For pharmaceutical manufacturers, a comprehensive understanding of the Baseline Average Manufacturer Price (AMP) is crucial. Its establishment and calculation significantly impact profitability, compliance and long-term value of your product. In this white paper, we’ll explore what Baseline AMP is, how it’s determined, and the critical factors that affect a drug’s Medicaid rebates – including common pitfalls and effective strategies to avoid costly penalties.

What is Baseline AMP in Pharma?

For pharmaceutical companies participating in the Medicaid Drug Rebate Program (MDRP), the Baseline AMP is the benchmark by which all future AMP values are measured. Specifically, the Baseline AMP represents the AMP from which inflation-based penalties are calculated. If a manufacturer’s AMP increases faster than the inflation rate, the drug may be subject to additional Medicaid rebates in the form of inflation penalties.

Once established, each quarterly AMP value is compared against the Baseline AMP and a set Baseline Consumer Price Index (CPI) value (the CPI from the month prior to the baseline quarter for ANDA’s, or the CPI of the last month of the Baseline Quarter for NDA’s & BLA’s). If the AMP surpasses the CPI-adjusted value, the manufacturer owes a penalty in the form of an additional Medicaid rebate, which can escalate quickly, sometimes even resulting in rebates greater than the AMP value on Medicaid utilization and “penny pricing” to Public Health Service (PHS) entities.

How is a Baseline AMP Established?

The Baseline AMP depends on a drug’s FDA classification:

• NDA (Branded) & BLA Drugs: The baseline is the AMP recorded during the first full quarter post-launch
• ANDA (Generic) Drugs: The Baseline AMP is with the fifth quarterly AMP following launch
• Unapproved Others: Some unapproved drugs may have baseline values
• Over-the-Counter (OTC): Certain OTC products can have baseline AMPs

For guidance on which classification and rules apply, our expert team is available to assist.

Can Baseline AMP Values Change?

No, the Baseline AMP is fixed to the drug’s NDA or ANDA and remains constant for the lifetime of the product – regardless of who manufactures or sells the product. Any subsequent versions or rebrands of the same drug/strength under the same FDA application must use the original Baseline AMP.

Considerations Before Establishing Baseline AMP

When preparing to launch a new drug, manufacturers should avoid activities that may inadvertently lower the AMP, such as selling discounted products with short expiration dates or offering significant one-time discounts. Setting an artificially low Baseline AMP can have lasting financial repercussions, increasing the risk of ongoing penalties.

Key Questions When Acquiring a Drug

When acquiring a previously marketed drug, it’s essential to conduct a thorough analysis of the Baseline AMP to understand the potential Medicaid rebate obligations and assess the drug’s profitability. Important questions to consider include:

• Has the NDA or ANDA been marketed through Medicaid previously?
• What is the Baseline AMP and baseline quarter for this product?
• Given your planned pricing strategy and the established Baseline AMP, is there a risk of Medicaid inflation penalties?
• Can the product still meet your profitability and growth targets if it’s subject to significant inflation penalties?

In addition to assessing the Baseline AMP, it’s essential to verify that the product is correctly classified and listed, such as determining whether it qualifies as a line extension. Proper classification can have significant implications for modeling out inflation penalties and rebates. Overlooking these details could lead to unexpectedly high Medicaid rebates or low PHS pricing, impacting overall profitability.

Comprehensive due diligence, including both AMP analysis and product classification, is crucial to make informed decisions about acquired drugs and ensure compliance.

What If I Can’t Access the Previous Baseline AMP?

When acquiring a drug, it is required for manufacturers to obtain the Baseline AMP from the prior owner. Although CMS retains historical AMP data, it does not share this information with new entities, placing the responsibility on the selling manufacturer to provide accurate Baseline AMP details during the acquisition process. Failure to cooperate in transferring this data can be reported to CMS as a compliance issue.

If the previous manufacturer is no longer in business, new owners may apply reasonable assumptions, but it’s critical not to guess or estimate without a solid basis. We recommend partnering with an expert to develop and document a compliant approach, ensuring that assumptions are well-supported and in line with CMS expectations. Properly securing this data safeguards the acquiring company from compliance risks and future liabilities.

Recent Regulatory Changes Affecting Baseline AMP

Staying informed of regulatory updates is essential for managing AMP-related 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. With the removal of the cap, in some cases inflation penalties could exceed the prices paid for the drug. For additional details, see our blog, “2024 AMP Cap Removal: What You Need to Know.”
• Effective November 19, 2024, the CMS Final Rule: In redefining market date, it impacts Baseline AMP. This now defines the market date as “the date on which the covered outpatient drug (COD) was first sold by any manufacturer,” impacting rebate calculations. Previous guidelines referred to the market date as the time when the drug was initially “available for sale.”

Baseline AMP is a critical factor in the profitability of pharmaceutical products in the Medicaid Drug Rebate Program, as it serves as the reference price for future AMP values and inflation penalty calculations. Establishing the Baseline AMP depends on a drug’s FDA classification, with different rules applying to branded, generic, OTC, and unapproved drugs. Pharmaceutical manufacturers must carefully manage pricing in the initial quarters to avoid artificially low Baseline AMPs, which can lead to lasting financial penalties. For companies acquiring drugs, it’s essential to understand the existing Baseline AMP and its implications on projected Medicaid and PHS pricing. Recent regulatory changes, including the removal of the inflation penalty cap in 2024 and the redefinition of the market date, highlight the importance of thorough AMP tracking and compliance. By planning strategically and staying informed on regulations, manufacturers can avoid costly penalties and ensure a stronger bottom line.

About Us

Prescription Analytics is dedicated to supporting pharmaceutical manufacturers in navigating the complexities of Medicaid Rebates, Government Pricing, State Licensing, Commercial Operations Support, and Chargeback Processing. With deep expertise in these areas, we provide tailored guidance to help clients optimize their operations and maintain compliance in an evolving regulatory landscape.