Thursday, June 08, 2006

McClellan and the magic AMP

Mark McClellan recently announced that CMS will postpone release of Average Manufacturer Price (AMP) data until later this year. Current AMP calculations were originally scheduled to be released on a website July 1. (The full text of his remarks is available from CMS here.) Note that an article on the speech inaccurately reported that CMS will be delaying the implementation of AMP-based reimbursement, which I do not believe that McClellan has the power to do.

This decision was prompted by a little-noticed OIG report released last week. Main conclusion: “Existing requirements for determining certain aspects of AMPs are not clear and comprehensive, and manufacturers’ methods of calculating AMPs are inconsistent.”

The best part of this report is the appendix with letters from pharmacy, wholesale, and manufacturer trade associations. (Where was PCMA?) My mind was reeling at the complex (and often contradictory) guidance provided by different parts of the drug channel. We can now look forward to some intense lobbying over the proper definition of AMP.

Regardless of the ultimate definition, I see AMP ultimately having a much bigger impact than many people expect. Here are a few predictions:

  • Private payers will migrate to AMP-based pharmacy reimbursement.
  • PBMs will find their profit model under pressure as payers gain visibility into spreads.
  • Wholesalers, Retailers, and PBMs will battle for a fixed generic profit pie. (See my earlier post on generics.)
  • “Class of trade” pricing difference will become standardized across manufacturers.
  • Manufacturers will increase direct sales to self-warehousing pharmacy and mass market chains. See my September 2005 paper “Preparing for the Future of Retail Pharmacy Supply Chain” for my rationale.
  • Manufacturers will reduce or eliminate prompt pay discounts by shifting this channel compensation to fees.

Suffice to say, I see AMP triggering some significant changes in business practices and sparking new competitive battles in the pharmaceutical industry. How come no one else is talking more about the follow-on impact of AMP?

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