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CMS Issues Average Sales Price Reporting Regulations
By Kathleen
H. Drummy
[April 2004]
On April 6, 2004, Centers for Medicare & Medicaid Services
(CMS) issued an interim final rule to implement provisions in
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (MMA) regarding the calculation and reporting of
the Average Sales Price (ASP). MMA significantly reformed payment
for outpatient drugs and biologicals (“drugs”),
such that beginning in 2005, Medicare payment for most outpatient
drugs will be determined with at least some reference to the
ASP. Under MMA, physicians and suppliers will elect to either
buy and bill the drugs directly, with payment for the drug under
an ASP methodology, or to obtain drugs from a retail pharmacy
or distributor selected under a competitive acquisition program,
in which case the pharmacy or distributor would bill Medicare
for the drug.
These interim final ASP regulations primarily deal with the
methodology to be used by manufacturers in reporting quarterly
ASP data to CMS, beginning with the first calendar quarter of
2004. The regulations are issued on an emergency review basis
because this ASP data must be submitted for the first calendar
quarter by the statutory deadline of April 30, 2004. However,
CMS will accept and consider comments on the rule for the 60
days following issuance. Such comments may impact on the reporting
and other policies applicable to later quarters. In light of
the downstream importance of ASP, however, distributors and
providers also have an interest in ASP reporting and reimbursement
provisions.
CMS plans to issue a later rulemaking regarding other aspects
of the ASP payment system. CMS has informed Davis Wright Tremaine
LLP that additional guidance will be published in a Question
and Answer format at www.cms.gov,
possibly by April 9, 2004.
The Regulations
The regulations are brief and refer to the Medicaid Best Price
Statute. Unfortunately, the Medicaid Best Price Statute is broad
and its terms are defined primarily in rebate agreements, rather
than in regulations. Even when considered together, the Medicaid
Best Price Statute and the regulations may not provide sufficient
guidance to manufacturers in reporting ASP data, particularly
by the April 30, 2004 deadline.
MMA and the regulations define “manufacturer” broadly
to cover entities that are engaged in the production or similar
preparation and sale of the drugs or in the packaging or similar
distribution of the drugs. Wholesale distributor of drugs or
retail pharmacies licensed under state law are not considered
manufacturers.
The regulations do not identify by name or National Drug Code
(NDC) which drugs are covered by the reporting requirements.
Each of the affected drugs, however, should have been assigned
one or more NDCs. While most outpatient drugs covered by Medicare
Part B are subject to the ASP reporting requirements, certain
drugs, such as radiopharmaceuticals, will not be paid under
these methods and will not be subject to ASP reporting requirements.
Manufacturers will need to identify the drugs which must be
reported under these regulations.
On a quarterly basis, each manufacturer must calculate its
ASP and submit the data to CMS within 30 days of the close of
that quarter. The ASP for each manufacturer is calculated for
each calendar quarter using the 11-digit NDC for the manufacturer’s
sales to all purchasers in the United States. Sales that are
exempt from the Medicaid Best Price calculation and sales which
are nominal in amount are excluded. The remaining sales are
divided by the total number of units of that NDC sold by the
manufacturer in that quarter.
In calculating the ASP, the manufacturer must deduct various
discounts, including prompt payment discounts which previously
had not been required to be offset under the Medicaid Best Price
Statute. The MMA also requires that where there is a lag in
the reporting of chargeback and rebate information, such so
that adequate data is not available for the quarterly report,
an estimate based on a 12-month rolling average will be used.
The regulations in addition require this estimation method be
used for discounts.
The regulations further define nominal sales by reference to
the Medicaid Best Price Statute, but that term is not defined
in that statute. Although regulations proposed in 1995 regarding
the Medicaid Best Price Statute defined “nominal”
to mean less than 10 percent of the average manufacturer price
(AWP), those proposed regulations were never finalized. The
Medicaid National Rebate Agreement also includes this definition,
but as AWP differs in a variety of ways from ASP, further guidance
may be required to identify the type of nominal sales which
may be excluded from the ASP calculation.
Management at pharmaceutical companies will be eager to have
these ambiguities resolved. Each quarterly report must be certified
by the manufacturer’s Chief Executive Officer, Chief Financial
Officer or an authorized individual who reports directly to
the CEO or CFO. The ASP data must be submitted in Microsoft
Excel, using the template provided by CMS, who also provides
a sample form for identifying the manufacturer’s contact
for purposes of the ASP report and for certifying the ASP report.
Although the CMS certification form is not expressly required
to be used, some form of certification of the data will be required.
The language of the sample certification is similar to that
used in Medicare cost reports, to the effect that the submission
is accurate to the best of the signer’s knowledge and
made in good faith.
Because the regulations specify civil monetary penalties for
misrepresentations, submission of false information and failure
to submit timely information, the certification as to the form
and accuracy of the report merits care and attention. Certifications
later alleged to be incorrect have been made the basis of enforcement
actions under the False Claims Act. In that regard, the MMA
amendments make clear that the reported information will be
subject to audit by the Office | 
