{"id":4585,"date":"2012-02-22T01:30:00","date_gmt":"2012-02-22T01:30:00","guid":{"rendered":"https:\/\/www.healthlawpolicymatters.com\/?p=4585"},"modified":"2021-11-03T01:33:18","modified_gmt":"2021-11-03T01:33:18","slug":"cms-proposed-rules-for-reporting-amp-and-best-price-may-have-impact-beyond-medicaid-drug-rebates","status":"publish","type":"post","link":"https:\/\/www.healthlawpolicymatters.com\/2012\/02\/22\/cms-proposed-rules-for-reporting-amp-and-best-price-may-have-impact-beyond-medicaid-drug-rebates\/","title":{"rendered":"CMS Proposed Rules for Reporting AMP and Best Price May Have Impact Beyond Medicaid Drug Rebates"},"content":{"rendered":"\n

Written by\u00a0Theresa Carnegie<\/a>,\u00a0Ellyn Sternfield<\/a>\u00a0and\u00a0Nili Yolin<\/a><\/em><\/strong><\/p>\n\n\n\n

On February 2, 2012, CMS issued proposed regulations that further refine and define how pharmaceutical manufacturers must calculate Medicaid drug rebates in the wake of health care reform\u00a0(the\u00a0Proposed Rule<\/a>).<\/em>\u00a0 Specifically, the Proposed Rule changes the definition of \u201cbona fide services fee,\u201d which is a key component in determining a manufacturer\u2019s Medicaid rebate liability.\u00a0 While these regulations certainly will affect the operations of pharmaceutical manufacturers, they will also impact those who do business with them.\u00a0 Comments on the Proposed Rule are due April 2, 2012.\u00a0<\/p>\n\n\n\n

Generally, under the Medicaid Drug Rebate Program, pharmaceutical manufacturers calculate and report to CMS the Average Manufacturer\u2019s Price (AMP) for their outpatient drugs.  They also calculate and report to CMS the \u201cBest Price\u201d they charged for those drugs, i.e., their lowest price to any commercial customer.  Depending on specific circumstances and the type of drugs involved, the Medicaid drug rebate that pharmaceutical manufacturers must pay to the 51 State Medicaid Programs is either the difference between the AMP and the Best Price for that specific drug and dosage, or is tied to a specific percentage off of the calculated AMP.   The Affordable Care Act (ACA) changed how AMP and Best Price must be calculated, and the Proposed Rule expands upon and implements those changes.  CMS estimates that the changes made to the Medicaid Drug Rebate Program by ACA and the Proposed Rule will result in a net savings of $17.7 billion for federal and state governments, over a four-year period.<\/p>\n\n\n\n

The Proposed Rule is not CMS\u2019s first attempt to define bona fide services fees for AMP and Best Price purposes.\u00a0 In July 2007, CMS issued a Final Rule implementing the Medicaid pharmacy provisions of the Deficit Reduction Act of 2005 (the\u00a02007 Final Rule<\/a>), which provided guidance on how pharmaceutical manufacturers should calculate and report AMP and Best Price, including definitions for the types of bona fide service fees that were to be excluded.\u00a0 However, in 2010, the ACA redefined AMP in a manner that conflicted with the 2007 Final Rule.\u00a0 CMS therefore withdrew the provisions of the 2007 Final Rule relating to AMP in November 2010, which left manufacturers with nothing but the legislative definitions in the ACA and no substantive regulations to define AMP.\u00a0 The Best Price provisions remained intact.<\/p>\n\n\n\n

In the 2007 Final Rule, CMS defined bona fide service fees as:<\/p>\n\n\n\n

fees paid by a manufacturer to an entity that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement and that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug (emphasis added).<\/p>\n\n\n\n

Under the Proposed Rule, a bona fide service fee is defined as a fee paid by a manufacturer not to \u201can entity\u201d but to a wholesaler or retail community pharmacy only, <\/strong>that (i) represents fair market value for an itemized service actually performed, (ii) the manufacturer would have otherwise had to have done itself, and (iii) is not passed on in whole or in part to a client or customer.  Examples of such fees are distribution service fees, product stocking allowances, and fees with patient care programs. <\/p>\n\n\n\n

The Proposed Rule defines retail community pharmacies as independent pharmacies, chain pharmacies, supermarket pharmacies, and mass merchandiser pharmacies, licensed as pharmacies by the state and dispensing medicine to the general public.  The definition specifically excludes mail order pharmacies, institutional pharmacies, clinics, charitable pharmacies and PBMs.<\/p>\n\n\n\n

Interestingly, CMS does not propose to define \u201cfair market value\u201d for bona fide service fees, claiming that the market place changes too rapidly.  Instead, CMS stated that pharmaceutical manufacturers should determine fair market value for the services by making \u201creasonable assumptions consistent with adequate documentation that will support their payment for these services as fair market rates sufficient that an outside party can determine the basis for the fair market value determination.\u201d<\/p>\n\n\n\n

After defining \u201cbona fide service fees\u201d consistent with the ACA, CMS further proposed to extend the bona fide service fee exemption to fees paid to Group Purchasing Organizations, but not to any other entity.  CMS did not provide an explanation for this change, and it is unclear how the pharmaceutical industry will react given that the regulation appears to exclude fees paid to health benefit plans, PBMs and others from the scope of bona fide services fees.<\/p>\n\n\n\n

 In addition to defining bona fide service fees, the Proposed Rule expands other types of fees and transactions that would be exempt from either the AMP or Best Price calculations.  For example, AMP calculations would exclude:  <\/p>\n\n\n\n