[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