# Presentation: 510296

## Thriving Through Partnership 

**October 3 & 4, 2005**
**Chicago Marriott O’Hare Hotel **

## WELCOMEto

**Tips for Successful **
**End-of-Year PL Updates**

**Notes:**
Good Morning and Welcome to Tips for Successful End-of-Year PL Updates.  My name is Cheryl Ward-Roberts, Assistant Director of Pharmaceutical, Dental and Other Federal Supply Schedules.  I have worked with the VA for 16 years, the past 11 years with the NAC in the Federal Supply Schedule Service.  I was appointed to the position of Assistant Director in February 2005.  Prior to my promotion, I worked primarily with Medical Equipment and Supplies as well as the Cost-Per-Test for Clinical Laboratory Analyzers.  I am excited about working with a new commodity such as pharmaceuticals and looking forward to partnering with you. 

Presenting with me is Bob Satterfield.  Bob is a Senior Contracting Officer with the National Acquisition Center.  He is the schedule manager for Drugs, Pharmaceutical & Hematology Related Products as well as Invitro Diagnostics, Reagents, Test Kits & Sets.  Bob has also worked with the VA Pharmaceutical Standardization and Prime Vendor programs as well as the Medical/Surgical Standardization program.

On the panel we have Carole O’Brien, Director of Federal Supply Schedule Service, Mel Noel, senior contract attorney with the VA Office of General Counsel and George Hill, Public Law Database Manager, Pharmacy Benefit Management.    

## Tips for Successful End-of-Year PL Updates

**Objective**
- Ensure Accuracy and Completeness of Data
- Ensure Understanding of Statutory and Contractual Requirements
- Ensure smooth transition from 2005 FSS prices to 2006 FSS prices

**Notes:**
This session is designed to highlight end-of-year Public Law timelines and modification requirements.

## Agenda Outline

**I. Background **
**II. Workload**
**III. Dissemination of Data**

**IV. Modification Process **
- Price Changes
- Product Addition
- Deletion & Administrative
**V.  Pricing Scenarios**
**VI. Contact Information**

## Implementation of the Law

**P.L. 102-585 – Veterans Health Care Act of 1992**
- Signed into law on November 4, 1992
- January 1, 1993
- Imposed pricing calculation
- Covered drug vendors
- Master Agreement
- Pharmaceutical Pricing Agreement
- Interim Agreement, when applicable
- FSS contract

**Notes:**
The Veterans Health Care Act of 1992, P.L. 102-585 was signed into law on November 4, 1992.
Effective January 1, 1993, a manufacturer of a “covered drug” is required to execute a Master Agreement and Pharmaceutical Pricing Agreement with the Secretary of Veterans Affairs. 
The Master Agreement specifies the requirements for Manufacturers of covered drugs to receive payment from Federal Agencies and other entities.
The Pharmaceutical Pricing Agreement specifies the annual Federal ceiling price for each covered drug of the Manufacturer
The annual Federal Ceiling price will be computed once each calendar year and will be inserted into the Manufacturer’s amended or new PPA for each covered drug on or before January 1of the following year.  
Also, covered drug vendors must make their covered drugs available on the Federal Supply Schedule.   

## Interim Agreement

**Letter contract that is an interim agreement**
- Authority provided by FAR 16.603-2
- Pursuant to Sect. 603 of Public Law 102-585
**Establishes a “binding commitment” when immediate performance is required**
**Created to allow sufficient time to negotiate and award a new FSS contract**

**Notes:**
In the Master Agreement, the manufacturer agrees to negotiate in good faith with the VA to enter into an FSS contract or modification for any covered drug not already on FSS contract.
Interim Agreement was established to allow sufficient time to negotiate and award a new FS contract.

## Federal Ceiling Price (FCP)

**Pricing calculations**
- 76% of Non-FAMP Less Additional Discount
- Establish Federal Ceiling Price (FCP)
- Subsequent year – based on CPI-U (Consumer Price Index-Urban)

**Notes:**
The first year, the Federal ceiling price is calculated as 76 percent of the non-FAMP (Federal Average Manufacturer Price) for the appropriate one-year period minus any additional discount.
The annual Federal ceiling price is computed once each calendar year and is inserted in the Manufacturer’s amended or new PPA for each covered drug on or before January 1 of the following year.
Increases to the contract price are calculated using two methods:
Actual FSS contract price charged during the preceding one-year period to be increased by the annual percentage increase in the CPI-U.
Reported annual non-FAMP for the preceding year to be multiplied by .76, minus any additional discount.
The method of calculation that yields the lowest price ceiling will determine the Federal ceiling price for the second year or subsequent year of multiyear contracts. 

## Year-end Public Law Timeline

**October**
- Instruction letter sent to vendors by PBM

**November 1****st**
- Letter sent to vendors by NAC

**November/December**
- Verification of FCP by PBM and
- forwarded to CO

**December 5****th**
- Pricing updates submitted by the vendors to CO

**December 31****st**
- Vendors provide updated PPA Addendum to CO by this date or earlier

**November 15****th**** **** **
- Vendors required to submit pricing calculations to PBM

**Notes:**
Mid October - Pharmacy Benefit Management (PBM) will send an instruction letter to vendors. 
November 1St - NAC will send to vendor outlining requirements for modifications and PPAs.
November 15th - Vendors are required to submit pricing calculations to PBM.
November and December - PBM verifies the FCP and forwards the information to the NAC Contracting Officer.
A request to update the BIG 4 (VA, DoD, PHS and Coast Guard) pricing must be submitted to your Contracting Officer for consideration in the form of a request for modification on or before Monday, December 5, 2005.  (This cut-off date applies to all modifications during this period and not just the Public Law changes).  Changes received after 12/5/2005 or modifications submitted with missing/inaccurate information will most likely have an adjusted effective date of 1/15/2005 or later.
December 31st – PPA Addendums due to NAC

## Year-end Public Law Updates

**Vendor Pricing Updates:**

- Result in _lower_ pricing

_**must submit**_** **modification request to update

- Result in _higher_ pricing

**FCP Calculations**

- at your option to submit a request for update

- Tracking customer ratios will be
- applied to these price proposals

**Notes:**
Vendor pricing updates:
If your FCP calculations result in lower pricing than currently on FSS contract, must submit modification request to update
If your calculations result in higher pricing than currently on FSS contract, at your option
Tracking customer ratios will be applied to price increase proposals

## Year-end Public Law Updates

**Need to meet established deadlines to ensure January 1****st**** effective date **
- Due dates outlined in October letter
- Reiterated in November 1st letter
**Update FSS pricelist to incorporate pricing updates**

**Notes:**
Vendor needs to meet established deadlines for submitting their modifications to ensure January 1st effective date

## New Products

**Public Law pricing – new products throughout year**
**Provisional**
- Vendor may offer provisional FCP upon product launch. Price is based on .76 x WAC less prompt payment discount
**Temporary**
- Vendor responsible for ensuring temp FCP completed and incorporated into contract after 30 days sales
**Permanent**
- Vendor responsible for ensuring permanent FCP completed and incorporated into contract after one full quarter

## Workload Analysis

**Taking a look at the numbers**
- Average Modifications Actions Processed: 200 per month
- PL Modifications Actions Processed: 750 in December
- PL line items reviewed: 6,459 in December 2004

## Dissemination of Data

**CO sends updated **
**FSS pricing to PBM**

**PBM updates their database **
**and provides updates to **
**PV electronically**

**PV updates their database **

**Notes:**
Once the modification has been executed, the CO sends FSS pricing to PBM
PBM updates their database and provides updates to PV electronically
PV updates their database

## Tips for Successful End-of-Year PL Updates

**Modification Request Form **
- _[Price](file:///../../Documents%20and%20Settings/ammhindunsoc/Local%20Settings/Temporary%20Internet%20Files/OLK472/Presentations/2005ConPPslides%20Bob%20v1%20Mod%20Form%20P5-6.ppt#Thriving Through Partnership )__ Changes_

## Tips for Successful End-of-Year PL Updates

**Modification Request Form**
- Complete the certification on page 5
- Signed by authorized signatory
- Fill in data on page 6
- Check appropriate box for type of modification action requested
- Price Increase/Decrease – PL
**Complete Matrix **

## Tips for Successful End-of-Year PL Updates

**Data**
- Required data in the Matrix
- Columns A-E, G&H, J&K
- May use attachments
- Electronic data
- Use own program or Excel spreadsheet

## Tips for Successful End-of-Year PL Updates

**Data Analysis**
- FCP Compliance – No variance (a penny too high is not acceptable)
- Tracking Customer Compliance
**Ratios are applicable**
- Application of ratio results in lower price than FCP, you must offer the lower price
- Application of ratio results in higher price than FCP, you must offer FCP

## Tips for Successful End-of-Year PL Updates

**Most Favored Customer vs. Tracking Customer**

## Tips for Successful End-of-Year PL Updates

**Most Favored Commercial Customer (MFC):**
**	****“****Defined as that customer or class of customer which receive(s) the best discount and/or price arrangement on a given item from a supplier.  The term includes any entity which does business with the supplier.  In MAS contracting, the Government’s negotiation objectives are developed based on a comparison of the MFC arrangement. “**

## Tips for Successful End-of-Year PL Updates

**Price Reduction Clause **
- Establishment of commercial relationship to track award against
- Paragraph (a) – Before award of a contract, the CO and the offeror will agree upon:
- 1)  the customer (or category of customers) which will be the basis of award, and
- 2)  the Government’s price or discount relationship to the identified customer (or category of customers)

## Tips for Successful End-of-Year PL Updates

**Price Reduction Clause **
- Agreement of both parties
- Start with category provides greatest coverage
- New companies – possible - All Commercial Customers
- Tracking customer ratio determined by dividing discount relationship to Government by discount relationship to agreed upon tracking customer

## Tips for Successful End-of-Year PL Updates

**Price Reduction Clause **
- Agreed to tracking customer and subsequent ratio will affect price changes
- If the ratio is disturbed with a decrease to tracking commercial customer, automatic to Government
- If tracking customer did not receive increase, Gob's cannot

## Tips for Successful End-of-Year PL Updates

**Dual Price**
- Tracking Customer
- CPI-U Cap
- Big 4 vs. Dual
- Big 4 & Dual analysis will be perform together to ensure compliance
- If Dual price better than Big 4, then it becomes price for all

## Tips for Successful End-of-Year PL Updates

**Modification Request Form**
- _[Product Additions](file:///../../Documents%20and%20Settings/ammhindunsoc/Local%20Settings/Temporary%20Internet%20Files/OLK472/Presentations/2005ConPPslides%20Bob%20v1%20Mod%20Form%20P1-3.ppt#Thriving Through Partnership )_

## Tips for Successful End-of-Year PL Updates

**Product Addition (new covered drugs)**
- NFAMP to PBM
- Compliant with Public Law
- Mini Offer –
- Negotiations for Best Price (MFC)
- Tracking Customer/Ratios Established
- FDA approved
- Trade Agreements Act (TAA)

## Tips for Successful End-of-Year PL Updates

**Modification Request**
- Complete pages 1 to 3
- Complete delivery term/direct delivery, Mfg, Certification
- Signed by authorized signatory
- Complete page 3 – Provide CSP

## Tips for Successful End-of-Year PL Updates

**Determination of Fair & Reasonable prices**
- Price offered equal to MFC
- Price offered compliant with PL
- Price offered equal to/better than MFC and compliant with PL

## Tips for Successful End-of-Year PL Updates

**Dual Price**
- Mini Offer – Negotiations for Best Price (MFC)
- Based on FSS policy
- If lower than FCP, becomes new price
- Dual price is official FSS price in terms of subsequent FCP calculations

## Tips for Successful End-of-Year PL Updates

**Provisional or Temporary Price**
- required to add drug within 30 days of introduction to marketplace
- may decide to add earlier = Provisional (w/o sales information)
- after 30 days on Market = Temporary (with sales information)

## Tips for Successful End-of-Year PL Updates

**Deletions/Administrative Changes**
- Deletions – Page 7
- Complete questions 1-3
**Administrative Changes – Page 7**
- Examples: Tracking Customer, BPA 		Updates, Address Change, POC Change
- Include Cover Letter – Explain Issue

## Tips for Successful End-of-Year PL Updates

**Communication**
- Fax (w/ mailed hardcopy)
- PDF via email (w/ mailed hardcopy)
- Hardcopy
- NAC will provide written notice of acceptance/rejection of modification request

## Tips for Successful End-of-Year PL Updates

**Communication**
- Fax (w/ mailed hardcopy)
- PDF via email (w/ mailed hardcopy)
- Hardcopy
- NAC will provide written notice of acceptance/rejection of modification request

## Tips for Successful End-of-Year PL Updates

_**Pricing Scenarios**_
**	****Please note the pricing scenarios and examples are meant to provide an illustration of the review process used by the contracting officer in determining if the price offered is compliant with the approved FCP and Price Reduction Clause.  The numbers do not represent actual or potential NFAMP calculations and/or resultant FCPs**

## Tips for Successful End-of-Year PL Updates

**Pricing Scenarios**
**FCP Increases**

## FCP Increase

**Ratio x Tracking Customer’s Current (Increased) Price = Maximum Acceptable FSS Price**
**Example #1**
- FCP for 2006 increases to $25.00
- Contractor requests FSS price increase from $20.00 to $25.00
- Tracking Customer ratio is 1:1 and current Tracking Customer (TC) price is $25.00
- Max K. FSS = $25.00 (1 x $25.00) (ratio x current TC price)
- Proposed FSS price increase is equal to FCP and within the Max K. FSS of $25.00
- Proposal is accepted.

## FCP Increase

**Example #2 **
- FCP for 2006 increases to $30.00
- Contractor requests FSS price increase from $25.00 to $30.00
- Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $25.00
- Max K. FSS = $25.00 (1 x $25.00) (ratio x TC price)
- Proposed FSS price increase is equal to FCP. However, the  proposed FSS price exceeds the Max K. FSS of $25.00
- Proposal is not accepted. Price remains unchanged

## FCP Increase

**Example #3**
- FCP for 2006 increases to $30.00
- Contractor requests FSS price increase from $20.00 to $35.00
- Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $25.00
- Max K. FSS = $25.00 (1 x $25.00) (ratio x TC price)
- Proposed FSS price increase exceeds FCP of $30.00
- Proposed FSS price increase exceeds the Max K. FSS of $25.00
- Proposal is not accepted
- Acceptable price increase is $25.00

## FCP Increase

**Example #4**
- FCP for 2006 increases to $20.00
- Contractor requests FSS price increase from $15.00 to $25.00
- Tracking Customer (TC) ratio is 1:1 and the current Tracking Customer price is $25.00
- Max K. FSS = $25.00 (1 x $25.00) (ration x TC price)
- Proposed FSS price increase exceeds FCP of $20.00
- Proposed FSS price increase does not exceeds the Max K. FSS of $25.00
- Proposal is not accepted because proposed price exceed FCP
- Contractor can request increase up to $20.00 (2006 FCP)

## Tips for Successful End-of-Year PL Updates

**Pricing Scenarios**
**FCP Decreases**

## Ratio x Tracking Customer’s Current (Increase) Price =  Maximum Acceptable FSS Price
Example #1
FCP for 2006 decreases to $50.00
Contractor requests FSS price decrease from $55.00 to $45.00
The Tracking Customer (TC) ratio is 1:1 and the current Tracking Customer price is $45.00
Max K. FSS = $45.00 (1 x $45.00) (ratio x TC price)
Proposed FSS price decrease is less than FCP and within Max K. FSS of $45.00
Proposal is accepted

**Ratio x Tracking Customer’s Current (Increase) Price =  Maximum Acceptable FSS Price**
**Example #1**
- FCP for 2006 decreases to $50.00
- Contractor requests FSS price decrease from $55.00 to $45.00
- The Tracking Customer (TC) ratio is 1:1 and the current Tracking Customer price is $45.00
- Max K. FSS = $45.00 (1 x $45.00) (ratio x TC price)
- Proposed FSS price decrease is less than FCP and within Max K. FSS of $45.00
- Proposal is accepted

## Example #2
FCP for 2006 decreases to $40.00
Contractor request FSS price decrease from $55.00 to $45.00
Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $50.00
Max K. FSS = $50.00 (1 x $50.00) (ratio x TC price)
Proposed FSS price greater than FCP of $40.00 but is within the Max K. FSS of $45.00
Proposal is not accepted
Contractor can request price no higher than FCP of $40.00

**Example #2**
- FCP for 2006 decreases to $40.00
- Contractor request FSS price decrease from $55.00 to $45.00
- Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $50.00
- Max K. FSS = $50.00 (1 x $50.00) (ratio x TC price)
- Proposed FSS price greater than FCP of $40.00 but is within the Max K. FSS of $45.00
- Proposal is not accepted
- Contractor can request price no higher than FCP of $40.00

## Example #3
FCP for 2006 decreases to $45.00
Contractor request FSS price decrease from $55.00 to $45.00
Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $40.00
Max K. FSS = $40.00 (1 x $40.00) (ratio x TC price)
Proposed FSS price decrease is equal to FCP but exceeds Max K. FSS of $40.00
Proposal is not accepted
Contractor must offer FSS price no higher than Max K. FSS of $40.00

**Example #3**
- FCP for 2006 decreases to $45.00
- Contractor request FSS price decrease from $55.00 to $45.00
- Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $40.00
- Max K. FSS = $40.00 (1 x $40.00) (ratio x TC price)
- Proposed FSS price decrease is equal to FCP but exceeds Max K. FSS of $40.00
- Proposal is not accepted
- Contractor must offer FSS price no higher than Max K. FSS of $40.00

## Example #4
FCP for 2006 decreases to $45.00
Contractor request FSS price increase from $55.00 to $60.00
Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $40.00
Max K. FSS = $40.00 (1 x $40.00) (ratio x TC price)
Proposed price increase exceeds FCP and exceeds Max K. FSS of $40.00
Proposal is not accepted
Acceptable price change is $40.00

**Example #4**
- FCP for 2006 decreases to $45.00
- Contractor request FSS price increase from $55.00 to $60.00
- Tracking Customer (TC) ratio is 1:1 and current Tracking Customer price is $40.00
- Max K. FSS = $40.00 (1 x $40.00) (ratio x TC price)
- Proposed price increase exceeds FCP and exceeds Max K. FSS of $40.00
- Proposal is not accepted
- Acceptable price change is $40.00

## Tips for Successful End-of-Year PL Updates

**Pricing Scenarios**
**Dual Price**

## Tips for Successful End-of-Year PL Updates

**CO Reviews:**
- FCP Compliance
- Tracking Customer Ratio (TC x Ratio)
- CPI-U Cap (Current FSS x CPI-U)
- Following examples use the 2004 CPI-U of 2.54%

## Dual Prices

## Example #1
Big 4 Price Analysis
FCP for 2006 increase to $55.00
Contractor request FSS price increase from $50.00 to $55.00
Tracking Customer ratio is 1:1 and current Tracking Customer (TC) price is $70.00
Max K. FSS = $70.00 (1 x $70.00) (ratio x TC price)
Proposed FSS price increase equals FCP and is within the Max K. FSS of $70.00
Proposal for Big 4 is tentatively approvable
Dual Price Analysis
Current Dual price is $60.00 which results in Max CPI-U $61.52 
Contractor request FSS price increase from $60.00 to $61.52
Tracking Customer ratio is 1:1 and current Tracking Customer (TC) price is $70.00
Max K. FSS = $70.00 (1 x $70.00) (ratio x TC price)
Proposed price increase is within Max K. FSS of $70.00 and within Max CPI-U of $61.52
Proposal for Dual is tentatively approvable
Final Analysis: Is Dual price higher than or equal to Big 4. 
Big 4 = $55.00 vs. Dual = $61.52
Proposal is accepted for both Big 4 & Dual

- _Big 4 Price Analysis_
- FCP for 2006 increase to $55.00
- Contractor request FSS price increase from $50.00 to $55.00
- Tracking Customer ratio is 1:1 and current Tracking Customer (TC) price is $70.00
- Max K. FSS = $70.00 (1 x $70.00) (ratio x TC price)
- Proposed FSS price increase equals FCP and is within the Max K. FSS of $70.00
- Proposal for Big 4 is tentatively approvable
- _Dual Price Analysis_
- Current Dual price is $60.00 which results in Max CPI-U $61.52
- Contractor request FSS price increase from $60.00 to $61.52
- Tracking Customer ratio is 1:1 and current Tracking Customer (TC) price is $70.00
- Max K. FSS = $70.00 (1 x $70.00) (ratio x TC price)
- Proposed price increase is within Max K. FSS of $70.00 and within Max CPI-U of $61.52
- Proposal for Dual is tentatively approvable
- _Final Analysis_: Is Dual price higher than or equal to Big 4.
- Big 4 = $55.00 vs. Dual = $61.52
- Proposal is accepted for both Big 4 & Dual

## Dual Prices

## Example #2
Big 4 Price Analysis
FCP for 2006 increase to $60.00
Contractor request FSS price increase from $40.00 to $52.00
Tracking Customer ratio is 1:1 and the current Tracking Customer (TC) price is $55.00
Max K. FSS = $55.00 (1 x $55.00) (ratio x TC price)
Proposed price increase is less than FCP and is within the Max K. FSS of $55.00
Proposal for Big 4 is tentatively approvable
Dual Price Analysis
Current Dual price is $49.00 which results in a Max CPI-U is $50.24 
Contractor request price increase from $49.00 to $52.00
Tracking Customer ratio is .98 and the current Tracking Customer price is $55.00
Max K. FSS = $53.90 (.98 x $55.00)
Proposed price increase is within the Max K. FSS of $53.90, but exceed the Max CPI-U of $50.24
Proposal for Dual is not accepted
Final Analysis: Is Dual price higher than or equal to Big 4
Big 4 = $55.00 vs. Dual = $50.24
Contractor must submit price reduction to both Big 4 and Dual because Dual is less than FCP
Single price to everyone at $50.24

- _Big 4 Price Analysis_
- FCP for 2006 increase to $60.00
- Contractor request FSS price increase from $40.00 to $52.00
- Tracking Customer ratio is 1:1 and the current Tracking Customer (TC) price is $55.00
- Max K. FSS = $55.00 (1 x $55.00) (ratio x TC price)
- Proposed price increase is less than FCP and is within the Max K. FSS of $55.00
- Proposal for Big 4 is tentatively approvable
- _Dual Price Analysis_
- Current Dual price is $49.00 which results in a Max CPI-U is $50.24
- Contractor request price increase from $49.00 to $52.00
- Tracking Customer ratio is .98 and the current Tracking Customer price is $55.00
- Max K. FSS = $53.90 (.98 x $55.00)
- Proposed price increase is within the Max K. FSS of $53.90, but exceed the Max CPI-U of $50.24
- Proposal for Dual is not accepted
- _Final Analysis:_ Is Dual price higher than or equal to Big 4
- Big 4 = $55.00 vs. Dual = $50.24
- Contractor must submit price reduction to both Big 4 and Dual because Dual is less than FCP
- Single price to everyone at $50.24

## Dual Prices

## Example #3
Big 4 Price Analysis
FCP for 2006 increase to $60.00
Contractor request FSS price increase from $55.00 to $60.00
Tracking Customer ratio is 1:1 and the current Tracking Customer (TC) price is $70.00
Max K. FSS = $70.00 (1 x $70.00) (ratio x TC price)
Proposed price increase is equal to FCP and is within the Max K. FSS of $70.00
Proposal for Big 4 is tentatively approvable
Dual Price Analysis
Current Dual price is $55.00 which results in a Max CPI-U is $56.40 
Contractor request price increase from $55.00 to $60.00
Tracking Customer ratio is 1:1 and the current Tracking Customer price is $70.00
Max K. FSS = $70.00 (1 x $70.00)
Proposed price increase is within the Max K. FSS of $70.00, but exceed the Max CPI-U of $56.40
Proposal for Dual is not accepted
Final Analysis: Is Dual price higher than or equal to Big 4
Big 4 = $60.00 vs. Dual = $56.40
Contractor must submit price reduction to both Big 4 and Dual because Dual is less than FCP
Single price to everyone at $56.40

- _Big 4 Price Analysis_
- FCP for 2006 increase to $60.00
- Contractor request FSS price increase from $55.00 to $60.00
- Tracking Customer ratio is 1:1 and the current Tracking Customer (TC) price is $70.00
- Max K. FSS = $70.00 (1 x $70.00) (ratio x TC price)
- Proposed price increase is equal to FCP and is within the Max K. FSS of $70.00
- Proposal for Big 4 is tentatively approvable
- _Dual Price Analysis_
- Current Dual price is $55.00 which results in a Max CPI-U is $56.40
- Contractor request price increase from $55.00 to $60.00
- Tracking Customer ratio is 1:1 and the current Tracking Customer price is $70.00
- Max K. FSS = $70.00 (1 x $70.00)
- Proposed price increase is within the Max K. FSS of $70.00, but exceed the Max CPI-U of $56.40
- Proposal for Dual is not accepted
- _Final Analysis:_ Is Dual price higher than or equal to Big 4
- Big 4 = $60.00 vs. Dual = $56.40
- Contractor must submit price reduction to both Big 4 and Dual because Dual is less than FCP
- Single price to everyone at $56.40

## Tips for Successful End-of-Year PL Updates

**Best Practice**
- Ensured PPA represents accepted FCP
- Non PL items lower priority
- Update FSS contract early
- Add New Products NOW for effective 1/1/06
- Included Previous/Current FSS price
- Include Current Tracking Customer and Ratio
- Extend TPRs and BPAs for 2006

## Tips for Successful End-of-Year PL Updates

- If you are increasing Dual price during the year, it can not exceed CPI-U
- Provide data in NDC order
- Data in Font 12
- Ensure PBM has NFAMP data
- If requesting non-PL price increase/decrease – submit prior to PL season

## Tips for Successful End-of-Year PL Updates

- Modification Request Form must be fully completed and accurate to ensure effective date of Jan 1st and be submitted by December 5th
- Submit spreadsheet electronically in Excel
- Authorized signatory signs modification form
- Include cover letter with additional info/explanation
- Dispute FCP
- Submit mod with approved FCP
- Appeal to PL Board
- Don’t delay complying with law while appealing

## Tips for Successful End-of-Year PL Updates

**Review**
- PBM Instructions letter/Use provided disk
- NAC Instruction letter (issuing November 2005)
- Previously issued Dear Mfg letters
- _[http://www1.va.gov/oamm/nac/fsss/pharmfsspl-library.htm](http://www1.va.gov/oamm/nac/fsss/pharmfsspl-library.htm)_

## Tips for Successful End-of-Year PL Updates

**Reminder**
- PL Modifications _Due_ _**December 5, 2005**_

## Tips for Successful End-of-Year PL Updates

**Questions**
- FSS Contract Contracting Officer
- NFAMP/Disputes Mel Noel (OGC)
- NFAMP/Submission of Data George Hill (PBM)
- NFAMP Methodology Marci Anderson (OIG)

## Tips for Successful End-of-Year PL Updates

- Lessons Learned

## Points to RememberFDV P.L. Annual Reports

**Non-FAMP Components:**
- Reductions to wholesale sales and units are:
- Sales to the Federal Government
- Prompt payment discount extended to wholesaler (this can be taken at a policy rate or at an actual rate and can be applied prior to or subsequent to removing Government sales)
- Chargebacks to commercial customers
- Rebates and other incentives paid to wholesalers resulting in a reduced price

## Points to RememberFOR P.L. Annual Reports

**Non-FAMP Components:**
- Reductions to wholesale sales and units are:
- Sales to the Federal Government
- Prompt payment discount extended to wholesaler (this can be taken at a policy rate or at an actual rate and can be applied prior to or subsequent to removing Government sales)
- Chargebacks to commercial customers
- Rebates and other incentives paid to wholesalers resulting in a reduced price

## Non-FAMP Components

**Returns (if they elect to do so and can document the process)**
**Sales of outpatient covered drugs to PHS entities at the PHS Price **_**or**_** through McKesson, PHS’ Pharmaceutical Prime Vendor at a price below the statutory price.  (Also, sales of inpatient covered drugs to DSHs that fall under a VA “hold harmless” letter.)**
**Wholesale units are reduced by the units sold to the Federal Government and to PHS entities either at the PHS price or through the PHS PPV at a price below the statutory price**

## What [non-Federal] sales can be excluded

**Nominal Sales (if they fit the definition provided via Dear Manufacturer letter dated October 7, 1996)**
- The term ‘nominal’ price means any price less than 10% of the most recently calculated previous quarterly non-FAMP in a sale (usually below cost) designed to benefit the public by financially aiding disadvantaged, not-for-profit covered drug dispensaries or researchers using a drug for an experimental or non-standard purpose. (Dear Manufacturer Letter dated October 7, 1996)
**Sales to Puerto Rican wholesalers provided those sales are not recorded as U.S. sales in the general ledger (Dear Manufacturer letter dated June 14, 1993 and Annual calculation letter dated October 19, 1993)**

## Including or excluding returns

**All calculations MAY include sales returns, but these must be supported by records of returns and the value of those returns as realized by the customer (MA § II B 5****)**
- For any company that uses returns in their calculation, pay close attention to the units associated with the dollar value.  Some systems don’t appear to be able to handle partial returns on the unit side

## Chargebacks

**Most manufacturers reduce their wholesale sales by chargebacks using the processing date**
**If the manufacturer uses the sale date, prior period adjustments can cause differences in the calculation**
**Chargebacks may be “smoothed” in that they can be allocated based on a percentage of wholesale sales to ameliorate any effect of odd purchasing patterns by the wholesaler**

## Approved c.b. “smoothing” formula

**For quarter calculations the formula is:**
**       **
**__**_**Sales for Qtr A**_**__   *    The Sum of the C/B **
**The Sum of the Sales        for Qtrs A, B, C, D **
**for Qtrs A, B, C, D**

## Treatment of free goods contingent on sale of product

**Free goods (excluding **_**bona fide**_** drug samples allowed by 21 USC § 353) shall be counted as a unit sale with a zero value of sales dollars**
**Typically these commercial marketing programs are contingent on a sale of the same product but could be of a different product**

## Sales to covered entities under the 340B drug discount program

**Sales of **_**out**_**patient covered drugs to entities covered under Section 602 (340B) at the statutory price have been an allowable exclusion since September 1, 1994**
**Commencing with the 2002 calculation via Dear Manufacturer letter dated October 19, 2001, only prices set in negotiations with AmerisourceBergen, PHS’ Section 602 PPV, at lower than the statutory price may also be excluded from the calculation**
**VA will view manufacturer’s application of Sect. 602 computed pricing to DSH **_**in**_**patient covered drug purchases as an extension of the exempt statutory outpatient drug pricing, provided the conditions stated in the July 8, 2004 Dear Manufacturer Letter have been met**

## Negative non-FAMPs

**A true negative **_**annual**_** non-FAMP would mean that the price established for the reporting period would be the prior year’s FSS price plus the change in CPI-U**
**A true negative **_**old**_** **_**or**_** **_**new**_** non-FAMP results in an inability to compute an additional discount**

## Transferred Covered Drugs

**Dear Manufacturer letter dated October 15, 1997.**
**Drugs transferred with exclusivity from one Manufacturer to another maintain their originally computed FCP throughout the year**
**The new manufacturer may enter a zero in the old-Non FAMP field when calculating the FCP applicable to their first full year of ownership.  (See 2000 draft “Amended Master Agreement”)**

## Effective dates of FCPs

**For an established covered drug:  January 1 (period).**
**For a new covered drug the effective date will coincide with the provisional/temporary filing election**

## Relief From Erratic Non-FAMP & FCP Calculation Results

**There Are Two Possible Solutions For Erratic Non-FAMP & FCP Calculation Results That Are Accurate But Inconsistent With Congressional Intent, As Expressed In 38 U.S.C. 8126**
**(Our P.L. Group views Congress as not intending that a manufacturer be forced to repeatedly sell a drug to the Government at a price below cost, **_**in the absence of price increases that trigger an additional discount.**_**  Also, there was no Congressional intent to impose additional discounts when price increases over CPI-U did not occur.)**

## Relief From Erratic Non-FAMP & FCP Calculation Results

_**1**__**st**_** **_**Solution**_**:  VA may grant a one-year waiver of Additional Discount in extraordinary situations:**
- Occasionally, anomalies in 3rd Quarter Non-FAMPs can produce additional discounts in the standard FCP calculation, even though commercial contract and wholesale prices of a drug have not increased more than the CPI-U increase during the previous 12 months

## Some anomalies that can produce an additional discount

**Wholesaler buy-ins during the third quarter (solution:  don’t raise prices in the third or fourth quarter)**
**A covered drug coming off patent**
**Unusually high returns**
**Wholesalers buying bulk but claiming chargebacks against a smaller unit of measure**

## Relief From Erratic Non-FAMP & FCP Calculation Results

**VA’s P.L. Policy Group will consider written requests for a one-year waiver of the additional discount in these, and perhaps other unusual situations**
**Requests should be fully supported by financial data and addressed to OGC at the NAC**
**It is crucial to include data on the last 15 months of the drug’s commercial wholesale price movement**

## Relief From Erratic Non-FAMP & FCP Calculation Results

_**2**__**nd**_** **_**Solution**_**:  FCP Nominal Increase Appeals**
- 38 U.S.C. 8126 (a)(2) provides the foundation.  The standard FCP formula is set forth there, followed by the only specific statutory exception:  “... except that such price may nominally exceed such amount if found by the Secretary to be in the best interests of the Department or such Federal agencies”

## Relief From Erratic Non-FAMP & FCP Calculation Results

**VA’s Secretary delegated authority to apply this statutory exception to the FCP Nominal Increase Board, consisting of representatives from VA OGC, OIG and VHA’s PBM**
**The February 24, 1993 “Dear Manufacturer” letter describes procedures for initiating FCP appeals.  Filling out and filing the attached certificate are crucial to the process**

## Relief From Erratic Non-FAMP & FCP Calculation Results

**Relief can be considered only if selling the drug to the Big Four at the correctly calculated FCP will cause a manufacturer to lose money on the product.  This must be demonstrated by opening the manufacturer’s books on cost data relevant to the appealed drug**
**The Board only has authority to increase FCP to a figure which will prevent a loss on the product – not to cover any profit margin**

## Relief From Erratic Non-FAMP & FCP Calculation Results

**Situations that have justified relief usually involve a high cost of raw drug prior to packaging, where the gross profit margin is less than 24%**
**Appeal processing usually includes OIG’s review of submitted cost data (or cost records) and at least one telephone conference between applicant and the Board**
**Turn-around time varies from 40 – 90 days, and relief is prospective**

## Additional Tips

**The procedures and standards for calculating non-FAMPs of “authorized generics” are the same as those that apply to “brand name” covered drugs**
**Manufacturers that have refused (for whatever reason) to pay TMA the requested refunds on covered drugs purchased through TRRx since the beginning of the 4****th**** calendar quarter of 2004 **_**should**_** **_**not**_** make any adjustments in 2005 annual non-FAMP computations based on TMA’s purchase data feeds.  However, manufacturers that have paid TMA the requested refunds must reclassify as Government sales those TRRx-purchased units on which refunds were provided, for purposes of their 2005 annual non-FAMP computations**

## Points of Contact

**Cheryl Ward-Roberts, Assistant Director, Pharmaceutical/Dental Team**
-  Phone: 708-786-5259 or email: _[cheryl.ward-roberts@med.va.gov](mailto:cheryl.ward-roberts@med.va.gov)__ _
**W. R. Satterfield, III, Contracting Officer/Program Manager**
-   Phone: 708-786-4955 or email: bob.satterfield@med.va.gov
**Mel Noel, Office of General Counsel**
- Phone:708-786-5167 or email mel.noel@med.va.gov
** ****George Hill, Pharmacy Benefits Management**** **
- Phone 708-786-4387 or _[george.hill2@med.va.gov](mailto:george.hill2@med.va.gov)__    _
**   ****Marci Anderson, VA Office of Inspector General**
- Phone 202-565-5444 or _[marci.anderson@mail.va.gov](mailto:marci.anderson@mail.va.gov)_

## Tips for Successful End-of-Year PL Updates

**Questions & Answers**
**Copy of Presentation will be made available after 5 p.m. on October 4 at **_**[www.va.gov/vastorenac](http://www.va.gov/vastorenac)**_

## THANK YOU