We commonly receive questions about average pricing contract language. The following is a response to the usual contract language.

PBM contract language often refers to the use of average, rather than per-claim, pricing for drugs. The average pricing issue does not preclude the fact that there are other pressing and relevant issues that need to be addressed from both the contract and audit/accounts payable screening of invoices pre-payment. These issues are the plan/purchaser’s (“plan”) responsibility, and are not open to the discretion of the PBM, but rather to how the plan/purchaser requires implementation of the business rules for claim adjudication. The following summarizes those issues that are not resolved regarding the average pricing language.

Ø Average pricing does not address contract requirements for –

o Situations where the AWP is inflated above Medicaid, above manufacturer published AWP, and above the reference database published AWP – all of these lead to both individual and average higher costs while discount guarantees are met.

o Situations where the generic MAC price is inflated above the FUL and the Medicaid MAC. This makes the average a larger number, but allows for the discount guarantees to be met.

o Drugs coded as brand that should be generic, generic drugs that should be on the MAC, multisource that don’t exist in benefits – these all implicate generic pricing as they are incorrectly priced so they affect all generic average prices.

o Situations where the U&C (e.g., $4 programs) is inflated above pharmacy published prices. This results in the plan paying more than a cash paying patient and improves the average making it easier to meet the AWP guarantee.

Ø Formulary coding, quantity limits, early refills, and COB for Medicare are responsibilities assigned to the plan. The amendment for average pricing does not implicate these benefit issues. The responsibility for benefit definition and what the PBM should use as business rules for claim adjudication are also assigned to the plan. As a result, the PBM cannot modify or apply rules that are other than what the plan requires without plan approval.

Ø Invalid claim administration where claims include invalid identifiers for doctors, pharmacies, drugs, and expired drugs

Ø Retrospective audits do not remove the responsibility for reviewing and remedying plan ongoing issues with the above listed items. Further, issues identified in the bimonthly/monthly invoices require reconciliation at each invoice period, and do not allow for future settlements for claim history outside of the invoice period. The plan has the discretion and the authority to define and ensure that the PBM is complying with plan current business rules for claim adjudication. This is not applicable to average versus per-claim pricing. As the fiduciary, the contract does not allow the PBM to make those decisions without the express approval of the plan.

Ø The retrospective audit process does not address the following issues that are not applicable to average pricing – reconciliation of each invoice, performance guarantees and applicable financial penalties (e.g., level of satisfaction with account client management, pharmacy network training to Count benefits and business rules), rebate reconciliation, network pharmacy audit results, and review of pharmacy network agreements for validation of pass-through pricing.

Note: The lack of oversight of average pricing allows a Pharmacy in the retail network to be paid at different AWP discounts and dispensing fees for brand drugs. This applies across the retail network and disadvantages a pharmacy for some drugs and advantages them for others. While this is not a direct contract with the plan, this is the source for potential pharmacy complaints and lack of compliance with the COB claims. This results in a decision for the plan to determine what parity rules they require for management of their retail network.

Craig S. Stern, PharmD, MBA
President
Pro Pharma Pharmaceutical Consultants, Inc.

GAO Releases Report on Medicaid Pharmacy AMP Reimbursement Formula

• Pharmacy reimbursement based on AWP has suffered constant criticism, not the least due to the fact that AWP is fiction. Now average manufacturer price (AMP) has been introduced to replace AWP.

  It has been criticized by pharmacy groups because it doesn’t pay enough, and by others for its definition. The fear is that AMP will become as fictitious as AWP; however, AMP may be manipulated by various stakeholders, but it will hopefully have a standard definition that arguably AWP does not.

• Since this is a critical issue for pharmacy the American Pharmaceutical Association (APhA) provided updated information about AMP and how it is being defined by the various health care bills. I present this as a stimulus for discussion.
• Please click on link to get more information
  http://r.listpilot.net/c/aphanet/4tswaz9/244d2

Craig S. Stern, PharmD, MBA

Government Accountability Office report on Average Manufacturer’s Price (AMP)

On November 30, 2009, the U.S. Government Accountability Office (GAO) released a report http://r.listpilot.net/c/aphanet/4tswaz9/244d2 on the effect of average manufacturer’s price (AMP) reimbursement formula on Medicaid outpatient prescription drugs for the second quarter of 2008.

The purpose of this report was to compare the federal upper limits (FULs) for reimbursement with average retail pharmacy acquisition costs. The GAO report found that “if AMP-based FULs had been in place in the second quarter of 2008, they would have been lower than average retail pharmacy acquisition costs, in general”.

Specifically, the GAO found that for the second quarter of 2008:

* The median AMP-based FULs would have been lower than average retail pharmacy acquisition costs for 54 of the 83 drugs in the GAO sample;

* 44 drugs, from the GAO sample, had FULs that would have been at least 25% below acquisition costs;

* In the aggregate, the FULs would have been 17% lower than acquisition costs, though the difference varied significantly by state, from 57% lower to 49% higher;

* 64 drugs had at least one therapeutically equivalent version with acquisition costs below the FUL, indicating that pharmacies may be able to substitute lower-priced therapeutic equivalents to bring their costs below the FUL;

* For 38 drugs, AMP-based FULs varied significantly throughout 2008, and in some cases exceeding the average retail pharmacy acquisition cost one month and falling below it in another month; and

* Variation occurred because manufacturers did not report AMP data each month for 11% of the therapeutically equivalent versions of the drugs in the GAO sample.

The Centers for Medicare and Medicaid Services (CMS) provided written comments on the draft of this report, disagreeing with the report’s findings and noting that:

* GAO’s data source used to estimate average retail pharmacy acquisition costs did not take into account discounts and rebates that drug manufacturers may provide to retail pharmacies; and

* There were methodology and inconsistencies between GAO findings and the findings of a Health and Human Services (HHS) Office Inspector General (OIG) report (which was provided to the GAO by HHS but has not been released to the public yet).

APhA (American Pharmaceutical Association) continues to work with National Association of Chain Drugs Stores and the National Community Pharmacists Association to ensure appropriate pharmacy reimbursement in the Medicaid program. In particular, both the House and Senate health care reform bills include provisions to modify the AMP reimbursement formula, and while imperfect, we support the Senate’s version of these provisions.

APhA’s complete comments to the House and Senate Leadership on merging the health care reform bills http://r.listpilot.net/c/aphanet/4tswaz9/244ti are available.

Pro Pharma will provide updates on any new developments.

Craig S. Stern, PharmD, MBA
President
Pro Pharma Pharmaceutical Consultants, Inc.