CMS’ Latest Foray Into Drug Pricing

Medicaid is a very complex (some might say very screwed up) regulatory program.  It is governed and funded by both the federal government and the states that choose to have a Medicaid offering, and all states currently do.  The federal government, through CMS, sets a number of basic rules that all the programs must follow.  While offering drug coverage is not mandatory, all states do include it and CMS has formulated several conditions for that coverage, including the provision of rebates by drug manufacturers.  These rules have been in flux and CMS recently released its latest effort at defining the new concept of Average Manufacturer Price, which underlies the rebate program.   (CMS Drug Rule)

Drug pricing to third-party payers of all types has a complicated history, based for years on average wholesale price, which fell victim to litigation.  A new approach by some payers is to attempt to identify the actual cost of acquiring a drug for the pharmacy that dispensed it, and to pay a fee based on that cost plus a dispensing fee.  The federal government has turned to concepts like average selling price and average manufacturer price to try to find the cost of the drug to a retail pharmacy and then create a mandated rebate that cuts the margin for the manufacturers and spending by third-party payers.  The proposed rule deals with a number of the intricacies in how average manufacturer price is calculated, some of which will cause headaches for the industry.

There are actually two AMP calculations, one basically for oral drugs and one for specialty drugs not in oral form.  These specialty drugs account for almost all the growth in drug spending and on current trends will represent half of all drug spending in a few years.  CMS proposes to include sales to specialty pharmacies, home health care providers and home infusion providers and others in the specialty AMP calculation, which may bring more transactions of more specialty drugs into the AMP number.  In addition to the AMP provisions, there are changes to reimbursement for multi-source generics and other Medicaid drug rules.  The proposed rules are sure to generate a fair amount of comment.