Average Sales Price Formula Could Lead To Negative ASP – PhRMA

The Pharmaceutical Research & Manufacturers of America is urging CMS to change the proposed methodology for including rebates in the calculation of "average sales price."

PhRMA maintains that the CMS formula will create unnecessary "volatility" in the reimbursement of Medicare Part B drugs - including the potential that some payments would be negative for some periods.

Under the Medicare law enacted in 2003, the Centers for Medicare & Medicaid Services will reimburse Part B drugs at ASP plus 6% starting in 2005. However, the agency will begin collecting the data April 30 (see ¹ (Also see "Medicaid “Best Price” Should Guide Medicare ASP Calculations, CMS Says" - Pink Sheet, 26 Apr, 2004.)).

Under the interim final rule on ASP issued April 6, CMS proposed a "rolling average" approach to rebate calculations. Manufacturers are instructed to add discount and rebate data for the most recent 12-month period available and divide by four to derive an estimate for the quarterly reporting period (² (Also see "“Average Sales Price” Rule Issued; Definition Mirrors Medicare Rx Law" - Pink Sheet, 5 Apr, 2004.), p. 13).

CMS should modify the rolling average methodology "to avoid unnecessary volatility in ASPs," PhRMA said in ³ comments submitted to CMS April 20.

PhRMA explained that deducting a 12-month dollar average from ASP-relevant sales for a quarter could cause quarterly "swings" in ASP because of fluctuations in sales volume.

"In fact, in a quarter with unusually low sales, a rolling average deduction calculated in this manner could actually exceed the ASP-relevant sales revenue for that quarter, thereby resulting in a negative ASP."

"CMS' estimation procedure would also cause ASPs to increase due to above-average sales volume, even when the manufacturer's prices remained constant."

PhRMA recommends an alternative methodology that would "smooth out extreme fluctuations in ASP." The estimate would be based on the average ratio between rebates and sales revenue.

The company would calculate the ratio between ASP-relevant rebates and sales revenue for the relevant 12-month period, multiply the ratio by total sales revenue for the quarter, and subtract the resulting figure from total sales revenue for the reporting quarter.

In addition to adopting the "smoothing procedure" in final regs, CMS should inform manufacturers that they are not required to use the rolling average methodology in the interim final rule for 2004 ASP submissions, PhRMA said.

Even if a methodology does not itself cause negative ASPs, a zero or negative ASP could still result from back order situations, the comments add.

Under Medicaid rules, zero or negative average manufacturers prices are not reported; instead, the last calculated AMP greater than zero is reported. PhRMA urges CMS to adopt the same policy for Medicare Part B to prevent data anomalies from affecting reimbursement rates and creating access problems.

PhRMA requests more detailed guidance in a number of areas, including drugs covered by Part B, categories of Part B drugs not subject to ASP reporting and categories of drug sales exempt from ASP calculations.

While the comments urge CMS to make its guidance as specific as possible, they also ask the agency to allow manufacturers some leeway in determining what to submit.

"CMS should also acknowledge in the regulations that manufacturers can use reasonable assumptions in calculating ASP in the absence of specific guidance in the regulations or the Act," PhRMA said.

CMS is advising manufacturers to follow the Medicaid "best price" reporting procedures when in doubt.

PhRMA maintained that manufacturers are reluctant to have their chief financial officers certify to the accuracy of the pricing reports as required.

"CMS should provide the guidance necessary to enable manufacturer officials to execute such a certification, and delay the certification requirement until this occurs," PhRMA said. "There is not need for a premature certification procedure."