[Federal Register Volume 60, Number 102 (Friday, May 26, 1995)]
[Notices]
[Pages 27983-27984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13031]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Public Health Service
RIN 0905-ZA91


Notice Regarding Section 602 of the Veterans Health Care Act of 
1992 New Drug Pricing

AGENCY: Public Health Service, HHS.

ACTION: 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 the 
following proposed guidelines relative to new drug pricing. Public 
comment is invited.

DATES: The public is invited to submit comments on the proposed 
guidelines by June 26, 1995. After consideration of the comments 
submitted, the Secretary will issue the final guidelines.

FOR FURTHER INFORMATION CONTACT: Marsha Alvarez, R. Ph., Director, Drug 
Pricing Program, Bureau of Primary Health Care, Health Resources and 
Services Administration, 4350 East West Highway, 10th Floor, Bethesda, 
MD 20814, Phone (301) 594-4353, FAX (301) 594-4982.

SUPPLEMENTARY INFORMATION: The Office of Drug Pricing has developed the 
following guidelines to facilitate program implementation:

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., average manufacturer price, ``AMP,'' and Best Price, ``BP''). 
The manufacturer calculates pricing information for all of its covered 
outpatient drugs and sends this pricing data to the Health Care 
Financing Administration (HCFA) within 30 days after the end of the 
quarter. HCFA provides PHS with the data necessary for PHS to determine 
the ceiling price. PHS determines the ceiling price based on the rebate 
required under the Medicaid drug rebate program. For calendar year 
1995, the Medicaid basic rebate for single source and innovator 
multiple source drugs is the greater of 15.2 percent of the AMP or the 
AMP minus best price. 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 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 under the 
Medicaid program. For non-innovator 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 two 
quarter lag for new drug pricing information. For new drugs, AMP is not 
available until after 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 AMP for the first full quarter would not be 
available until after June 30. Manufacturers would report the baseline 
AMP for this new drug to HCFA by July 31.
    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 is 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 estimated and the actual ceiling price will be in the form of a 
retroactive charge back or rebate after the actual ceiling price is 
established.
    Because the manufacturer calculates the PHS ceiling price using a 
two quarter data lag, the manufacturer could estimate the new drug 
ceiling price for three quarters. For example, a new drug that comes on 
the market in February (January-March quarter) will have an estimated 
PHS ceiling price for that quarter. AMP and BP data will be collected 
during the second quarter (April-June) and submitted to HCFA within 30 
days after the third quarter (July-September) for calculation of the 
rebate percentage. Because pricing needs to be transmitted to 
wholesalers two weeks before the beginning of the quarter, an accurate 
PHS ceiling price for the third quarter will not be available at that 
time. The manufacturer must continue to estimate the PHS ceiling price 
for the second and third quarters, and will be able to calculate an 
accurate PHS ceiling price for the fourth [[Page 27984]] quarter 
(October-December). All retroactive charge back or rebate adjustments 
necessary to reconcile the estimated ceiling price with the actual 
ceiling price must be completed by the end of the next quarter (i.e., 
March 31 of the next year).

    Dated: May 10, 1995.
Ciro V. Sumaya,
Administrator, Health Resources and Services Administration.
[FR Doc. 95-13031 Filed 5-25-95; 8:45 am]
BILLING CODE 4160-15-P