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The current drug discount landscape is evolving rapidly, with the upcoming rollout of the Inflation Reduction Act (IRA)’s Max Fair Price (MFP) regulations posing significant questions for manufacturers. One key question on everyone’s mind is: how will manufacturers effectuate the Max Fair Price?
In Section 40.4 of the guidance, Centers for Medicare & Medicaid Services (CMS) specifies that there are two primary models to handle this: prospectively and retrospectively. To avoid confusion—since these terms can be interpreted in different ways—we’ll refer to these options as on-invoice discount [in guidance referred to as “prospective”] and post-utilization [in guidance referred to as “retrospective”]. Let’s dive deeper into each of these options below.
Option 1: On-Invoice Discount (Prospective)
The on-invoice discount offers MFP as an up-front discount. The discount is effectuated upon the payment of the invoice and the purchase price reflects the discount, and the price is based on the saleable package.
What types of challenges does this introduce?
On-invoice discounts present challenges similar to those of the 340B Drug Discount Program. Dispensers will need to manage MFP inventory through either a physical inventory or replenishment “virtual” inventory, leading to operational difficulties in both cases.
To effectuate MFP, the on-invoice discount requires MFP pricing to be loaded at wholesalers and all dispensers would need access to MFP pricing. This will result in a significant volume of purchasing accounts that manufacturers and wholesalers will need to create and manage.
Finally, on-invoice discounts pose risks to program integrity. Sales and utilization information are not perfectly aligned so identifying duplicates with other programs is post-facto and relies on probability. This creates a lack of transparency and limits the ability to audit and ensure the program operates effectively.
Option 2: Post-Utilization Discount (Retrospective)
In a post-utilization discount, the MFP refund is effectuated after the product is dispensed/administered and, in some cases, paid for. The MFP refund is unit-based and must be issued within a 14-day payment window. Here are the two variations of this method:
- Direct Discount Model (retrospective): The discount is effectuated after the product is dispensed and before the invoice due date.
- Rebate Model (retrospective): The discount is effectuated after the product is dispensed.
A critical factor to consider in a post-utilization discount is how the MFP refund amount is calculated. According to CMS, the Standard Drug Rebate Amount (SDRA) is based on WAC (Wholesale Acquisition Cost). However, cross-program interactions present certain complexities related to the application of WAC. Ultimately, manufacturers are responsible for calculating the appropriate amount to effectuate the MFP in a timely manner. CMS acknowledges the considerable challenges that manufacturers and dispensing entities will face in establishing a reliable acquisition cost.
So, Which Method Is More Effective?
While both the prospective and retrospective models have considerations and challenges when looking at MFP in isolation, the reality is that MFP will exist alongside other drug discount programs. The overlap with programs like 340B, Medicaid Drug Rebate Program (MDRP), and commercial, poses its own vast set of challenges. Some of these include:
- Calculating the 340B Discount - How do you calculate the discount that should be given if the 340B price is lower than the MFP? How do you get the data transparency needed from the 340B program to determine this?
- Multiple layers of additional discounts to be inappropriately given - With dual-eligible patients, how do manufacturers ensure that the appropriate discounts are given? Are the insights into correct pricing and calculations available so that manufacturers are compliant with all programs?
- IRA CPI Penalties and 340B units to be excluded - How do manufacturers accurately ensure that 340B units are excluded from the Consumer Price Index Penalty?
Accounting for these cross-program challenges is almost impossible in the prospective On-Invoice Discount model. In the On-Invoice Discount model, the date of service and purchase date may not be correlated in any way. The data connecting the purchase of the drug with the specific claim for which its used are not connected either. This means that the transparency and ability to determine that the correct discount is being given to eligible patients for the right programs is not there.
We dive into all of this, and how to effectuate these models from an operational and technical perspective, in our webinar recording. Watch the webinar here to dive deeper into these approaches and gain expert insight into the best option for your organization. Industry leaders break down both models and provide practical guidance on navigating this critical transition.
In Part 2 of our “Cracking the MFP Code” blog series, we will dive deeper into which Post-Utilization model would be most effective, and what you’d need to consider when rolling it out.
