Special News Alert--AMP Final Rule: Preliminary Injunction Update

The Intersection of Principled Legal Reasoning and Pragmatism

I’m psyched to be writing this for you. Why? Because as of the time we posted this, I do not know of any other news outlet that is reporting this ground-breaking story. Score one for the good guys.

Many of you have heard about the Preliminary Injunction filed by two pharmacy trade organizations (NACDS and NCPA, whom I’ll just refer to as the pharmacies) on November 15, 2007 against CMS, among others. The pharmacies sought injunctive relief, meaning they were trying to get the Court to stop something that was already happening and about to happen. Specifically, the pharmacies wanted to keep CMS from applying the new AMP-based methodology for setting the Federal Upper Limits (FULs) for multiple source drugs covered by the Medicaid Program.

However, in the initial filing the pharmacies decried many other things about the Final Rule, including the fact that CMS went beyond the four corners of the Social Security Act (SSA) when defining AMP in the first place, as reported to you by CIS’s own Meredith Taylor in the PCX November Newsletter. (For a copy, send me an email at brianorourke@cis-partners.com). More specifically, the pharmacies were quick to point out that the SSA defines AMP as the average price paid to a drug manufacturer by wholesalers for drugs distributed to retail pharmacies. However, as we are all painfully aware, the AMP Final Rule includes prices paid to the manufacturer by entities other than wholesalers—just think of all the sales to non-wholesaler direct purchasers that you are including in your AMP calculations!

CMS and its cohorts promptly filed their opposition to the pharmacies’ motion for a preliminary injunction.

The Court scheduled a hearing on December 14, 2007, at which time both sides argued the merits of their case. Adam Fein of Pembroke Consulting broke the first story on December 17th—the Court granted the pharmacies’ preliminary injunction. If you don’t already, we recommend that you check out Mr. Fein’s Blog on a regular basis: http://www.drugchannels.net/. Always well-researched and well-written, I can’t say enough good things about Drug Channels.

However, since December 17th, we have been waiting with bated breath to see to what extent the Court granted the pharmacies’ preliminary injunction. Would the Court grant it in its entirety? Would the Court limit its ruling? Or, would the Court allow the parties time to attempt to reach an amicable compromise? For those of you who are a bit cynical of America’s judicial system, I offer into evidence Exhibit A: the Court’s actions in this case. The Honorable Royce C. Lamberth, United States District Court Judge used principle-based legal reasoning, showed an understanding of the practical implications of the granting of this Preliminary Injunction, made a decision that didn’t dodge or punt the issues raised in the case, and had enough pragmatism to allow the parties to try to reach an amicable solution to the Preliminary Injunction, all the while showing the restraint most judicial activists lack. Good for you, Your Honor. Now I’ll get off my soap box.

What Did the Court Hold?

The Court held that CMS cannot use AMP data calculated under the Final Rule methodology to set FULs for multiple source drugs covered by the Medicaid Program. CMS must continue to set FULs using the AWP-based methodology.

What Issues Did the Court Not Reach?

The Court did not reach the issues of whether manufacturers should change their methodology for calculating AMP for a variety of reasons. It is unlikely that this injunction, when finalized, will reach that far.

First, manufacturers are not party to this action—the Court appears unwilling (and rightly so) to “change” the definition of AMP so that manufacturers would have to revert to a prior methodology to calculate AMP for rebate purposes. The costs, strain on internal resources, and delays on rebates associated with such a reversion would be astronomical. And I don’t even like to use the word astronomical.

Second, the Court has not yet decided whether CMS will be permitted to disclose AMP data calculated under the Final Rule to the States.

What Are the Parties Arguing About Now?

To the pharmacies’ and CMS’s credit, they were able to agree on most of the non-major (from their perspectives!) issues raised in the Preliminary Injunction. Both sides are willing to ignore that the Final Rule definition of AMP might go beyond the SSA’s definition of AMP. Further, it appears that the pharmacies are willing to drop any contentions related to AMP rebates for the time being; naturally, they’re more concerned with FUL reimbursement.

The main remaining point of contention appears to be the disclosure of AMP data calculated under the Final Rule definition of AMP. The pharmacies are arguing that, by allowing CMS the right to disclose this information, the States might use it anyway to establish Medicaid reimbursement rates for pharmacies. At least 9 States, according to the pharmacies, have indicated that they are “likely” or “very likely” to use this AMP data for establishing reimbursement rates (Plaintiffs’ Reply to Defendants’ Opposition to Plaintiffs’ Proposed Preliminary Injunction Order, p.3). Such a ruling by the Court would enable the States to circumvent the Court’s ruling in the first place—that reimbursement should not be based upon the Final Rule definition of AMP. In other words, the exception would swallow the rule.

What Does This Mean for Manufacturers?

The Court’s granting of such an important, far-reaching request for injunctive relief means that the judiciary is more than willing to entertain such motions, when they are well-researched and based upon solid legal reasoning. In this case alone, the Court stated that the Defendants “failed to abide by the ‘crystal clear’ provisions of the Social Security Act.” (Plaintiffs’ Reply to Defendants’ Opposition to Plaintiffs’ Proposed Preliminary Injunction Order, p.1). Yikes—a Federal Judge went on the record and said to CMS, “You went outside Congress’s mandates in defining AMP.” If one Judge is willing to say that, manufacturers and their respective lobbying organizations should think long and hard about whether to file their own Complaint after making an economic assessment of the current definition of AMP under the Final Rule.

What’s Next?

We have heard, albeit very unofficially, that Judge Lamberth will issue his Ruling sometime later this evening. So we might know, by tonight, to what extent the preliminary injunction has been granted. Once that story comes through, we will post more!