiian health centers
  • PHS Drug Discount Program/340BPHS Drug Discount Program/340B Program:Program: Key FactsKey Facts • Drugs purchased by a covered entity cannot be resold orDrugs purchased by a covered entity cannot be resold or transferred, except to patients of the covered entitytransferred, except to patients of the covered entity • Drugs purchased through the 340B Program are notDrugs purchased through the 340B Program are not subject to a Medicaid rebate (prevents double discounts)subject to a Medicaid rebate (prevents double discounts) • Covers outpatient prescriptions onlyCovers outpatient prescriptions only
  • Federal Supply Schedule (FSS):Federal Supply Schedule (FSS): BackgroundBackground • Schedule of contracts & prices for frequently usedSchedule of contracts & prices for frequently used supplies & services available to federal governmentsupplies & services available to federal government • Contracts for medical-related schedules awarded byContracts for medical-related schedules awarded by Department of Veterans Affairs (VA)Department of Veterans Affairs (VA) • Individual FSS prices set by negotiations betweenIndividual FSS prices set by negotiations between manufacturer & VA (no statutory ceiling price)manufacturer & VA (no statutory ceiling price) • Government wants “most favored customer price” (orGovernment wants “most favored customer price” (or below)below)
  • Federal Supply Schedule (FSS):Federal Supply Schedule (FSS): Industrial Funding Fee (IFF)Industrial Funding Fee (IFF) • IFF = 0.5% fee on all FSS SalesIFF = 0.5% fee on all FSS Sales • VA requires manufacturers to collect and remit theVA requires manufacturers to collect and remit the IFF each quarterIFF each quarter • Manufacturers must decide whetherManufacturers must decide whether to include theto include the IFF in their pricing to government entitiesIFF in their pricing to government entities purchasing on the FSSpurchasing on the FSS • A report of sales data and payment is due within 60A report of sales data and payment is due within 60 days after the end of each quarterdays after the end of each quarter
  • Federal Supply Schedule (FSS):Federal Supply Schedule (FSS): IFF Numerical ExampleIFF Numerical Example • FSS Final Price = 9.01FSS Final Price = 9.01 IFF = 9.01 * 0.005 = 0.045IFF = 9.01 * 0.005 = 0.045 • FSS Final Price with IFF = 9.06FSS Final Price with IFF = 9.06 • The FSS Final Price with IFF is published in theThe FSS Final Price with IFF is published in the FSS Price ListFSS Price List
  • Big 4 Federal Ceiling Prices (FCP):Big 4 Federal Ceiling Prices (FCP): BackgroundBackground • Like PHS, genesis in rising prices for “non-Medicaid”Like PHS, genesis in rising prices for “non-Medicaid” federal & state payors of drugs after MDRP beganfederal & state payors of drugs after MDRP began • Enacted under Section 603 of the Veterans HealthEnacted under Section 603 of the Veterans Health Care Act of 1992, Public Law No. 102-585Care Act of 1992, Public Law No. 102-585 • Establishes separate drug discount program for 4Establishes separate drug discount program for 4 largest federal purchasers of drugs: VA, DOD, PHSlargest federal purchasers of drugs: VA, DOD, PHS (including IHS) and Coast Guard(including IHS) and Coast Guard • Places a ceiling price (federal ceiling price, or FCP)Places a ceiling price (federal ceiling price, or FCP) on brand name (S or I) drugs purchased by the Big 4on brand name (S or I) drugs purchased by the Big 4
  • Big 4 Federal Ceiling Prices (FCP):Big 4 Federal Ceiling Prices (FCP): RequirementsRequirements • Manufacturer must enter into “master agreement” withManufacturer must enter into “master agreement” with VA in order to be paid for drugs under Medicaid, theVA in order to be paid for drugs under Medicaid, the 340B Program or by the Big 4340B Program or by the Big 4 • ““Master agreement” requires aMaster agreement” requires a minimumminimum discount ofdiscount of 24% off nonfederal average manufacturer price24% off nonfederal average manufacturer price (NFAMP) on brand name drugs sold to the Big 4(NFAMP) on brand name drugs sold to the Big 4 • Additional discount required if a drug’s price risesAdditional discount required if a drug’s price rises faster than inflationfaster than inflation
  • Big 4 Federal Ceiling Prices (FCP):Big 4 Federal Ceiling Prices (FCP): Dual PricingDual Pricing • FCP discount formula is only available to the Big 4FCP discount formula is only available to the Big 4 • Other federal agencies must pay “normal” FSSOther federal agencies must pay “normal” FSS pricesprices • Manufacturers have the option of maintaining 1 orManufacturers have the option of maintaining 1 or 2 FSS schedules (of charging single or dual prices2 FSS schedules (of charging single or dual prices to the Big 4 and other FSS purchasers for theto the Big 4 and other FSS purchasers for the same covered drug)same covered drug) • Under dual pricing, FSS prices are generally higherUnder dual pricing, FSS prices are generally higher than FCP prices for the same drugthan FCP prices for the same drug
  • Big 4 Federal Ceiling Prices (FCP):Big 4 Federal Ceiling Prices (FCP): NFAMPNFAMP • NFAMP =NFAMP = The average price paid by wholesalers toThe average price paid by wholesalers to manufacturers, including any cash discounts, similarmanufacturers, including any cash discounts, similar price reductions and chargebacks paid on non-price reductions and chargebacks paid on non- federal/non-nominal salesfederal/non-nominal sales • Quarterly NFAMPQuarterly NFAMP reported to VA within 45 days afterreported to VA within 45 days after the end of each quarterthe end of each quarter • Annual NFAMPAnnual NFAMP reported to VA on November 15reported to VA on November 15thth ofof each yeareach year
  • Big 4 Federal Ceiling Prices (FCP):Big 4 Federal Ceiling Prices (FCP): FCP CalculationFCP Calculation • FCP = 0.76 * (Annual NFAMP)FCP = 0.76 * (Annual NFAMP) in the 1in the 1stst year of ayear of a multi-year contractmulti-year contract • In the 2In the 2ndnd & subsequent years,& subsequent years, FCP will be the lowerFCP will be the lower ofof:: 1.1. FSS price charged during preceding 12 monthsFSS price charged during preceding 12 months (adjusted for inflation)(adjusted for inflation) OR…OR… 2.2. Reported annual NFAMP multiplied by 0.76 (minusReported annual NFAMP multiplied by 0.76 (minus any inflation adjustment)any inflation adjustment)
  • Big 4 Federal Ceiling Prices (FCP):Big 4 Federal Ceiling Prices (FCP): Multiple Year FCP CalculationMultiple Year FCP Calculation Prior Year FSS Price Allowable CPI-U Increase (annual) .76*NFAMP CPI-U Additional Discount + - = = New Year FSS-Inflated Price Option New Year NFAMP-Based Price Option Lower Of FCP
  • Big 4 Federal Ceiling Prices (FCP):Big 4 Federal Ceiling Prices (FCP): Differences from MDRP and 340BDifferences from MDRP and 340B • FCP discounts for Big 4 only apply to brand name drugsFCP discounts for Big 4 only apply to brand name drugs (S & I) drugs, whereas the MDRP and 340B Program(S & I) drugs, whereas the MDRP and 340B Program also impose discounts on generic drugsalso impose discounts on generic drugs • FCP pricing calculation does not involve any type of bestFCP pricing calculation does not involve any type of best price formulaprice formula • Additional discount calculation for price increases thatAdditional discount calculation for price increases that outpace inflation is not identicaloutpace inflation is not identical • Though nominal prices are excluded from NFAMP, VAThough nominal prices are excluded from NFAMP, VA interprets “nominal” more narrowly than CMSinterprets “nominal” more narrowly than CMS
  • What are the risks ?What are the risks ? • FinesFines • Significant increase in Federal ScrutinySignificant increase in Federal Scrutiny • Public damage to reputationPublic damage to reputation
  • What steps can we take ?What steps can we take ? • Data AuditData Audit • Internal Legal Department ReviewInternal Legal Department Review • Proactively “partner” with State and Federal AgenciesProactively “partner” with State and Federal Agencies
  • Pricing/Sales DataPricing/Sales Data • Direct and Indirect SalesDirect and Indirect Sales • Rebates and ChargebacksRebates and Chargebacks • MedicaidMedicaid
  • Systems and ControlsSystems and Controls • Where and when possible, use proven data processingWhere and when possible, use proven data processing systems and technologiessystems and technologies • Carefully design Filter mechanisms and place them inCarefully design Filter mechanisms and place them in exclusively in the hands of Users.exclusively in the hands of Users. • Dedicate IS resources to support this functional area asDedicate IS resources to support this functional area as their primary responsibilitytheir primary responsibility
  • Your Internal Legal DepartmentYour Internal Legal Department • Ensure full review and blessing of All pricing/discountEnsure full review and blessing of All pricing/discount strategies by your Legal Departmentstrategies by your Legal Department • Target high exposure areas such as Nominal PricingTarget high exposure areas such as Nominal Pricing • Examine and enhance standard Legal clauses within allExamine and enhance standard Legal clauses within all contracts going forwardcontracts going forward
  • Work with Federal and State AgenciesWork with Federal and State Agencies • Appoint full time representative(s) to GovernmentAppoint full time representative(s) to Government EntitiesEntities • In addition to Government Mandated reports, provide theIn addition to Government Mandated reports, provide the availability of additional detailed reportsavailability of additional detailed reports • Strive for a positive, open dialogue at all times.Strive for a positive, open dialogue at all times.
  • Conclusions…Conclusions…