GENERIC MANUFACTURERS

Government Pricing, Rebate Processing and Contract Management Support


Consider government contracting opportunities for your comprehensive commercialization plan.

Government PricingThis is the area of a commercialization plan commonly referred to as government contract management or government pricing. The range of work is actually much broader and requires that you engage in numerous activities to be compliant with the various government programs.

Approximately 90 percent of all prescriptions filled in the United States are generic products. Of those, more than 50 percent are paid through an assortment of state and federal government programs.

Most generic pharmaceutical manufacturers will find it important to evaluate and consider including government contracting as part of a comprehensive commercialization plan.

The processes for securing government contracts usually aren’t complicated. But contracts like the VA/FSS application process is an exception. It is complicated and requires a lengthy application process.

All of the programs contractually obligate you to participate in rebate or discount programs, or some type of negotiated pricing arrangement. Most programs contain multi-faceted price computations. The processes involve strict time constraints and subject you to penalties for noncompliance. If you decide to pursue government contracts, we encourage you to maintain fully compliant standard operation procedures (SOPs) to ensure you organize data, classify sales and compute government values properly.

Download a summary of our services for generic pharmaceutical manufacturers.

Services for Generic Manufacturers

The implications of entering into government contracts.

Typically, the government programs you will participate in as a generic pharmaceutical manufacturer are straightforward. Most manufacturers secure a CMS Medicaid Agreement as the default starter. It provides a pharma manufacturer with access to more than 75 million beneficiaries as of 2019.

Generic companies electing to participate in Medicaid are also required to enter into a Public Health Service (PHS) or 340B agreement. Depending upon a specific company’s commercial strategy, it may make sense to secure a VA/FSS, or Veteran’s Administration/Federal Supply Schedule agreement. However, this would not be typical. If your company has products that are physician-administered or injectable, an additional computation called ASP, or average sales price value, must be submitted regardless of whether or not you have government contracts in place.

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. 

Section 340B of the Public Health Service Act calls for each manufacturer of covered outpatient drugs to enter into an agreement with the Secretary, Health and Human Services.  In general, if a manufacturer of covered outpatient drugs signs a Medicaid Drug Rebate Program (MDRP) Agreement, they are expected to enter into a Pharmaceutical Pricing Agreement with the Secretary and provide discounted prices to Covered Entities. This requirement is monitored by the Center for Medicaid/Medicare Services (CMS) where they can impose fines, penalties or even termination from the MDRP if violated.

Covered Entity Requirements – The term ‘‘Covered Entity’’ includes six categories of hospitals: disproportionate share hospitals (DSHs), children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals. Hospitals in each of the categories must be (1) owned or operated by state or local government, (2) a public or private non-profit corporation which is formally granted governmental powers by state or local government, or (3) a private non-profit organization that has a contract with a state or local government to provide care to low-income individuals who do not qualify for Medicaid or Medicare.

Covered entities are expected to avoid duplicate discounts specific to Medicaid Fee for Service programs. Covered entities must review their Medicaid MCO contracts to ensure that their 340B billing practices comply with the contracts. Entities must also ask their state Medicaid agencies whether they have any requirements regarding billing 340B drugs to managed care. The Medicaid Exclusion File is used to help covered entities, states, and manufacturers protect against duplicate discounts. Should a covered entity knowingly violate this requirement, they can be fined and lose their 340B status.

Manufacturer Pricing Requirements – PHS and MDRP are linked in terms of the discounts manufacturers must offer to covered entities. PHS Prices are determined by taking the calculated quarters Average Manufacturing Price (AMP) less the Unit rebate amount (URA) for that product. This price must then be rounded to 6 decimal places, then rounded to 2 when published and submitted.

Since these are both calculated at the per unit level, it is important to then multiply by the package size to get the PHS prices. AMP and URA are direct components of the required calculations of the MDRP. 340B price is established two quarters beyond the quarter of AMP being calculated. For example, 2nd quarter AMP calculations are used to produce 4th quarter PHS prices. This is due to the fact that when the 2nd quarter AMP is calculated, it is already July (3rd quarter) and those prices are currently in effect.

A manufacturer may not charge more than the 340B ceiling price to covered entities regardless of whether the covered entity purchases pharmaceuticals through a wholesaler or directly from the manufacturer.

It is entirely possible for a drug’s URA to be greater or equal to its AMP, resulting in a “0” or negative ceiling price or ceiling price per unit of less than $0.01. Therefore, to convert these prices to practical prices, HRSA developed the Penny Price Policy, which advises manufacturers to charge entities one penny per unit in these situations. For example, if the unit of measure is a tablet and there are 100 tabs per bottle, the PHS price in this scenario would be $1.00 ($.01*100Tabs).

For newly launched products, given the lag in the calculation versus actual sales data, the PHS price may require an estimated value for the first quarter or two post launch. Manufacturers are required to make reasonable assumptions based upon current customers, targeted pricing and WAC price to estimate the ceiling price on a new launch.

Manufacturer Submission Requirements – Since 2019, HRSA released functionality for drug manufacturers to allow for the upload of quarterly PHS pricing to the OPAIS pricing system. This system cross checks the AMP and URA against the MDRP Drug Data Reporting (DDR) repository to confirm accurate PHS ceiling prices are established and reported.  Any discrepancy must be reviewed and explained on the OPAIS portal before the submission is considered complete.

In addition to submitting the PHS Ceiling Price to OPAIS, manufacturers are required to make these prices available to all covered entities. This happens through pricing notifications to all authorized wholesalers and distributors of 340B pharmaceuticals. This notification process is done in the same manner as any other government or non-government contract pricing submission.

Brand manufacturers contracting with government programs, such as Medicaid, are required to offer their products to the VA through a Federal Supply Schedule agreement. It is likely the most complex and time-consuming government contracting process pharmaceutical manufacturers will face, although less resource-intensive than Medicaid.

The VA consists of four major agencies, often referred to as the Big Four: Veterans Affairs, Department of Defense, Public Health Service and Coast Guard. Other eligible entities may be able to purchase from the Federal Supply Schedule and are referred to as OGAs (Other Government Agencies).

In addition to committing to offer products based on mandatory quarterly and annual pricing calculations, manufacturers are required to complete multiple solicitations, establish and maintain a SAM (System for Award Management) registration and perform other required annual reporting. While not required, manufacturers of generics may choose, provided their drugs are manufactured in TAA (Trade Agreement Act) compliant countries, to offer their products to the VA to expand their patient coverage.

New Drug Launch – Upon launch of a new drug, brand manufacturers are expected to offer their products to the VA through an interim agreement, followed by the immediate submission of a full solicitation package within 30 days of the interim agreement being submitted. The interim agreement is intended to serve as a temporary contract to allow for the coverage of a new prescription drug while the full solicitation is under way. The full agreement process can take more than a year from start to finish and requires a substantial amount of work effort to complete and negotiate the terms.

Pharmaceutical Prime Vendor – Typically, manufacturers choose to offer their product through the Pharmaceutical Prime Vendor (essentially the VA’s preferred wholesaler). In some cases, depending on the distribution arrangements that a vendor has in place, manufacturers may choose to supply the VA through only direct orders or through specialty distribution channels.

National Contract – Another contracting method with the VA is through a National Contract. Separate from the FSS Agreement, the National Contract can be thought of as a “preferred award” and allows for manufacturers to bid pricing for a chance to serve as one of the primary suppliers to the Pharmaceutical Prime Vendor for the drug that they bid.

To learn more, read our blog three things to know about the challenges of VA/FSS contracting.

Medicare Part B covers two types of services – preventive services and medically necessary services. In this context, medically necessary is defined as services or supplies that are needed to diagnose or treat a medical condition that meets accepted standards of medical practice.

While there are no government rebates paid by a drug manufacturer for Medicare Part B coverage, there are pricing computations a manufacturer may be required to complete and submit to CMS based on the type of drugs sold. This calculation and the value derived is known as Average Sales Price or ASP.

The types of drugs that may require ASP calculations include:

  • Physician-administered drugs (injected, infused, implanted, inhaled, instilled)
  • Dialysis drugs
  • Some cancer/oncology drugs (chemotherapy)

Average Sales Price (ASP) – Average Sales Price is used in determining the reimbursement rates for Medicare Part B covered drugs. ASP must be calculated every calendar quarter and submitted to CMS within 30 days of the close of the quarter. CMS collects ASP data for each specific drug from all manufacturers selling that drug. CMS then performs analysis and determines a blended reimbursement rate for each specific covered drug.

ASP calculations must follow certain guidelines as set forth by CMS. These guidelines closely mirror that of AMP and Best Price calculations in terms of eligible and ineligible sales and rebates based on Class of Trade. Once the ASP values are derived, the ASP and volume of sales for each NDC must be submitted to CMS via an online submission portal and certified by the manufacturer’s Chief Executive Officer (CEO); the manufacturer’s Chief Financial Officer (CFO); or an individual who has delegated authority to sign for, and who reports directly to, the manufacturer’s CEO or CFO.

We provide full-service support for all activities required

Prescription Analytics provides comprehensive services and personalized support for government contracts and price computations. We manage all activities required for federal and state pharmaceutical programs, including but not limited to:

  • Completing all government required pricing computations and submissions to appropriate federal and state regulatory authorities
  • Reconciliation, payment and submission of rebate invoices and program discounts
  • Any and all legislative updates, as well as other regulatory changes relevant to pharmaceutical government contracting. A comprehensive summary of changes is sent to all PAI partners and customized assessments of business impact are discussed separately with each client.
  • Dispute resolution with all government entities.
  • Secure archival of all detailed historic datasets.

Interested in One of Our Other Services?
Click on the services listed to learn the many other ways we help manufacturers of generic pharmaceuticals manage countless details that influence profits and risks.