To:
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Re:
Interested Congressional Committee staff
NAMD staff
May 18, 2015 (updated from May 11th)
NAMD comments on federal drug rebate proposals
NAMD has been engaged in the ongoing discussions among federal policymakers and
interested stakeholders around pharmaceutical and device innovation and corresponding
reimbursement issues for payers. In the context of these discussions, the NAMD staff also has
reviewed many of the Medicaid drug rebate and pharmacy related proposals included in the
President’s fiscal year 2016 budget proposal.
The comments included below from the NAMD staff are intended to convey the potential
impact as well as policy and operational issues and questions these present for state Medicaid
agencies. Federal policymakers may wish to consider these as they contemplate advancing
legislation with similar intent.
Please contact Andrea Maresca, NAMD’s Director of Federal Policy and Strategy, with
questions about this memo.
Dispute Resolution Timeline
Issue
Currently, there is no time limit for when a manufacturer can dispute a state’s claim for rebates
under the Medicaid drug rebate program. This means that manufacturers can dispute claims as
far back as 1991, when the program began.
Specifications
Amend section 1927(b)(2)(B) to limit a manufacturer’s right to challenge a state’s claim’s for
rebates to 12 quarters after the quarter in which the state submits the utilization data to the
manufacturer.
NAMD Input: States are strongly supportive of limiting the timeframe within which
manufacturers can initiate disputes. The current regulatory parameters have proven
problematic because federal statute permits manufacturers to dispute claims that
exceed a state’s provider record retention requirements. In these instances providers
can no longer submit supplemental information to resolve the dispute. Additionally,
aligning the timeframe for disputes with the regulation that limits unit rebate amount
(URA) changes to 12 quarters may produce additional consistency and administrative
efficiency within the Medicaid drug rebate program.
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As a point of clarification, the proposed modification to the deadline should apply to the
“start” of a dispute. For example, if a manufacturer informs a state today that they are
disputing something from 12 quarters ago, the permissible period to resolve this will
practically need to extend beyond the end of the [12th ]quarter.
Importantly, policymakers should not alter the states’ right to correct errors in
invoicing, particularly in the case where the error should have been reported to the state
by the manufacturer and was not. In other words if a manufacturer did not notify the
states that they were invoicing the maker’s drug incorrectly states should be able to
correct for this (e.g. states had an experience where they were invoicing for quantities of
1 for the number of kits dispensed rather than a quantity of 30 for the number of
syringes of syringes in the kit. As a result states were invoicing for 1/30th of what they
should have been). States are interested in other approaches to decrease disputes of this
nature. For example, this might be minimized if CMS were to review the pricing data
and the units of measure before they are sent to the states.
Policymakers may wish to give further consideration to the application of the proposal
to MCO and physician administered drugs in light of the relatively new requirement for
states to collect rebates on these products.
Additionally, states suggest that CMS have dedicated resources to work with states and
manufacturers to work through dispute issues. Previous efforts to this end have been
subject to availability and prioritization of CMS resources.
Exclude Authorized Generics from Medicaid Brand-Name Rebate Calculations
Issue
With the change to the definition of wholesaler under the ACA to include “manufacturers
acting as wholesalers,” the primary manufacturer includes the sale of the drug (transfer price) to
the secondary manufacturer in the primary manufacturer’s Average Manufacturer Price (AMP).
This proposal revises section 1927 of the Social Security Act to exclude sales of authorized
generics from the primary manufacturer’s Average Manufacturer Price (AMP) calculations.
NAMD Input: States believe this proposal represents a positive change in federal policy.
As background, authorized generics are generally priced a bit less than the branded
drug, but still notably higher than true generics. Including the authorized generics may
artificially lower AMP, which impacts the FULs as well as rebates; this then lowers the
unit rebate amount (URA). Removing the authorized generic from the calculation will
raise the AMP back to a true reflection of the brand cost.
Some states report adverse impacts from the authorized generics being included due to
“manufacturers acting as wholesalers.” As an example, this is particularly true for some
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states in the ADHD category because there are a couple of drugs that only have
authorized generics and no true generics. This means their AMPs have significantly
declined as has URA and a state’s net cost has increased significantly (in some cases
this was unexpected because the drugs had favorable rebates when there was no generic
at all).
Exclude Brand and Authorized Generic Drug Prices from the Medicaid FULs
Issue
Currently, federal law directs that Medicaid federal upper limits are calculated at no less than
175 percent of the weighted average of the monthly AMPs for brand drugs and their generic
equivalents. The FUL sets the upper limit that the federal government will pay for generic
drugs. Including brand name drug prices in the FUL calculation results in generic FULs that
are much higher than cost of the drug.
Specifications
Amend 1927(e)(5) to clarify that FULs should be calculated using only the weighted average
monthly AMPs for non-innovator multiple source drugs (generic drugs).
NAMD Input: Due to the flawed nature of AMP-based FULs (i.e. reports that
demonstrate that the AMP-based FULS do not correlate to retail community pharmacy
drug acquisition costs), many states have or are already preparing to move to an
acquisition cost based methodology, such as the National Average Drug Acquisition
Cost (NADAC) or similar state-based acquisition model. Congress, therefore, should
consider the implications and determine if there is value in maintaining the FUL based
on AMP.
If the statutory AMP-based FUL is preserved, it is advisable to continue to include noninnovator and only innovator drug products which represent authorized generic drugs.
Excluding authorized generic drugs from the FUL calculation would not be reasonable
as states typically pay for authorized generic drugs utilizing their generic
reimbursement protocols.
Policymakers should also consider removing the innovator products from the payment
requirements. In other words, if a state wants to pay higher than the FUL for a brand
name drug which has a lower net cost to the Medicaid program after rebate is
considered, the state should have that option.
Original NDA
Issue
Currently, innovator multiple source drugs and single source drugs are defined, in part, as drugs
marketed under an “original new drug application” (original NDA). The term original NDA is
not used in the Food, Drug, and Cosmetic Act or anywhere else in the U.S. Code. This has led
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to confusion for manufacturers and regulators and has resulted in drugs that should be
classified as brand drugs being classified as generics and, therefore, subject to lower rebates.
Specifications
Amend the definitions of innovator multiple source drug and single source drug in Section
1927(k)(7)(A)(ii) and Section 1927(k)(7)(A)(iv), respectively by striking the word “original” in
the each section.
NAMD Input: Coordinated technical assistance is needed from CMS and FDA to
ensure the language accomplishes the intent, both in the statutory construction and
implementation. The terminology between the Medicaid and FDA statutes should
result in consistent brand and generic designations. Doing so would help prevent
challenges states have with rebates when the federal policies are in conflict or
ambiguous. It is unclear whether striking the word “original” accomplishes that goal.
Additionally, if federal policymakers advance this change, they should ensure it does
not have other unintended consequences. Specifically, the current proposal could result
in authorized generics being treated as brand name drugs as they are on the market via
an NDA. Thus the change could require states to redirect already limited resources to
intensive, product-specific programming to ensure that patients do not pay brand drug
copays on authorized generics.
Generic Drug Inflationary Rebate
Issue
Currently, single source and innovator multiple source drugs pay an additional rebate if the
price of the drug has increased faster than inflation. The inflation-based rebate, however, does
not apply to generic drugs.
Specifications
Amend Section 1927(c)(2) to extend the inflation-based rebate currently paid on brand drugs to
generic drugs. In order to accurately reflect the generic drug base AMP for drugs that enter the
market after the date of enactment, the legislation should account for the 180-day generic
exclusivity period, which does not exist for brand drugs. The market price for a generic drug
generally settles after this 180-day exclusivity period.
NAMD Input: NAMD appreciates the interest in addressing trends in prices for generic
products.
It is worth noting that we anticipate that operationalizing this change would be
complicated and administratively resource intensive for states due to the large number
of generic drugs. One potential option to mitigate these administrative barriers includes
the application of this proposal to limited-source (fewer than four labelers) nonPage 4 of 7
innovator drugs, which are generally the ones that have demonstrated the largest
percentage price increases. There may be relatively few outliers.
Additionally, this proposal raises other issues and questions that policymakers may
wish to consider, including:


The proposal may result in the prices remaining high after the 180-day period
and thus the baseline would be set at an artificially or unnecessarily high rate.
One potential mitigation policymakers may wish to consider is to set some
period after the 180-day exclusivity, when the prices have settled and there is
competition with other generics.
Would the generics retain their prices high but then produce even higher than
baseline rebate benefits to the pharmacies (as these aren’t taken into account in
any rebate or AMP calculations)?
Emergency Drug Supply
Issue
Some drug manufacturers offer programs to provide free drugs to patients who are particularly
vulnerable to treatment failure due to lapses in their drug regimen, such as hepatitis C
patients. These programs are typically not advertised and are subject to prior authorization by a
provider that the individual has begun treatment. Under the Medicaid drug rebate program,
manufacturers are required to report the best price for a drug. Section 1927(c)(1)(C)(ii)(I)
specifies that free goods must be included as best price if they are provided contingent on any
purchase requirement. Depending on how the manufacturer structures its free emergency drug
supply program, it may trigger the purchase contingency and, therefore, constitute best
price. This increases manufacturer rebate liability for these drugs to 100 percent AMP, the
maximum allowable by law, and creates a disincentive for manufacturers to continue emergency
drug supply programs.
Specifications
Amend Section 1927(c)(1)(C)(ii)(I) to clarify that free drugs provided to prevent an interruption
in drug therapy that could cause treatment failure do not constitute best price.
NAMD Input: States have not observed any diminished interest in manufacturers
offering emergency drug supply programs under existing rules. Free drug products
should not be excluded from best price.
Line Extension Formula
Issue
Section 1927 currently contains an alternative rebate formula for line extension drugs. Under
the law, the rebate for line extension drugs is the greater of either the standard rebate for the
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line extension drug (calculated as a base rebate amount plus an additional inflation-based rebate)
or the alternative rebate (calculated using the AMP of the line extension drug and the highest
inflation-based rebate ratio of the original drug). The formula used to calculate the alternative
rebate for line extension drugs leaves out the base rebate amount that constitutes half of the
standard rebate calculation. Therefore, the chance of the alternative rebate amount being
greater than the standard rebate amount for the line extension drug is lower than it should be.
Specifications
Amend Section 1927(c)(2)(C) such that the rebate for a line extension drug is the greater of
either the standard URA as calculated under Section 1927(c) or the basic rebate amount for the
line extension drug increased by the alternative URA formula contained in Section
1927(c)(2)(C)(i)-(iii).
NAMD input: Additional research is needed to better understand the full implications
of this proposal. Of particular interest to states is the potential for the current proposal
to increase the amount of time that line extension drugs are subject to the line
extension rebate, which is fully realized by the federal government. In turn, this would
minimize the opportunity for states to enter into supplemental rebate agreements.
Federal policymakers may also wish to address separate but related gaps in rebate
program’s structure for calculating rebates for line extensions and products with
authorized generics as well as manufacturers considering the authorized generic
company to be their “wholesaler.”
Electronic Listing with FDA
Issue
In order to be covered for reimbursement under Medicaid, a drug must meet the definition of a
covered outpatient drug as found in Section 1927(k)(2). CMS needs to have information
available to verify that a drug meets that definition and such information can be obtained from
FDA’s published electronic drug information. The Food, Drug, and Cosmetic Act was
amended in 2007 to require electronic listings, Title XIX does not, however, require that drugs
be listed electronically with the FDA in order to be covered by Medicaid.
Specifications
Amend Section 1927(k)(2) to require that a drug must be listed electronically with FDA in order
to meet the definition of a covered outpatient drug and be covered by Medicaid.
NAMD Input: This policy change would require ongoing communication and
coordination between the FDA and CMS. For example, if this policy is advanced, there
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is a need for coordination around policy and reimbursement determinations based on
dates of service and dates of updates to the FDA website.
Further, any drugs not listed should still be covered as a service in the Medicaid
program, at state option.
Even in the absence of making this policy change, states believe improved coordination
and communication between FDA and CMS is warranted.
Require the Coverage of Prescribed Prenatal Vitamins and Fluorides under the
Medicaid Drug Rebate Program
Issue: Medicaid authority under the Social Security Act limits states’ authority to restrict
coverage of prescription prenatal vitamins and fluoride preparations. However, there is a lack of
clarity as to whether these products would be considered covered outpatient drugs, given the
lack of such products characterized by the FDA as “prescription.” This proposal would resolve
statutory ambiguity over whether prenatal vitamins and fluoride preparations are covered
outpatient drugs and clarifies that states must cover these products under the Medicaid Drug
Rebate Program if prescribed by a physician.
NAMD Input: Note that if prenatal vitamins are now considered “covered outpatient
drugs” then a state would be required to cover every rebateable product. This would
seem to require that states must expand their formularies. As an example, currently
many states cover a limited number of prenatals because there are many high-cost
products with added ingredients than are not vitamins, per se (i.e. most common is
DHA, omega-3). This may have an unintended consequence of increasing the cost of
coverage for these products.
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