2016 CBI Medicaid Congress Executive Summit - … Summit_pres.pdf · 2016 CBI Medicaid Congress...

2016 CBI Medicaid Congress

Executive SummitPresenters:

Richard Zimmerer

Greg Wiefel

Jennifer Lospinoso

May 18, 2016

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Final Rule ImplicationsAgenda

Topic TimeI. Final Rule Overview 10:30 a.m. – 11:00 a.m.II. Calculation & Rebate Issue Analytics 11:00 a.m. – 2:10 p.m.

a) Original NDA 11:00 a.m. – 11:10 a.m.b) Wholesaler Definition 11:10 a.m. – 11:20 a.m.c) RCP Definition 11:20 a.m. – 11:30 a.m.d) Bundled Sales 11:30 a.m. – 11:35 a.m.e) Returns 11:35 a.m. – 11:40 a.m.f) Territories 11:40 a.m. – 11:50 a.m.g) 5i Not Generally Dispensed 11:50 a.m. – 12:00 p.m.h) 5i AMP COT & Transaction Types 1:00 p.m. – 1:15 p.m.i) AG AMP Calculation 1:15 p.m. – 1:25 p.m.j) Line Extension Drugs 1:25 p.m. – 1:40 p.m.k) MMCO Rebates 1:40 p.m. – 1:50 p.m.l) Other Miscellaneous Topics 1:50 p.m. – 2:10 p.m.

III. Reimbursement Changes 2:10 p.m. – 2:15 p.m.IV. Q&A 2:15 p.m. – 2:30 p.m.


Final Rule OverviewFit in Overall Timeline

1.0 Harmless Annoyance— Poorly Understood— Data Limitations— Questionable Methodologies— Manual Processes— Limited Controls— Insufficient Documentation

2.0 Important Burden— Compliant Methodologies— More Robust Data— Key Functions Automated— Compliance Oriented Controls— Poorly Understood Beyond GP

3.0 Core Strategic Function— Understood, Purposeful & Responsive— Integrated Operationally &

Systematically— Efficient— Source of Insight— Forward-Looking

GP’s strategic importance is increasing with its larger F/S impact, expanded use in provider reimbursement, and greater transparency. Enormous opportunities exist to enhance its value proposition with more responsive methodologies, data analytics-

driven insights, enhanced integration, and embedded forward-looking strategic approaches.

Perf

orm

ance

Historical Recent Evolving

Envi

ronm

ent


CMS 5 Year Financial Projections— ACA projected $17.7B savings mostly from increased rebate %’s

and MMCO rebates. Note that this five year period is over.

— Final rule projects $2.7B savings primarily related to the FULs.

— $432M in operating costs for states & manufacturers

Status— “Establishes the long term framework” for MDRP— Not Finalized: Line extension drug identification.— Requested Comments: Good cause restatements etc.— More Guidance Forthcoming: Limited exceptions to NDA=S/I,

territories, restatements, value based arrangements, etc.

The final rule impacts the following three distinct areas of the Medicaid drug reimbursement system:

Manufacturer Government Pharmacy1) Manufacturer Calculationof AMP & BP

2) Government Calculation of Rebate Amount Owed by Manufacturer

3) Government Payment to

Pharmacy for Product Dispensed

Mar

‘10

Affordable Care

Act (“ACA”)

Aug

‘10

5i Statutory Changes

Nov

‘10

DRA Final Rule AMP Provisions

WithdrawnFe

b ‘1

2

ProposedRule

Published

Aug

‘15

Final RuleTo OMB

Feb

‘16

Final Rule Published

Apr

‘16

GenerallyEffective

4/1*

May

‘16

First AMP Due 5/30

Jul ’

16

First BP Due 7/30

Apr

201

7

TerritoriesEffective

Final Rule OverviewIntroduction

Bas

icFa

cts “Medicaid: Covered Outpatient Drugs; Final Rule”

425 commentators to proposed rule185 pages in FR version (proposed rule was 50) E

ffect

ive

Dat

es

Generally prospective but:Certain statutory provisions effective 10/1/10Some provisions indicated as “clarifying”

* CMS recently indicated no enforcement of 5i AMP calculation provisions prior to the 3rd quarter calculations


Final Rule OverviewGeneral Operational Considerations

AreaSelect

Provision Select Considerations

Cal

cula

tions

Original NDA• Generally NDA = S/I drug• “Limited exception” application before

4/1/17

AG AMP Calculation

• Sales to secondary excluded?• Depends significantly on definitions.

Territories• Separate entity considerations• Potential BP impact

Definitions• Wholesaler and Manufacturer• RCP and Specialty

Returns • Limited to cost

Bundles • Non-contingent discounts• Historical bundle assumptions

Reb

ate

Am

ount

Line ExtensionDrugs

• New version & of what drug• Oral solid dosage determination• Corporate relationships

MMCO on Service Date

• Difference can be significant• Evaluation process w/ tool

Pha

rmac

yP

aym

ent

FULs• New floor at NADAC• Changes recalculation dynamic

AAC• State methods have varied to-date• 340B impact may be significant

Final Rule Themes• Product type distinctions based on nuances of

regulatory approval, label information, FDA classifications, etc.

• Reasonable assumptions made and documented

• General lack of clarity and completeness

• Revisiting earlier decisions

• Implementation timeframe may not be sufficient

• Determining whether any changes will be applied retroactively

• Base AMP restatement strategy and execution

• Tracking 5 to 7 + methodologies over past 10 years

Common Manufacturer Issues

• GP calculation methodologies, systems, processes

• Coordination between GP and other groups (regulatory, trade, etc.)

• Government rebate processes

• Accruals and reserves determinations

• Contracting strategies (PR, supplementals, etc.)

Business Impact Areas


Final Rule OverviewImplementation Process & Workpapers

Implementation Process

Implementation Project Management

Team

Stru

ctur

e

Final Business Docs• SOPs w/ Flows• Training & Guides• Base AMP Support

External & Prior Analytics• Trade Groups• PR Comments• Legal Analyses

Provision Analysis• Interpretation• Position• Actions

Final Rule

Preamble Regulation

Final Methodology & RA’s• Calc Mechanics• Filters Schedules• Single RA Doc

Processes & Systems• Bus Reqmts• Testing Docs• Change Mgmt

Provision Tracker• Every Provision• Applicable or Not• Category & Plan

Mfr ActionRef Page Out Title Summary Required Assessment Comments Current State

1 7 II.A.1 Maintain SMACs No

2 12 II.A.2 NGD Threshold 5i products NGD ratio > 70% utilizes 5i calculation methodology

Yes Not Relevant to Current Business

No 5i products

3 12 II.A.3 Presumed Inclusion

Manufacturers may “presume in the absence of guidance and adequate documentation to the contrary, that

Yes Relevant to Current Business

Applies to every mfr. Utilized a presumed inclusion approach

4 15 II.A.4 Definition of Wholesaler

A wholesaler is engaged in wholesale distribution of prescription drugs to RCPs, including but not


Clarifications to statutory definitions require evaluation

AG secondary considered wholesalers. Chain warehouses not segregated. Specialty COT not

5 18 II.A.5 Definition of Wholesaler

A wholesaler is engaged in wholesale distribution of prescription drugs to RCPs, including but not



AG secondary considered wholesalers. Chain warehouses not segregated. Specialty COT not

Relevance AssessmentProvision

RA’s Tracker• All FR Mentions• Applicable or Not• Category & Plan

Ref Topic Count Pages Out Summary Assessment Comments Prov Anl RA Doc

1 Identification of 5i drugs / “Not generally

1 39 II.A.1 Manufacturers may use reasonable assumptions in identifying and calculating monthly AMPs for 5i drugs not generally dispensed through retail community

Not Relevant to Current Business

No 5i products

2 Presumed Inclusion

19 43, 132, 140, 143-146, 151, 152, 172, 178,

187, 196, 260-262, 320,

II.A.2 Manufacturers may make reasonable assumptions and presume, in the absence of guidance and adequate documentation to the contrary, that prices

Relevant to Current Business

Applies to every mfr. 8 1

3 Sales Included in and excluded from AMP

1 140 II.A.3 Manufacturers must include or exclude sales in their determination of AMP consistent with the regulation and the statute. In the absence of guidance and


Applies to every mfr. 17 2

4 Charitable and not-for-profit pharmacies

1 143-4 II.A.4 Manufacturers are not required to contact all pharmacies to determine their status as a charitable or not-for-profit pharmacy. Using publically



1 3

5 Retail Community Pharmacies

2 160-161 II.A.5 -Manufacturers are not required to make separate assurances regarding RCP licensure for Medicaid rebate purposes. They may use reasonable



5 4

Provision Relevance Assessment References

PM

Tool

Ref Prov Track

RATrack Title Assessment Comments

Expected Deliverable Resp Party Due Date

Last Updated Narrative Assessment

1 1 N/A Maintain SMACs lkasdlfj lkajsd Clarifications to statutory definitions require evaluation

Approved Provision Analysis

Rick Zimmerer

4/1/2016 3/15/2016 Clarifications to statutory definitions require evaluation

On Schedule

2 N/A 1 NGD Threshold alsdkj adslj Clarifications to statutory definitions require evaluation

Reasonable Assumption

Rick Zimmerer


Schedule Threatened

3 3 N/A Definition of Wholesaler as;ldkjalksjd Clarifications to statutory definitions require evaluation

Updated COT Schema

Rick Zimmerer


On Schedule

4 3 N/A Definition of Wholesaler lkajsdlk Clarifications to statutory definitions require evaluation

Updated AMP Calculation Chart

Rick Zimmerer


Significant Issues

5 2 2 Presumed Inclusion a;sdlkjfs Clarifications to statutory definitions require evaluation

Approved Provision Analysis

Rick Zimmerer


Schedule Threatened

Provision Activities Required Status

Right people involved in the right ways? Right people involved in the right ways?

Right people involved in the right ways?

Personnel adequately trained?

Adequate level of analysis and effort?



Were appropriate resources utilized? Were appropriate resources utilized?

Every provision addressed or explained? Every provision addressed or explained?

Interpretations documented & reasonable?

Interpretations documented & reasonable?

Implemented completely & accurately?Implemented completely & accurately?

Implemented completely & accurately?Documentation updated?

Documentation updated? Personnel adequately trained?

Comments to CMS• S/I Exception• Line Extension• Good Cause


Calculation & Rebate Issue AnalyticsOriginal NDA - Issue Summary

■ Inventory of all products impacted

■ Application for narrow exception

■ Treatment on April 1, 2017 for products without CMS response

■ Product acquisitions

1. Legal / Regulatory

■ Data availability■ System updates

■ Calculations ■ Interfaces■ Reports■ Workflows

■ Resources

2. Operational

■ Gross to net and contract strategy

■ Financial implications (prospective and historical)

3. Financial

“..an original NDA means an NDA, other than an Abbreviated New Drug Application (ANDA), approved by the FDA for marketing, unless CMS determines that a narrow exception applies.”


Calculation & Rebate Issue AnalyticsOriginal NDA - Narrow Exception

What NDA products can still be considered an “N” drug?

“There may be very limited circumstanceswhere, for the purposes of the Medicaid Drug Rebate (MDR) program, certain drugs might be more appropriately treated as if they were approved under an ANDA and classified as a non-innovator multiple source drug. For example, certain parenteral drugs in plastic immediate

containers… certain drugs approved under a paper NDA

prior to the enactment of the Hatch-Waxman Amendments of 1984 or

under certain types of literature-based 505(b)(2) NDA approvals..”

What if I have products that qualify for narrow exception?

• “manufacturer is responsible for submitting materials to demonstrate how its drug might be subject to the narrow exception to be classified as a non-innovator multiple source drug. CMS will review these materials and confirm in writing that the narrow exception does apply to the drug, or state that the narrow exception does not apply.”

• Until CMS has completed its review of the submitted materials, manufacturers should report a drug approved under an NDA as single source or innovator multiple source, as applicable, in the MDR program.


Calculation & Rebate Issue AnalyticsOriginal NDA - Timing

Historical Impact?Is this retroactively effective as well?

Comment: We received several comments regarding CMS’s use of the word ‘‘clarification’’ … The commenters stated that rather than clarification, the proposed definition is instead a reversal of previous policy, or a major change to standard industry practice, which could potentially have the effect of imposing retrospective liability for manufacturers.

Response: We disagree with the commenters ... Our proposed language was not designed to change CMS policy, but rather to provide further clarification that an ‘‘original NDA’’ means an NDA, other than an ANDA, approved by the FDA for marketing, unless the narrow exception discussed above applies... We encourage manufacturers to properly classify their drugs for rebate calculation purposes.”

Effective TimingWhen do I have to make these

changes by?

…We understand that some manufacturers may need to make operational changes to their pricing systems,

• such as calculating a base date AMP and

• best price for a drug that should be categorized as innovator drugs.

Therefore, we are allowing manufacturers up to 4 quarters after the effective date of the final rule to make the necessary data changes…, before CMS takes any administrative action, if appropriate.”


Calculation & Rebate Issue AnalyticsOriginal NDA - What is the potential impact of a change?

Pricing and Utilization DataQAMP $5.00 Base AMP / Qtr $2.25 in 1994Q1

BP (50% Discount) $2.50 Qtrly Medicaid Utilization 10,000 units

RPU CalculationComponent

“N” Drug “I” Drug$ $

Diff

Base Rebate AMP * 13%Greater of:

AMP * 23.1%AMP - BP

$ 1.16$ 2.50

$ 0.65

Additional Rebate N/A $ - Inflation

Penalty $ 1.36

Medicaid RPU Base RebateBase Rebate +

Additional Rebate

$ 3.86$ 0.65

Medicaid Rebate $ RPU * Util RPU * Util $ 38,600$ 6,500

$

$ 1.85

$ 1.36

$ 3.21

$ 32,100


Calculation & Rebate Issue AnalyticsWholesaler Definition - Issue Summary

Why do we care?

Smoothing &Factoring

Treatment of Prompt Pay

Inclusion of Authorized

Generic Sales

What are the issues?

Distributors Chain Warehouses

3PLs

What are the underlying

assumptions?

Conducting wholesale distribution Distribution to RCP

Secondary Manufacturers


Calculation & Rebate Issue AnalyticsWholesaler Definition - Analysis

Regulatory Definitions

“Wholesaler means a drug wholesaler that is engaged in wholesale distribution of prescription drugs to retail community pharmacies, including but not limited to manufacturers, repackers, distributors, own-label distributors, private-label distributors, jobbers, brokers, warehouses (including manufacturer’s and distributor’s warehouses, chain drug warehouses, and wholesale drug warehouses), independent wholesale drug traders, and retail community pharmacies that conduct wholesale distributions.”

Wholesaler

Manufacturer means any entity that holds the NDC for a covered outpatient drug or biological product and meets the following criteria …

(2) Is engaged in the packaging, repackaging, labeling, relabeling, or distribution of covered outpatient drug products and is not a wholesale distributor of drugs or a retail pharmacy licensed under State law.(4) For drugs subject to private labeling arrangements, the term ‘‘manufacturer’’ will also include the entity under whose own label or trade name the product will be distributed.”

Manufacturer


Calculation & Rebate Issue AnalyticsWholesaler Definition - Analysis

Preamble Guidance

“Response: The statutory definition of wholesaler includes warehouses and makes specific reference to chain drug warehouses that are engaged in wholesale distribution of prescription drugs to retail community pharmacies.

Therefore, given the statutory definition and express inclusion of chain drug warehouses, we see no reason to alter the definition in this final rule.”

Chain Drug Warehouse

Response: We do not believe it is necessary to further add that drug wholesalers must take title to, or possession of, the drugs to meet the definition of wholesaler … What is not clear from the comment is whether these 3PL entities pay a price for the drug, or are paid a service fee to provide packaging services to the manufacturer. In the event there is a price paid for the drug by the 3PL, this price should be included to the extent that the 3PL entity meets the definition of wholesaler …

3PLs


Calculation & Rebate Issue Analytics How much of a difference can prompt pay make?

Chain Warehouse Impact On AMP

AMP Eligible

Units Dollars

2,000 $ 2,500

Chains Warehouse Classified as Wholesaler

AMP

$1.250000

Chains Warehouse Classified as Retail

2,000 $ 2,490 $1.245000

Net Sales to Chains

$ 10

Prompt Pay @ 2%

Units Dollars AMP

$ 500

AMP Eligible

AMP variance at the third decimal - $ 0.005

Now what about the treatment for Non-FAMP?


Calculation & Rebate Issue AnalyticsRCP Definition, Exclusions & CMS Guidance

RCP Exclusions: • Pharmacies that dispense prescription

medications to patients primarily through the mail

• Nursing home pharmacies• Long-term care facility pharmacies• Hospital pharmacies • Clinics• Charitable or not-for-profit pharmacies• Government pharmacies• Pharmacy benefit managers

Retail Community Pharmacy (RCP) definition:1.An independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy;2.Licensed as a pharmacy by the state;3.Dispenses medications to the general public; and4.Dispenses medications at retail prices.

CMS Guidance:

• There is no percentage threshold established by CMS for pharmacies to be considered “primarily dispensing through the mail.”

• Surveys to determine the overall percentage of mail order, retail, or non-retail purchases are not required.

• If an RCP: (1) does not offer prescriptions primarily through the mail; and (2) has a home delivery service as an additional service to send prescriptions directly to the patient’s home, such sales would be included in AMP.

• CMS does not believe that a RCP must have a ‘‘brick and mortar’’ store front.


What constitutes “primarily through the mail” requires a manufacturer reasonable assumption.

Calculation & Rebate Issue AnalyticsRCP Definition - Primarily Through The Mail

It may be challenging to apply the “primarily through the mail” reasonable assumption to entity business models:

• Customer surveys: • May take time to develop and gather results.• Customers may not respond to surveys unless contractually obligated.

• Web based research and phone calls: • Time consuming depending on number of entities.• Phone calls are difficult to document but may be required if customer website is

ambiguous or non-existent. • Third party customer classifications:

• Is data already available to your organization?• Does the data contain a customer category for mail order? • How reliable is the data?

• Mail versus retail rebate data identifiers• Not all customers receive rebates.• Requires systems or considerable time to analyze data.


Whether home infusion and home health entities constitute RCPs requires manufacturer reasonable assumptions.

Calculation & Rebate Issue AnalyticsRCP Definition - Home Health & Home Infusion

Applying the reasonable assumption may be challenging:• Do you have a home infusion and/or home health COT? Or are these entities assigned

various COTs (e.g. hospital, clinic)?• Is home delivery an “additional service”?• Is an affiliation with an entity required (e.g. patient of hospital)? • Is the entity a government entity (e.g. state county)?• Third party customer classifications:

• Is data already available to your organization?• Does the data contain a customer category for residential? • How reliable is the data?


Calculation & Rebate Issue AnalyticsBundled Sales – What actually changed?

Bundled sale means any arrangement regardless of physical packaging under which

I. The rebate, discount, or other price concession is conditioned upon:

A. The purchase of:1. The same drug 2. Drugs of different types (that is, at the nine-digit

National Drug Code (NDC) level)3. Or another product

B. Or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary),

II. Or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs been purchased separately or outside the bundled arrangement.

(1) The discounts in a bundled sale, including but not limited to those discounts resulting from a contingent arrangement, are allocated proportionally to the total dollar value of the units of all drugs sold under the bundled arrangement.

(2) For bundled sales where multiple drugs are discounted, the aggregate value of all the discounts in the bundled arrangement must be proportionally allocated across all the drugs in the bundle.

Bundled sale means any arrangement regardless of physical packaging under which

I. The rebate, discount, or other price concession is conditioned upon:

A. the purchase of the 1. same drug, 2. drugs of different types (that is, at the nine-digit

national drug code (NDC) level) 3. Or another product

B. Or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary),

II. Or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs been purchased separately or outside the bundled arrangement.

(1) The discounts in a bundled sale, including those discounts resulting from a contingent arrangement, are allocated proportionally to the total dollar value of the units of all drugs or products sold under the bundled arrangement.

(2) For bundled sales where multiple drugs are discounted, the aggregate value of all the discounts in the bundled arrangement must be proportionally allocated across all the drugs or products in the bundle.

DRA Final Rule (PPACA Proposed Rule) Final Rule (Changes from DRA)


Calculation & Rebate Issue AnalyticsBundled Sales – Preamble Guidance

• “We did not intend to revise the policy expressed in the 2007 AMP final rule but rather to reiterate that when a bundled sale exists…

• …We believe that not finalizing the proposed phrase “but not limited to” in the definition of bundled sale in this final rule will address the commenter’s concerns with any potential adverse impact on the contractual relationships between wholesalers and manufacturers since the final bundled sale definition reiterates that all discounts in the bundled arrangement must be allocated proportionally to the total dollar value of the units of all drugs or products sold under the bundled arrangement.”

Clarification on bundle parameters


Calculation & Rebate Issue AnalyticsBundled Sales - Why does it matter?

https://www.justice.gov/opa/pr/wyeth-and-pfizer-agree-pay-7846-million-resolve-lawsuit-alleging-wyeth-underpaid-drug-rebates

• The Department of Justice announced on April 27th, 2016 that pharmaceutical companies Wyeth and Pfizer Inc. have agreed to pay $784.6 million…

• According to the government’s complaint, Wyeth sold Protonix Oral and Protonix IV through a bundled sales arrangement in which a hospital could earn deep discounts on both drugs. Through this bundled arrangement, Wyeth sought to induce hospitals to buy and use Protonix Oral, which hospitals otherwise would have had little incentive to use, because other pre-existing oral PPI drugs were priced competitively and were considered to be as safe and effective.

• The government alleged that Wyeth hid from Medicaid the bundled discounts Wyeth gave to hospitals on Protonix Oral and Protonix IV.

In the News


Calculation & Rebate Issue AnalyticsBundled Sales - Impact of Assumptions

Constantsbefore unbundling

Product

A B

WAC $ 10 $ 15

Units 1,000 1,000

Non-contingent flat percent discount 5 % 7 %

Contingentmarket share rebate 20% 20%

PPU with non-contingent discounts

$9.50 $ 13.95

PPU with all discounts $7.50 $10.95

Scenario 1 – All incentives in bundle. Sales valued at WAC.

Product SalesNon contingentflat percentage

discount

Contingent market share

Rebate

Total non-bundled

discounts

Total bundled

discounts

Bundlediscount weighting

Reallocated discount

Post reallocation

PPU

A $10,000 $ 500 $ 2,000 $ 0 $ 2,500 40% $ 2,620 $ 7.38

B $15,000 $ 1,050 $ 3,000 $ 0 $ 4,050 60% $ 3,930 $ 11.07

Total $25,000 $ 1,550 $ 5,000 $ 0 $ 6,550 100% $ 6,550

Net price after unbundling

Scenario Bundled incentives

Sales valuation

Product A Product B

PPU % off WAC PPU % off

WAC

1contingent

& non-contingent

WAC $7.38 26.2% $11.07 26.2%

2 contingent only WAC $7.50 25.0% $10.95 27.0%

3 contingent only

WAC –non

contingent$7.47 25.3% $10.98 26.8%

Scenario 2 – Only contingent market share rebate in bundle. Sales valued at WAC.


discount


rebate

Total non-bundled

discounts

Total bundled

discounts



Post reallocation

PPU

A $10,000 $ 500 $ 2,000 $ 500 $ 2,000 40% $ 2,000 $ 7.50

B $15,000 $ 1,050 $ 3,000 $ 1,050 $ 3,000 60% $ 3,000 $ 10.95

Total $25,000 $ 1,550 $ 5,000 $ 1,550 $ 5,000 100% $ 5,000

Scenario 3 - Only contingent market share rebate in bundle. Sales valued at WAC less non-contingent discounts


discount


rebate

Total non-bundled

discounts

Total bundled

discounts



Post reallocation

PPU

A $9,500 $ 500 $ 2,000 $ 500 $ 2,000 41% $ 2,026 $ 7.47

B $13,950 $ 1,050 $ 3,000 $ 1,050 $ 3,000 59% $ 2,974 $ 10.98

Total $23,450 $ 1,550 $ 5,000 $ 1,550 $ 5,000 100% $ 5,000

Setup: An arrangement contains two products and two discounts. (1) Non-contingent flat percentage discounts (2) Market share performance rebate


Calculation & Rebate Issue AnalyticsReturns - Final Rule Guidance

Returns in Good Faith (Preamble 81 FR 5229)

The proposal to exclude goods “returned in good faith” was not finalized. CMS indicates that the exclusion of reimbursement for returns designed to adjust prices or disguise price concessions would not be a return made in good faith because the reimbursement would cover more than the costs of goods and goods handling and processing, reverse logistics and drug destruction.

CMS does not further define these terms as they believe they are “self-explanatory within the standard industry practice.”

Returns & Refunds excluded from AMP & BP (Statute 81 FR 5229, 81 FR 5255)

Reimbursement by the manufacturer for :

Including (but not limited to) reimbursement for the cost of the goods and any reimbursement of costs associated with return goods handling and processing, reverse logistics, and drug destruction, but only to the extent that such payment covers only those costs.

− Recalled− Damaged− Expired, or − Otherwise unsalable returned goods


Calculation & Rebate Issue AnalyticsReturns - Final Rule Guidance

When a manufacturer issues a replacement product for a returned good and does not receive payment for the replacement drug, there is no price paid to be included in the manufacturer’s calculation of AMP (Preamble 81 FR 5230).

“We understand that manufacturers may not be able to determine the purchase price of the returned goods because they are received from indirect customers, or the product is returned several months or even years after the initial purchase. However, we believe manufacturers have company records that record the price allowance for such goods when returned as part of their accounting procedures. Using such records, manufacturers may make reasonable assumptions when establishing the value of such goods to be excluded from AMP” (Preamble 81 FR 5230).


• Policy: How are they valued in yours and, if relevant, any customer policies that you’ve agreed to accept.

• Shelf Life & Pricing Changes: Is current cost likely to be much different than original and in what direction?

• Data / Analytical Capability: Are returns matched back in the system for any customers (e.g. direct non-wholesaler), what other data could be used for recurring or special analyses (e.g. lot numbers)?

• Out of Policy Returns: May more frequently be relevant to the unsalable criteria but assess whether relevant and how cost is impacted.

• Return Business Models

• Product Replacement: CMS indicates no payment & no AMP impact

• Discount in Lieu of Returns: No commentary in the rule. May be even more challenging than before to assess against the requirements.

Calculation & Rebate Issue AnalyticsReturns - Considerations


Calculation & Rebate Issue AnalyticsTerritories - MDRP: States & United States

MDRP Agreement(1)

• The introductory paragraph of the sample agreement states: “The Secretary, on behalf of the Department of Health and Human Services and all States and the District of Columbia (except to the extent that they have in force an Individual State Agreement) which have a Medicaid State Plan approved under 42 U.S.C. section 1396a, and the Labeler, on its own behalf, for purposes of section 4401 of the Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, and section 1927 of the Social Security Act (hereinafter referred to as "the Act"), 42 U.S.C. 1396s, hereby agree to the following………”

• In the definitions section, “States means the 50 states and the District of Columbia.”

• CMS finalized the definition of “State” and “United States” to include the Territories (i.e., the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa), effective April 1, 2017 (one year delay).

• CMS states in the final rule at page 5203: “We agree that we have the requisite authority to include the territories in the MDR program. We note that the authority to include the territories in the MDR program is based on section 1101(a)(1) of the Act which defines “states” to include the territories; and therefore, we are amending the regulatory definition of states under §447.502 to include the territories which also assures the regulatory definition of states is consistent with the definition of states under section 1101(a)(1) of the Act.”

• Territories may use waiver authority to delay or elect out of participation in the MDRP.(1) Sample MDRP agreement: https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/national-drug-rebate-agreement.html

COD Final Rule


Calculation & Rebate Issue AnalyticsTerritories - Medicaid Enrollment by Territory(1)

Territory Enrollment Delivery SystemPuerto Rico 1,671,657 100% Managed CareAmerica Samoa 40,515 100% FFSNorthern Marina Island 19,076 100% FFSVirgin Islands 18,036 100% FFSGuam 38.482 100% FFSTotal 1,749,322

Enrollment figures are sourced from CMS’s State & Medicaid CHIP profiles: https://www.medicaid.gov/medicaid-chip-program-information/by-state/by-state.html. The profiles indicate the data is as of: America Samoa, Guam and Northern Marina Islands : January 2015, Puerto Rico: June 2015 and the Virgin Islands: July 2015

• States with MDRP lives comparable to Puerto Rico: AZ 1.8M total (1.5 in MMCO) NJ 1.7M total (1.6M in MMCO) TN 1.5M total (all in MMCO) WA 1.8M total (1.5M in MMCO)

• Other territories excluding P.R. cumulatively have ~77K lives in Medicaid.States with comparable MDRP lives.:

• ND 87K total (all in FFS)• WY 89K total (all in FFS)

https://www.medicaid.gov/medicaid-chip-program-information/by-state/by-state.html


Calculation & Rebate Issue AnalyticsTerritories - GP Considerations

• AMP & BP: • Treatment of pricing in the territories (e.g. transfer pricing) remains unclear. Although,

CMS indicated pricing for a given territory is included in AMP and BP even if a territory elects out of participation in the MDRP.

• Smoothing: When should territory data be phased in? • Lagged price concessions. • Ineligible indirect units. • Units in 5i NGD determination (70/30) test.

• ASP considerations: • MMA does not appear to define States or United States. • The regulation does not appear to define either term. The regulatory preamble at

page 69676 indicates that CMS was requested to, but declined to, provide guidance regarding whether sales in the United States includes sales to purchasers in the territories.

• CMS ASP FAQ document dated 2/24/2010 (question #3311) states on page 2 that “US sales do not include sales in the commonwealth territories, trust territories, and protectorates.”


Calculation & Rebate Issue AnalyticsTerritories - Social Security Act: States & United States

Title Section Relevant Text

XI 1101(a)(1) “The term ‘State’, except where otherwise provided, includes the District of Columbia and the Commonwealth of Puerto Rico, and when used in titles IV, V, VII, XI, XIX, and XXI includes the Virgin Islands and Guam. Such term when used in titles III, IX, and XII also includes the Virgin Islands. Such term when used in title V and in part B of this title also includes American Samoa, the Northern Mariana Islands, and the Trust Territory of the Pacific Islands. Such term when used in titles XIX and XXI also includes the Northern Mariana Islands and American Samoa. In the case of Puerto Rico, the Virgin Islands, and Guam, titles I, X, and XIV, and title XVI (as in effect without regard to the amendment made by section 301 of the Social Security Amendments of 1972[3]) shall continue to apply, and the term ‘State’ when used in such titles (but not in title XVI as in effect pursuant to such amendment after December 31, 1973) includes Puerto Rico, the Virgin Islands, and Guam. Such term when used in title XX also includes the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. Such term when used in title IV also includes American Samoa.”

The Section 1101(a)(1) definition appears to apply to the entire Social Security Act (SSA) “except where otherwise provided.”

XVIII 1861(x) Title XVIII, section 1861(x) of the SSA states: “The terms “State” and “United States” have the meaning given to them by subsections (h) and (i), respectively, of section 210.”

II 210(h) The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.

II 210(i) The term “United States” when used in a geographical sense means the States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam and American Samoa.


Calculation & Rebate Issue Analytics5i Product Identification, NGD & AMP Calculation - Issue Summary

AMP Calculations

Monthly Smoothing Base AMP Quarterly AMP

NGD Determination

Threshold Data Source Ratio Basis Time

PeriodNew

Products

Identification

Clear definition Alignment with Regulatory

Non-5i / Non-RCP Drugs


Calculation & Rebate Issue Analytics5i Product Identification

“A manufacturer must identify to CMS each covered outpatient drug that qualifies as a 5i drug.”

Regulation

Preamble

• “we have decided not to finalize the definition of 5i drug that was proposed in the definition section of the proposed rule… Instead, we will use the acronym of “5i drug” to refer to inhalation, infusion, instilled, implanted, or injectable drugs. “A manufacturer must identify to CMS each covered outpatient drug that qualifies as a 5i drug.”

• Manufacturers “may make such determinations, using resources such as the manufacturer’s prescribing information, drug package insert, or the FDA SPL Routes of Administration; however, we will not mandate the use of any specific resource”.

• “manufacturers will have the flexibility to determine whether their drug is a 5i drug based on reasonable assumptions.”

• “…a written or electronic record outlining these assumptions must be maintained by the drug manufacturer”


Calculation & Rebate Issue Analytics5i Not Generally Dispensed Determination

A manufacturer must determine if the 5i drug is not generally dispensed through a retail community pharmacy based on the percentage of sales to entities other than retail community pharmacies.• A 5i drug is not generally dispensed through a retail community pharmacy if 70 percent

or more of the sales (based on units at the NDC-9 level) of the 5i drug, were to entities other than retail community pharmacies or wholesalers for drugs distributed to retail community pharmacies.

• A manufacturer is responsible for determining and reporting to CMS whether a 5i drug is not generally dispensed through a retail community pharmacy on a monthly basis

Regulation

Preamble

• Threshold, Level and Basis• …the new threshold “would promote stability and consistency in the AMP

calculation… 70/30 is to be determined by units, and calculated at the NDC-9 level• Frequency

• The determination of “Not Generally Dispensed” must be done monthly. “Since the quarterly AMP is reported as a weighted average of the 3 monthly AMPs, we agree with commenters that it is not necessary to require manufactures to determine the “not generally dispensed” requirement on both a monthly and quarterly basis”


Calculation & Rebate Issue Analytics5i AMP Calculation - Considerations

Preamble

• Base AMP for New Products

• if a 5i drug in the first full calendar quarter after the day the drug is first marketed meets the ‘‘not generally dispensed’’ threshold, the manufacturer is responsible for calculating the base date AMP using the 5i AMP methodology.

• If a 5i drug in the first full calendar quarter after the day in which the drug is first marketed does not meet the ‘‘not generally dispensed’’ threshold, manufacturer is responsible for calculating the base date AMP using the standard AMP methodology.

• AMP Quarterly Calculation for Switch Products

• As to the commenters question regarding how to calculate quarterly AMP for quarters when the drug flips between AMP and AMP for 5i drugs not generally dispensed through retail community pharmacies within the months of that quarter, we note that the quarterly AMP is reported as a weighted average of the 3 monthly AMPs reported by the manufacturer; thus, manufacturers are to calculate the quarterly AMP as a weighted average of the 3 monthly AMPs irrespective of the methodology used to calculate each monthly AMP…


Calculation & Rebate Issue Analytics5i AMP Discussion – Reasonable Assumptions

Manufacturers may use reasonable assumptions in identifying and calculating monthly AMPs for 5i drugs not generally dispensed through retail community pharmacies. CMS expects to issue operational guidance in the future providing additional instructions clarifying how manufacturers may identify and calculate monthly AMP for 5i drugs.

Identification of 5i drugs / 5i AMP

calculation

In the absence of guidance and adequate documentation to the contrary, manufacturers may make reasonable assumptions to determine whether prices paid to manufactures by wholesalers are for drugs distributed to entities eligible for inclusion in the calculation of AMP for 5i drugs not generally dispensed through retail community pharmacies.

5i AMP and wholesalers

Manufacturers have the option to make reasonable assumptions in their AMP calculations for oral CODs not generally dispensed through RCPs in the absence of guidance, and may make certain presumptions consistent with the requirements and intent of section 1927 of the Act and federal regulations.

Switching between 5i AMP and AMP

CMS is requiring manufacturers to determine on a monthly basis when the 5i drug is not generally dispensed through retail community pharmacies although, manufacturers may make reasonable assumptions regarding this determination.

“Not Generally Dispensed”

Determination

Manufacturer is permitted to smooth the monthly calculation based upon 12 months of data as part of its reasonable assumptions in determining the NGD threshold.

Smoothing: “Not Generally

Dispensed” Determination

CMS rejected suggestions that manufactures should have two baseline AMPs for products that might fluctuate between the standard and 5i methodologies. CMS believes reasonable assumptions and the option to use a unit-smoothing process in the “not generally dispensed” determination will result in more stable AMPs.

AMP for oral CODs not generally

dispensed through RCPs


Calculation & Rebate Issue Analytics5i COT Inclusions and Exclusions Analysis – Regulatory Language

1 Physicians

2 Pharmacy benefit managers

3 Health maintenance organizations (HMOs, including managed care organizations (MCOs)

4 Insurers (except for rebates under section 1927 of the Act and this subpart)

5 Hospitals

6 Clinics and outpatient facilities (for example, surgical centers, ambulatory care centers, dialysis centers, mental health centers)

7 Mail order pharmacies

8

Long-term care providers, including nursing facility pharmacies, nursing home pharmacies, long-term care facilities, contract pharmacies for the nursing facility where these sales can be identified with adequate documentation, and other entities where the drugs are dispensed through a nursing facility pharmacy, such as assisted living facilities

9 Hospices (inpatient and outpatient)

10 Sales to manufacturers, or any other entity that does not conduct business as a wholesaler or retail community pharmacy

1 … Bona fide service fees as defined in § 447.502 paid by manufacturers to wholesalers or retail community pharmacies. …

2 Patients

3 Government pharmacies (for example, a Federal, State, county, or municipal-owned pharmacy)

4 Charitable pharmacies

5 Not-for-profit pharmacies

Incl

ude

Excl

ude


Calculation & Rebate Issue Analytics5i COT / Transaction Type Inclusions and Exclusions - Issue Summary

Entities not on either include or exclude list

Include:Statute and

regulation state “Any Other

Entity”

Exclude: Preamble states: It was our intention that sales, rebates, discounts or

other financial transactions that were

not specifically referenced at proposed

447.504(d) would remain excluded from the determination of

AMP for 5i”

Class of Trade Transaction Types

Treatment of bona fide service fees

Exclude: Regulation states: AMP for 5i … in accordance with §447.507 excludes the following ...:Bona fide service fees … paid by manufacturers to wholesalers or retail community pharmacies”


Calculation & Rebate Issue Analytics5i COT Inclusions and Exclusions - Discussion

Allow manufacturers to calculate a price reflective of the marketplace for products that are not generally distributed to RCPs

What is the intent of 5i

AMP

• Document a detailed definition of what is not RCP AMP eligible

• When is a specialty pharmacy considered RCP?• Re-assess customers to determine if RCP or non-RCP

What do we do about the non-specified entities?

Document Reasonable Assumptions


Calculation & Rebate Issue Analytics5i COT / Transaction Type – Bona Fide Service FeesSales excluded from AMP for 5i drugs that are not generally dispensed through RCPs…

AMP for 5i covered outpatient drugs identified in accordance with §447.507 excludes the following ...:Bona fide service fees as defined in § 447.502 paid by manufacturers to wholesalers or retail community pharmacies…

Bona Fide Service Fees

“Comment: Several commenters urged CMS to broaden the application of the bona fide service fee exception in the rule to include the additional customer types that are eligible in the AMP calculation for 5i drugs that are not generally dispensed through retail community pharmacies.

Response: Since section 1927(k)(1)(B)(i)(II) of the Act references only bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies as being excluded from AMP, the exclusion of bona fide service fees cannot be expanded to apply to the entities other than wholesalers or retail community pharmacies, for purposes of the calculation of AMP for 5i drugs not generally dispensed through retail …

However, we believe that the payments provided by manufacturers for such service fees … may be excluded from AMP with regard to such 5i drugs, because such fees do not represent type of payments from, or discounts or rebates provided to, the entities listed in section ... Therefore, such fees should not be included in the determination of AMP for 5i drugs not generally dispensed through retail community pharmacies.”

Regulatory Guidance Preamble Guidance


Calculation & Rebate Issue AnalyticsAuthorized Generic AMP Calculation - Issue Summary

When can a primary manufacturer include sales of their AG to a secondary manufacturer in their AMP?

When does secondary manufacturer qualify as an RCP wholesaler?


Calculation & Rebate Issue AnalyticsAuthorized Generic AMP Calculation Analysis - Regulatory

“Wholesaler means a drug wholesaler that is engaged in wholesale distribution of prescription drugs to retail community pharmacies, including but not limited to manufacturers, repackers, distributors, own-label distributors, private-label distributors, jobbers, brokers, warehouses (including manufacturer’s and distributor’s warehouses, chain drug warehouses, and wholesale drug warehouses), independent wholesale drug traders, and retail community pharmacies that conduct wholesale distributions.”

Wholesaler

Manufacturer means any entity that holds the NDC for a covered outpatient drug or biological product and meets the following criteria …

(2) Is engaged in the packaging, repackaging, labeling, relabeling, or distribution of covered outpatient drug products and is not a wholesale distributor of drugs or a retail pharmacy licensed under State law.(3) For authorized generic products, the term ‘‘manufacturer’’ will also include the original holder of the NDA.(4) For drugs subject to private labeling arrangements, the term ‘‘manufacturer’’ will also include the entity under whose own label or trade name the product will be distributed.”“Primary manufacturer means a manufacturer that holds the NDA of the authorized generic drug.” “Secondary manufacturer of an authorized generic drug means a manufacturer that is authorized by the primary manufacturer to sell the drug but does not hold the NDA.”

Manufacturer

“Revisit the regulatory definitions”


Calculation & Rebate Issue AnalyticsAuthorized Generic AMP Calculation Analysis – Preamble Guidance

Classification of Secondary Manufacturer

Authorized generic secondary manufacturer that relabels does not meet definition of wholesaler.

If the secondary manufacturer is not engaged in the wholesale distribution of prescription drugs to retail community pharmacies; for example, it relabels or repackages the drug and sells the repackaged authorized generic to wholesalers … the price of the drug paid by the secondary manufacturer would not be included in the primary manufacturer’s AMP.

Chain Drug Warehouses

Response: The statutory definition of wholesaler includes warehouses and makes specific reference to chain drug warehouses that are engaged in wholesale distribution of prescription drugs to retail community pharmacies.

Therefore, given the statutory definition and express inclusion of chain drug warehouses, we see no reason to alter the definition in this final rule.”

Conditions for a Manufacturer to be defined as a Wholesaler

Response: While this statutory definition indicates that the term wholesaler includes manufacturers, it does not mean all manufacturers are wholesalers.Manufacturers that are considered wholesalers … by being engaged in wholesale distribution of prescription drugs to retail community pharmacies.If a manufacturer sells a drug to another manufacturer (a second manufacturer) and that second manufacturer is not engaged in wholesale distribution of prescription drugs to retail community pharmacies, then the second manufacturer will not be treated as a wholesaler, and the sales price of a COD from the first manufacturer to the second manufacturer should not be included in the primary manufacturer’s AMP.

Manufacturer purchasing for clinical trials

Response:…We believe in instances when the purchasing manufacturer is using the drug as part of a clinical trial, that manufacturer islikely not engaged in wholesale distribution of prescription drugs to retail community pharmacies,…


Calculation & Rebate Issue AnalyticsAuthorized Generic AMP Calculation – Reasonable Assumptions

CMS may not be able to address every arrangement that exists among manufacturers, therefore manufacturers may continue to make reasonable assumptions regarding their AMP and best price calculations, provided their assumptions are consistent with the requirements and intent of section 1927 of the Act and federal regulations.


Calculation & Rebate Issue AnalyticsLine Extension Drugs Identification

Proposed Rule Final RuleCOD Proposed Rule: Line Extensions

Initia

l Bran

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Status

Line

Exten

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Defin

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New

Stren

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Does Not Meet Definition of a Line

Extension Drug

Meets Definition of a Line Extension

Drug

Single Source (“S”) or Innovator Multisource

(“I”)

Oral Solid Dosage

(e.g. Capsule)

2, 3, 4, 6

Oral Solid Dosage

(e.g. Capsule)

Not New Strength of Initial Brand

Drug

Status in MDRP

Non-Innovator (“N”)

Other Drug Form

Other Chemical Type

Other Drug Form

First Month After Last Lot Expiration

New Strength of Initial Brand Drug

Crite

ria fo

r Drug

Be

ing Ev

aluate

dCr

iteria

for In

itial

Bran

d Drug

*

Applies to both related and unrelated

manufacturers

COD Final Rule: Line Extensions

Line

Exten

sion

Defin

ition

Activ

e Stat

usIni

tial B

rand

Dr

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w St

rength

Reas

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sump

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Drug

Form

Drug

Type

Not a Line Extension Drug

Line Extension Drug

Single Source (“S”) or Innovator Multisource

(“I”)

Oral Solid Dosage

(e.g. Capsule)

Line Extension

Oral Solid Dosage

(e.g. Capsule)

Not New Strength of Initial Brand

Drug

Status in MDRP

Non-Innovator (“N”)

Other Drug Form

Manufacturer's Policy for identifying line extensions

Other Drug Form

First Month After Last Lot Expiration

New Strength of Initial Brand Drug

Crite

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Be

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manufacturers


Calculation & Rebate Issue AnalyticsLine Extension Drugs - Calculation Mechanics: Alternative URA

Calculate the Standard URA.

Calculate the Alternative URA.a) Calculate the inflation rebate as a

percentage of AMP for all strengths of the original drug.

b) Calculate the Alternative URA as the product of the AMP of the line extension drug and the highest inflation percentage of AMP for the original drug determined in Step 2, a) above.

Line Extension Drug

AMP[D]

Highest Inflation %[E]

Alternative URA[F]=[D]*[E]

Strength A $500.00 71.43% $357.15

Select the greater of the Standard Medicaid URA and Alternative URA as the Line Extension URA.

Highest inflation percent of AMP is 71.43%

Determine if URA is greater than 100% of AMP.

LineExtension Drug

AMP

[D]

URA

[H]

Final URA[I] = If [H]>[D],

then [D] else [H]

Strength A $500.00 $357.15 $357.15

The greater of (AMP – BP) & (AMP *23.1%) + Inflation

Initial Brand Drug

AMP

[A]

Inflation Rebate

[B]

Inflation Rebate %[C]=[B]/[A]

Strength A $280.00 $200.00 71.43%Strength B $275.00 $125.00 45.45%Strength C $270.00 $110.00 40.74%

Medicaid URA $251.65

Alternative URA$357.15

Greater of:

4

3

2

1


Calculation & Rebate Issue AnalyticsLine Extension Drugs - UROA Overview & ConsiderationsWhat is the Line Extension Unit Rebate Offset Amount (UROA)? If the alternative URA is greater than the standard URA, then the UROA will be the difference between the

alternative URA and the standard URA.

Consider the impact the Line Extension UROA may have on formulary access and supplemental rebates. “Several commenters stated that the states expect a large unit rebate offset amount for line

extension drugs and that due to changes in the Affordable Care Act states have experienced and/or projected manufacturers reducing or elimination supplemental rebates to the state.”

Iowa and Vermont Supplemental Rebate Agreements (SRA)1 contain line extension provisions that allow each state to terminate the SRA if a product is determined to be a line extension.

(1) https://www.rxssdc.org/state-supplemental-rebate-agreements

State SRA Section1 Relevant Language1

IA 7.4 This Agreement may be immediately terminated upon the occurrence of any one of the following events:...(c) A determination that any Covered Product is a Line Extension Drug.”

VT 8.3 “This agreement or a portion thereof, may be immediately terminated upon occurrence of any of the following events: (a) A determination that any Covered Product is a Line Extension Drug."

https://www.rxssdc.org/state-supplemental-rebate-agreements


Calculation & Rebate Issue AnalyticsLine Extension Drugs - DDR Changes

Reporting DDR Field / Area Description of Change Possible selections

April 2016 ForwardMonthly Product Reporting

Line Extension (LE) Drug Indicator

• Labelers will be required to identify drugs that are line extension (LE) drugs. • This information is used to determine whether the standard or alternative URA

calculation should be used each quarter.• As of April 1, 2016, every active drug will be designated as “out of compliance”

in DDR until labelers submit and certify an option for each drug.

• Yes• No

2Q16 ForwardQuarterly Price Reporting

Initial Drug Available for Line Extension (LE)

For each drug identified as an LE drug, labelers will be required to report (at the 11-digit NDC level) whether there is an active Initial Drug available each quarter. The value should always correspond to “LE Drug Indicator” field.

• Yes• No • X : Not an LE Drug• Z: Not Applicable -- for all

quarterly data submissions prior to 2Q2016).

Initial Drug • Only required If “Yes” is reported for the “Initial Drug Available for LE” • The additional rebate ratio associated with this reported “Initial Drug” will

subsequently be used in that quarter’s alternative Unit Rebate Amount (URA) calculation for the LE drug. The Initial Drug value is reported as 9-digit NDC.

At the NDC-11: The highest additional rebate ratio (calculated as a % of AMP for the quarter/year being reported) across all possible active drugs from which the LE drug is derived.

System Generated

Initial Drug Indicator

• When this indicator reflects that a drug has been reported as an Initial Drug, the labeler of that drug should be aware that product data changes to the drug may impact the quarterly reporting of their own or another labeler’s LE drug(s).

• Consequently, the labeler of the Initial Drug should be sure to notify the labeler of the LE drug of any product data changes to the drug so that the labeler of the LE drug can, in turn, determine whether it is appropriate to continue reporting the product as an Initial Drug for its LE drug.

• If a drug is reported as an Initial Drug and then later becomes ineligible for Initial Drug consideration due to one or more product data changes, this DDR indicator will continue to reflect that the drug was reported as an Initial Drug, even if it has not been reported as such for any other LE drug.

This is a system-generated field which denotes whether an NDC has ever been reported by a labeler of an LE drug as an Initial Drug for one or more quarters.


• A regulatory definition is needed and supports CMS in proposing such a definition, but believes CMS must go through a new round of notice and comment rulemaking to do so.

• Reliance on FDA Chemical Type framework was problematic in its own right. Such a use is completely at odds with the reasons for the framework’s existence in the first place, according to FDA itself.

• CMS should propose any new definition through a new NPRM such that stakeholders are provided with adequate notice, and a meaningful opportunity to comment. Once finalized, any such definition should be applicable on a prospective basis only, as any retrospective application would be unlawful under basic principles of administrative law.

Calculation & Rebate Issue AnalyticsLine Extension Drugs - Bio Comments(1): Summary of Comments

I. BIO Supports CMS's Decision Not to Finalize its Proposed "Line Extension" Definition; Any New "Line Extension" Definition Developed by the Agency Should Be Proposed in a New NPRM.

(1) https://www.bio.org/sites/default/files/BIO%20AMP%20Comments_2016%20%202012_1%20April%202016%20%28003%29.pdf

II. Any Regulatory Definition of "Line Extension" Should Be Narrow in Scope- in Accordance with the Clear Text of the Statute and Congressional Intent- and Should Clearly Exclude Categories of Therapies Designed to Further the Administration's Public Health Goals.

a. The ACA and Its Legislative History Focus Exclusively on Minor Drug Revisions.

• The ACA applies the Alternative URA solely to “line extensions.” That phrase is defined in very limited terms, as “a new formulation of the drug, such as an extended release formulation.” Both the plain language of the statute and the clear (and repeatedly documented) intent of this provision dictate that this language should be interpreted narrowly.

• The 2008 CBO Budget Option report targets only those products with “slight alterations” that appear designed to “avoid incurring an additional [inflation-adjusted] rebate.”

• A precursor House bill to the ACA, America’s Affordable Health Choices Act of 2009, defined “line extension” exclusively as “an extended release formulation of the drug.”

• An October 2009 Senate Finance Committee Report, related to the AHFA, explicitly documents Congress’ focuses was on ensuring that manufacturers no longer could avoid “incurring additional rebate obligations by making slight alterations to existing products.”

• Nowhere in this history is there any discussion of combination therapies or new indications. Instead, the history is consistent in its narrow focus on slight alterations designed to restart the exclusivity and additional rebate process. CMS has no authority to extend the Alternative URA beyond those drugs.



Calculation & Rebate Issue AnalyticsLine Extension Drugs - Bio Comments(1): Summary of comments


• The clear statutory language “a new formulation of the drug, such as an extended release formulation" and the entire legislative history demonstrate that Congress intended the Alternative URA to apply only to minor differences in product composition, namely changes in dosage forms.

• We further believe that CMS should identify as “line extensions” only those new dosage forms that do not require clinical investigations (other than bioavailability studies) for approval. FDA requires clinical investigations for product changes that may affect the safety and effectiveness of a product. Notably, FDA does not generally consider changes in formulation, such as a change in dosage form, to constitute that type of significant change.

• We therefore propose that CMS define the term “line extension” so as to include only those changes that do not require clinical investigations (other than bioavailability studies).

b. Consistent with the Statutory Text and Legislative History, CMS Should Define the Term "Line Extension" to Mean an Oral Solid Dosage Form that is "A New Formulation, Such as a Change in Dosage Form, Which Does Not Require Clinical Investigations (Other Than Bioavailability Studies) for Approval.

c. Combination Products Are Not New Formulations and Thus Should Not Be Considered "Line Extensions" in Any Definition Developed for Purposes of the Alternative URA.

• CMS’s proposal to define the term “line extension” to include a combination product also was inconsistent with the statute.

• Combination products represent the development of a new drug product through significant scientific and clinical research.

• The statutory language that defines the Alternative URA formula confirms that it is not and cannot be applicable to combination drugs. The statutory formula provides that in calculating the Alternative URA, the manufacturer is to compare the total URA for the new formulation product, as calculated under section 1927(c) to the “highest additional rebate . . . under this section for any strength of the original single source drug or innovator multiple source drug.” This language refers to the original drug in the singular only, and does not even recognize the possibility of there being more than one original drug to consider, as must be the case with a combination therapy.

• There simply is no legal basis for CMS to extend the Alternative URA to combination products.





d. New Indications Are Not New Formulations and Thus Should Not Be Considered "Line Extensions" for Purposes of the Alternative URA.

e. CMS Should Expressly Exempt From Any "Line Extension" Definition Those Formulations of Drugs with FDA-Recognized Abuse-Deterrent Characteristics.

• The ACA’s definition of line extension is limited to “a new formulation of the drug,” and does not make reference to new indications. Treating a drug approved for a new indication as a line extension has no basis in the ACA and therefore would go beyond the plain language of the statute.

• Treating the approval for a new indication in the same manner as the approval for a new formulation also ignores the significant research, development, and clinical testing that a pharmaceutical manufacturer must conduct in order to obtain approval for a new indication.

• BIO urges CMS to exempt formulations of drugs with FDA-recognized abuse-deterrent characteristics (ADFs) from any definition of line extension drugs, as these drugs are an important component of the larger strategy to address opioid abuse, a public health crisis in the United States.

• There is nothing in the legislative history that suggests that the Alternative URA provision was intended to reach drugs that received FDA labeling reflecting the drug’s abuse-deterrent properties.

• The White House has rightly acknowledged that the response to the drug abuse epidemic “must strike a balance between our desire to minimize abuse of prescription drugs and the need to ensure access for their legitimate use.”

• BIO asks CMS to adopt a definition of line extension drug that exempts ADFs that have undergone the appropriate R&D and testing. In particular, we propose the following test to establish which drugs should be exempt from the line extension provision: A line extensions does not include any COD that is an opioid or other controlled substance with abuse-deterrent properties as reflected in the approved labeling for such product.





• Patient non-adherence with prescribed medication negatively impacts individual health outcomes and may raise U.S. health system costs by as much as $300 billion per year. Non-adherence is a major inefficiency in our health system, and is associated with a higher risk of mortality, hospitalizations, and emergency department admissions.

• CMS policies should promote innovations that hold promise for improving treatment adherence by encouraging innovations that make individuals more likely to adhere to their prescribed treatment regimens. We therefore urge CMS to evaluate the impact of any final “line extension” definition on the development of such technologies.

f. CMS Should Evaluate the Impact of Any Final "Line Extension" Definition on the Development of New Technologies Designed to Promote Patient Adherence.


Calculation & Rebate Issue AnalyticsMMCO Rebates Invoicing - Final Rule & State DDR Guide

Covered Outpatient Drug Final Rule (81 FR 5275)

We agree with the commenter that consistent with these provisions, utilization for MCO reporting should be reported based upon the date dispensed (date of service) within the quarter, as opposed to the claim paid date, since prospective capitation payment has been made to the MCO within that quarter. FFS utilization will continue to be reported based upon the date on which the state paid the claim.

August 2015 at page 44Period covered: The calendar quarter and year in which the 11-digit NDC was paid for by the state (for FFS units), or the calendar quarter and year in which the 11-digit NDC was dispensed (for MCO units). Numeric, 5-digit field, QYYYY.

CMS’s Drug Data Reporting (DDR) State Data Guide

The final rule indicates that MMCO utilization invoicing should be based on date of service. CMS’s DDR state data guide was updated in April 2015. This version of the guide includes information on

MMCO utilization and appears to indicate that invoicing should be based on date of service. The Final Rule guidance presents a difference in the way claims are aggregated for MMCO rebates since

the states have historically invoiced based on the claim payment date.


Calculation & Rebate Issue AnalyticsMMCO Rebates Invoicing - FFS Rx Lives Overview(1)

(1) Data provided by Artia Solutions: http://www.artiasolutions.com/

Ref State St MMCO Lives

FFS Lives Total % in MMCO

1 California CA 10,206,000 2,771,000 12,977,000 79%2 New York NY 4,473,000 2,286,000 6,759,000 66%3 Texas TX 3,499,000 584,000 4,083,000 86%4 Florida FL 3,161,000 751,000 3,912,000 81%5 Ohio OH 2,395,000 561,000 2,956,000 81%6 Pennsylvania PA 2,128,000 568,000 2,696,000 79%7 Illinois IL 1,830,000 1,340,000 3,170,000 58%8 Michigan MI 1,654,000 779,000 2,433,000 68%9 New Jersey NJ 1,606,000 106,000 1,712,000 94%10 Arizona AZ 1,560,000 286,000 1,846,000 85%11 Tennessee TN 1,500,000 - 1,500,000 100%12 Washington WA 1,479,000 387,000 1,866,000 79%13 Georgia GA 1,309,000 498,000 1,807,000 72%14 Massachusetts MA 1,191,000 441,000 1,632,000 73%15 Kentucky KY 1,175,000 121,000 1,296,000 91%16 Oregon OR 1,003,000 43,000 1,046,000 96%17 Virginia VA 999,000 1,087,000 2,086,000 48%18 Maryland MD 983,000 210,000 1,193,000 82%19 Minnesota MN 830,000 231,000 1,061,000 78%20 Wisconsin WI 794,000 399,000 1,193,000 67%21 Louisiana LA 777,000 641,000 1,418,000 55%22 South Carolina SC 703,000 383,000 1,086,000 65%23 New Mexico NM 655,000 187,000 842,000 78%24 Indiana IN 636,000 697,000 1,333,000 48%25 Mississippi MS 507,000 220,000 727,000 70%

Ref State St MMCO Lives

FFS Lives Total % in MMCO

26 Missouri MO 460,000 458,000 918,000 50%27 Nevada NV 435,000 167,000 602,000 72%28 Kansas KS 401,000 23,000 424,000 95%29 West Virginia WV 373,000 154,000 527,000 71%30 Hawaii HI 329,000 - 329,000 100%31 Utah UT 284,000 24,000 308,000 92%32 Delaware DE 202,000 39,000 241,000 84%33 Nebraska NE 180,000 52,000 232,000 78%34 D.C. DC 176,000 77,000 253,000 70%35 Rhode Island RI 152,000 88,000 240,000 63%36 New Hampshire NH 128,000 19,000 147,000 87%37 Colorado CO 109,000 1,199,000 1,308,000 8%38 South Dakota SD 93,000 25,000 118,000 79%39 Idaho ID 31,000 247,000 278,000 11%40 Alabama AL - 1,044,000 1,044,000 0%41 Alaska AK - 135,000 135,000 0%42 Arkansas AR - 1,010,000 1,010,000 0%43 Connecticut CT - 748,000 748,000 0%44 Iowa IA - 593,000 593,000 0%45 Maine ME - 280,000 280,000 0%46 Montana MT - 141,000 141,000 0%47 North Carolina NC - 1,858,000 1,858,000 0%48 North Dakota ND - 87,000 87,000 0%49 Oklahoma OK - 801,000 801,000 0%50 Vermont VT - 220,000 220,000 0%51 Wyoming WY - 89,000 89,000 0%

Data note: Sorted descending order by MMCO lives

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Calculation & Rebate Issue AnalyticsMMCO Rebates - Summary of State Responses


Calculation & Rebate Issue AnalyticsOther Miscellaneous Topics (as time permits)• 340B Any Price: No change. Non-DSH hospital inpatient. Multiple 340B IDs for “same”

customer. Contract pharmacy bill-to / ship-to. • Best Price Stacking: Any change? Revisit approach vertically integrated customers,

PBM’s without mail, etc. • Prompt Pay Discounts: Rate of return equivalency determinations. Range acceptable?

Only consider excess to be discount? What about less favorable terms? Launch discount exception?

• Bona Fide Service Fees: • FMV: % Based fee? Safe harbor? Negotiation sufficiency? Documentation

sufficiency? “Proprietary database” approach?• Pass through assumption. • PAC: “Likely” not BFSF. Calculation placement?• 5i: BFSF to non-RCP & non-wholesaler inclusion?

• Smoothing: LES permitted but not required. NDC9. Base AMP includes launch quarter. 5i product switches. Territories. Price corrections. Base selection. Earned date basis?

• Tricare: Factoring impact? Prospective only? Impact on ASP?• Presumed Inclusion: Described as “better approach” but not required• Quarterly AMP Calculation Formula: Changed but generally get same answer.


• Currently, a number of state Medicaid agencies utilize published drug pricing benchmarks (e.g. AWP) to determine the EAC for drug ingredient costs.

• In June 2010, the National Association of State Medicaid Directors (“NASMD”) published a white paper entitled “Post AWP Pricing and Reimbursement.”

• As part of the white paper, NASMD presented a recommendation to establish a single national pricing benchmark based on average drug acquisition costs and requested that CMS coordinate, develop, and support this benchmark.

• In response to the recommendation, CMS contracted with Myers and Stauffer LC, a national certified public accounting firm, to conduct surveys of retail community pharmacy (“RCP”) prices, including drug ingredient costs and to develop the National Average Drug Acquisition Cost (“NADAC”) benchmark.

Reimbursement ChangesMedicaid Pharmacy Reimbursement - State Drug Reimbursement

State Medicaid are required programs to reimburse for drug ingredient costs at:

No more than the state agency’s best estimate of acquisition cost

for a drug (“EAC”)

Providers’ usual and customary charges to the general public

OR

State Medicaid programs are required to reimburse for drug ingredient costs based on:

Actual acquisition cost (“AAC”)

Providers’ usual and customary charges to the general public

Currently

OR

Effective 4/1/2017


• States have latitude in setting the amount they will reimburse for prescription drugs in the Medicaid program. However, there is a federal upper limit (“FUL”) which is a maximum federal match on certain drugs.

• Many states implement a maximum allowable cost (“MAC”) program to align state reimbursement with federal reimbursement when there is a FUL and to manage state spend. − The MAC limits pharmacy reimbursement at the MAC price when billing state

Medicaid agencies for drugs on a state’s MAC list.− State MAC programs are established by states independently.

• MAC programs typically include drugs with a FUL and may also include drugs without a FUL.

Reimbursement ChangesMedicaid Pharmacy Reimbursement - State Drug Reimbursement


Reimbursement ChangesActual Acquisition Cost (AAC) OverviewEstablished by the AMP final rule, states are required to change the basis for drug reimbursement rates for CODs from Estimated Acquisition Cost (EAC) to Actual Acquisition Cost (ACC).

Effective April 1, 2017..

Effective Date

• AAC is defined to require that states establish payment rates based on actual prices paid to acquire drug products, and it is expected that those prices would reflect current prices (81 FR 5176).

• States have the flexibility to establish AAC based on several different pricing benchmarks, including but not limited to: NADAC, AMP or surveys (81 FR 5176).

• States may use WAC to develop and support an AAC model of reimbursement, if the state can provide data to support a model of reimbursement using the WAC prices consistent with § 447.512(b) of this final rule (81 FR 5176).

• CMS encourages states to develop clear reimbursement policies for 340B covered entities in their state plan amendment (“SPA”) and ensure reimbursement will reflect ingredient costs at their AAC such that pharmacy providers are reimbursed the ingredient cost reflective of the cost of a drug, as well as a professional dispensing fee, which is incurred at the point of sale or service. (81 FR 5318).

• States must submit SPAs for approval detailing their change to AAC no later than June 30, 2016.

Description

CMS believes AAC is more reflective of actual prices paid versus EAC, since EAC is often based on published compendium pricing (e.g. WAC) (81 FR 5175).

Why AAC?


Reimbursement ChangesActual Acquisition Cost : State Landscape: 4Q15

Currently, four states utilize EAC in their supplemental rebate formulas: California, Kansas, Oklahoma, Washington.

States reimburse for drug ingredients costs using different methods:

43 states reimburse for drug ingredient costs

using published prices (e.g., WAC, AWP).

Nine states reimburse for drug ingredient costs using an AAC model:

Three states use NADAC:

• Alaska• Delaware• Nevada

Six states perform surveys to determine AAC:

• Alabama• Colorado • Idaho • Iowa• Louisiana• Oregon


Reimbursement ChangesNational Average Drug Acquisition Cost (NADAC) OverviewSection 1927(i) also provides, in part, that CMS complete an annual report to Congress that includes ingredient costs paid for single source, multiple source, and non-prescription covered outpatient drugs. CMS may contract with a vendor to conduct monthly surveys with respect to prices for covered outpatient drugs dispensed by RCPs (Section 1927(f)).

Effective November 27, 2013, CMS began posting final NADAC files.

Effective Date

A national average invoice price that RCPs pay to acquire drug products, based on a survey of Medicaid covered outpatient drugs’ purchase prices by RCPs. − Chain and independent pharmacies are surveyed. − Specialty pharmacies are excluded from surveys.− Discounts or rebates that are not reflected on the invoice at the drug line item level are not factored into

the NADAC calculation. − NADAC is not weighted, it is a simple average of the acquisition costs collected from surveys.

Description

− Through numerous investigations, the Office of Inspector General found that AWP based reimbursement was “fundamentally flawed” and has caused Medicaid to pay too much for certain drugs.

− CMS considers NADAC a benchmark that provides state Medicaid agencies with a better estimate of prices paid by pharmacies for drugs because it is based upon actual drug purchases.

Why NADAC?


(1) https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/ful-nadac-downloads/nadacqa.pdf

Ref Question CMS Response

1 Will drugs not typically sold in retail community pharmacies, such as 5i drugs, be eligible for a NADAC?

All products that meet the definition of covered outpatient drugs with an NDC number collected through the survey are eligible for a NADAC. The NDCs currently collected are limited to those purchased by retail community pharmacies.

2 Please estimate the level of bias created as a result of including rebates in some cases and not in others.

There is no bias with the design when collecting pricing information. The NADAC is an objective collection of prices as reflected on the invoice. It does not account for off-invoice rebates, discounts or price concessions.

3 How is chain vs. independent defined? For purposes of calculating the NADAC, CMS defines a chain pharmacy as a pharmacy that belongs to a group of four or more pharmacies that are all under the same ownership and all have the same name. An independent pharmacy is a pharmacy that is not owned or operated by a chain. Franchise pharmacies are classified as independent pharmacies.

4 CMS needs to include off-invoice price concessions in the survey or rename the NADAC to reflect an invoice cost rather than acquisition cost.

CMS is considering plans to develop a survey to collect and monitor off-invoice discount data. We expect that this data will be used to monitor the stability of these discounts and their relationship to acquisition costs to help establish the effect of off-invoice concessions.

5 If rebates and discounts are not collected, how will manipulation similar to the AWP be prevented?

We anticipate that the off-invoice survey will be conducted on an annual basis to collect information regarding rebate and discounts. We anticipate using the information obtained in the off-invoice survey to monitor pricing on the pharmacy invoices and to what extent off-invoice rebate, discounts and other price reductions affect the invoice pricing. We expect that the data could be used to provide additional information about the stability of these discounts and their relationship to acquisition.

Reimbursement ChangesNational Drug Acquisition Cost (NADAC) - CMS Questions and Responses: Key Highlights(1)

https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/ful-nadac-downloads/nadacqa.pdf


Reimbursement ChangesFederal Upper Limit (FUL) - (AMP Final Rule)(1) Overview

(1) This slide is intended to only capture the AMP final rule FUL calculation and related definitions (e.g. multiple source)

The Federal Upper Limit (FUL) program was established to set a federal cap on state Medicaid reimbursement for multiple source drugs.

States will have up to 30 days from the April 1, 2016 effective date to implement the FULs.

Effective Date

The FUL program limits Medicaid reimbursement for certain multiple-source drugs and seeks to ensure that the Federal Government acts as a prudent buyer by taking advantage of market prices for these drugs.

Why FUL?

• A FUL is calculated by CMS when (81 FR 5295):− There are three or more FDA rated drugs that are therapeutically and pharmaceutically equivalent.− The drug is available for purchase by RCPs on a nationwide basis.

• 5i drugs NGD through RCPs are not included in the FUL calculation, and the FUL is not applied to these drugs (81 FR 5243).

• The Affordable Care Act redefined the FUL calculation methodology as: − No less than 175% of the weighted average, determined on the basis of utilization, of the most recently

reported monthly AMPs (81 FR 5303).− In situations where the FUL is less than the latest NADAC, the multiplier will be increased to result in a

FUL that matches the NADAC (81 FR 5296). • Multiple source drug means, for a rebate period, a COD for which there is at least one other drug product

which meets the following criteria (81 FR 5297):1) Is rated as therapeutically equivalent as reported in the FDA’s ‘‘Approved Drug Products with Therapeutic

Equivalence Evaluations’’ (http://www.accessdata.fda.gov/scripts/cder/ob/); and 2) Is pharmaceutically equivalent and bioequivalent, as determined by the FDA; and 3) Is sold or marketed in the United States during the rebate period.

Description


Reimbursement ChangesSummary of Select Metrics

(1) CMS 4Q15 product data file: https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/medicaid-drug-rebate-program-data.html(2) April 2016 FUL: https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/pharmacy-pricing.html(3) 4/27/2016 NADAC: https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/pharmacy-pricing.html

• FULs are calculated using the most recently reported AMP. The timing for reporting AMPs leads to a two month lag in time periods between AMPs and FULs. For example, February AMPs are used to establish April FULs.

• NADACs are posted two months after the surveyed pharmacy invoices are collected and utilized to calculate prices. For example, November 2015’s drug purchases data will be collected in December’s survey and posted in the NADAC Reference File Publication in January.

37,2001Q16 CMS Product Data File(1)

NDC-11s Count

• ~ 42% of the NDCs in the MDRP have a FUL

• FUL multiplier > 175%: 7,706 NDC-11s (~49%)

April 2016 FUL(2)

FUL TotalCorresponding

NADACFUL with no

corresponding NADAC15,807 13,045 2,762

• 56% of Covered Outpatient Drugs have a NADAC

• ~ 49% of the NDCs with a FUL are adjusted to NADAC

4/27/2016 NADAC(3)

NADAC TotalCorresponding

FULNADAC with no

corresponding FUL20,833 13,045 7,788

https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/medicaid-drug-rebate-program-data.html

https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/pharmacy-pricing.html

https://www.medicaid.gov/medicaid-chip-program-information/by-topics/benefits/prescription-drugs/pharmacy-pricing.html


Q&A

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The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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