Tuesday, November 13, 2007

Analysis of AMP Lawsuit Odds

Last Thursday, I discussed the Average Manufacturer Price (AMP) lawsuit filed by NACDS and NCPA against CMS. I speculated that an injunction was unlikely using the standards outlined in another case and my knowledge of the 1980s TV show L.A. Law.

Well, fear not, legal mavens. Jayne Juvan of Juvan’s Health Law Update has now provided a genuine legal analysis of this case in NACDS and NCPA Challenge Average Manufacturer Price Calculation. While Jayne is coy about predicting the ultimate outcome, I’ll be bolder and/or more foolish.

I predict that this legal challenge will fail and CMS will not be enjoined by the Court from implementing its Final Rule on AMP. You may not like my conclusion, but it seems consistent with the objective facts and standards of judgment that will be applied.

Legal Standards

Jayne has been noticeably absent from the blogosphere in the past few months, so it’s very good to have her back. She took time off from blogging for some silly reason like “working for pay.” Ha! Doesn’t she know what a blog is all about?

Anyway, Jayne reviews the specific legal precedents of the D.C. Circuit Court, which is where NACDS and NCPA are suing CMS. Although she is careful not to provide a formal legal conclusion, Jayne notes that standard applied by the D.C. Circuit is actually quite similar to the standard from the Second Circuit that I discussed on Thursday. (Thanks, Corbin!)

She points out that the case will likely rest on whether the harm of implementing the Final Rule is irreparable -- “impossible to repair, rectify, or amend.” Jayne quotes the D.C. Circuit as saying: “Mere injuries, however, substantial, in terms of money, time and energy necessarily expended in the absence of a stay are not enough.”

Evaluating Irreparable Harm

In re-reading the Complaint, I see very little discussion of irreparable harm by the plaintiffs. The complaint highlights the potential impact of AMP for retail pharmacies, such as:
  • Reduced hours and services
  • Being “forced out of the Medicaid program”
  • Forced to “close their doors altogether”
The first two items do not seem irreparable to me. Pharmacies could always extend their hours at some future date. Pharmacies may choose to stop participating in Medicaid, but CMS’ federal Final Rule does not legally “force” anyone out of a state-run Medicaid program.

The third claim has more theoretical merit, but continues the unfortunate tradition of exaggerating the financial impact of AMP. It also does not seem to exceed the “mere injuries” standard highlighted above.

The complaint notes CMS’ estimate of $8 billion in reduced reimbursement over five years. Given the growth in pharmacy spending, the real reduction in pharmacy revenues from AMP is estimated to be 0.5% in 2008. For the typical independent with $2.5 million in revenues, that translates into $12,500 less revenue per year ($2.5M*0.5%), or about $1,000 per month. That's not good news and will certainly require some belt tightening. But it's hardly the difference between bankruptcy and easy street in 2008.

Just to be clear, I have written very sympathetically about the plight of independent pharmacies under AMP. But AMP is not the only cause of the challenges facing independents. Please read Hype vs. Research and Heretical Questions about the AMP War before sending me hate mail.

Thus, I believe the injunction will fail because the Court will realize that there is little actual irreparable harm. I suspect the Court will also reason that we’ll have the opportunity in 2008 to assess the actual, non-hypothetical effects of this legislation (pro and con).


Reminder: read the disclaimer below. And never forget that free advice from a blog might be worth what you paid for it.


  1. You’re right, I don’t like your conclusion, but you make a good legal argument. But what happens if NCPA is right and lots of independents go out of business? Isn’t it "unreparable" if my business closes because of AMP?

  2. What do you think of the arguments that pharmacies make? Their arguments are based on the statute, which says that AMP = prices paid by wholesalers for drugs distributed to the retail pharmacy class of trade. According the complaint, the AMP rule violates this statute because it includes in AMP calculations things like sales to physicians, sales to dialysis centers, sales to hospital outpatient facilities, sales to patients, etc., etc. Are they right?

  3. Defining "retail" class of trade" has always been the key flash point for AMP.

    I am not going to comment on the legal arguments here. Instead, I suggest you read Stephen Schondelmeyer's expert report. The key issue is boiled down in paragraph 25 of his report, which states:

    "CMS has re-defined the term “retail pharmacy class of trade” to encompass virtually all pharmacies and providers who dispense or administer drugs to the end consumer. This re-definition stands in stark contrast to the use of the term “retail pharmacy class of trade” in the pharmaceutical market."


  4. The pharmacies won on Friday when the court granted a preliminary injunction. Both the AMP rule and the AMP website are on hold indefinitely. What's the impact for manufacturers?