Don’t Fall Asleep on Your COT (Class of Trade)

Class of Trade (COT) is probably not something you give much thought. You may have had a conversation with your Group Purchasing Organizations (GPO) early on in your pharmacy’s life, but perhaps the subject hasn’t crossed your mind in a few years. It might be time to revisit the concept and have a few more discussions with your business partners about this important topic.

What Is Class of Trade?

Class of Trade (COT) is a term commonly used in the pharmacy industry to categorize different types of buyers based on their business characteristics and purchasing behaviors. In the context of long-term care pharmacy, COT refers to the various types of facilities or settings where medications are provided and billed.

The best way to think about it is to imagine all the trade channels that prescription drugs travel through from the factory to the patient’s bedside. There are institutional classes of trade, such as hospitals. There are also wholesalers, retail pharmacies, and specialty pharmacies.

Various divisions within each of these may fall into their own COT, such as for-profit, not-for-profit, and government facilities. The main idea is that each COT contains entities that are alike in their function and operation and don’t compete directly with entities outside of their own COT.

Who Determines Your Class of Trade?

The manufacturer is responsible for accurately establishing the classes of trade they will use and the types of facilities that will be assigned to each class. The number of classes varies between manufacturers, but a key point is any pricing variation based on COT must not result in offering different pricing to entities that are in competition with each other. This could be seen as a violation of the Robinson-Patman Act, which regulates price discrimination in interstate commerce.

Are Classes of Trade a Big Deal?

Put it simply, yes. Manufacturers don’t want to invite litigation by inadvertently mis-assigning a pharmacy to a COT that results in giving a competing pharmacy a price disadvantage. You may recall the pharmacy vs. manufacturers wars of the 1990s when pharmacies sued manufacturers for making discounts available to health insurers and hospitals which were not offered to retail pharmacies. The lawsuit was based on an alleged violation of the Robinson-Patman Act.

Manufacturers also have a strong interest in tracking sales through various channels. If the channel includes pharmacies where sales are included in the calculation of average manufacturer price, the company’s Medicaid rebates and 340B discounts can be affected. If a manufacturer unintentionally offers a significant discount to a non-exempt buyer, the potential rebate implications can be substantial.

Is Your Pharmacy Classified Properly?

If you’re a closed-door pharmacy, you should be in the LTC pharmacy class. This should ensure you get pricing that is typically lower than the retail class. If you have a hybrid or combo pharmacy (one that has both LTC and retail lines of business), you may still be eligible for LTC classification.

To find out, check with your GPO. These professionals know the ins and outs of the COT system, and they can help you ensure you’re properly classified. If you qualify for the LTC pharmacy COT and are currently assigned as a retail pharmacy, you could improve your bottom line by getting the proper assignment.

The business of pharmacy is complicated, and the near-endless varieties of chargebacks, rebates, and government regulations make it even more so. But it’s the system we have, and until someone comes up with a solution that satisfies all the competing interests, it’s best to make the most with what’s at our disposal.

Anchor Points for Managing Your Class of Trade

  • What is your class of trade? Consult with your GPO to ensure it fits your business.
  • Find out if you’re eligible for a more advantageous class.
  • Consider the adjustments you’d need to make to qualify for a better class designation.

Written by:
Paul Baldwin
Baldwin Health Policy Group
Paul Baldwin

Paul’s pharmaceutical industry experience in public and government affairs led to becoming Executive Director of the Long Term Care Pharmacy Alliance, helping lead the industry through the Medicare Modernization Act and creation of the prescription drug benefit. Paul was VP of Public Affairs for Omnicare before founding Baldwin Health Policy Group.

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