[Federal Register Volume 60, Number 190 (Monday, October 2, 1995)]
[Notices]
[Pages 51488-51489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24349]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Public Health Service
Notice Regarding Section 602 of the Veterans Health Care Act of
1992; New Drug Pricing
AGENCY: Public Health Service, HHS.
ACTION: Final notice.
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SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care
Act of 1992,'' enacted section 340B of the Public Health Service Act
(``PHS Act''), ``Limitation on Prices of Drugs Purchased by Covered
Entities.'' Section 340B provides that a manufacturer who sells covered
outpatient drugs to eligible entities must sign a pharmaceutical
pricing agreement with the Secretary of Health and Human Services in
which the manufacturer agrees to charge a price for covered outpatient
drugs that will not exceed an amount determined under a statutory
formula.
The purpose of this notice is to inform interested parties of final
guidelines regarding new drug pricing.
EFFECTIVE DATE: November 1, 1995.
FOR FURTHER INFORMATION CONTACT: Marsha Alvarez, R. Ph., Director, Drug
Pricing Program, Bureau of Primary Health Care, 4350 East-West Highway,
Bethesda, MD 20814, Phone (301) 594-4353, FAX (301) 594-4982.
SUPPLEMENTARY INFORMATION:
(A) Background
Proposed guidelines for new drug pricing were announced in the
Federal Register at 60 FR 27983 on May 26, 1995. A comment period of 30
days was established to allow interested parties to submit comments.
The Office of Drug Pricing received two letters with comments
concerning the mechanism for drug price calculation and retroactive
drug price adjustment. Further, a letter was received with general
comments commending the PHS for the development of an approach that
avoids unnecessary administrative costs for manufacturers while
assuring that covered entities receive the discount in a timely
fashion.
The following section presents a summary of all major comments,
grouped by subject, and a response to each comment. All comments were
considered in developing this final notice. Also, changes were made to
increase clarity and readability.
(B) Comments and Responses
Mechanism for Price Calculation
Comment: PHS does not calculate the ceiling price. Manufacturers
determine this price, while the Health Care Financing Administration
(``HCFA'') provides Average Manufacturer Price, (``AMP''), baseline
AMP, and Best Price, (``BP''), data to PHS for auditing purposes.
Response: We agree, in part. The notice has been changed to reflect
that HCFA would provide the data necessary to calculate the ceiling
price, if necessary for resolving disputes, collecting pricing data,
auditing a manufacturer, or other such program purposes.
Comment: AMP may be calculated using pricing data from a partial
quarter, while the calculation of the baseline AMP utilizes data from
the first full quarter after the day on which the drug was first sold.
Response: We agree. The notice has been changed accordingly.
Retroactive Pricing Adjustment
Comment: The Veterans Affairs new drug policy, implementing section
603 of the Veterans Health Care Act of 1992, does not require a
manufacturer to issue a retroactive rebate for the purchase of a new
drug for the first thirty days. A similar policy should be considered
for PHS policy implementing section 602 (section 340B of the PHS Act).
Response: No change. Section 340B of the PHS Act requires all
participating manufacturers to provide covered outpatient drugs at the
discounted price. The law was effective December 1, 1992; therefore,
any new covered outpatient drug must be discounted as of the date it is
introduced into the market. We have attempted to implement this
immediate discount mechanism by reasonably permitting manufacturers to
estimate ceiling prices during the initial months of sale.
Comment: A manufacturer's obligation to make retroactive payments
to covered entities should not be contingent upon the covered entity
submitting a request for the retroactive rebate, providing such
information, or taking any other action. The manufacturer must be
unilaterally responsible for paying the rebates.
Response: No change. The mechanism for retroactive pricing
adjustment was developed with the understanding most manufacturers sell
drugs through wholesalers and would have difficulty determining to
which entity the new drug was sold. Further, and more importantly,
there was an attempt to evenly split the administrative burden of the
process between the manufacturer and the entity. If an entity wishes a
pricing adjustment, the dollar amount in question, one would expect,
must be significant enough to balance the administrative burden
involved in documenting and developing the request. While this type of
requirement should decrease the numbers of smaller requests, still the
manufacturer must remit all documented pricing adjustments requested
which may result in a large number of checks or credits being cut by
manufacturers.
Comment: Establish a 30-day deadline by which the pricing
reconciliation must be paid.
Response: We agree. The notice has been changed to reflect a
requirement that all pricing adjustments be completed by the end of the
fourth quarter of sales (e.g., introduced on 1/15/95 and pricing
adjustments due by 12/30/95). This has moved the deadline back ninety
days from the proposed deadline.
(C) New Drug Pricing Revised Guidelines
Set forth below are the final guidelines for new drug pricing.
New Drug Pricing
Calculation of the current quarter PHS ceiling price for each
covered outpatient drug, as provided in section 340B(a)(1) of the PHS
Act, is based upon data supplied to the Medicaid Drug Rebate Program
(i.e., AMP, baseline AMP and BP). The manufacturer calculates pricing
information for all of its covered outpatient drugs and sends this
pricing data to HCFA within 30 days after the
[[Page 51489]]
end of the quarter. HCFA will provide PHS with the data necessary for
PHS to determine the ceiling price which will be used for resolving
disputes, studies involving pricing data, auditing manufacturers, or
other program purposes.
For calendar year 1995, the Medicaid rebate for single source and
innovator multiple source drugs is the greater of 15.2 percent of the
AMP or the AMP minus BP. In calendar year 1996, and thereafter, the
rebate percentage decreases to 15.1 percent. An additional rebate must
also be paid for single source and innovator multiple source drugs in
the amount by which the increase in the baseline AMP exceeds the
increase in the Consumer Price Index--Urban (CPI-U). The PHS ceiling
price is computed based on the combined basic and additional rebate
amounts calculated for the Medicaid program. For noninnovator multiple
source drugs, the rebate percentage is 11 percent of the AMP.
For PHS pricing purposes, the timeframe for reporting the pricing
data is a problem with respect to new drugs because there is a time lag
for new drug pricing information. For new drugs, manufacturers are
permitted to calculate the AMP using the pricing instituted in the
first quarter; however, the baseline AMP is not available until the end
of the first full quarter after the day on which the drug was first
sold. For example, if a new drug was first sold on January 15, the
quarterly AMP for the period 1/1 through 3/31 would be calculated using
sales from 1/15 through 3/31 while the quarterly baseline AMP for the
first full quarter would not be available. The baseline AMP must be
determined for a full quarter; therefore, pricing data for the period
4/1 through 6/30 would be utilized. Thus, for the first and second
quarter, the discount for the new drug would be a manufacturer's
estimate and later adjusted using only the basic rebate amount.
This time lag is not a problem for the State Medicaid agencies
because they bill manufacturers for a rebate after the covered
outpatient drugs are dispensed to Medicaid beneficiaries. However, to
comply with the requirements of section 340B of the PHS Act, the PHS
ceiling price must be determined before the covered outpatient drug is
sold to the covered entity.
Because there are no sales data for a new drug from which to
determine the PHS ceiling price, the Office of Drug Pricing is
proposing to utilize a ceiling price estimated by the manufacturer
until sufficient data is available to calculate the AMP and BP of the
new drug. Any adjustments necessary to reconcile differences between
the first and second quarter estimated ceiling price and the third
quarter ceiling price will be in the form of a retroactive charge back
or rebate.
Because the manufacturer calculates the PHS ceiling price using a
data lag, the manufacturer would estimate the new drug ceiling price
for three quarters. For example, a new single source drug that enters
the market in February (first quarter) will have an estimated PHS
ceiling price for that quarter. The manufacturer must submit AMP and BP
pricing data for sales within that quarter to HCFA within 30 days from
the end of the quarter (4/30). HCFA will use this pricing data to
calculate the basic rebate amount.
The manufacturer must estimate the ceiling price for the second
quarter (April 1-June 30). Sales during the quarter will constitute the
baseline AMP and BP. The manufacturer must submit baseline AMP and BP
for the second quarter to HCFA within 30 days from the end of the
second quarter (7/30). The additional rebate amount does not apply to
this quarter since there must be two full quarters of pricing data to
generate an additional rebate amount when a price increase exceeds the
increase the CPI-U.
Because manufacturers must transmit pricing to wholesalers two
weeks before the beginning of the quarter, the total rebate amount
(basic plus additional rebate) for the third quarter (July 1-September
30) will not be available at that time.
Manufacturers must submit pricing data to HCFA by 10/30. Thus, the
manufacturer must offer the third quarter discount using only the basic
rebate amount.
Beginning with the fourth quarter (October 1-December 31), the
manufacturer will have the necessary pricing data to calculate a total
rebate amount. All retroactive charge backs or rebate adjustments
necessary to reconcile the first, second, and third quarters estimated
ceiling price must be completed by the end of the fourth quarter, i.e.,
December 31.
Example: Drug Enters Market February 15.
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Actual rebate amounts
Add'l rebate (if Pricing due available from HCFA
Calendar quarter Baseline AMP applicable) to HCFA -------------------------
Basic Add'l
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1 (Jan-Mar)......................... ................ ................ 4/30 5/15 N/A
2 (April-June)...................... X............... 7/30 8/15 N/A
3 (July-Sept)....................... ................ X............... 10/30 11/15 11/15
4 (Oct-Dec)......................... ................ X............... 1/30 2/15 2/15
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Dated: September 26, 1995.
Ciro V. Sumaya,
Administrator, Health Resources and Services Administration.
[FR Doc. 95-24349 Filed 9-29-95; 8:45 am]
BILLING CODE 4160-15-P
