Why class of trade is important for government pricing calculations

Accurate class of trade (COT) assignments ensure a manufacturer calculates accurate government prices.

In brief

• Assigning a COT to a customer can be very time-consuming, often highly subjective and costly.
• Manufacturers need to establish their own objective criteria to rely upon as the basis for their COT assignments.
• Developing an automated approach using third-party databases for the COT assignment and maintenance will help mitigate risk.
  

The class of trade (COT) assignment is one of the most critical activities that impacts government pricing calculations, such as the average manufacturer price (AMP) and the best price (BP) under the Medicaid Drug Rebate Program, the average sales price (ASP) under the Medicare Part B Program and the non-federal average manufacturer price (NFAMP) under the Veterans Affairs Federal Supply Schedule.

Challenges in assigning and maintaining compliant COTs

Assignment of COT to a customer is not an easy task for manufacturers. It can be very time-consuming, is too often highly subjective and a costly task when a manufacturer has tens of thousands of existing customers with hundreds (or more) of new customers purchasing drug products monthly. In addition, in today’s market, with many customers consolidating or increasing the scope of their existing services (and thereby the nature of their business), defining the one singular type of business (i.e., COT) the customer is engaged in has become even more complex.

So where does a manufacturer start? How can they minimize the time spent, substantially reduce the subjectivity of the COT assignment, maximize the credibility of their assignments and be compliant with government pricing requirements?

Manufacturers should consider asking the following questions when establishing their customer COT assignment and maintenance policies and processes:

• What level of COT assignment granularity is required for government price reporting purposes? Can you consolidate COTs to reduce subjectivity (e.g., physician vs. clinic)?
• What types of documentation should be established to support reliable, repeatable, auditable and compliant COT assignments?
• Are the customers with existing COTs still accurate, or has a customer’s business model changed thereby requiring a change in COT?
• When was the last time your customers’ COTs were tested for accuracy?

Manufacturers should leverage objective criteria and automation to assign and maintain COTs

Government pricing rules and regulations provide manufacturers with some guidance as to how they should compute their government prices. However, the regulations are open to interpretation and do not necessarily provide objective criteria to manufacturers to determine the types of customers that should be included or excluded in their calculations, nor how to assign COT to a customer. As a result, in addition to a manufacturer’s policies, procedures and assumptions, they also need to establish their own objective criteria to rely upon as the basis for their COT assignments. Objective criteria should be impartial and based on factual information and can be very useful at eliminating subjectivity and enhancing the accuracy of COT assignments. Further, developing an automated approach using third-party databases commonly available to manufacturers for the COT assignment and maintenance will help mitigate the risk associated with COT assignments. Sophisticated automation can normalize the customer name and address information, increase efficiency of assigning and maintaining accurate COTs and standardize the assignment process to consistently assign a COT to all customers.

The following are the commonly available third-party databases that can be used to build objective criteria and automation logic for COT assignments:

• Drug Enforcement Administration (DEA)
• Health Industry Number (HIN)
• National Council for Prescription Drug Program (NCPDP)
• Indian Health System (IHS)
• Pharmaceutical Prime Vendor (PPV)
• Office of Pharmacy Affairs Information System (OPAIS)

Manufacturers should consider asking the following questions when establishing objective criteria and automated customer COT assignment and maintenance processes:

• What research methods or any third-party data will be used to determine COT assignments? Are they reliable, or is one more reliable than another?
• What automation logic can be built to eliminate manual and time-consuming COT assignment processes?
• How much diligence should be expended on COT assignments?
• Are there sufficient in-house resources to maintain COTs on an ongoing basis?
• What outsourcing options are available to assist in customer COT assignment and maintenance processes?

Key takeaways

The cornerstone of accurate COT assignments is participation in periodic internal or external training on emerging issues and regulatory requirements related to customer COT assignments to stay abreast of emerging and ever-changing government pricing rules, regulations and requirements.