Focus on the Drug Payment Focus on the Drug Payment Methods LandscapeMethods Landscape

Academy of Managed Care Pharmacy

April 17, 2009

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Overview Overview

I. AMCP updating its payment references

II. Environmental scan of payment today – Payment methods– Payment sources– Impact of AMP– Other payment methods and developments

I. AMCP UpdatesI. AMCP Updates

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ObjectiveObjective

To continue providing comprehensive, unbiased information about payment methodologies and related issues during a period of significant change

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GuideGuide and and LibraryLibrary Updating in 2009 Updating in 2009

Guide to Pharmaceutical Payment Methods • JMCP summer publication • Online access at amcp.org/home>>Public

Policy & Advocacy>>Pharmaceutical Payment Methodshttp://amcp.org/amcp.ark?p=341FFB74

Related Interactive Library• Online access late summer• Same link as Guide

II. Environmental Scan II. Environmental Scan of Payment Todayof Payment Today

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Payment Sources for Payment Sources for RetailRetail Rx Drugs Rx Drugs Billions; 2007 Billions; 2007

Federal and State Medicaid

$18.8 (8%)

Other Public$15.0 (7%)

Out of Pocket$47.6 (21%)

Private Health Insurance

$99.1 (43%)

Medicare$47.0 (21%)

_____________________________Source: National Health Spending in 2007…. Health Affairs Volume 28, Number 1; 2009.

Total = $227.5

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Payment Sources for Payment Sources for Non-RetailNon-Retail Drugs Drugs

No data similar to retail Rx data

Evidence that size of market may be comparable to $227 billion retail Rx– Express Scripts estimates that only 43% of

prescription drug costs are paid as pharmacy benefits – 57% paid as medical benefits (1)

– Aetna estimated that “infusable” drug sales were $41.5 billion in 2008 (2)

1. Applying Management Techniques to Drugs in the Medical Benefit. Express Scripts presentation to PCMA. March 24, 2009

2. Medical Pharmaceutical Management: a payor perspective. Aetna Pharmacy Management. 2009

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Payment Methods - 2009Payment Methods - 2009

Retail Rx Drugs Medical Benefit Drugs

Medicare AWP, WAC, Negotiated ASP with few AWP, WAC

exceptions

Medicaid AWP, WAC ASP, AWP, WAC

Private Ins AWP, WAC, Negotiated AWP, ASP

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AWP Impact on Drug PaymentAWP Impact on Drug Payment

Retail Rx: AWP dominates as the basis of payment to pharmacies by almost all government and private insurers

Non-Retail: Approximately 45% of private insurance payment (covered lives) is based on AWP (1) – Almost all Medicare and Medicaid payment to

physician offices and hospital outpatient departments is based on ASP.

1. Source: Data on file. Tag & Associates, Inc. 2008

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““Back of the Envelope” AWP Impact Back of the Envelope” AWP Impact

____Source: Tag & Associates, Inc. estimates from data on file.

Retail

Medicare Part D; Medicaid; most private insurance

85%

Non-Retail

45% of private insurance; Medicare and Medicaid exceptions

30%

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Payment Methods and DevelopmentsPayment Methods and Developments

ABP (Alternate Benchmark Price)

ASP

AMP

WAC

AWP

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ABPABP

Created and published by First DataBank

Currently same $ amount as AWP

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ASPASP

ASP = Manufacturer sales to all US purchasers, net of all price concessions and non-Medicaid rebates, volume weighted, calculated quarterly– Exclude sales that are nominal in amount or

excluded from Medicaid Best Price calculation

Developments– Hospital OP payment lowered to ASP + 4% in

2009; will be lower in 2010

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AMPAMP

AMP = weighted average price across all package sizes of a drug for the lowest identifiable quantity of the drug (e.g., 1 ml, 1 tab) paid to the manufacturer by US wholesalers for a pharmaceutical distributed to the retail pharmacy class of trade

Does not include customary prompt-pay discounts and all sales/discounts to PBMs and HMOs

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AMP StatusAMP Status

In effect for rebate calculation

On hold for Federal Upper Limit (FUL) reimbursement

– Deficit Reduction Act of 2005 required CMS to publish AMP and set the FUL on payment for generic drugs at AMP plus 250 percent

– NACDS-NCPA injunction prevents implementation

– FUL computed using AWP, although some states establish reimbursement limits below FUL at a state maximum allowable cost (MAC)

– Ball in Congress’ court

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WACWAC

Reported list price established by manufacturer

Does not include discounts and price concessions

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AWP – Who Is This Man and AWP – Who Is This Man and Why Is He Smiling?Why Is He Smiling?

George Pennebaker, the Father of AWP

Created in 1969 for Medi-Cal to simplify pharmacy claims processing

Replaced payment based on actual acquisition cost with a new standard reference price -- AWP Source: http://averagewholesaleprice.com

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1.703.683.5333

__________________________________

howard.tag@taghealthcare.com

www.taghealthcare.com