Here is a brief introduction of how different prices are calculated to meet the requirement of Government Programs.
For Medicaid, Average Manufacturer Price is calculated at the “smallest dispensable unit” monthly & quarterly.
Monthly AMP is calculated based on both current month data and historical data (12-month: current month and past 11 months). Due to the lagged price concessions (particularly chargebacks and rebates), historical data is used to smooth the calculation.
AMP = Net AMP Sales / Net AMP Units
Net AMP Sales = Net Adjusted Eligible Direct Sales * (1 - Historical Chargeback Ratio - Historical Rebate Ratio)
(Retail Chargebacks = Net Adjusted Eligible Direct Sales * Historical Chargeback Ratio)
(Retail Rebates = Net Adjusted Eligible Direct Sales * Historical Rebate Ratio)
Historical Chargeback Ratio = Historical Chargeback / Historical Net Adjusted Eligible Direct Sales
Historical Rebate Ratio = Historical Rebate / Historical Net Adjusted Eligible Direct Sales
Eligible Direct Sales (L) = Direct Sales (L1) - Exclusions (L2)
Net Eligible Direct Sales (N) = Eligible Direct Sales * (1 - Historical Indirect Sales Ratio)
Net Adjusted Eligible Direct Sales (Q) = Net Eligible Direct Sales * (1 + Historical Adjustment Ratio)
(Indirect Sales = Eligible Direct Sales * Historical Indirect Sales Ratio)
(Note: Indirect Sales are reflected in Chargebacks)
(Adjustment for Billing Corrections (Sales) = Net Eligible Direct Sales * Historical Adjustment Ratio)
Historical Adjustment Ratio (Sales) = Historical Adjustment / Historical Net Eligible Director Sales
Historical Indirect Sales Ratio = Historical Indirect Sales / Historical Eligible Director Sales
Eligible Direct Units = Direct Units - Exclusions
Net Eligible Direct Units = Eligible Direct Units * (1 - Historical Indirect Units Ratio)
Net AMP Units = Net Adjusted Eligible Direct Units = Net Eligible Direct Units * (1 + Historical Adjustment Ratio)
(Indirect Units = Eligible Direct Units * Historical Indirect Units Ratio)
(Adjustment for Billing Corrections (Units) = Net Eligible Direct Units * Historical Adjustment Ratio)
Historical Adjustment Ratio (Units) = Historical Adjustment / Historical Net Eligible Director Units
Historical Indirect Units Ratio = Historical Indirect Units / Historical Eligible Director Units
(Note: Indirect Sales are reflected in Chargebacks)
Quarterly AMP = 3-month Sum of Net AMP Sales / 3-month Sum of Net AMP Units
(Weighted average method)
Best Price (BP) is defined as “...the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States”.
The Medicaid Unit Rebate Amount (URA) is a function of AMP, BP, and inflation rate:
NDA/BLA approval: Basic Rebate is the greater of (0.231*AMP) and (Current AMP - Current BP)
ANDA Approval / Other Drugs: Basic Rebate is 0.13*AMP
Additional rebate is assessed if AMP has increased faster than inflation (based on CPI-U)
Inflation adjusted AMP = Baseline AMP * (Current CPI-U / Baseline CPI-U)
Additional Rebate is the greater of 0 or (Current AMP - Inflation adjusted AMP)
URA = Basic Rebate + Additional Rebate
CPI-U: Consumer Price Index for All Urban Consumers
For PHS/340B programs, the price is set as (AMP - URA) at the package level every quarter.
Medicare Part B requires the quarterly Average Sale Price (ASP) at the package level calculated and reported for drugs administered in an office setting (often “5-i drugs” - inhaled, infused, implanted, injected, instilled). Reimbursement rate is set as 1.06*ASP with a 2-quarter lag (i.e., Q1 ASP is used to set the Q3 reimbursement rate in the same year)
ASP = Net Sales / Net Sales Units
Net Sales = Non-Federal Sales - Prompt Pay Discount - Commercial Chargebacks - Commercial Rebates
Non-Federal Sales = Gross Sales - Government Sales
Net Sales Units = Non-Federal Sales Units = Gross Sales Units - Government Sales Units
For VA contracts, Federal Ceiling Price (FCP) is calculated as the maximum price a manufacturer may charge for a “covered” drug sold to Federal Agencies (the Big 4 — VA, DoD, PHS, and the Coast Guard)
FCP = 0.76 * Non-FAMP
Non-FAMP is calculated and reported quarterly and annually (10/1/PY - 9/30/CY), while the annual calculation is used to set prices at the package level
Non-FAMP = Net Sales / Net Sales Units
Net Sales = Non-Federal Sales - Prompt Pay Discount - Commercial Chargebacks - Commercial Rebates
Non-Federal Sales = Gross Sales - Government Sales
Net Sales Units = Non-Federal Sales Units = Gross Sales Units - Government Sales Units
