definition of specialty pharmacy, threshold for 5i and ...6).pdf · •proposed rule expansion of...

CBI Final Rule ForumPhiladelphia, PA

Definition of Specialty Pharmacy,

Threshold for 5i and Business Implications

John Shakow

+1 202 626 5523

[email protected]

November 20, 2015

mailto:[email protected]

Agenda

• Primer on AMP Methodology Determination and Inclusion/Exclusion

• Proposed Rule Expansion of RCP

• Legality/Justification for Expansion, and Counterarguments

• Implications for AMP and URA

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Primer on AMP Methodology Determination and Inclusion/ Exclusion

Primer

• Two AMP Methodologies: Standard and 5i

– Standard AMP

• Includes sales to Retail Community Pharmacies (“RCPs”)

and sales to wholesalers for drugs distributed to RCPs

• RCP is defined in the Medicaid statute:

“an independent pharmacy, a chain pharmacy, a supermarket pharmacy,

or a mass merchandiser pharmacy that is licensed as a pharmacy by the

State and that dispenses medications to the general public at retail prices.

Such term does not include a pharmacy that dispenses prescription

medications to patients primarily through the mail, nursing home

pharmacies, long-term care facility pharmacies, hospital pharmacies,

clinics, charitable or not-for-profit pharmacies, government pharmacies,

or pharmacy benefit managers.” Section 1927(k)(10)

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Primer


– Standard AMP

• Includes sales to Retail Community Pharmacies (“RCPs”)

and sales to wholesalers for drugs distributed to RCPs

• RCP is defined in the Medicaid statute:

“an independent pharmacy, a chain pharmacy, a supermarket pharmacy,

or a mass merchandiser pharmacy that is licensed as a pharmacy by the

State and that dispenses medications to the general public at retail prices.

Such term does not include a pharmacy that dispenses prescription

medications to patients primarily through the mail, nursing home

pharmacies, long-term care facility pharmacies, hospital pharmacies,

clinics, charitable or not-for-profit pharmacies, government pharmacies,

or pharmacy benefit managers.” Section 1927(k)(10)

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Primer


– 5i AMP

• Applies to products that are both (a) inhaled, infused,

instilled, implanted or injected, and (b) “not generally

dispensed” through RCPs.

• What is meant by “not generally dispensed” is in some

dispute: CMS has proposed it to mean when dispensed

through RCPs less than 10% of the time; during the

pendency of the Proposed Rule, manufacturers use other

thresholds: 25%, 30%, 50%, etc.

• 5i AMP includes sales and price concessions to RCPs and

almost all other non-government purchasers.

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Primer


– Implications

• Innovator drugs are not generally discounted to RCPs.

Therefore, standard AMP is often very high, very close to

WAC.

• Innovator drugs are often discounted to other purchasers and

payors, however, including PBMs, HMOs, insurers, hospitals,

mail order and others. Therefore, 5i AMP is often considerably

lower than Standard AMP.

• Given the Medicaid URA calculation rules, the lower the AMP,

the lower the Medicaid rebate liability. All other things being

equal, a standard AMP product will have higher rebate liability

than a 5i AMP product.

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Proposed Rule Expansion of RCP


• The Proposed Rule seeks to create a new category of

entities for use in Medicaid price reporting: entities

that “conduct business as [] wholesalers or retail

community pharmacies.”

• These entities “include[] but [are] not limited to

specialty pharmacies, home infusion pharmacies and

home healthcare providers.”

• Sales to these entities are to be included in standard

AMP

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• Sales to these entities are (presumably) to be counted

in the “not generally dispensed” analysis for 5i.

• Neither CMS’s Proposed Rule preamble discussion

about the “not generally dispensed” element of the 5i

determination nor the proposed regulation on 5i

determination mention entities “doing business as”

RCPs. Instead, they focus on drugs dispensed through

RCPs.

• Nevertheless, we should be wary of definition creep in

the Final Rule that might sweep entities “doing

business as” RCPs into the 5i determination analysis.

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Legality/Justification for Expansion, and Counterarguments

Legality/Justification and Counterarguments

• Justification:

1. The Negative Gives Us a Positive

The statutory definition of AMP excludes “payments

received from and rebates or discounts provided to …

any other entity that does not conduct business as a

wholesaler or retail community pharmacy” (emphasis

added). To give this provision meaning, CMS posits,

sales to entities that do conduct business as RCPs

must be included in AMP.

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• However,

1. The Negative Gives Us a Positive

This construction out of the negative creates an enormous

loophole in the carefully constructed definition of RCP set

out in the statute. Section (k)(10) does not include a

“doing business as” provision, and is in fact quite clear

about the entities that are included in and excluded from

the definition of RCP. CMS’s proposal opens the door to a

whole host of non-RCP entities that may, at CMS’s

discretion, be considered to be “doing business as” RCPs

and includable in AMP.

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• Justification:

2. Our Examples are Close to Those in the Statute

CMS suggests that specialty pharmacies, home infusion

pharmacies and home health care providers conduct

business as RCPs “inasmuch as they dispense medications

to the general public at retail prices and are licensed by the

State as a pharmacy… [T]he drugs dispensed by these

pharmacies are sold in the retail marketplace and are

available to any member of the general public…” That is,

the three new types of entities “fit” within the statutory

definition of an RCP.

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• However:

2. Our Examples are Close to Those in the Statute

These points are debatable on the merits. At the very least, we

are sure that specialty pharmacies, home infusion pharmacies

and home health care providers are not independent pharmacies,

chain pharmacies, supermarket pharmacies, or mass

merchandiser pharmacies (the entities modified in the statute by

the licensure, general public and retail pricing requirements of

the statute). Specialty pharmacies in particular do not “fit”

within (k)(10) because they dispense “prescription medications

to patients primarily through the mail,” a specific statutory

exclusion from the definition of RCP.

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• Justification:

3. We Need to Capture “Crack Drugs”

CMS suggests that because some oral (that is, non-5i)

covered outpatient drugs are not dispensed through RCPs

but only through specialty pharmacies (including, for

example, some REMS drugs), in order to calculate AMPs

and therefore Medicaid rebates for these products it must

expand the list of includable entities to those “doing

business as” RCPs.

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• However:

3. We Need to Capture “Crack Drugs”

Perhaps limiting this expanded conception of RCP would

be reasonable “for those drugs for which an AMP could

not otherwise be calculated.” Expanding the definition of

RCP in all contexts, however, even where there are

sufficient actual RCP sales to establish an AMP, is

unwarranted. Many manufacturers of “crack” drugs utilize

the 5i methodology to fix this disconnect.

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Implications for AMP and URA


• If the Proposed Rule is made final as written:

– Standard AMPs (and the URAs that flow from

them) may indeed be lower for a number of

innovator products because these entities that

traditionally receive discounts would be included in

the calculation of AMP.

– “Crack” drugs would have an obvious path to AMP

calculation.

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– Many inhaled, infused, instilled, implanted or

injected products that would otherwise “pass” the

“not generally dispensed” test would fail because

the universe of RCPs is so much larger (that is,

much easier to exceed the threshold set by CMS).

– Pushed into standard AMP, the AMPs and

associated URAs would likely be much higher than

they would be if left in 5i AMP (even if standard

AMP included specialty pharmacies, home infusion

pharmacies and home healthcare providers).

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– Negatively affected manufacturers of 5i products

may consider taking legal action to reverse the

expansion.

– Recent victories by NACDS in 2007 and PhRMA in

2015 suggest that courts are open to reversing

rulemakings that misconstrue the statute.

– Query whether PhRMA/BIO would be interested in

this issue given that rebate liability for non-5i

manufacturers may fall.

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• COT implications:

– The old categories of “retail” and “non-retail”

should be shelved: we live in an RCP world now

– Need to think of specialty pharmacies, home

infusion pharmacies and home healthcare providers

as a category unto themselves in AMP

• Particularly so if the new category of entities are included

for standard AMP purposes but not 5i determination

purposes

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John ShakowPartner, FDA & Life Sciences Practice Group

John Shakow is a nationally-recognized expert in all aspects of drug pricing and price

reporting. He has counseled pharmaceutical and biotechnology clients on their rights and

obligations under the Medicaid, Medicare, Federal Supply Schedule, 340B and TRICARE

programs for almost twenty years. John regularly advises manufacturers on the spectrum of

regulatory, commercial and litigation matters relating to pricing and government payor

programs. He has extensive experience helping clients resolve commercial, strategic,

organizational and other legal challenges while maintaining the integrity of their government

pricing compliance efforts.

King & Spalding

1700 Pennsylvania Avenue, NW

Washington, D.C. 20006

202-626-5523 (direct)

[email protected]

www.linkedin.com/in/JohnShakow

http://www.kslaw.com/practice_areas/pags/PharmaGovPricingCompliance.PDF

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mailto:[email protected]

http://www.linkedin.com/in/JohnShakow

http://www.kslaw.com/practice_areas/pags/PharmaGovPricingCompliance.PDF

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