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GLOSSARY OF KEY TERMSFor professionals in the pharmaceutical industry, understanding the language, acronyms and key players in its unique supply chain can be a challenge. This glossary will provide a high-level overview of key terms that every pharmaceutical executive should know.
What is the 340B program?
The 340B program is a government initiative that helps certain healthcare providers, like hospitals and clinics, buy prescription drugs at discounted prices. This program is aimed at increasing access to affordable medications for patients, especially those who are underserved or low-income.
“Covered Entities” within the program typically include but are not entirely limited to: disproportionate share hospitals (DSHs), cancer or children’s hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals.
This 340B discount for covered entities is directly incorporated into a pharma manufacturer\'s selling price, as opposed to being issued as a traditional rebate. Most often, covered entities purchase the drugs from a wholesaler at the discounted price and, in turn, the wholesaler issues a chargeback to the manufacturer to recoup the discount given.
What are the requirements for pharma manufacturers to participate in 340B?
For pharmaceutical manufacturers, this means entering a Pharmaceutical Pricing Agreement (PPA) with the U.S. Department of Health and Human Services (HHS) Secretary, agreeing to discounts on covered outpatient drugs to covered entities within the program, ensuring drugs are covered by Medicaid and Medicare Part B, and submitting Public Health Service (PHS) quarterly calculations to the Health Resources and Services Administration (HRSA).
Additionally, all pharmaceutical manufacturers participating in the Medicaid Drug Rebate Program (MDRP) are required to obtain a Pharmaceutical Pricing Agreement as a prerequisite.
Source:
Health Resources & Services Administration. 340B Drug Pricing Program
What is a 340B ceiling price?
The 340B ceiling price is the highest price that pharmaceutical manufacturers are permitted to charge to covered entities participating in the Public Health Service's 340B drug pricing program. The 340B ceiling price is equal to the quarterly Average Manufacturer Price (AMP) two quarters prior (i.e. 3Q 2023 AMP derives the 1Q 2024 340B ceiling price) minus the total Medicaid Unit Rebate Amount (URA). The value is rounded to six decimal places. Since the AMP and URA are calculated at the unit level, the per unit PHS price is lastly multiplied by the units per package – which is what the wholesalers would be selling to the covered entities at.
How do pharma manufacturers calculate a 340B ceiling price for new drugs?
Pharma manufacturers are obligated to estimate the 340B ceiling price for a new covered outpatient drug when it first becomes available for sale. This estimate is based on the wholesale acquisition cost (WAC) minus the appropriate rebate percentage until the drug's actual AMP is determined, which should happen no later than the 4th quarter after the drug's initial sale. Manufacturers must then calculate the actual 340B ceiling price and, if an overcharge is identified, refund or credit the covered entity the difference within 120 days of determining the overcharge.
Source:
Code of Federal Regulations. Subpart B—340B Ceiling Price
Knowledge Ecology International. Glossary of pharmacy and drug price terms
What is a 3PL?
A Third-Party Logistics company (3PL) is an organization that manages warehousing and shipping operations for pharmaceutical manufacturers or wholesale distributors. 3PLs are commonly leveraged by drug manufacturers to handle the distribution of their finished drugs. 3PLs typically offer order to cash services in addition to distribution services. Utilizing a 3PL allows manufacturers to operate virtually, resulting in lower investment into brick-and-mortar facilities and often expediting the time it takes to get products into the market. Additionally, as any company grows and needs more inventory space, a pharmaceutical manufacturer does not need to spend additional funds to expand the shipping operation. Another benefit of a 3PL is leveraging buying power to lower overall cost of shipping. Given the volume of shipping a typical 3PL handles, they can negotiate lower shipping terms more successfully than single pharma companies can on their own.
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What are 5i drugs?
5i drugs pertain to specialty and/or physician-administered drugs that are administered in one of the following non-oral ways:
- Injection
- Instillation
- Infusion
- Implantation
- Inhalation
When performing Government Pricing calculations, pharmaceutical manufacturers may need to handle 5i drugs differently when calculating the Average Manufacturer Price (AMP). Depending upon the proportion of sales that go through retail community pharmacies, they may be required to include certain payments, rebates, and discounts related to 5i drugs from their AMP calculations that would typically be excluded for non-5i drugs. These drugs are often not distributed through traditional retail community pharmacies, which can lead to limited data available for performing AMP calculations.
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What is the Actual Acquisition Cost (AAC) in pharma?
The AAC is the final amount paid by a pharmacy for a drug.
A drug's ACC includes discounts, rebates, chargebacks, and various price adjustments, but excludes any associated dispensing fees.
AAC is used as a benchmark for drug reimbursement rates, most often associated with the Medicaid program.
Source:
Knowledge Ecology International.Glossary of pharmacy and drug price terms
What is an Admin Fee in pharma?
Admin fees refer to charges and payments made by pharmaceutical manufacturers to Pharmacy Benefit Managers (PBMs), wholesalers, GPOs, or other entities.
Admin fees imposed on manufacturers can vary greatly depending on the entity that is charging the fee as well as what the fee is defined as representing. The fees are ultimately meant to cover various administrative costs that PBMs, wholesalers, and GPOs incur and are typically charged as a percentage of sales. There is much debate around what these fees actually represent and furthermore, how they should be treated with regard to Government Pricing calculations. Admin fees will ultimately fall into one of two categories when it comes to treatment for Government Pricing calculations.
They’ll either be treated as a Bonafide Service Fee or a Non-Bonafide Rebate. The former would be excluded from GP calculations and would not have an impact on any of the calculated values. The latter would be considered a discount and would be included in GP calculations, which would impact the calculated values.
To be classified as a Bonafide Service Fee, the specific fee must satisfy all criteria in each part of the “Four Part Test”. The four criteria are as follows:
- The fee paid must be for a bona fide, an itemized service that is performed on behalf of the manufacturer.
- The manufacturer would otherwise perform or contract for the service in the absence of the service arrangement.
- The fee must represent Fair Market Value for the services rendered.
- The fee must not be passed on (in whole or in part) to a client or customer of any entity.
If the fee does not satisfy any one or more of the criteria above, it may be considered a Non-Bonafide Rebate and included as a discount.
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How does the Affordable Care Act (ACA) impact pharma manufacturers?
The Affordable Care Act, also colloquially referred to as Obamacare, is a U.S. federal law passed on March 23, 2010 aimed at providing additional healthcare coverage to Americans. The Affordable Care Act (ACA) impacted pharma manufacturers in multiple ways.
One of the two major provisions introduced a new fee requirement for pharma manufacturers that sell large dollar amounts of branded prescription drugs to the government. The fee, often referred to as the Branded Prescription Drug Fee or Brand Tax, is quite different from other government fees that pharma manufacturers might be used to paying, as it is structured similarly to paying a tax and is administered by the IRS. Drug manufacturers who receive a fee calculation should receive a preliminary notice in the mail in early March if there is a fee to be paid. The final fee is owed by the end of September of that year. It’s important to note that this fee notice is delayed by a substantial period. For example, a fee for 2023 is based off the sales from 2021 (two calendar years ago).For additional details regarding the Branded Prescription Drug Fee calculation and details, see our blog, Branded Prescription Drug Fee Payment Deadline Approaching.
The second major provision created the Coverage Gap Discount Program. This resulted in manufacturers owing rebates on Medicare Part D coverage when patients hit the “donut hole” or coverage gap. This change resulted in manufacturers taking on significant financial responsibility for subsidizing patient costs when the Medicaid Part D program stopped paying during the gap. This program still exists today but is set to be substantially redesigned in 2025 as a result of the Inflation Reduction Act. More information on the redesigned program can be read on our blog, “Inflation Reduction Act Likely to Have a Negative Impact on Drug Manufacturers.”
Other provisions in the ACA resulted in increased minimum Medicaid rates, from 11% to 13% for generic drugs and 15.1% to 23.1% for branded drugs, extended Medicaid coverage to patients receiving drugs from MCOs, and the expansion of covered entity eligibility for the 340B program.
Source:
Prescription Analytics. Branded Prescription Drug Fee – Payment Deadline Approaching
What is an Alternate Rebate Formula in pharma?
The Alternate Rebate Formula is used to calculate the total Medicaid Unit Rebate Amount (URA) for line extension drugs (based on a previously approved molecule), which have different compliance requirements. The alternate rebate is only applicable to Line Extension drugs and Innovator/Single Source Drugs in the Medicaid Drug Rebate Program (MDRP). In essence, if a manufacturer receives an approval for a certain drug strength, say a 2.0MG and later receives an approval for a 4.0MG on the same drug, the 4.0MG would be considered a line extension, while the 2.0MG would be considered the original drug. The 4.0 is then subject to the alternate rebate formula. The alternate rebate formula is designed to inflict inflation penalties to line extensions when they exist on the original drug(s). Otherwise, it’s possible that on a brand product, a manufacturer could introduce a second strength of a product, aligned with commonly prescribed dosage(s), and launch that drug at a much higher price to avoid substantial inflation penalties that would have otherwise been incurred on the original drug.
How do I calculate an Alternate Rebate Formula for a line extension drug?
To determine an Alternate URA, add the Base URA to the result of multiplying the quarterly Average Manufacturer Price (AMP) of the line extension drug by the highest additional rebate amount, calculated as a percentage of the AMP.
Source:
Medicaid.gov. Unit Rebate Amount (URA) Calculation for Line Extension Drugs with example
What is the Average Manufacturers Price or AMP in pharma?
The Average Manufacturer’s Price, or AMP as it’s more commonly referred within the pharmaceutical industry, is the average price at which manufactures sell prescription drugs to retail pharmacies, including wholesalers and other large purchasers. The AMP value is important as it’s used to derive Medicaid Unit Rebate Amounts (URAs) and PHS/340B pricing, which can significantly impact a manufacturer’s profitability within government programs. Evolving regulatory and compliance standards, such as the 2024 AMP Cap Removal provision, further magnify the critical need for manufacturers to take care in calculating and monitoring their AMP values before submitting to CMS on a monthly and quarterly basis to avoid revenue leakage through high calculated URA values.
How do I calculate AMP in pharma?
The AMP calculation must follow CMS guidelines, including smoothing methodologies for sales transactions and discount data. It involves meticulously assigning Class of Trade (COT) to each line of data to determine what should be included (or excluded) from the AMP calculation. AMP is designed to calculate the weighted average retail price of a drug using actual transactional sales and discount data along with a guide of what is included vs excluded.
Pharma manufacturers should establish a clear Standard Operating Procedure (SOP) for calculating their AMP. They should consistently apply these standards to monthly and quarterly calculations to comply with CMS guidelines and be ready for potential audits. Inaccurate, incomplete, or missed calculations can result in substantial penalties including fines and/or termination from government program participation.
For additional details related to the AMP value and common reasons why they fluctuate, read our white paper, “Top 3 Reasons Your AMP Changed."
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Prescription Analytics. Key Terms in Pharmaceutical Government Pricing,
What is an ANDA drug?
An ANDA, short for Abbreviated New Drug Application, is a term in the pharma industry describing the FDA's approval process for certain drugs. ANDA drugs are generic versions of existing, commercially available drugs. In contrast, NDA drugs (New Drug Application) usually denote the brand-name versions of approved drugs.
How are ANDA drugs treated differently than NDA drugs?
Drugs approved via the ANDA process, commonly referred to as ANDA drugs, have different compliance obligations and financial prerequisites in comparison to their branded, NDA counterparts. For example, ANDA and NDA drugs have different statutory rebate amounts (the base Unit Rebate amount is 13% for an ANDA vs. 23.1% for an NDA) within the Medicaid Drug Rebate Program, as well as different reporting requirements when it comes to various Government programs. NDA drugs must report their lowest price (Best Price) to any single entity during a quarter. This can often have a significant impact on the Unit Rebate Amount depending on the discount given. NDA drugs may be required to be offered to the Veterans Affairs Federal Supply Schedule, while ANDA drugs are not. Furthermore, NDA drugs require specific contracts such as the Coverage Gap Discount Program to be eligible for coverage on Medicare.
What is an API in pharma?
An Active Pharmaceutical Ingredient or API is the essential component of both over the counter (OTC) and prescription medications responsible for producing their intended therapeutic effects. APIs are produced by processing chemical compounds and are commonly categorized as either natural or synthetic. Natural APIs are chemicals or compounds found organically in nature and are used to make biologic drugs. For example, the API for Humira is Remicade and Rituxan, which are both natural. In contrast, the synthetic API for Aspirin is diphenhydramine.
APIs are subject to safety and quality standards that vary by country.
The largest percentage of APIs for the U.S. market come from manufacturing facilities in the United States, European Union, India, and China.
Source:
Verywell Health. What is an Active Pharmaceutical Ingredient (API)?
BYJU’s Exam Prep. Active Pharmaceutical Ingredients [API]
U.S. Food and Drug Administration.Safeguarding Pharmaceutical Supply Chains in a Global Economy
What is ASP in pharma?
As it pertains to Government Pricing, the ASP (Average Sales Price) is a calculated value mandatory for all manufacturers to report regarding drugs covered by Medicare Part B, which focuses on physician-administered and injectable pharmaceutical products.
Medicare uses ASP values to establish reimbursement rates for healthcare providers administering medications covered under Medicare Part B.
The Medicare Part B ASP calculation is required to be reported to CMS on a quarterly basis. The calculation itself is similar to AMP as it ultimately calculates the average price that a manufacturer sells to its customers net of all eligible discounts. The main difference between ASP and AMP is that different customers, or classes of trade, are eligible and ineligible for each calculation and program, along with the difference in cadence of reporting requirements.
ASP follows inclusion/exclusion criteria more closely aligned with the AMP Best Price calculation. One example of this is that sales and discounts to facilities such as Inpatient Hospitals would be included in the calculation for ASP, but not for AMP.
Source:
Prescription Analytics. Key Terms in Pharmaceutical Government Pricing
What is an authorized generic drug?
The term “authorized generic” (AG) drug typically refers to an FDA-approved brand-name medication that is sold without the brand name displayed on its label but is still covered under the same NDA as the branded drug.
An authorized generic can be marketed by either the brand-name drug manufacturer or another company with the brand company's consent. Occasionally, despite being identical to the brand-name product, a company may opt to offer the authorized generic at a lower price compared to the brand-name drug. Manufacturers nearing the end of their patents may consider this strategy to avoid the risk of market share loss with other drug companies entering the generic market.
Authorized generics often follow the same rules for government price reporting as their branded counterparts, including, but not limited to, higher base rebates, inflation penalties that follow a Baseline AMP established in the first full quarter after launch and mandatory rebates/coverage on a Coverage Gap Discount Program to be eligible for Medicare Part D.
While AGs are marketed in the same fashion as a typical generic or ANDA drug, when it comes to Government programs, they are still subject to the typical NDA drug rules and requirements. The main program where this can have an impact is Medicaid. Although AGs are marketed and often priced similar to other generics, they are still subject to the higher Medicaid Unit Rebate Amount as an NDA – 23.1% orAMP less Best Price, whichever is greater. AG’s drugs will be required to be listed on a Coverage Gap Discount Program agreement to be eligible for Medicare Part D. These drugs may also be required to be offered to the VA and placed on the Federal Supply Schedule. When compared to ANDA drugs there could be greater rebate liability and increased government requirements.
Source:
U.S. Food and Drug Administration. List of Authorized Generic Drugs
What is AWP in pharma?
AWP (Average Wholesale Price) was intended to represent the typical cost that a pharmacy pays when purchasing a drug from a pharmaceutical wholesaler. SWP (Suggested Wholesale Price) is often used interchangeably with AWP.
AWP was historically used in the determination of pharmacy reimbursement rates. AWP is established based upon pricing compendia assigning a default value (typically 20% above WAC) or drug manufacturer’s establishing their own price. AWP has been the subject of litigation over the course of many years as the suits claimed manufacturers were inflating AWP for higher reimbursement rates. Today, many programs and PBMs have moved away from using AWP as the sole basis for reimbursement.
As manufacturers and individual pricing compendia/databanks establish this pricing, this serves as merely a 'suggested price' in today’s landscape since most wholesalers offer medications to pharmacies at rates well below the SWP or according to contract pricing agreements directly negotiated between pharmacies and manufacturers.
Source:
Prescription Analytics.Key Terms in Pharmaceutical Government Pricing
What is a Baseline AMP?
A Baseline AMP is the AMP (Average Manufacturer’s Price) by which all future AMP values will be measured against for inflation penalty eligibility. If a manufacturer raises prices for a pharmaceutical drug above its Baseline AMP, and faster than the rate of inflation, that drug may be subject to fines called inflation penalties. Effective January 1, 2024, there will be no cap on the amount of inflation penalties manufacturers may be subject to, making monitoring of price changes critical for profitability.
When are Baseline AMPs established for Brand vs. Generic pharmaceutical drugs?
The baseline AMP for a branded (NDA) drug is the AMP recorded during the initial full quarter following its launch. For generic (ANDA) drugs, the Baseline AMPs are set following the fifth full-quarter AMP value after launch.
Once the baseline AMP is established, all subsequent quarterly AMP calculations are compared to the baseline AMP and the corresponding Consumer Price Index (CPI) value, with the baseline CPI representing the CPI for the month preceding the baseline quarter for branded drugs and the last month of the quarter for generic drugs. This comparison helps assess if the AMP is rising at a rate faster than the CPI.
Baseline AMP values will then live with the specific ANDA or NDA for the lifetime of that drug, regardless of manufacturer. All future launches of the same drug/strength under that FDA Application will be required to use the Baseline AMP established by the original manufacturer. If a company is looking to purchase a drug from another manufacturer and sell it under their own label, it is important to assess the impact that the baseline AMP could have on the rebates they will pay.
Source:
Prescription Analytics. 2024 AMP Cap Removal – What Pharma Manufacturers Need to Know
What is a Baseline CPI in pharma?
When the Baseline AMP is established for a drug, the Baseline CPI (Consumer Price Index) is also established. Baseline CPI then becomes an input within a formula to monitor the drug’s price changes as it relates to the Consumer Price Index and the drug’s price over time, specifically as it relates to increases faster than the rate of inflation.
Baseline CPIs are established in conjunction with the Baseline AMP and vary depending on whether the drug is an NDA or ANDA drug. For an NDA, the Baseline CPI is established as the CPI for the month prior to the NDA’s Baseline Quarter (IE: if the Baseline Quarter is 4Q23, the baseline CPI would be the September 2023 CPI). Baseline CPI’s for ANDA drugs are established as the CPI for the last month of the Baseline Quarter (IE: if the Baseline Quarter is 4Q23, the baseline CPI would be the December 2023 CPI).
The CPI values that are used for Medicaid purposes are the Consumer Price Index for All Urban Consumers, which is released by the U.S. Bureau of Labor Statistics monthly.
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What is a Benchmark Period in pharma?
The benchmark period in pharma commonly refers to a drug’s price at a moment in time (typically a quarterly value early in the life cycle of a drug) against which future prices are measured to determine if a manufacturer is subject to penalties or inflation rebates for raising a drug’s price faster than the annual rate of inflation.
Benchmark periods are established by regulatory bodies and vary by program. Examples included the following:
- Medicare Part B (new in 2022): The value used is quarterly calculated ASP and going forward, the benchmark period is the third full quarter following launch. For drugs that were launched before December 1, 2020, the benchmark period is Q3 2021.
- Medicare Part D (new in 2022): For drugs marketed after 10/1/2021, the benchmark period is based on the Annual AMP of the first full calendar year (Jan 1 – Dec 31) after the first marketed date, as reported to CMS. For drugs marketed before this, the average AMP for the periods between January 1, 2021 and September 30, 2021.
What is a Benchmark Price in pharma?
The benchmark price is the drug’s price at the benchmark period for that given program. Typically, a pharmaceutical drug’s benchmark price is compared against the current month/quarter CPI-U value to determine if inflation rebates are applicable.
For example, if Pharmaceutical Drug A has a $1 benchmark price and the CPI for the benchmark period was 100, but the current price of the drug is $2 and the CPI-U value for the current quarter is 150, that drug will be subject to inflation rebates, as the allowable increase is 50%, but the actual increase was 100%. The change in CPI-U relative to the benchmark period is often used to determine the ‘allowable increase’ in the reported value (IE: AMP, ASP, etc.). If the reported value increases at a rate greater than the allowable increase per the change in CPI-U over time, that specific drug could then be subject to additional rebates/inflation penalties.
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What does Best Price mean in pharma?
In the pharmaceutical industry, specifically the Medicaid Drug Rebate Program, "Best Price" refers to the lowest price at which a pharmaceutical manufacturer sells a Brand or NDA (New Drug Application) product to any purchaser, with certain exceptions, as mandated by the Medicaid Drug Rebate Program (MDRP). This means that pharmaceutical companies must provide drugs to Medicaid programs at the equivalent of the most favorable price offered to any other buyer. Understanding best price values is crucial for manufacturers, as they can directly impact the amount of Medicaid rebates they are obligated to pay across 300+ state Medicaid programs. These rebates are calculated at a rate of 23.1% of AMP or AMP less Best Price (whichever is greater).
How do I calculate Best Price for my pharmaceutical drug?
Best price should be calculated and reported for each applicable drug on a quarterly basis, per CMS requirements. Best price is calculated as the lowest price sold to any customer during the specific quarter in question. The price should be calculated net of all eligible discounts, rebates and non-bonafide fees, to determine the lowest net eligible price per strength of the reportable drug.
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The Big Four within the pharma industry commonly refers to the four largest government agencies that can purchase from the Federal Supply Schedule (FSS); they are Veterans Affairs (VA), Department of Defense (DOD), Public Health Service (PHS) and the Coast Guard.
During VA/FSS contracting, covered drug manufacturers are obligated to offer the same price point on a drug to all four of these entities, as well as other federal government entities eligible to purchase on the Federal Supply Schedule. The single price point offered is a calculated value, based on the drug’s submitted Non-Federal Average Manufacturer Price (NFAMP) and tracking customers.
Alternatively, manufacturers with an active VA/FSS agreement can also engage in “Dual Pricing” which allows the manufacturer to negotiate a separate price specifically for the FSS entities. Typically, the calculated “Big Four Price” is lower than the negotiated FSS pricing that is offered to all eligible government entities.
For additional information related to VA/FSS contracting, read our blog, "Three things to know about the challenges of VA/FSS contracting."
The Big Three refers to the three largest drug wholesalers in the United States: AmerisourceBergen (commonly referred to as ABC) – recently re-branded as Cencora, McKesson, and Cardinal Health.
Wholesale distribution holds significant strategic value for drug manufacturers seeking to reach a large consumer base, drive high volume, and minimize expiration risk. The top three pharmaceutical wholesalers command an overwhelming majority of the market share. A key driver behind a wholesaler's substantial market presence is its engagement in collective buying groups with major domestic retail chains -- including Walgreens, Walmart, and CVS. These buying groups make establishing a wholesale relationship nearly indispensable when dealing with large retailers. Furthermore, the extensive distribution networks of wholesalers offer a valuable opportunity for high volume, aiding in the timely turnover of drugs with short shelf lives and the subsequent risk of expiration.
What does bioequivalence mean in the pharma industry?
Bioequivalence indicates that two drugs will have the same therapeutic effect. This term is frequently raised in the process of securing approval of generic drugs. The FDA requires evidence of average bioequivalence in drug absorption be provided through the conduct of bioavailability and bioequivalence studies. A bioequivalence assessment is considered as a surrogate for clinical evaluation of the therapeutic equivalence of drug products and helps ensure an approved generic drug is a potential substitute for its branded equivalent.
Source:
National Library of Medicine, Bioavailability and Bioequivalence in Drug Development
What is a biologic drug?
Biologic products consist of active, living cells. Unlike many chemically synthesized drugs, biologic drugs are often derived from natural sources (such as human, animal, or microorganisms) and may exhibit some degree of variability in the source material. Humira, a well-known biologic drug, is produced using living cells. Specialized technology is usually necessary to produce biologics, and their supply chain management requires careful attention due to the sensitivity of their active ingredients, especially to temperature.
What unique compliance requirements do biologic drugs have?
Biologic drugs, while subject to regulations like brand drugs, entail unique compliance requirements. Unlike small molecule drugs governed by New Drug Applications (NDAs), biologic products require approval through a Biologics License Application (BLA) process, which involves more intricate scientific assessments due to the inherent variability and complexity of biologic products. Moreover, BLA drugs may face distinct pricing and reimbursement challenges, with considerations such as production costs, therapeutic value, and market demand influencing pricing decisions. Post-approval surveillance is crucial for assessing the long-term safety and efficacy of BLA drugs, considering their potential for immunogenicity and other biologic-specific risks. Additionally, the Inflation Reduction Act introduced new penalties, payments, and rebates for biologic drugs sold within U.S. government programs, including Medicare provisions for inflation penalties, adding further complexity to compliance requirements for manufacturers of BLA drugs. Navigating these nuances effectively is essential to ensure regulatory approval, market access, and ongoing compliance with evolving regulations.
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What is a biosimilar drug?
A biosimilar drug is a biologic medication designed to closely resemble a reference drug, exhibiting no clinically notable differences in terms of safety, efficacy, and quality attributes. Unlike generic versions of small molecule drugs, biosimilars are created using living cells and complex manufacturing processes, necessitating advanced knowledge and cutting-edge technology throughout development and production. The regulatory approval pathway for biosimilars involves demonstrating comparability to the reference biologic through comprehensive analytical, nonclinical, and clinical studies, ensuring that the biosimilar exhibits highly similar pharmacological and clinical properties. Once approved, biosimilars typically enter the market at a lower cost compared to their reference biologic counterparts, offering cost-saving opportunities for patients and healthcare systems.
What are key considerations for drug manufacturers when introducing a biosimilar drug?
Gaining acceptance and market share for biosimilars requires strategic pricing, robust evidence generation, and effective education and communication efforts to overcome potential hesitancy among healthcare providers and patients regarding biosimilar interchangeability and efficacy. Moreover, post-marketing surveillance and pharmacovigilance remain critical for monitoring the long-term safety and effectiveness of biosimilars, given the complexity and variability inherent in biologic products. By understanding these nuances and navigating regulatory, pricing, and market access challenges effectively, drug manufacturers can capitalize on the growing opportunities presented by biosimilar development and commercialization.
As biosimilars are approved by the FDA under a BLA, they are also subject to additional reporting and rebate requirements when it comes to various government programs such as Medicaid and Medicare. Biosimilars are treated in a similar fashion to branded drugs/NDAs; meaning they are subject to greater Medicaid unit rebate amounts, and may be subject to additional inflation penalties under Medicare Part B and D.
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What is a BLA in pharma?
A Biologics License Application (BLA) is an official submission to the U.S. Food and Drug Administration (FDA) for approval to distribute or introduce a biologic product into interstate commerce. Unlike traditional drug approvals governed by New Drug Applications (NDAs), BLAs specifically address biologic products derived from living organisms or their components. Upon approval, biologic products authorized through BLAs are deemed safe and effective for their intended use, allowing them to be marketed and distributed to healthcare providers and patients. These products, often referred to as BLA drugs, encompass a wide range of therapeutic treatments, including vaccines, blood products, gene therapies, and monoclonal antibodies, among others.
How are BLA drugs unique within the pharma industry?
BLA drugs are subject to unique regulatory considerations and approval pathways compared to small molecule drugs governed by NDAs. The approval process for BLAs typically involves more complex scientific assessments due to the inherent variability and complexity of biologic products. Additionally, pricing and reimbursement strategies for BLA drugs may differ from traditional pharmaceuticals, with factors such as production costs, therapeutic value, and market demand influencing pricing decisions. Furthermore, post-approval surveillance and monitoring play a crucial role in assessing the long-term safety and efficacy of BLA drugs, given their potential for immunogenicity and other biologic-specific risks. Manufacturers of BLA drugs must navigate these nuances effectively to ensure successful regulatory approval, market access, and ongoing compliance with regulatory requirements.
From a government pricing standpoint, BLA’s are subject to additional reporting and rebate requirements when it comes to various government programs such as Medicaid and Medicare. Drugs approved under a BLA are treated in a similar fashion to branded drugs/NDAs; meaning they are subject to greater Medicaid unit rebate amounts, and can be subject to additional inflation penalties under Medicare part B and D.
What is a brand drug in pharma?
A brand drug refers to a pharmaceutical product marketed under a specific name or trademark, safeguarded by patent protection. These drugs gain approval for sale in the United States through a meticulous New Drug Application (NDA) process. Typically, patents for brand drugs last for 20 years, but additional factors such as exclusivity terms post-FDA approval can influence their market longevity without competition.
In 2022, brand drugs constituted 9% of all prescriptions filled in the United States, with generic drugs making up the remaining 91%.
One point of frequent confusion are Authorized Generics (AG) products. AG drugs are developed and marketed under the authority of the original Brand Product NDA and therefore follow many of the same reporting rules with regards to Government Pricing as a brand drug.
What unique compliance requirements do brand drugs have?
Brand drugs, especially those supplied through government programs like Medicaid, PHS/340B, Medicare, and VA, are subjected to heightened compliance requirements, reporting obligations, and fees or discounts compared to generic alternatives. For instance, the Inflation Reduction Act of 2022 introduced various fees applicable to brand drugs, including inflation rebates commencing in 2022, Medicare Part B add-on payments in 2023, and drug price negotiations for top-selling drugs beginning in 2025. Additionally, brand drugs face lower price change thresholds in select states with State Price Transparency Reporting requirements.
Hence, it is crucial for brand manufacturers to possess a comprehensive understanding of existing and forthcoming fees, penalties, or payment obligations to uphold profitability and mitigate revenue loss.
Source:
https://www.fda.gov/drugs/generic-drugs/office-generic-drugs-2022-annual-report
What is the Branded Prescription Drug Fee / Brand Tax?
The Branded Prescription Drug Fee (BPD Fee), or Brand Tax as its commonly referred, was mandated by the Affordable Care Act and imposes charges on pharmaceutical manufacturers supplying branded drugs to the federal government. This fee includes federal government sales related to Medicare Part B, Medicare Part D, Medicaid, VA, DOD, and Tricare programs. Fees are determined based on a calculation, which uses on a tiered system similar to how tax brackets work with the brackets ranging from $0 for lower-volume sales to a larger percentage of sales for companies exceeding $400 million annually.
One significant aspect involves the initial fee, which encompasses both current and estimated future years, mirroring the concept of prepaying taxes. Manufacturers typically receive a preliminary notice in March detailing the fee calculation, with final invoices due by a specified deadline in September. Subsequent year fees are adjusted based on the variance between actual and preliminary calculations.
Additionally, it's crucial to note that fee notices are subject to a substantial delay, as fees for a given year are based on sales data from two years prior. For additional information regarding the Branded Prescription Drug Fee / Brand Tax, see our blog, “Branded Prescription Drug Fee – Payment Deadline Approaching.”
What is a pharmaceutical chargeback?
When a drug manufacturer sells to a Wholesaler, they sell at the Wholesale Acquisition Cost (WAC). The wholesaler will then sell that same product to a pharmacy at a negotiated discounted price (that a manufacturer has negotiated with a pharmacy chain, pharmacy, GPO or PBM, which is usually less than WAC. This transaction generates a pharmaceutical chargeback, which is a reimbursement request initiated by a wholesaler towards a drug manufacturer, aiming to reconcile discounted pricing agreements negotiated with the downstream organizations. Despite chargebacks being perceived as routine, minor discrepancies in contracts or pricing can have significant financial and compliance repercussions, affecting accounts receivable, rebate disbursements, and government pricing.
What options are available to manage chargeback processing for drug manufacturers?
Chargeback Processing often requires systematic validation as the volumes of chargeback lines, NDCs, and contracts can be overwhelming to attempt to validate manually. Files can be transmitted manually or by leveraging EDI technology. When fully implemented, utilizing EDI transmission of data creates an automated transmission between the manufacturer and wholesaler, often resulting in time savings as well as reducing the potential for missed correspondence, however, the cost of EDI can quickly scale up as EDI providers typically charge for both vendor connections and ongoing transaction volumes. Manual file transmissions can be more cumbersome to manage on a daily basis, as there are attached files that need to be mapped and uploaded to systems, but can be an effective way to manage lower volumes while avoiding the EDI expense. Many pharmaceutical companies choose to outsource chargeback processing due to the technological requirements and maintenance.
Effective chargeback validation demands meticulous management, expertise, and adherence to best practices, including disciplined contract maintenance, clear communication, prompt error resolution, and regular data review. Maintaining communication with wholesalers, monitoring submission timings, and analyzing chargeback rates relative to total sales are crucial for accuracy and compliance.
For additional information and best practices for pharma manufacturers on Chargeback Processing, see our white paper, “Chargeback Processing — Best Practices to Avoid Revenue Leakage & Risk.”
The Children's Health Insurance Program (CHIP), overseen by the US Department of Health and Human Services, allocates matching funds to states to furnish health insurance to qualifying families with children. This program extends coverage to children through both Medicaid and standalone CHIP initiatives, catering to families whose incomes exceed Medicaid thresholds yet fall short of private coverage affordability. Managed by states under federal directives, CHIP secures funding from both state and federal sources.
Pharmaceutical manufacturers participating in the Medicaid Drug Rebate Program (MDRP) are obligated to remit rebates on drugs dispensed through Medicaid and CHIP. State Medicaid agencies issue quarterly invoices to manufacturers based on utilization metrics. It is imperative for manufacturers to meticulously reconcile and validate all invoice values before payment remittance. Payments must be rendered within 37 days of the receipt or mail date to avoid incurring additional penalties or fees.
Source:
https://www.medicaid.gov/chip/index.html
https://www.medicaid.gov/chip-state-program-information/index.html
What is Class of Trade in pharma?
Class of Trade (COT) denotes the distribution channel through which pharmaceutical products reach the consumer market, encompassing retail pharmacies, hospitals, wholesalers, and long-term care facilities. These designations, assigned by manufacturers, play a pivotal role in government pricing computations, contracting agreements, and sales channel analysis, significantly impacting Medicaid rebate liabilities and government contract pricing. For instance, sales designated under "Retail Pharmacy" COT are factored into government pricing, whereas "Inpatient Hospital" sales may be excluded, affecting Medicaid rebates and contract pricing. There is no industry standard for COT assignment and some facilities can be perceived differently throughout the industry. Ensuring accurate and consistent COT assignment, documented within Standard Operating Procedures (SOP), is crucial for pharmaceutical manufacturers to navigate compliance and pricing challenges effectively.
What are the risks of getting Class of Trade wrong?
Incorrect Class of Trade (COT) assignments can pose significant risks for pharmaceutical manufacturers in various aspects of their operations. COT designations, which determine inclusion in government pricing computations and impact Medicaid rebate liabilities, are crucial for accurate pricing and contract negotiations. Errors in COT assignment can lead to inaccurate government pricing calculations, potentially resulting in over or underpayment of Medicaid rebates. Furthermore, inconsistent or incorrect COT assignments may jeopardize compliance with regulatory requirements and lead to disputes with government agencies. Manufacturers must ensure accurate and consistent COT assignments to mitigate these risks and maintain compliance with government pricing regulations.
For more information and best practices for drug manufacturers regarding Class of Trade, read our white paper, “Understanding Class of Trade in the Pharmaceutical Industry.”
The Centers for Medicare & Medicaid Services (CMS) is the single largest payer of health care benefits in the United States, providing funding for health care to more than 160 million Americans through Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and the Health Insurance Marketplace. As a federal agency within the United States Department of Health and Human Services (HHS), CMS oversees vital healthcare programs, interprets regulations and provides guidance governing various aspects of healthcare delivery, reimbursement, and quality improvement initiatives.
Specifically, regarding pharmaceutical drugs and manufacturers, CMS sets policies concerning drug pricing, reimbursement, and program eligibility criteria within Medicare and Medicaid. Additionally, CMS conducts enforcement actions to ensure compliance with these regulations, including audits, investigations, penalties, and corrective measures for pharmaceutical manufacturers found to be non-compliant with program requirements.
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What are commercial operations in pharma?
Commercial operations within the pharmaceutical and life sciences sectors are integral to the successful delivery of products and services to the market. This multifaceted function involves sales and marketing efforts, encompassing activities such as partner selection, pricing strategies, and contract negotiations. Additionally, commercial operations oversee market research initiatives and product launch planning to effectively position offerings and address customer needs.
Moreover, commercial operations teams play a pivotal role in maintaining relationships with key stakeholders, including healthcare providers and payers, to maximize market penetration and revenue generation. They also drive product lifecycle management strategies, ensuring regulatory compliance and monitoring market trends for informed decision-making. Overall, the efficient functioning of commercial operations is essential for driving growth, profitability, and sustained success within the pharmaceutical and life sciences industries.
How can Prescription Analytics support commercial operations for pharma manufacturers?
Prescription Analytics’ Commercial Operations Support services include activities such as Pricing & Contract Support, Commercial Rebate & Discount Reconciliation, Forecasting, Gross-to-Net calculations, and additional service needs such as partner assessment, sales reporting and advanced insights and analytics.
These activities support both the Finance and Sales teams, and the level of support we offer is based on the unique staffing and support needs of the client. For example, we have some clients where we serve as their entire Commercial Operations Department, and others that we step-in to fill a need if they have a short-term staffing shortage or simply want to focus on other areas of their business.
What is a contract manufacturer in pharma?
A contract manufacturer is a specialized company that provides manufacturing services to pharmaceutical companies on a contractual basis. These manufacturers offer facilities, expertise, and resources to produce pharmaceutical products according to the specifications and requirements of their clients. They handle various stages of drug production, including formulation development, manufacturing, packaging, and quality control, allowing pharmaceutical companies to outsource these processes rather than performing them in-house.
What are key considerations for pharmaceutical companies considering a contract manufacturer?
Pharmaceutical companies may consider using a contract manufacturer to leverage specialized expertise, access advanced manufacturing technologies, and reduce production costs. By outsourcing drug manufacturing processes, companies can focus on core competencies such as research, development, and marketing while benefiting from the efficiency and scalability offered by contract manufacturers. Key considerations in deciding whether to outsource manufacturing include assessing the contract manufacturer's capabilities, reputation, regulatory compliance, and cost-effectiveness compared to in-house production. Companies must also evaluate factors such as intellectual property protection, supply chain resilience, and the potential impact on product quality and control when making the decision to outsource or keep manufacturing in-house.
What is a copay assistance coupon in pharma?
Copay Assistance Coupons, utilized by pharmaceutical companies, aim to alleviate the financial burden on patients by reducing or covering copayments for specific prescription drugs. These coupons, distributed through healthcare providers or directly to patients, function by reducing the patient's out-of-pocket expenses at the pharmacy.
What considerations should drug manufacturers make when considering copay assistance coupons?
Despite their benefits, copay assistance programs require careful consideration by drug manufacturers. Compliance with regulations, particularly concerning anti-kickback statutes and program transparency, is crucial. Manufacturers must evaluate the financial implications, target programs strategically, and ensure long-term sustainability while fostering brand loyalty through effective communication and strategic targeting.
Pharmaceutical companies should weigh the financial impact of copay assistance programs, ensuring they align with broader corporate goals while remaining compliant with regulations. Strategic targeting should identify patient populations most in need of assistance, while transparent communication educates stakeholders and builds trust. Continuous monitoring and adaptation are necessary to optimize program performance and ensure affordability and access while minimizing financial risks. Considering alternative approaches such as patient assistance programs or value-based pricing arrangements can further enhance patient access and long-term sustainability.
Source:
https://oig.hhs.gov/documents/special-advisory-bulletins/878/SAB_Copayment_Coupons.pdf
What is the Coverage Gap Discount Program (CGDP)?
The Coverage Gap Discount Program established under Medicare Part D, provides discounts on prescription drugs for beneficiaries who reach the coverage gap, also known as the "donut hole." Pharmaceutical manufacturers participating in this program offer discounts on brand-name drugs purchased by Medicare beneficiaries during the coverage gap phase. These discounts, combined with Medicare's contribution, help reduce out-of-pocket costs for beneficiaries and contribute to their continued access to necessary medications despite the coverage gap.
How will the CGDP and Medicare Part D program change in 2025?
For pharmaceutical manufacturers, the 2025 changes in the Medicare Part D program, notably the elimination of the Coverage Gap Discount Program, will require adaptation. Currently, drug manufacturers cover 70% of patients' drug costs during the coverage gap phase (donut hole), but in the redesigned program – known as the Medicare Part D Discount Program -- this obligation will cease. Instead, manufacturers will be required to contribute financially throughout both the initial coverage and catastrophic periods, paying 10% of patient costs for all branded drugs during the initial coverage period and 20% during the catastrophic period, marking a substantial departure from the current reimbursement structure. Additionally, the introduction of expanded rebate obligations under the redesigned program poses further challenges, with the potential to increase Medicare Part D rebates for drug manufacturers.
Understanding and navigating these changes are crucial for manufacturers to ensure continued success in the pharmaceutical market, requiring careful financial planning, pricing strategy adjustments, and transparent communication with stakeholders. For additional information on these changes, see our blog, “Overview of the 2025 Medicare Part D Program Redesign: A Paradigm Shift for Pharma Manufacturers.“
What is the CPI?
The Consumer Price Index (CPI) is a measure of inflation used to track changes in the prices of a basket of goods and services over time. It reflects the average price level paid by urban consumers for various essential items such as food, housing, transportation, and healthcare. The CPI is calculated and published monthly by the Bureau of Labor Statistics (BLS) in the United States and serves as a key indicator for economic policymakers, businesses, and consumers alike, providing insights into trends in purchasing power and cost of living adjustments.
How is the CPI used in Medicaid AMP values?
The Consumer Price Index (CPI) serves as a benchmark for inflation in the Medicaid Drug Rebate Program (MDRP), and can have an impact on the Medicaid Unit Rebate Amount (URA). Manufacturers compare quarterly AMP values against the baseline AMP value and corresponding CPI to assess if AMP increases surpass inflation rates. In cases where AMP increases exceed the allowable increase amount per the change in inflation over the comparable timeframe, manufacturers may incur inflationary penalties, leading to additional Medicaid rebates. Recent periods of elevated inflation have provided some relief for certain manufacturers previously subject to penalties, allowing greater flexibility in pricing adjustments while mitigating the risk of inflationary penalties and managing financial liabilities related to Medicaid rebates.
For additional information for drug manufacturers related to CPI and AMP, see our blog, “Letting Some Air Out of the AMP Inflation Penalty.”
What is a customary prompt pay discount?
A Customary Prompt Pay Discount refers to a discount provided by a drug manufacturer to a wholesaler, or other customer, for promptly paying for purchased drugs within a specified timeframe, aligning with typical business payment practices and/or the terms of the specific contract.
How do drug manufacturers leverage prompt pay discounts?
Customary Prompt Pay discounts are a standard practice within the pharmaceutical industry, offering financial incentives to customers for timely payment processing. Drug manufacturers should recognize that offering customary prompt pay discounts can help foster positive relationships with customers, encouraging prompt payments and potentially enhancing supply chain efficiency. Additionally, understanding and adhering to industry-standard payment practices can contribute to smoother transactions and mitigate potential payment delays or disputes. Typical prompt pay discounts range from 1-3% of the customer's invoice price.
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