Roundtable: Deficit Reduction Act - Pharmaceutical Executive


Roundtable: Deficit Reduction Act

Pharmaceutical Executive

SHRIGLEY: We've been saying that since '92. You audit five manufacturers on AMP, and you're going to come back with three or four different methods for calculating it. We've told CMS over and over that you need to define AMP, you need to tell people which classes of customers are included, which aren't, and so forth. They just refused.


CLINTON: What are the problems with defining classes of trade?

Michael Hepburn Ortho-Mcneil Janssen
WINTERTON: If we look at the AMP calculation, in essence we're coming up with a numerator and a denominator. The denominator is the net units that went to retail customers. The numerator is all the net sales related to retail transactions.

But in the pharmaceutical industry, the vast majority of my transactions go through a wholesaler. When I sell to a wholesaler, one of three things happens. Either the product goes to a class of trade that I consider to be retail, and I need to include it in my AMP numerator, or it goes into a class of trade that I consider to be non-retail, like a hospital or the federal government, so I don't include it in the AMP calculation.

And then there's the third category: In this category I don't know where the product went, because I don't have data that indicate where that sale to the wholesaler subsequently went.

There are other issues. Are prescription benefit managers considered to be retail? If so, we could consider rebates paid to PBMs in the AMP calculation, which would have the effect of reducing the numerator. Then there's state Medicaid. Do I categorize that as sales that went to a wholesaler that subsequently went to a non-retail class? If I take those sales out, it lowers the AMP.

Also, prompt-pay discounts provided to wholesalers used to be subtracted from the AMP numerator. Now they're going to be left in, which has the effect of raising the AMP by two percent. That's fairly clear. But although the Deficit Reduction Act specifically speaks about wholesalers, it doesn't mention what happens if I sell to a mail-order customer. Should I take those terms discounts out or should I leave them in?

Bill Shrigley Envision
HEPBURN: Even on prompt pay, we have lots of questions. Who is classified as a wholesaler? Do we include big retail chains? In many cases we sell directly to them. What is it exactly that defines what a wholesaler is? Under DRA, prompt-pay discounts to wholesalers are not subtracted from AMP. But prompt-pay discounts to retailers are not mentioned.

This gets back to the original issue of using AMP to calculate both rebates and reimbursement. Pharmacies don't want the AMP reduced by the two percent prompt-pay discount, because that doesn't necessarily get passed along to them. And now it has an impact on the rebate, as well. Anything you do from a reimbursement side to try and make AMP match cost causes changes on the rebate side, as well.

SHRIGLEY: It can also trigger the additional Consumer Price Index penalty rebate if you don't go back and adjust the original baseline AMP.

HEPBURN: As AMP goes up, most mature products are paying a CPI inflation penalty. And that's fairly significant for large products.

ZANT: It appears to be a price increase. Manufacturers have treated it as if they've had a two-percent price increase, when really it's a change in how the calculation is being done.

SHRIGLEY: But if you were allowed to adjust baselines, would you even have the records from 1989 or '90 available?


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