AMP Cap Removal: What Drug Manufacturers Need to Know in 2024 and Beyond
Who will have the happier new year in 2024 – pharmaceutical manufacturers or state Medicaid programs? See what considerations will be made by each side over the next six-to-eight months to preserve finances while serving Medicaid recipients.
History of AMP Cap
In the 2010 Patient Protection and Affordable Care Act (PPACA), the maximum rebate amount due to a state Medicaid program by the manufacturer of a particular product dosage form and strength was capped at 100 percent of the average manufacturer price (AMP) of the product. This became known as the “AMP cap” in Medicaid parlance. This rule enabled manufacturers to take pricing actions in the form of product price increases as well as commercial discounts without consequence in Medicaid beyond the value of 100 percent of product AMP. While other new rules in the PPACA legislation would cause immediate impact to state Medicaid programs, this one stayed in the background until called forward by the American Rescue Plan of 2021. This legislation effectively added an expiration date to the AMP cap of December 31, 2023.
Despite speculation over the past few years that Congress would somehow kick the proverbial can down the road when it comes to this expiration date, it is virtually assured at this time that the expiration will in fact come to pass. The 2023 calendar year has seen a variety of actions from manufacturers in preparation for this event, but attention will turn to state Medicaid programs toward the end of the year for their countermeasures.
As it became apparent that the AMP cap expiration event would not be saved through new legislation, manufacturers began to perform internal pricing calculations to determine their exposure to total rebates in Medicaid. Several manufacturers quickly announced availability or pricing changes for high-volume products that carried a substantial amount of financial risk to the manufacturers under the new 2021 law. Those knowledgeable in Medicaid’s net cost calculations read between the lines to see the underlying motivations and began to speculate which products would be next to mitigate their newfound risks.
Preparing for the AMP Cap Removal
There are several strategies available to manufacturers, ranging from the nuclear option of leaving the Medicaid Drug Rebate Program altogether to the more palatable approach of changing up the pricing mix for at-risk products. This includes reductions in wholesale acquisition cost (WAC), changes to Best Price, and maximizing “5i” utilization among pricing alterations. Non-pricing strategies include divesting the product or launching a generic, effectively ridding the market of sales for the innovator brand with the high rebate obligation to Medicaid. Manufacturers cannot limit their focus to their own products, however. Other manufacturers may have competing products in similar situations and take actions that impact other products. Rebate and strategy projections need to go beyond a manufacturer’s own product in a given class.
How State Medicaid Pharmacy Programs Are Responding
As we approach the close of 2023, the focus shifts to state Medicaid pharmacy programs for their reactions to the opening moves of manufacturers. A few states have adjusted P&T meeting calendars to address PDL classes that are expected to have a high net spend impact with the AMP cap expiration. However, many will wait to see what pricing changes are definitively reported by CMS in 2024.
Still, manufacturers need to be vigilant! Many savings scenarios for states could be realized by moving generic utilization to the brand equivalent for a product. This action typically is not presented before a P&T Committee for guidance and therefore can be implemented by a state at any time. States and their pharmacy benefit administrators (PBAs) have increased communications with manufacturers regarding supply plans for key products, whether supply will meet projected demand or a product will be discontinued. It is good client relations practice to inform states to the extent possible as manufacturers deliberate actions related to product availability. This information will factor into state decisions so Medicaid recipients are not inconvenienced by these largely financial maneuvers.
Assessing Your Strategy
Over the coming months, manufacturers should continue to be responsive to state and PBA inquiries on product availability while watching PDLs for changes impacting key products. A few aggressive states may act sooner than most, but recall that states will not see Medicaid net cost changes for several months following manufacturer pricing actions. Therefore, states will largely be cautious in making disruptive PDL changes. Expect a low number of AMP cap-related PDL changes in the fourth quarter of 2023 in preparation for January 2024. The next window for wide PDL changes will likely be in June 2024. Following that timeframe, manufacturers should reassess their strategies for avoiding high Medicaid rebate payments.
If you are in need of strategic guidance, Artia is here to assist. Please contact us for more information.
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