Will AMP be used to solve perceived Part D problems?

Implications: The Democrat-controlled Committee on Oversight and Government Reform kicked off another round of predictable complaints about Medicare Part D with their report on private Medicare drug plans. As I see it, the Part D debate and the Average Manufacturer Price (AMP) debate will soon converge. This potent combination would disrupt the retail pharmacy and drug wholesale industry while simultaneously crippling the innovative capacity of the pharmaceutical industry.

Analysis:

AWP Lives!

Page 14 of the new report provides some interesting data about pharmacy economics under Part D. The 12 Prescription Drug Plans (PDPs) in the Committee’s report reimburse pharmacies using the following formulas and payments:

• Discount off AWP: 13.5% to 16.5%
• Dispensing fees: $1.70 to $4.00

The Committee found that the average pharmacy payment from Part D insurers = AWP-15% + $2.10. Thus, a pharmacy would receive a payment (reimbursement) from the PDP of $87.10 for filling a Part D script with an AWP of $100.

As an aside, the report incorrectly states that this amount represents a cost to the Medicare beneficiary. In fact, only beneficiaries in the “donut hole” would pay this amount as an out-of-pocket cost, assuming they had no additional coverage. According to IMS’ Part D report, just 6% of beneficiaries fell into this category. That’s not “typical” (common, average) based on my definition, although the headline to Figure 7 claims to show the “Flow of Payments for a Typical Brand Name Drug.” Whatever.

The Part D-AMP connection

Let’s review a few themes from my past few months of posting on GLG News:

• The AWP system is wounded and can not be repaired. (See Comments on the AWP Decision – Council Site) The new Part D report trashes AWP in Section D.
• CMS and the states currently pay for 40 percent of U.S. retail prescription drugs through Medicaid, SCHIP, and Medicare. It'll be 50% within 10 years. (See Reality Check on AMP's Impact – Council Site)
• CMS is launching a new pricing benchmark called Average Manufacturer Price (AMP). (See Using ASP History to Evaluate AMP's Impact – Council Site)
• CMS is encouraging states to adopt AMP-based reimbursement methodologies for pharmacies.
• AMP is widely opposed by everyone in the industry. Therefore, anti-pharma advocates will assume that AMP has merit. (See Industry Reactions to AMP – Council Site)
• The Democrats have been critical of the Part D benefit design, despite its popularity.

Now add politics into the mix. If the Democrats take back the White House, then we will have a new CMS Administrator in 2009. We may also have a Democrat-controlled Congress, too.

What if CMS requires Part D PDPs to adopt AMP-based methodologies for pharmacy reimbursement? Or mandates the use of AMP-based Federal Upper Limits (FUL) for both brands and generics in Part D?

The possibilities for mischief are virtually unlimited.