Roundtable: Deficit Reduction Act - Pharmaceutical Executive


Roundtable: Deficit Reduction Act

Pharmaceutical Executive

HEPBURN: No. That's the whole issue. People don't have that information. I would argue that if CMS made wholesale changes that lowered AMP, they might want to make adjustments to the baseline AMP, from a fairness perspective.

WINTERTON: There is a precedent going back to the Omnibus Budget Reconciliation Act of '93. The original legislation had a problem with baselines. So CMS put in place two different baseline schemes, depending on the rebate period.


CLINTON: The law also addresses authorized generics, an increasingly important strategy for a lot of pharmaceutical companies and one that DRA makes treacherous.

HEPBURN: Very treacherous. Again, it's unclear from a technical implementation perspective exactly how a branded manufacturer is supposed to include pricing data on authorized generics in calculating AMP and best price. But the thinking is that it will likely lower AMP significantly, which lowers the rebate. Again, there are a lot of financial implications, depending on the pricing of the branded product and the authorized generic, and the percent of sales that they garner. That stuff now needs to be factored into authorized generic deals.

WINTERTON: The real complexity is that some of the data belongs to your authorized generics manufacturer. Are the data compatible? Can you combine them? Can you analyze them together? Is someone else going to analyze them?

HEPBURN: There are anti-trust concerns. We compete against those authorized generics in the marketplace, so we should not be privy to their pricing data. So how do we get the data? Do they just calculate the AMP on their own and send it to us? Does CMS do that?

And from the reimbursement perspective, you could end up now with a single AMP that doesn't match the price paid for either product.

WINTERTON: Then you could have pharmacy chains or pharmacies skewing purchasing patterns to maximize the value of some price that's in between the pricing they pay for different types of branded and generic products.

HEPBURN: It's interesting, because we're trying to get rid of the spread [between out-of-pocket costs and reimbursement] by eliminating the AWP. But, the way the authorized generics provision is laid out, it introduces a spread. The question also remains whether the authorized generic company has to combine the data, as well.

CLINTON: How about nominal pricing?

WINTERTON: The nominal pricing piece is fascinating, because it really does nothing to affect reimbursement or rebates. It doesn't affect AMP, because we're typically talking about customers that are excluded from the AMP anyway. And it doesn't change the best price, because now those nominal prices will be taken away. What it does do is solve a political problem where you'd have a hospital paying 10 cents and Medicaid paying 85 cents for the same product. It eliminates that.

A lot of this came out of a widely publicized lawsuit against Merck a few years ago, where they were offering teaching hospitals nominal prices as a way to get their product introduced to young doctors who would then start their own practices and use the products. That was totally within the law. The law just said nominal price is 10 percent of Average Manufacturers Price. It didn't discriminate against types of customers.

So there was concern in the government that manufacturers were using nominal pricing in a way that was inconsistent with the intent of law. So now they're going back and saying, "No, the intent of the law was to provide nominal pricing only to certain customers."

HEPBURN: That creates a compliance risk. The new members are the mental retardation institutions, state-owned nursing home facilities, and safety net providers determined by the Secretary [of Health and Human Services].

WINTERTON: Yet to be determined.


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