BRAND MANUFACTURERS

Government Pricing, Rebate Processing and Contract Management


Should you include government contracting and pricing in your commercialization plan?

Government PricingYou may have heard references to government contract management or government pricing. In fact, the scope is broader than either term suggests, and requires substantial effort to remain compliant with the terms of the various government programs. In the United States, about 50 percent of prescriptions filled are paid through an assortment of state and federal government programs. The other half are primarily covered through some type of commercial health plans with a very small percentage paid for by cash buyers.

This means that for most pharmaceutical companies, it is critically important to evaluate and consider including government contracting as part of a comprehensive commercialization plan.

The process for securing most government contracts can be straightforward. But some require a complex, lengthy application process and have long lead times to secure an effective date. All of these programs will contractually require a pharmaceutical manufacturer to participate in rebate or discount programs, or some type of negotiated pricing scheme. These agreements require complex price computations and strict time constraints, and have significant financial penalties for noncompliance. It is critical that you follow a disciplined approach managed against a formal SOP to stay fully compliant.

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Government programs and the implications of entering into contracts.

The type of patients most likely to require your product will drive your program participation. Most manufacturers regard a CMS Medicaid Agreement as the default starter. We cover a few others here.

Medicaid is the most demanding of the government programs in terms of required resources. Pharmaceutical companies must submit monthly and quarterly AMP calculations to CMS as well as to the several states requiring separate submissions. You use the AMP value to derive a URA, or Unit Rebate Amount, which represents the dollar value of rebates that must be paid for each unit of product dispensed to Medicaid beneficiaries.

Without carefully assessing and scrubbing sales data, then computing pricing values prescribed by your CMS Medicaid agreement, you will likely pay inappropriate overall rebates and be out of compliance.
Read More on Medicaid. 

The federal government created the PHS/340B program in 1992. The program requires drug manufacturers to provide outpatient drugs to eligible health care facilities at a reduced price. This reduced price is essentially the AMP calculated price less the URA. The primary workload for this program is reporting values to entities the pharma manufacturer has contracted with on a quarterly basis and completing the submission upload files to the federal government.

Public Law 102-585 requires brand companies to participate in the VA/Federal Supply Schedule program if their product meets the definition of a covered drug. This federal program provides coverage for all prescription medications. Participating manufacturers are required to compute a NFAMP, or Non-Federal Average Manufacturer Price, value each quarter. The VA then pays a maximum 76 percent of this value for drugs purchased for use by eligible beneficiaries.

This is another mandated program for manufacturers who have secured a VA agreement. This U.S. federal program provides civilian health benefits for US Armed Forces personnel, retirees, and the dependents of active and retired military. Prescriptions dispensed to eligible beneficiaries are subject to a rebate which equates to annual NFAMP less FCP or “Federal Ceiling Price. Rebates are paid on a quarterly basis.

This optional program applies strictly to branded pharmaceuticals. It is particularly important if a manufacturer has products intended for the senior market, since the vast majority of Medicare Beneficiaries are over the age of 65. Without this agreement, products will not be covered by Medicare Part D.

Manufacturers with products that require physician administration and all injectable products must compute and submit an Average Sales Price value (ASP). The calculation is similar to AMP. This value then becomes the basis for reimbursement for products dispensed to eligible Medicare beneficiaries. This requirement exists whether or not other government contracts are in place.

The federal Affordable Care Act of 2010 included a provision that imposes an annual fee on brand manufacturers. The fee is derived from the total sales of a specific product through Medicare Part B, Medicare Part D, Medicaid, the Department of Defense, VA FSS and Tricare. The IRS computes the fee and reports it to the manufacturer of applicable brand products.

Government programs and the implications of entering into contracts.

The type patients most likely to require your product will drive your program participation. Most regard a CMS Medicaid Agreement as the default starter. We cover a few others here.

Medicaid
Medicaid is the most demanding of the government programs in terms of required resources. Pharmaceutical companies must submit monthly and quarterly AMP calculations to CMS as well as to the several states requiring separate submissions. You use the AMP value to derive a URA, or Unit Rebate Amount, which represents the dollar value of rebates that must be paid. Without carefully modeled pricing, you could pay more in rebates than what you gained from sales.
Read More on Medicaid. 

PHS/340B
The federal government created the PHS/340B program in 1992. The program requires drug manufacturers to provide outpatient drugs to eligible health care facilities at a reduced price. This reduced price is essentially the AMP calculated price less the URA. The primary workload for this program is reporting values to entities the pharma manufacturer has contracted with on a quarterly basis and completing the submission upload files to the federal government.

VA/Federal Supply Schedule
Public Law 102-585 requires brand companies to participate in the VA/Federal Supply Schedule program if their product meets the definition of a covered drug. This federal program provides coverage for all prescription medications. Participating manufacturers are required to compute a NFAMP, or Non-Federal Average Manufacturer Price, value each quarter. The VA then pays a maximum 76 percent of this value for drugs purchased for use by eligible beneficiaries.

Tricare
This is another mandated program for manufacturers who have secured a VA agreement. This U.S. federal program provides civilian health benefits for US Armed Forces personnel, retirees, and the dependents of active and retired military. Prescriptions dispensed to eligible beneficiaries are subject to a rebate which equates to annual NFAMP less FCP or “Federal Ceiling Price. Rebates are paid on a quarterly basis.

Medicare Part D Coverage Gap Program
This optional program applies strictly to branded pharmaceuticals. It is particularly important if a manufacturer has products intended for the senior market, since the vast majority of Medicare Beneficiaries are over the age of 65. Without this agreement, products will not be covered by Medicare Part D.

Medicare Part B
Manufacturers with products that require physician administration must compute and submit an Average Sales Price value (ASP. The calculation is similar to AMP. This value then becomes the basis for reimbursement for products dispensed to eligible Medicare beneficiaries. This requirement exists whether or not other government contracts are in place.

ACA Branded Prescription Drug Fee

The federal Affordable Care Act of 2010 included a provision that imposes an annual fee on brand manufacturers. The fee is derived from the total sales of a specific product through Medicare Part B, Medicare Part D, Medicaid, the Department of Defense, VA//FSS and Tricare. The IRS computes the fee and reports it to the manufacturer of applicable brand products.