Sec.

526, "TREATMENT OF CERTAIN DRUGS FOR COMPUTATION OF MEDICAID AMP"

[ALWAYS SUBJECT TO FURTHER CLARIFICATION; BUT SHOULD BE CLOSE TO DEFINITIVE]

Latest Baucus tax/health extenders bill includes a provision (Sec. 526) that will increase MEDICAID AMP
REBATES PAID BY PHARMA MANUFACTURERS BY $2.1B (OVER 10 YEARS) – ONLY ON INHALED,
INFUSED, AND INJECTED DRUGS NOT DISPENSED THROUGH A RETAIL COMMUNITY PHARMACY. MORE
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* DESCRIPTION. Baucus Sec. 526 ("TREATMENT OF CERTAIN DRUGS FOR COMPUTATION OF

MEDICAID AMP") would modify Medicaid AMP calculation of any "drug [that] is an inhalation, infusion,
or injectable drug that is not dispensed through a retail community pharmacy" (e.g., drugs purchased
by, and administered in, a physician office; by a respiratory therapy company for mail order distribution,
etc.), by eliminating ONE OF FIVE exclusions from Medicaid AMP calculation that were listed in health
reform legislation (PPACA) (MORE BELOW). SPECIFICALLY, the Baucus bill would eliminate payments
from, and manufacturer rebates to, PBMs, MCOs, HMOs, LTC providers and certain other distro, from
Medicaid AMP calculation. Impact would be to raise AMP calculation (one less "subtraction" from
AMP) – and therefore manufacturer rebates for these products (because rebates are percent of AMP).

Staff describe as "technical correction" (inadvertent error in PPACA) – although likely manufacturers
may not regard as same!

* MO' BACKGROUND: PPACA Sec. 2503 modified the calculation of Medicaid AMP. Under law
prior to PPACA (SSA Sec. 1927(k)(1)(B)), "prompt pay discounts to wholesalers" were excluded from
AMP calculation. PPACA section 2503(a)(2)(B) adds to this exclusion four new exclusions, for total of 5,
from Medicaid AMP calculation:

(1) Prompt Pay; (2) various service fees paid to wholesalers and retail pharmacies; (3) manufacturers'
reimbursement for returned spoiled product; (4) payments from, and rebates to, PBMs, MCOs, HMOs,
LTC providers and certain others; and (5) discounts paid under Part D.

Actual PPACA text of item #4: "‘(IV) payments received from, and rebates or discounts provided to,
pharmacy benefit managers, managed care organizations, health maintenance organizations, insurers,
hospitals, clinics, mail order pharmacies, long term care providers, manufacturers, or any other entity
that does not conduct business as a wholesaler or a retail community
pharmacy;"

AGAIN, net impact is to INCREASE AMP, and thereby the base for AMP manufacturer rebate [See PPACA
PP. 210-211 Consolidated Text].

R. A. Vachon
(202) 667-1193