Reimbursement Update: Market Changes and Proposed AMP Regulations

Transcription

1 Reimbursement Update: Market Changes and Proposed AMP Regulations Emdeon All Customer Meeting September 14, 2012 Tim Kosty, RPh, MBA

2 PHSI Background & Experience Pharmacist based consulting practice since 1996 Senior management experience developing and managing PBM and retail pharmacy operations Diverse experience with most segment of the industry from a strategy development and tactical implementation to solve clients business issues

3 Who We Serve Pharmaceutical Manufacturers Managed Care Organizations Managed Medicaid Providers PBMs Medicare Part D Plans Retail Pharmacy Chains Mail Service and Specialty Pharmacies Technology Providers Retail pharmacy dispensing systems Payer claims processing systems

4 Key Differentiation Why PHSI? Understand industry stakeholder perspectives E-Prescribing Drug Pricing and Reimbursement Formulary Placement Drug Database Classification 360º View Copay Cards Healthcare Reform Pharmacy Replacing AWP Medication Adherence

5 Agenda Review and Analysis of Proposed AMP Regulations NADAC Survey and Potential New Reimbursement Metric NARP Inflection Point - Publication of Weighted Average AMP Predictions and Prognostications

6 Proposed Regulations Published January 27, 2012 Proposed regulations were long awaited by the industry Attempt to provide clarity on a number of outstanding issues Industry comments submitted in April CMS indicates final regulations are not expected to be published until 2013

7 General Comments CMS will rely on guidance from the FDA. For example, the multi-part test for determining which products meet the revised definition of a covered outpatient drug is now dependent upon FDA information By releasing a Proposed Rule instead of an Interim Final Rule, CMS indicates a willingness to revise its position if the industry comments indicate they are impractical or ineffective Expanded definitions provide more clarity

8 Average Manufacturer Price Means the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies that purchase drugs directly from the manufacturer Includes sales to specialty pharmacies, home infusion and home health providers Includes cash discounts except customary prompt pay discounts extended to wholesalers, free goods that are contingent on any purchase requirement, volume discounts, chargebacks that can be identified with adequate documentation, incentives, administrative fees, service fees, distribution fees, and any other rebates, discounts or other financial transactions, other than rebates under section 1927 of the Act, which reduce the price received by the manufacturer for drugs distributed to retail community pharmacies

9 Retail Community Pharmacy Means an independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses medications to the general public at retail prices. Such term does not include mail, nursing home pharmacies, clinics, charitable or not-for-profit pharmacies, government pharmacies or pharmacy benefit managers.

10 AMP Attributes AMP has the following characteristics: Based on transaction prices Available for all products covered under the Medicaid program Manufacturers must sign an OBRA 90 rebate agreement to have their products covered on Medicaid Updated monthly Fines of $10,000/day when AMP submission is late May exhibit substantial variation on a monthly and quarterly basis due to the timing of purchases from large pharmacy organizations

11 AMP: What is in and what is out? Included Direct sales to retail pharmacies Wholesaler purchases Excluded Discounts or rebates to classes of trade other than retail community Wholesaler generic source program sale prices (counted at the wholesalers purchase price only) Prompt pay discounts, bona fide services, returned goods and discounts provided by manufacturers under the Medicare Coverage Gap Discount Program

12 AMP Market Use Originally defined in OBRA 90 legislation for use in the Medicaid Drug Rebate Program New definition for use as both a reimbursement metric for the CMS FUL price in addition to the original drug rebate calculation AMP pricing used to be strictly confidential between manufacturer and CMS

13 Challenges with Dual Use Different constituencies and financial motivations Rebates Medicaid want to maximize, pharmaceutical manufacturers wants to minimize Reimbursement Medicaid wants to minimize, Retail pharmacy wants to maximize

14 Professional Dispensing Fee Pays costs in excess of ingredient cost of a covered outpatient drug each time a covered outpatient drug is dispensed Includes only pharmacy costs that include, but are not limited to: Reasonable costs for RPh time checking computer information about an individual s coverage Performing Drug Utilization Review (DUR) Preferred drug list review activities Measurement or mixing the covered drug Filling the container Beneficiary counseling Physically providing the completed prescription to Medicaid beneficiary Overhead with maintaining the facility and equipment

15 Manufacturer Challenges Proposed Regulations

16 AMP Calculation Build Up versus Gross to Net Methodology Manufacturers typically calculate AMP by beginning with the universe of wholesaler sales and then carving out AMP excluded sales, which the manufacturer identifies through chargeback data, which is also known as presumed inclusion policy. CMS is proposing a build up approach where only specifically identified RCP sales may be included. This change will require extensive programming to comply and is one area that CMS has requested comments from the industry

17 AMP Calculations Two AMP calculations are required for Standard Drugs and 5i Drugs 5i Drugs (Inhaled, Infused, Implanted, Instilled, and Injectable) AMP includes sales from: Mail Service PBMs Hospitals Long Term Care Hospices Manufacturer government pricing systems will need to be programmed for these calculations

18 United States Definition CMS proposes to expand the definition of United States to include Puerto Rico and the US Territories (Virgin Islands, Guam, Northern Mariana Islands, and American Samoa) Revised definition makes prices available in these localities eligible for AMP and Best Price.

19 Authorized Generics The primary manufacturer must include in its calculation of AMP (for the brand drug) its sales of authorized generic drugs that have been sold or licensed to a secondary manufacturer, acting as a wholesaler, or when the primary manufacturer holding the NDA sells directly to a wholesaler. Extreme challenge for the primary manufacturer if the build up calculation of AMP is ultimately adopted in the final rule

20 Industry Challenges

21 Pharmacy Issues Potential assault on Pharmacy Margins May accelerate a deflationary generic market Commercial payers have additional price points to use to create new reimbursement metrics Accelerate speed of market changes requiring rapid management response

22 Manufacturer Challenges Brand Manufactures Much higher hurdle to get coverage for new products Fail on generics before getting access to new brand products unless clearly superior from a clinical perspective Generic Manufacturers More challenging relationships with customers Increased rate of market changes will require rapid response to customer requests

23 Wholesaler Challenges Margin pressure from retail customers and Pharma suppliers Evolving contracting strategy with pharmaceutical manufactures to respond to new incentives introduced Clearly define bona fide services

24 Reimbursement Issues with Proposed Regulations

25 Financial Flow Among Stakeholders Medication Patient Visit Copay Copay Rx Pharmacy Reimbursement 14 days Physician Rx Claims 3-5 seconds Reimburses Monthly Medical Claims Claims Router PBM Health Plan Rebate $ 90 days Rebate Data Monthly Pays Monthly Bills monthly with periodic adjustments Pharma Employer Premium deducted from wages

26 Estimated Acquisition Cost Replaced EAC definition is deleted and replaced with Actual Acquisition Cost (AAC) Pave the way for nationwide rollout of AAC based reimbursement for Medicaid programs AAC means the agency s determination of the pharmacy provider s actual prices paid to acquire drug products marketed or sold by specific manufacturers. CMS pushing to eliminate all remnants of AWP based reimbursement

27 NADAC AKA - National Average Drug Acquisition Cost National survey of drug acquisition costs, which many state Medicaid departments support Myers and Stauffer conducting survey now. 2,500 pharmacies surveyed each month. Participation is Voluntary NACDS believes that CMS may lack the authority to collect and publish this information

28 Cost Plus Coming to a State Near You! Oregon and Alabama Medicaid Cost Plus Medicaid reimbursement AAC collected from pharmacy invoices Alabama increased dispensing fee to $10.64 Idaho and Colorado implementing in 2012 New York and California working on regulations First DataBank and MediSpan will publish AAC information

29 National Average Retail Prices (NARP) NARP is the National Average Price Per Unit Paid to retail community pharmacies from cash customers, third party insurers, and fee-forservice Medicaid Programs. It includes the combined prices paid for drug ingredient costs, customer pay amounts, and dispensing fees from actual market transactions. Weighted Average Unit Price based on Medicaid, Third Party and Cash Prescriptions Price will be Provided as a Unit Price and NARP/Rx based upon Quantity most frequently Dispensed

30 NARP Attributes Representative of monthly transactions based upon dispense date from two months prior to NARP published date Limited to CMS Medicaid outpatient covered drugs reported at the NDC 11 level. Estimated at 3,500 NDC s Separate national average prices per unit published for: Fee for Service Medicaid Third Party Insurers Cash Customer CMS to meet with compendia to discuss file layout and update processes

31 NARP Data Sources and Collection Pharmaceutical data suppliers are expected to provide aggregated claims transaction and utilization data from retail community pharmacies 50 Million transactions/month Represents actual priced paid to retail community pharmacy entities Includes 50 states and the District of Columbia Data will include NDC, dispense date, state, pharmacy entity type, payer type, quantity most frequently dispensed and the average price per unit

32 CMS FUL Definition Proposed regulations establish FUL at 175% the weighted average AMP Must be three therapeutically equivalent products including brand, authorized generic and ANDA generic CMS will NOT apply a smoothing process to minimize the month to month fluctuations. The manufacturer is required to estimate the impact of lagged price concessions using a 12 month rolling average to estimate value of those discounts State Medicaid programs must pay no more than the CMS FUL on an aggregate basis in order to receive federal matching funds (SMAC Prices)

33 Weighted Average AMP What s Average?

34 Four Largest Retailers Generate 57% of Retail Sales Large pharmacies are WAG, CVS, WAL, RAD. % of Pharmacy Sales Small pharmacies are represented by all independents. Mid size pharmacies are all remaining traditional chain, supermarket, and mass merchant pharmacies. Mid size pharmacies 20.6% Small pharmacies 21.9% Large pharmacies 57.4% Walgreens 20.7% CVS 18.4% Wal Mart 9.9% Rite Aid 8.4% Source: Totals by Class of Trade from NACDS Chain Pharmacy Industry Profile Totals by Chain from Chain Drug Review Aug. 30, 2010

35 Weighted Average AMP Comments The top four retail pharmacy chains most likely have a significant advantage when purchasing generic pharmaceuticals when compared to smaller entities Other pharmacies will be purchasing above the weighted average AMP Unknown is the variation of purchasing prices between the pharmacies. A wide variation will mean more disruption, a narrow variation will cause fewer concerns

36 Inflection Point Publication of Weighted Average AMP

37 CMS and State Medicaid Goal is to introduce market competition to lower the cost of generic products. In the next two years we will see an 80%+ generic substitution rate. Publication will be the catalyst for market competition as organizations try to lower their COGS for generics. Replacement of antiquated FUL process using WAC prices will lower FUL s and reflect transaction (AMP) prices. SMAC prices have been introduced in over 40 states to create more competitive generic drug reimbursement

38 Retail Pharmacy Will compare the weighted average AMP with their generic acquisition prices Will request price concessions, in the short term, to improve margins Top four chains will try to maintain their purchasing advantage Explore alternatives to improve pricing Insource generic purchasing/warehousing Join Buying Groups Change generic suppliers if direct purchasing

39 Retail Pharmacy Monitor the impact of AMP publication on generic payments from other payers Store/chain consolidation if generic sales are marginally profitable compared to the current market dynamic Increased management focus on evaluating generic profitability and close monitoring of results

40 Generic Manufacturers Must prepare to respond to customer requests for price concessions Intensity of requests will be dependant upon their mix of retail pharmacy business and their strategic response to retailer requests Evaluate Risk/Reward to agree to lower prices Supply and availability issues will be more critical to their bottom line profitability

41 Wholesalers Weighted average AMP publication will expose margin on generics to independents and small chains Field high level of calls to improve generic pricing in order to keep customer base Look for other revenue sources to make up for lost margin dollars on the generic business Evolve business model to fee for services provided. We have already seen this on the brand side

42 PBMs Will expose arbitrage margin to their self insured employer groups and health plans Will defend margins and/or change business model May create momentum to move towards a transparent pass through model May increase service fees to customers based upon their desired business arrangement

43 Payers & Self Insured Employers Will evaluate PBM MAC lists with the weighted average AMP and request a detailed explanation for the differences identified Decide to negotiate with their PBMs or accept the fact that driving generic dispensing is beneficial to lowering their overall drug spend

44 Stakeholder Goals CMS lower generic reimbursements through market competition Top 4 Chains maintain relative purchasing advantage Other pharmacies narrow purchasing deficit Wholesalers maintain/defend generic margins Generic Manufacturers defend pricing and maintain margins PBMs maintain/defend generic margins Payers/Self Insured Employers lower drug costs

45 Issues with the Proposed AMP Regulations

46 Change from EAC to AAC States currently use AWP, WAC and AAC to calculate the EAC The agency s determination of actual prices paid by pharmacy providers to acquire drugs marketed or sold by specific manufacturers should be a survey of invoice prices paid by each pharmacy location is most reflective of AAC In case no AAC is available, NACDS urges a WAC price be used prior to application of the multiplier

47 Professional Dispensing Fee Acquisition cost is one component of the reimbursement formula and should not be revised without appropriately evaluating the other part (PDF) Total reimbursement must recognize the total cost of doing business Rather than ask states to reconsider dispensing fees, require states to reevaluate dispensing fees to assure they adequately cover costs

48 Retail Community Pharmacy Objects to the inclusion of specialty pharmacies, home infusion pharmacies, and home health care providers in the definition These entities may have access to discounts and price concessions not available to retail community pharmacies

49 FUL Issues Drug Availability Existence of a NDC number in a drug compendia database doesn t mean the product is available in the marketplace Drug manufacturers have no incentive to terminate NDC numbers NACDS suggests a wholesaler survey, i.e. product must be stocked in 2 or 3 wholesalers to be considered available nationally

50 FUL Smoothing Process Draft FULs issued by CMS exhibit great variability on a month to month basis Advocate using a 12 month rolling average to determine FUL s instead of a single month s calculation Additional smoothing will not change total reimbursement, but will reduce variability Implement additional processes to effectively manage drug shortages

51 Predictions and Prognostications

52 Retail Pharmacy Monitor the impact of AMP publication on generic payments from other payers Increased management focus on evaluating generic profitability and close monitoring of results Continued lack of pricing power in the retail pharmacy sector versus the payer community Store/chain consolidation if generic sales are marginally profitable compared to current market dynamic

53 Short Term Initial phase could be chaotic as initial reaction to knowing the transaction prices and comparing it to your organizations prices Generic manufacturer response to new price requests may ignite or tamp down competition Published weighted average AMP will eventually establish a price floor Key question Define eventually

54 Unintended Consequences A reduction of prices will have a negative impact on sales revenue and dollar profits Example Weighted Avg. AMP = $10.00 x 1.75 = $17.50 If we are successful in negotiating lower prices and drive the weighted avg. AMP = $5.00 x 1.75 = $8.75 Assuming our acquisition cost = weighted average AMP, our revenue decreases by $8.75 and profit by $3.75 for the prescription

55 Longer Term There may be a slow increase in generic prices in the long run, absent a change in reimbursement methodology as stakeholders focus on dollar profit margins that will be greater at a higher price Relative purchasing advantage of top four chains may narrow over time as prices regress to the mean

56 Q & A Thank You! Tim Kosty, RPh, MBA tkosty@phsirx.com