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Medicaid Drug Price Force Awakens

January 29, 2016

Much like the plotline from the Star Wars movie franchise where the Empire/First Order keeps striking back at the protagonists after prolonged quiet periods, the Centers for Medicare & Medicaid Services (CMS) has come back with the latest installment of regulations further implementing the Affordable Care Act.

The CMS’s most recent salvo, after a prolonged quiet period, is the AMP final rule, and it is a massive salvo at 657 pages. Not only does the AMP Rule provide Medicaid drug pricing details called for in the ACA, but also provides “clarification” of many existing regulations and policies. While several of the provisions of the rule were expected and the CMS did remove the single most contentious issue, the sheer breadth of the rulemaking is going to have most drug manufacturers performing an extensive review of policies, procedures, systems and data necessary to comply with the new rule. Just a few of the many points in the new rule:

  • Generally effective on April 1, 2016. For the April filing, due May 30 this does not leave very much time at all to prepare
  • AMP Build-up Methodology not required. This was the most contentious issue and was removed from the rule, everyone can continue to include transactions using the existing proven method (Presumed Inclusion)
  • Contracts might need review: Clarified bundled arrangements can involve the purchase of products other than covered drugs – this might trigger the need to reclassify some contracts as bundles and to reallocate their transactions
  • Higher rebates on some generics: Revised definition of generic drugs will trigger higher rebates for drugs that get reclassified
  • Must use US Territory sales: AMP and BP calculations starting April, 2017 must use sales from the US Territories and the Territories will be eligible to obtain Medicaid Rebates. This could cause significant data issues getting the required transactions and properly characterizing them for class of trade. For BP this could significantly impact discount exposure depending on contracting strategies in the territories (aka a low price in Guam could set the Medicaid Rebate amount for all States and Territories).
  • New 70/30 Calculation for 5i Drugs: For 5i Drugs, drugs with administration forms that tend to keep them out of retail pharmacies, there is a new monthly calculation to determine whether they are generally dispensed (30% or more) based on unit sales to the retail pharmacies. While the CMS does not require smoothing for this calculation, in a broad hint to manufacturers, they specifically mention smoothing to reduce volatility.

As with the movie plot line, the focus will now shift back to how the protagonists (drug manufacturers) respond to this most recent challenge. They will need to reach into their arsenal of tools to respond quickly and accurately to deliver victory (compliance) for the April 1 deadline. Model N can assist you with this.

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