Retail Community
Pharmacy (RCP) and
5i AMP Updates –
Implications of the
AMP Final Rule
Marcy Imada
Principal | Deloitte Advisory
Deloitte & Touche LLP
Cortnaye Swan
Senior Manager | Deloitte Advisory
Deloitte & Touche LLP
Monday, February 22, 2016
Overview of session
• Retail Community Pharmacy (RCP)
definition
• 5i AMP and “not generally dispensed”
• Neither 5i nor RCP
• Restatement of base date AMP
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
2017
April 1
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Timelines
Final rule effective date
The effective date of the rule is April 1, 2016, with two exceptions: the inclusion of US territories in
the Medicaid Drug Rebate program will be effective on April 1, 2017 & state Medicaid programs
have until June 30, 2017 to move to actual acquisition cost (AAC)-based reimbursement.
• Industry stakeholders are provided an opportunity to comment within 60 days of publication in
the Federal Register on one subject area: definition and identification of line extension drugs.
• The first monthly AMP calculated under the final rule provisions will be the April 2016 AMP (to be
reported by May 30, 2016).
• The first quarterly prices to be reported under the final rule provisions will be the 2Q 2016 AMP
and BP (to be reported by July 30, 2016).
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Definition of Retail Community Pharmacy (RCP)
CMS had proposed including specialty pharmacies,
home infusion pharmacies, and home health
providers/pharmacies in the definition of “retail
community pharmacy.”
CMS did not finalize these inclusions but noted that
such pharmacies could be included as RCPs if they
meet the following criteria:
• Do not dispense primarily through the mail, and
• Are independent, chain, supermarket or mass
merchandizer pharmacies that are licensed and
dispense to the general public at retail prices.1
1 81
4
Fed. Reg. 5216 (February 1, 2016)
CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Definition of Retail Community Pharmacy (RCP)
Specialty pharmacies, home infusion pharmacies and home
health care providers
Sales to
specialty
pharmacies,
home infusion
pharmacies or
home health
care providers
Is the entity an
independent, chain,
supermarket or mass
merchandizer
pharmacy that
dispenses to the
general public at
retail prices?
No
Yes
Does the entity
dispense
medications
primarily through
the mail?
No
RCP, include
sale in
Standard AMP
Yes
Not RCP,
exclude sale
from Standard
AMP
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Definition of Retail Community Pharmacy (RCP)
Example: Standard AMP drug with sales to entity that operates both RCPs and mail
order facilities
Monthly sales to specialty
pharmacy that meets RCP
definition
All monthly sales
Dispenses
primarily
through
Mail?
Extended
price
Units
A
Yes
$450
100
B1
No
$495
50
B2
Yes
$485
75
C
Yes
$490
75
Entity
WAC = $500
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
Entity
Extended
price
Units
B1
$495
50
AMP = $495
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5i AMP and “not generally dispensed”
To identify whether a 5i drug is generally
dispensed through a RCP, CMS has finalized a
70/30 test, modified down from a 90/10
standard originally proposed by CMS.
CMS has prescribed that manufacturers apply
the 70/30 test monthly based on units, not
dollars.
5i drugs are inhaled, infused,
instilled, implanted, or injected
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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5i AMP and “not generally dispensed”
70/30 not generally dispensed
> or = 70% of sales units
to entities other than RCPs
or wholesalers for drugs
distributed to RCPs
Use 5i AMP
< 70% of sales units to
entities other than RCPs
or wholesalers for drugs
distributed to RCPs
Use standard AMP
5i product
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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5i AMP vs. standard AMP monthly variability
Quarterly AMP calculation – scenario 1
Example: 5i drug with 3 monthly 5i AMPs
All April sales
All June sales
All May sales
SP
Extended
price
Units
SP
Extended
price
Units
SP
Extended
price
Units
A
$450
100
A
$450
75
A
$450
75
B
$490
75
B
$490
75
B
$490
50
C
$485
75
C
$485
75
C
$485
50
RCP D
$500
50
D
$500
75
D
$500
75
Total Units = 300
NGD = 250/300 = 83%
Use 5i AMP
April AMP = $477.083333
Total Units = 300
NGD = 225/300 = 75%
Use 5i AMP
May AMP = $481.250000
Total Units = 250
NGD = 175/250 = 70%
Use 5i AMP
June AMP = $480.000000
Quarterly AMP calculation
2Q AMP = [($477.083333 x 300) + ($481.250000 x 300) + ($480.000000 x 250)] /
(300 + 300 + 250)
2Q AMP = $479.411765
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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5i AMP vs. standard AMP monthly variability
Quarterly AMP calculation – scenario 2
Example: 5i drug with 2 monthly 5i AMPs and 1 monthly Standard AMP
All April sales
All June sales
All May sales
SP
Extended
price
Units
SP
Extended
price
Units
SP
Extended
price
Units
A
$450
100
A
$450
75
A
$450
75
B
$490
75
B
$490
75
B
$490
25
C
$485
75
C
$485
75
C
$485
100
RCP D
$500
50
D
$500
75
D
$500
100
Total Units = 300
NGD = 250/300 = 83%
Use 5i AMP
April AMP = $477.083333
Total Units = 300
NGD = 225/300 = 75%
Use 5i AMP
May AMP = $481.250000
Total Units = 300
NGD = 175/250 = 67%
Use standard AMP
June AMP = $500.000000
Quarterly AMP calculation
2Q AMP = [($477.083333 x 300) + ($481.250000 x 300) + ($500.000000 x
100)] / (300 + 300 + 100)
Quarterly AMP increased in Scenario 2 as a
2Q AMP = $482.142857
result of the switch to standard AMP in June
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5i AMP and “not generally dispensed”
70/30 not generally dispensed evaluation
Challenges and potential solutions:
• Month-to-month fluctuations and switching between 5i AMP and
standard AMP approaches
 Consider applying a 12-month rolling average smoothing
approach
• Lack of complete visibility to RCP vs. non-RCP sales, due to timelagged chargebacks and/or non-contracted sales through
wholesalers that don’t generate chargebacks
 Make reasonable assumptions on a product-specific basis
 Could use a combination of direct sales, chargeback sales
and/or third party sales (e.g., 867 sales data) for the 70/30
evaluation
 Avoid double counting if using direct sales and chargeback
sales as part of the 70/30 evaluation
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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5i AMP and “not generally dispensed”
70/30 not generally dispensed evaluation
Example: 5i product sold to wholesalers that distribute to both RCPs and non-RCPs
12 Months of Direct Sales
12 Months Direct Sales
(current month and prior 11 months)
(Non-RCP Units)
COT
Units
COT
Units
GOV/340B
10
GOV/340B
10
HOS
15
HOS
15
RCP
20
WH
100
Total Units = 145
100 WH units minus 70 CB units =
30 CB units unaccounted for (e.g.,
non-contracted sales, time-lagged
CB sales)
Product-specific reasonable
assumptions on those units can be
made. In this example, for this
product, we assume the 30 units are
RCP-related.
12
12 Months Chargebacks
(current month and prior 11 months)
COT
Units
GOV/340B
20
HOS
40
RCP
10
Total CB Units = 70
CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
Non-RCP Units = 85
NGD =
Non-RCP Units
Total Units
NGD =
85
145
NGD =
58.6%
<70%
Use Standard AMP
methodology
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Neither 5i nor RCP
Non-5i drugs not dispensed through RCPs
CMS clarified in the AMP Final Rule that non-5i drugs not
generally dispensed by retail community pharmacies must
use the standard AMP methodology.
Non-5i drugs that are distributed primarily through
specialty pharmacies due to special handling or risk
mitigation requirements are at risk of having a skewed
AMP or no reportable AMP at all.
CMS indicated that it will continue to consider this issue
and will provide additional guidance or rulemaking if
needed.1
1 81
13
Fed. Reg. 5250 (February 1, 2016)
CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Neither 5i nor RCP
Non-5i drugs not dispensed through RCPs – Scenario 1
Example: Non-5i drug with minimal eligible monthly sales
Non-5i (e.g., oral) drugs that are primarily distributed through specialty pharmacies, home
infusion pharmacies or home health care providers that do not meet the definition RCP must
use standard AMP methodology based on “any [standard] AMP eligible sales”1
All monthly sales
Oral drug requiring
special handling not
distributed by RCPs
WAC = $500
1 81
SP
Extended
price
Units
A
$450
100
B1
$500
5
B2
$485
75
D
$490
75
Monthly sales to specialty
pharmacy who meets RCP
definition (i.e., does not dispense
primarily through mail)
SP
Extended
price
Units
B1
$500
5
AMP = $500
Fed. Reg. 5250 (February 1, 2016)
14
CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Neither 5i nor RCP
Non-5i drugs not dispensed through RCPs – Scenario 2
Example: Non-5i drug with no eligible monthly sales
Non-5i (e.g., oral) drugs that are primarily distributed through specialty pharmacies, home
infusion pharmacies or home health care providers that do not meet the definition RCP must
use standard AMP methodology based on “any [standard] AMP eligible sales”1
All monthly sales
Oral drug requiring
special handling not
distributed by RCPs
WAC = $500
1 81
SP
Extended
price
Units
A
$450
100
B1
$500
0
B2
$485
75
D
$490
75
Monthly sales to specialty
pharmacy who meets RCP
definition (i.e., does not dispense
primarily through mail)
SP
Extended
price
Units
B1
$500
0
AMP = $0
Fed. Reg. 5250 (February 1, 2016)
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Restatement of base date AMP
CMS only allows one base date AMP—even if the quarterly
AMPs oscillate between 5i and standard AMP methodologies.
Manufacturers may report—but are not required to report—a
revised ACA base date AMP by April 1, 2017.
2017
April 1
Manufacturers may choose to revise base date AMP on a
product-by-product basis. Recalculated base date AMPs will be
effective on a prospective basis.
Base date AMP is used in the calculation of the additional discount on S and I
drugs:
• If the AMP increases faster than the rate of inflation based upon the CPI-U
compared to the base date AMP, the CPI-U penalty applies.
Under the Bipartisan Budget Act of 2015, such additional discount will also be
applicable to N drugs beginning in first quarter 2017.
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Restatement of base date AMP
The decision to restate base date AMP involves detailed
quantitative analysis
• Will quarterly AMP increase or decrease?
AMP & BP
• Will BP increase, decrease, or stay the same?
• Will minimum rebate percentage increase? (noninnovator
turned innovator)
URA
• Will an Alternative URA apply? (Line extension)
• Will there be a CPI-U penalty with existing base date AMP?
• Will there be an inverse impact on 340B price?
• What is the resource cost to recalculate base date AMP?
Implementation
• What is the system implementation cost to apply go
forward methodology to historical data without overriding
historical calculations?
• Do rebate savings justify the implementation cost?
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
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Understand financial impact of AMP final rule changes
The financial impact of AMP final rule changes should be evaluated on a product-by-product
basis, taking into consideration how the AMP final rule provisions impact AMP, BP, URA,
base date AMP, and inflation penalty.
Variables
Scenario
If AMP decreases
and BP stays the
same
If AMP increases
and BP stays the
same
Impact
Medicaid URA
Based on*
CPI-U Penalty?
Medicaid Rebate
Impact
340B Price Impact
AMP*23.1%
No


AMP*23.1%
Yes

1
AMP - BP
Yes


AMP - BP
No

No change
AMP*23.1%
No


AMP*23.1%
Yes

1
AMP - BP
Yes


AMP - BP
No

No change
1
340B Price could increase or decrease depending upon the magnitude of the AMP change and CPI-U penalty.
* This URA calculation in this sample table applies to single source or innovator multiple source drugs
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Questions
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Contact information
Marcy Imada
Cortnaye Swan
Principal | Deloitte Advisory
Deloitte & Touche LLP
Los Angeles, CA
Tel/Direct: +1 213 553 1642
[email protected]
Marcy Imada has over 18 years of experience in
consulting for the life sciences and health care
industries. Marcy is a nationally recognized leader in
providing Government Pricing regulatory compliance
services to life sciences companies related to pricing
requirements of Federal and State government
programs including, but not limited to, the 340B,
Medicaid Drug Rebate, Medicare, and Federal Supply
Schedule Programs.
Marcy also specializes in helping life sciences
companies develop and enhance their compliance
programs and implement compliance activities in
alignment with industry leading practices, the Office of
Inspector General’s Compliance Program Guidance
for Pharmaceutical Manufacturers and Federal
Sentencing Guidelines’ Requirements for Compliance
Programs.
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CIS by Deloitte Retail Community Pharmacy (RCP) and 5i AMP Updates – Implications of the AMP Final Rule
Senior Manager | Deloitte Advisory
Deloitte & Touche LLP
Kansas City, MO
Direct: +1.816.802.7744
[email protected]
Cortnaye Swan is a Sr. Manager with CIS by Deloitte.
She has over 13 years of experience in health care,
life sciences and regulatory consulting. Cortnaye has
experience working with regulatory compliance
issues for health care and life sciences organizations
focusing on key risk areas in regulatory compliance,
including internal control processes, financial and
compliance due diligence, operational design and
litigation support including voluntary disclosures to
enforcement agencies.
Cortnaye specializes in providing commercial
compliance services and solutions to the life sciences
industry sector. Including, but not limited to,
government pricing compliance related to the Federal
Supply Schedule, Medicaid Drug Rebate, Medicare
Part B, Public Health Service/340B, and State
Supplemental Rebate Programs.
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