Recent regulatory changes, executive actions, and market dynamics are reshaping the pharmaceutical pricing landscape. For manufacturers, staying ahead of the trend requires a deep understanding of how new models like Direct-to-Consumer (DTC) and Most Favored Nation (MFN) pricing interact with established programs like the Medicaid Drug Rebate Program (MDRP). Successfully navigating these complexities is crucial for maintaining compliance and optimizing market access.
Direct-to-Consumer (DTC) Pricing: Choosing Your Model
As manufacturers explore DTC channels, a primary concern is the impact on Government Pricing policies. Structuring your DTC model correctly from the onset can prevent significant compliance headaches. Two main models should be evaluated: the “patient assistance” model and the “dedicated entity” commercial model.
The “Patient Assistance” Model
In this model, the discount provided to the consumer – the difference between the Wholesale Acquisition Cost (WAC) and the final DTC price – is classified as a form of patient assistance. From a systems perspective, the transaction data often flows in bulk through the company’s Enterprise Resource Planning (ERP) system.
The key decision here is whether this data should flow into your GP system as “external data” or similar designation. If you treat it as patient assistance, you must carefully determine its role, if any, in your GP calculations. This model requires clear internal policies to ensure consistency and proper classification of the discount.
The “Dedicated Entity” Commercial Model
Alternatively, you can establish a dedicated commercial entity to handle DTC transactions. This structure effectively creates a contract with the “DTC” entity, allowing for multiple, concurrent price points for different DTC transactions as if they were direct purchases.
An advantage of the commercial model is its clear separation from other pricing structures. This can provide greater flexibility in offering various price points for DTC sales. As with the patient assistance model, you must decide whether data from these transactions will be integrated into the GP system and, if so, how it will be handled within each GP calculation. However, in this model, if you elect to incorporate this data into your GP calculations, existing system integrations may be leveraged to expedite implementation.
Regardless of the chosen model, it’s essential to analyze the potential impact on Best Price (BP). Based on current interpretations, a properly structured DTC price would not breach BP, but a thorough evaluation is a critical step in the process. Any change or update to a manufacturer’s GP policies should be carefully reviewed with internal and/or external counsel.
Most Favored Nation (MFN) Pricing for State Medicaid
Some manufacturers are considering offering “Most Favored Nation” pricing to State Medicaid programs, discounting certain drugs to match published prices paid by other industrial nations. Before adopting this strategy, there are two fundamental factors to analyze: financial impact and implementation.
Is MFN Truly Lower than the Medicaid Net Price?
The first question to ask is whether an MFN price would provide a deeper discount than they already receive. To answer this, you must look beyond the basic Medicaid Unit Rebate Amount (URA). Your analysis needs to incorporate the full financial picture, including:
- Existing Supplemental Rebate Agreements: Many states have supplemental rebate agreements in place that already provide significant discounts on top of the federal URA.
- Guaranteed Net Unit Price (GNUP): Any existing GNUP arrangements must be factored into the calculation to determine the true effective price the state is currently paying.
- Existing Federal URA: It’s important to recall that the URA is no longer capped at AMP meaning that for branded drugs, particularly those late in their exclusivity, it’s possible that URA is already near or greater than AMP which would certainly net the price down to below MFN.
Only after accounting for all existing rebates and agreements can you accurately assess if an MFN offer would result in a lower net price for the State programs and a greater rebate liability for the manufacturer.
How to Effectuate the MFN Discount
If you determine that an MFN price is the right strategic move, the next step is implementation. How do you operationalize this additional discount?
One of the most effective methods is to utilize the supplemental rebate functions within your revenue management system and treat the MFN price as the new GNUP for the supplemental program. By treating the MFN discount as a supplemental rebate, you can leverage existing processes and systems, like those available in Model N, to manage the calculation and payment accurately. In cases where MFN is greater than the existing Medicaid net price, these supplemental programs would correctly calculate the additional rebate required as $0. This approach ensures a clear audit trail and integrates the MFN pricing into your established Medicaid rebate workflow, minimizing operational disruption.
Your Path Forward
The pharmaceutical pricing environment is in constant motion. Whether you are building a new DTC strategy or evaluating MFN proposals for Medicaid, the implications for your Government Pricing and Market Access functions are significant.
A proactive, strategic approach is essential to ensure compliance, manage revenue, and maintain market access. By carefully considering your options and leveraging robust systems to manage these complex calculations, you can adapt to these changes with confidence.
Contact Model N to discuss your options.
