Blog Topic of the Week: A GP Community Member Ponders ASP and the Final Rule

I have a question regarding the calculation of ASP for innovator products that have an authorized generic. In the July 17, 2007 published CMS Final Rule 42 CFR 447 [CMS-2238-FC], §447.505 (c) (6) directs manufacturers to include "prices of authorized generic drugs, sold by the primary manufacturer in accordance with §447.506(d) of this subpart" in best price. Does this inclusion of sales from the primary manufacturer to a secondary manufacturer for best price create a requirement to include the sales to the secondary manufacturer in the ASP calculation? My understanding is that manufacturers must exclude sales that are exempt from the Medicaid best price calculation under sections 1927 ( c)(1)(C )(I) and 1927 ( c)(1)(C )(ii)(III) of the Act. Since authorized generic products are the same package size as the innovator product, manufactured under the same NDA, and the sales to the secondary manufacturer are now specifically included in Medicaid best price, it appears like the product would have to be handled in the same fashion as a re-designated NDC combining the sales of the two NDCs for the primary manufacturer. The concern for including the sales is two-fold:

1) Inclusion of the sales to the authorized generic manufacturer will reduce the ASP on the innovator product to an artificially low price. Additional subsequent royalty payments from the secondary manufacturer will be lagged and will have to be smoothed like the price concessions to reduce further volatility.

2) Including the sales to the secondary manufacturer in the primary manufacturer's ASP will in essence double count the sales as the secondary manufacturer will report their sales of product under their NDC number when reporting their ASP effectively double counting lower priced sales. Once combined during the weighted price computation for the J-code, the price of the product could be well below the physician acquisition cost. The sales price to secondary manufacturer is not a price that is commercially available so it would not seem relevant to the accurate calculation of ASP.

I believe in order for manufacturers to correctly calculate ASP where authorized generic products are involved, the inclusion or exclusion of the primary manufacturer sales of the authorized generic product to the secondary manufacturer requires specific guidance so manufacturers calculate pricing consistently. Inclusion of the primary manufacturer sales to the authorized generic partner based upon the Medicaid best price exclusions will create what appears to be an unintended consequence in the calculation of accurate Medicare Part B ASP prices.