Focus on the Drug Payment Methods Landscape

1. Focus on the Drug Payment Methods Landscape Academy of Managed Care Pharmacy April 17, 2009

2. Overview • AMCP updating its payment references • Environmental scan of payment today • Payment methods • Payment sources • Impact of AMP • Other payment methods and developments

3. I. AMCP Updates

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

5. Guide and Library Updating in 2009 • Guide to Pharmaceutical Payment Methods • JMCP summer publication • Online access at amcp.org/home>>Public Policy & Advocacy>>Pharmaceutical Payment Methods http://amcp.org/amcp.ark?p=341FFB74 • Related Interactive Library • Online access late summer • Same link as Guide

6. II. Environmental Scan of Payment Today

7. Payment Sources for Retail Rx Drugs Billions; 2007 Total = $227.5 _____________________________ Source: National Health Spending in 2007…. Health Affairs Volume 28, Number 1; 2009.

8. Payment Sources for Non-Retail 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

9. Payment Methods - 2009 Retail Rx DrugsMedical 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

10. AWP 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. • Source: Data on file. Tag & Associates, Inc. 2008

11. 30% Medicare Part D; Medicaid; most private insurance 45% of private insurance; Medicare and Medicaid exceptions “Back of the Envelope” AWP Impact 85% ____ Source: Tag & Associates, Inc. estimates from data on file.

12. Payment Methods and Developments • ABP (Alternate Benchmark Price) • ASP • AMP • WAC • AWP

13. ABP • Created and published by First DataBank • Currently same $ amount as AWP

14. ASP • 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

15. AMP • 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

16. AMP 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

17. WAC • Reported list price established by manufacturer • Does not include discounts and price concessions

18. AWP – Who Is This Man and Why Is He Smiling? Source: http://averagewholesaleprice.com 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

19. 101 North Columbus Street Suite 201 Alexandria, Virginia 22314 USA 1.703.683.5333 __________________________________ howard.tag@taghealthcare.com www.taghealthcare.com