The Grinch that stole the Generic Manufacturers Christmas
If you are the manufacturer of a generic drug, your price you sell to the government (Medicaid and 340B) is going to change effective with the 1st quarter of 2017. And to make things interesting, pricing actions you have taken since 2013 will have a direct impact on these new prices. If your strategy has been to bring in older products and increase the prices on them, you are most at risk with this new rule and the main reason for the new rule.
If you’re not aware of this change, you may be missing out on an opportunity or have an unpleasant surprise come the end of the 1st quarter and you pay your 1st quarter Medicaid rebates. You’ll have to wait to the 3rd quarter for this opportunity of threat to show up in your 340B Program margins.
So what happened? On November 2, 2015 President Obama signed into law the Bipartisan Budget Act of 2015. The amended section requires that manufacturers pay additional rebates on their covered outpatient drugs that have been designated a non-innovator multi source (N) drug. Congratulations – you now are subject to the same inflation-based additional rebate (CPI penalty) as branded drugs. CMS’ Release No. 175 issued on April 15, 2015 provided the mechanics of this new requirement.
Specifically you are now required to calculate the CPI penalty and pay the additional rebate amount when your AMP for the drug increases at a rate that is greater than the rate of inflation based on the consumer price index (CPI-U).
How much this may impact you depends on when you 1st launched your product and the price increases you’ve taken that are higher than the prevailing inflation rate for all urban consumers. While the new rule is retroactive, it is only retroactive back to April 1, 2013. For your drugs that you marketed on or before April 1, 2013, your base date Average Manufacturer Price (AMP) will be the 3rd quarter of 2014 and the base date CPI-U will be September 2014. For your drugs marketed after April 1, 2013, your base date AMP will be the AMP for the 5th calendar quarter after the drug was marketed and the base date CPI-U will be the last month of your base line quarter.
The risk from this new law is clear – your pricing activity over the past couple of years may have a dramatic and lasting negative impact on the profitability of your products sold under the Medicaid and 340B Programs. However, with every new government law, there is opportunity if you know where to look. The opportunity in the Medicaid program lies in how compelling your new net effective price now appears to the respective state Medicaid programs such that they reconsider how it is positioned on their Preferred Drug Lists
If you would like to better understand the opportunities and risks with this new law and the strategies on how to optimize your profitability, please contact NavAxxess Health Solutions.