CMS's Final Rule: CIS's Chris Cobourn's Analysis

The Final Rule was published Friday as CMS-2238-FC, a 587 page document, and will soon be published in the Federal Register. The full file is available on the CMS website at http://www.cms.hhs.gov/MedicaidGenInfo/Downloads/CMS2238FC.pdf, or on the Pharma Compliance Exchange (PCX) website (www.cis-pcx.com).

Also of interest, CMS published several related documents (also available on their website): a Fact Sheet summary (http://www.cms.hhs.gov/apps/media/fact_sheets.asp), a press release, (http://www.cms.hhs.gov/apps/media/press_releases.asp. NEW MEDICAID DRUG PAYMENT RULE), and a letter to State Medicaid Directors, (http://www.cms.hhs.gov/smdl/downloads/SMD070607.pdf).

One other relevant document is the recent June 26 Medicaid Drug Rebate Bulletin, Release 78, as it speaks to Manufacturer assumptions for Monthly AMP methodology and guidance on AMP and BP recalculations.

Now, let’s talk about the Final Rule. We will all be doing a good deal of reading over the next few weeks, and I am sure that the details of the Final Rule will be the hot topic of upcoming conferences. First and foremost, let's take a look at how to start reviewing the long document and some of the key highlights.

The document has a lot of good background and information, but what you care most about, and where I suggest you start, is Pages 563 through 580. These cover:
• 447.504 (p 563) – Determination of AMP; this section breaks down the AMP rules
• 447.505 (p 570) – Determination of best price (yes, CMS changed some of the rules on inclusion and exclusion from BP)
• 447.506 (p 575) – Authorized Generic Drugs (and inclusion/exclusion from AMP and BP)
• 447.508 (p 576) – Nominal Pricing
• 447.510 (p 576) - Requirements for Manufactures (including section (d), Monthly AMP)

Other interesting sections to pay close attention to include:

Section IV, Provisions of the Final Regulations, page 480 – Clarification and definitions relevant to AMP and BP.

Section III, Analysis of and Response to Public Comment, pages 335 through 403, which contains very important information on AMP and BP calculation and reporting, and can almost be read as an FAQ. I especially like the topic on whether Manufacturers need to obtain CMS approval of methodology changes (which also relates to release 78). Of Note:
• You do not need to obtain approval for changes related to the Final Rule.
• In retrospective restatements, submit written requests to CMS and wait for response before submitting revised AMPs.
• For prospective restatements, submit written requests to CMS, but you are not required to wait for CMS approval.

Some Key Points of The Final Rule
I would also like to highlight a few key points in the Final Rule that I think manufacturers will be very interested in.
AMP
• AMP defined and Retail Pharmacy Class of Trade (COT) defined (p 563). As expected, and the Retail Pharmacy COT is defined to be entities that sell to the General Public
• Section (g) (p 564), Summary of AMP inclusions. The inclusions are numbered; please see number (15), the Sales of Drugs reimbursed by third party payors. Note that these are the “sales,” and that later in the Exclusion Section (h) numbers (22) and (23), (p 569) that associated rebates are excluded) This is very important, as the Proposed Rule has discussed the possible inclusion of PBM rebates, and possibly other rebates such as SPAPs. So we finally have some clarification of one of the key AMP issues that has troubled us for years.
• Notice number (3) on page 570, manufacturers must adjust AMP for a rebate period if cumulative discounts and subsequently adjust the price actually realized.
BP
• BP Inclusions, section (c) (p 571) – An important listing of included prices (notice the language “price concessions that adjust prices either directly or indirectly…”)
• BP Exclusions, section (b) (p 572) – This section lists the exclusions, please note what I consider one of the most important changes, number (13), PBM Rebates (PBM rebates are exempt, except for PBM Mail Order rebates)
Base AMP
• The options and requirements for a restatement of Base AMP based upon the new methodology is defined in section (2) on page 578. You may choose to recalculate base date AMP, and you may do it on a product by product basis, but (and this is critical) you MUST USE ACTUAL AND VERIFIABLE PRICING RECORDS. This will be difficult for many manufacturers who may not have original source data readily available.
Monthly AMP
• Monthly AMP reporting is discussed in section (d) of 447.510, starting on page 578. Two points of note: The Monthly AMP must use the same “methodology” as Quarterly AMP, and you must use a 12-Month rolling average to estimate your lagged price concessions.” I expected this to happen, and am not surprised. If you have reported ASP then you understand the mechanics of the 12-month averaging. Your lagged price concessions should probably include Chargebacks and Rebates, and the 12 months should include the current month.
Certification
• As expected, there is now a Certification requirement for Medicaid Price Reports. This is defined in section (e), on page 579. This increases the importance of reconciling your data to your financial records, and maintaining thorough support binders for your Monthly and Quarterly reports.

The effective date of the Final Rule is October of 2007. This means that October will be the first month to use your new AMP, and Q4 the first quarter. As you maintain your required documentation of methodology assumptions, also keep in mind that you have to keep track of at least 3 methodologies (remember, the 10 year rule!)
1) Historical Methodology – Up to January 1, 2007
2) DRA Methodology – January 1, 2007 through September 2007
3) Final Rule Methodology – As of October 2007

With this blog entry, I did not want to give a full breakdown of every change, so please read the Final Rule thoroughly, and feel free to contact us directly for any assistance (610-565-8007). After an initial review, I wanted to provide a viewpoint in how to approach the document, and to highlight a few critical things. Remember, these are my opinions, and are not intended to be legal advice (we always have to say that!)

Good luck!

Chris (chriscobourn@cis-partners.com)