Thursday, November 08, 2007

The AMP Lawsuit Gambit

Yesterday, NACDS and NCPA unveiled their rumored lawsuit against CMS over Average Manufacturer Price (AMP). Despite substantial progress with AMP-related legislation, there was just no practical way that any of the bills could have been passed before the planned publication of AMP data at the end of November.

The associations are now seeking an injunction to block implementation of the definition of AMP in the Final Rule issued in July. I’m skeptical that they will get the injunction, but not very confident in my viewpoint given the vagaries (and my limited knowledge) of the legal issues.

Here are links to the key documents:
The complaint focuses on an alleged difference between the statutory definition of AMP in Section 1927 of the Social Security Act and the definition in the Final Rule. The plaintiffs claim: “The statutory definition of AMP is clear and simple.” I strongly disagree with this characterization, although it’s not appropriate for me to provide a point-by-point rebuttal in a public forum. (Sorry, legal mumbo-jumbo fans!)

To be honest, I have no idea whether this gambit will work. I was surprised when secondary wholesalers successfully got an injunction last year against the FDA’s implementation of the pedigree requirements of the Prescription Drug Marketing Act (PDMA), so perhaps history will repeat itself this December.

However, I do want to highlight some comments made in the last November’s PDMA injunction decision by Judge Tomlison. While the circumstances are different, she summarized the following guidelines in making her decision:
  • “A preliminary injunction is a drastic and extraordinary remedy that should not be granted routinely.”
  • “The Second Circuit has repeatedly held that the irreparable harm requirement is ‘the single most important prerequisite for the issuance of a preliminary injunction.’”
  • “Irreparable harm may be found where the moving party makes a ‘strong showing that economic loss would significantly damage its business above and beyond a simple diminution in profits.’”
By these standards, an injunction seems unlikely especially given the relatively minimal impact on pharmacy profits in 2008 and the historical analogy to Average Sales Price (ASP). (Reminder: I’m not a lawyer – please read disclaimer at bottom of page.)

As loyal readers know, I have strongly criticized the fear-mongering and hype associated with AMP. This latest twist adds even more drama to the debate. Who needs Hollywood writers when we have retail pharmacy?


  1. Dr. Fein ,

    You certainally are entitled to your veiwpoints, however, you should remove the word "expert" from the description of Drug Channels. Have you ever spent any time in a retail pharmacy or examined the financials of a typical "retail pharmacy"?

  2. I hesitated before approving the above comment since the (anonymous) author just takes a swipe at me without contributing anything meaningful to our conversation. I ultimately decided to approve the comment because I want everyone to see an example of the emotional, data-free reactions that I receive in my inbox every day.

    And to answer the question: I have not worked in a retail pharmacy. That’s why I can be objective and fact-based in my analyses. The Illinois Pharmacists Association highlighted Drug Channels recently, saying: “It is not always a comforting examination (from the Pharmacist’s viewpoint, anyway), but it is thoughtful and in a lot of ways hard to argue with.” (See Tidbits from September.)

    As always, I look forward your constructive comments.


  3. Who needs Hollywood writers when we have Adam Fein??!!

    Mr. Fein, the supply chain is fouled. You are correct in basing your opinions on that fact. However, I believe you need to backtrack your research further upstream (ie drug manufacturers). They could simply lower their prices rather than offering $15-50 off "coupons" to be administered at the retail level. Doesn't that make much more sense than trying to "blame" retail pharmacy by implementing the AMP plan. After all it's simple Wal Mart economics...Lower prices sell more product.

  4. Marc,

    Let me give you another idea to consider.

    Cost-plus models break pharmacy reimbursement into two parts:

    1. Cost of the drug (AMP)

    2. Cost of distribution and dispensing (Markup & Dispensing fee)

    In contrast, traditional "list minus" reimbursement, such as AWP-%, combine both of these elements into a single payment.

    Thus, cost-plus programs create much more transparency about the true drug costs while also making it possible for payers to define a specific value to distribution & dispensing. So perhaps it will now be easier to do exactly what you propose?

    A big unknown will be the role of side payments (a.k.a. rebates) that flow between manufacturers and payors/PBMs. These are not computed within AMP/ASP.