CMS Releases Final Rule on the Medicaid Drug Rebate Program
Highlights
- The Centers for Medicare & Medicaid Services (CMS) on Sept. 20, 2024, released the Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program (CMS-2434) Final Rule.
- The Final Rule does not finalize several of the most contentious elements from its May 2023 proposed rule – such as Best Price stacking and the definition of "manufacturer," but CMS did finalize several significant changes to the Medicaid Drug Rebate Program.
The Centers for Medicare & Medicaid Services (CMS) on Sept. 20, 2024, released the Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program (CMS-2434) Final Rule. Though CMS chose not to finalize several of the most contentious elements from its May 2023 Proposed Rule – including Best Price stacking, a drug pricing survey and the definition of "manufacturer" – the agency did complete several significant changes to the Medicaid Drug Rebate Program (MDRP). The finalized regulations are scheduled to take effect on Nov. 19, 2024, though some provisions related to managed care programs have delayed effective dates.
You can learn more about the Final Rule through the following resources:
Key Policy Updates
Proposed Changes Not Adopted
Proposal to Modify the Definition of "Manufacturer" for National Drug Rebate Agreement (NDRA) Compliance Purposes. CMS is not finalizing the proposal to codify the requirement that a manufacturer has to have entered into and have in effect a rebate agreement with the CMS Secretary in order for payment to be available for its covered outpatient drugs (CODs) under Medicaid, and CMS is not finalizing the proposal to further specify the responsibilities of a manufacturer with respect to rebate agreements. CMS is continuing to review the input provided by commenters, which may inform future rulemaking on this topic.
Proposal to Define "Vaccine" for Purposes of the MDRP Only. CMS is not finalizing the proposal to create a definition of "vaccine" for the purpose of identifying products that do not satisfy the definition of COD and are therefore not subject to possible required coverage under the prescribed drugs benefit. CMS is continuing to review the input provided by commenters, which may inform future rulemaking on this topic.
Proposal to Accumulate Price Concessions and Discounts ("Stacking") When Determining Best Price. CMS is not finalizing the "Stacking" proposal and is continuing to review the input provided by commenters. Through a separate Paperwork Reduction Act (PRA) request, CMS intends to collect additional information related to manufacturers' stacking methodologies, which may inform future rulemaking on this topic.
Proposal Regarding Drug Price Verification and Transparency Through Data Collection. CMS is not finalizing the proposals surrounding the Price Verification Survey. CMS is continuing to review comments, which may inform future rulemaking.
Definitional Changes
Covered Outpatient Drug. The statutory definition of "COD" specifies that it "does not include any drug, biological product, or insulin provided as part of or incident to, and in the same setting as, any of [a list of services set forth in the regulation], for which payment may be made as part of that service instead of as a direct reimbursement for the drug." Historically, this provision has been interpreted to prevent rebates when the payment for a drug is bundled with a payment for a service. However, the Final Rule shifts this by defining "direct reimbursement" to include both 1) reimbursement for a drug alone and 2) reimbursement for a drug along with the service in a single inclusive payment, provided that: A) the drug, its charge and the number of units are separately identified on the claim, B) the inclusive payment includes an amount directly attributable to the drug and C) the amount attributed to the drug is based on a reimbursement methodology specified in the relevant section of the Medicaid state plan.
Market Date. CMS adopted a definition of "market date" that reflects the date on which the COD was first sold by any manufacturer. CMS declined to adopt a definition for the term "sold" – though it proposed and requested comments on such a definition – and stated that it "will permit manufacturers to use reasonable assumptions as to the date a sale has occurred."
Internal Investigation. Under the Social Security Act, manufacturers typically have a 12-quarter window for making restatements, with exceptions for internal investigations. CMS previously proposed that an "internal investigation" involve findings of fraud or legal violations. However, the Final Rule clarifies that a manufacturer does not need to identify a violation to restate. Instead, it defines an "internal investigation" as one related to the Average Manufacturer Price (AMP), best price, customary prompt pay discounts or nominal prices previously certified in the MDRP, leading to findings of possible fraud or violations.
Non-Innovator Multiple Source Drug. In the Final Rule, CMS amended the definition of a "non-innovator multiple source drug" such that it is "a COD that entered the market before 1962 that is not marketed under a new drug application (NDA)."
Other Changes
12-Quarter Rebate Dispute Time Limitation. CMS is finalizing the proposal to limit the time period for manufacturers to initiate disputes, hearing requests and audits of state-invoiced utilization data to 12 quarters from the last day of the quarter from the date the state invoice was sent to the manufacturer. The only exception is the use of the "postmark date" rather than "the date of the State invoice."
State Plan Requirements, Findings, and Assurances: Clarifying FFS Pharmacy Reimbursement. CMS is finalizing the revision of "State plan requirements, findings, and assurances." The revision aims to ensure that pharmacy providers are adequately reimbursed for both their ingredient costs and professional dispensing service costs in alignment with statutory and regulatory requirements.
Conditions Relating to Physician-Administered Drugs. CMS is finalizing the proposal to require states to collect National Drug Code information on all covered outpatient single- and multiple-source physician-administered drugs and to specify that states should be invoicing for rebates for all covered outpatient physician-administered drugs to receive federal financial participation (FFP) and secure manufacturer rebates. Of note, CMS added a discussion of its statutory authority for extending this requirement by regulation beyond the top 20 multiple source drugs already required by statute, relying on "authority under Section 1902(a)(4) of the Act to specify 'methods of administration' that 'are found by the Secretary to be necessary for the proper and efficient operation'" of the state's Medicaid State plan.
Suspension of a Manufacturer's Drug Rebate Agreement. CMS is finalizing regulatory changes that provide the authority to suspend a rebate agreement for a manufacturer's failure to report drug pricing or drug product information to the agency in a timely manner.
Rescind Revisions from the Dec. 31, 2020, Final Rule on Best Price and AMP. CMS is finalizing the proposal to withdraw the revisions made in the Dec. 31, 2020, final rule to the determination of Best Price and AMP consistent with a court order.
Remove Rebate Cap. CMS is finalizing the proposal to align with the Bipartisan Infrastructure Bill by removing the maximum rebate amounts for rebate periods beginning on or after Jan. 1, 2024.
Beneficiary Identification Number and Processor Control Number (BIN/PCN) on Medicaid Managed Care Cards. CMS has implemented a requirement for Medicaid managed care organizations (MCOs), prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs) that provide coverage for CODs to assign and exclusively use unique Medicaid BIN/PCN combinations and group number identifiers on all Medicaid managed care beneficiary identification cards for pharmacy benefits. CMS believes this change will reduce the risk of duplicate discounts under the 340B Drug Pricing Program by improving the identification of Medicaid managed care claims. In response to requests for additional time, CMS has set the applicability date for this requirement as the first rating period for contracts with managed care plans starting on or after Nov. 19, 2025 – one year after the Final Rule's effective date of Nov. 19, 2024.
Drug Cost Transparency in Medicaid Managed Care Contracts. CMS does not require disclosure of "spread pricing," which is the difference between what a pharmacy benefit manager (PBM) charges a managed care plan for a drug claim and what the PBM pays the pharmacy for that claim. To enhance transparency and accountability in COD payments, CMS adopted a requirement for subcontractors of managed care plans to separately report certain expenses and costs beyond the actual cost of the prescription drug and dispensing fee. CMS finalized the applicability date for this spread pricing disclosure requirement to be the first rating period for contracts with managed care plans starting on or after Nov. 19, 2025.
Request for Information
Request for Information (RFI) on Issues Relating to Requiring a Diagnosis on Medicaid Prescriptions. CMS sought comments on the potential and impact of introducing a requirement that a patient's diagnosis be included on a prescription as a condition for receiving Medicaid FFP. The agency expressed interest in understanding the operational challenges, privacy concerns and additional burden this requirement could impose. CMS also asked for input on strategies to mitigate any negative effects on beneficiaries and providers, including the steps that states would need to take to successfully implement a diagnosis requirement on Medicaid prescriptions. After considering comments, and due to the overwhelming number of comments that were opposed to this requirement, CMS is "not pursuing this requirement in rulemaking at this time. We will continue to review the feedback we receive from interested parties and may address this issue in future rulemaking if appropriate."
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