The Beginning Constitutes the End – The Importance of an Accurate Class of Trade Schema

By: Tonya M. Brown, CIS Senior Manager
tonyabrown@cis-partners.com

Those of us in the pharmaceutical industry, specific to Government Programs, are aware that Class of Trade is where the story begins. Class of Trade (COT) is the systematic approach to categorizing a manufacturer’s sales transactions based upon the nature of its business. COT is the Alpha, the Commencement, the Birth of a manufacturer’s compliance in calculating statutorily mandated government rebates.

For many years, the Centers for Medicare and Medicaid Services (CMS), formerly the Healthcare Financing Administration, has published vague definitions of the components that should be included and excluded from the various pricing calculations that ensure Best Price is given to government entities. To further complicate the puzzle, the responsibility has been with the manufacturer to define and defend the nature of each facility in its membership repository. If and when a manufacturer is successful in identifying each of its customers by member type and transaction, it must class each facility to make sure any sales and discounts are captured and accurately reported to the government.

Sound simple? Well, this is merely where the story begins… from there the plot thickens. To further complicate the seemingly insurmountable task of classifying your customers, the inability to correctly identify and class sales transactions by facility could, and in some instances does, create erroneous reporting, contract termination and severe penalties.

Examples of Category Discussions:

• Should Third Party Logistics Providers be considered a Class of Trade or should they be included in the Wholesaler category?
• Should Public Health Service be considered a Class of Trade?

If a manufacturer incorrectly classifies any of its sales transactions, it is at risk of inaccurately calculating its Average Manufacturer Price (AMP), Best Price (BP), Average Sales Price (ASP), and Non-Federal Average Manufacturer Price (Non-FAMP). In addition, Public Health Service (PHS) and Federal contract prices could be incorrectly reported as a result of these inaccurate calculations.

The Deficit Reduction Act (DRA), enacted in 2007, makes an attempt to better define these unclear areas; however, each attempt raises additional questions and the possibility of creating additional layers in a manufacturer’s schema. While the debate goes on from one subject matter expert to the next, we can and do all agree that an accurate COT Schema should be the first step in any manufacturer’s line of defense.

It is imperative that manufacturers have current policies and procedures specific to their COT schema. These policies and procedures should be adhered to, and updated as changes in COT operations and government regulations occur. A customized training program should be put into effect to train employees on their roles and responsibilities, to ensure a successful implementation of COT operations.

The debate is not over, but the reality is that COT designations are somewhat subjective, and will continue to evolve as manufacturers enter and exit the playing field.

Please feel free to contact me to share your thoughts, or to ask questions about creating or revising your Class of Trade Schema, at tonyabrown@cis-partners.com.