In an apparent bid to make my email go crazy this morning, CMS snuck out a revised timeline for Average Manufacturer Price (AMP) last night. (Click here to see the email that was sent last night.) Dinah Brin at Dow Jones provides a broader overview in Pharmacies Get Reprieve On Medicaid Drug-Pricing Change.
Here are the key dates:
- July 2, 2007: Final regulation published (as I predicted last month)
- September 1, 2007: Regulation becomes effective
- September 1-30 2007: First monthly AMP reporting period
- October 30, 2007: Manufacturers report September AMPs
- November 30, 2007: FULs (Federal Upper Limits) published based on September AMPs. Manufacturers report October AMPs
- December 30, 2007: FULs based on September AMPs take effect (after 30 day period for states to implement). Manufacturers report November AMPs. FULs published on October AMPs.
- January 30, 2008: Manufacturers report October – December AMPs. Manufacturers report December AMPs. October FULs take effect.
In the short term, independent pharmacies will be hit hardest by AMP. Today, they subsidize brand dispensing with generics and are the most dependent on Medicaid.
Wholesalers will only feel second-order effects from the impact on independents, especially as some of their most profitable customers start shutting their doors.
PBMs are mostly insulated from any near-term effects because they have relatively little Medicaid exposure.
Any public data on AMP will merely provide incremental transparency into the PBM profit model. As I discussed in November, PBM’s success reflects many individual business decisions by payers and insurers. There are myriad ways for payers and insurers to compensate PBMs beyond allowing superior profits on mail-dispensed generic prescriptions.
Manufacturers will have to do a lot more work for price reporting. (Contract management software companies and IT consultants are dancing a jig over AMP, by the way.)
LONGER TERM EFFECTS
The definition and publication of AMP will not magically change the pharmacy supply chain. But over the next few years, the true impact of AMP will become clear in a few predictable ways.
- List minus pricing models, such as AWP-x%, will continue to be under tremendous pressure among private payers. Government reimbursement for pharmaceuticals is migrating toward methods that use actual transaction prices plus a pharmacy supply chain cost factor. Cost-plus models are certainly not perfect and can warp incentives, but they do allow payers to gain better control over the costs of the pharmacy supply chain. In health care, private payors have historically followed government pricing models.
- It will begin shifting the landscape as savvy entrepreneurs take advantage of new compensation models, potentially arbitraging differences between AMP and ASP.
- Retail pharmacy consolidation will accelerate. The shakeout in pharmacy will benefit the large pharmacy chains and mass merchants. Today, I estimate that the largest 10 pharmacies already control 60% of retail pharmacy dollars.
- Manufacturers will pay much more attention to the proper accounting of fees and discounts, affecting the role and compensation of wholesalers. Almost two years ago, I speculated that AMP could increase incentives for manufacturers to contract directly with large self-warehousing chains. Still could happen, with follow-on effects for wholesaler market structure.
- A related wild card is the Supreme Court’s upcoming decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. If overturned, manufacturers would be able to better control their reported AMP by legally limiting the amount of fees or discount passed on by wholesalers to their large retail chain customers.
And who knows? AMP may even reduce the total cost of pharmaceuticals in the U.S. – but I doubt it.
Lots more to consider, but I must start returning phone calls and emails.