CLASS OF TRADE (COT)
Class of Trade (COT) is the type of distribution channel by which pharmaceutical products flow into the consumer market. These can include, but are not limited to, retail pharmacies, hospitals, wholesalers, or long-term care facilities.
COT designations are assigned by pharmaceutical manufacturers to each purchaser and are leveraged in various ways including government pricing computations, contracting agreements and sales channel analysis. Within government pricing computations, the value of COT assignments should not be underestimated as it can have a significant impact on the computations fueling a pharmaceutical manufacturer’s Medicaid rebate liability and calculated pricing for various government contracts.
The COT assignment determines if transactions will be included in a manufacturer’s Average Manufacturer Price (AMP), Non-Federal Average Manufacturer Price (NFAMP) and Best Price (BP) computations. For example, pharmaceutical manufacturer sales designated within a “Retail Pharmacy” COT will be included in government pricing calculations, while a sale at an “Inpatient Hospital” may be excluded. The inclusion or exclusion of sales by COT assignments in government pricing computations will ultimately impact the Medicaid rebate amounts, inflation penalties, the 340B/PHS ceiling price, and the VA/Federal Supply Schedule ceiling price.
The Center for Medicare and Medicaid Services (CMS) provides general guidance on Class of Trade designations and what should be included in key computations; however, it is ultimately the pharmaceutical manufacturer’s responsibility to ensure that COT is assigned accurately and consistently and to have that process documented within a Standard Operating Procedure (SOP).
With 100+ possible designations for COT, there are several challenges pharmaceutical manufacturers face in developing and managing a consistent methodology for assigning COT to sales. Below are some of the most common, along with some potential solutions:
The most important aspect of COT assignment is consistency. Developing a methodology that allows assignments to follow a pre-determined process and disciplined application of that process every time will result in COT assignments that you can have confidence in. Lack of consistency and altering assignments among facilities over time results in inaccurate data, which will ultimately lead to less accurate government pricing computations.