Medicaid Program; Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program, 34238-34296 [2023-10934]

Download as PDF 34238 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules Centers for Medicare & Medicaid Services 42 CFR Parts 433, 438, and 447 [CMS–2434–P] RIN 0938–AU28 Medicaid Program; Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS). ACTION: Proposed rule. AGENCY: This proposed rule would seek to implement policies in the Medicaid Drug Rebate Program (MDRP) related to the new legislative requirements in the Medicaid Services Investment and Accountability Act of 2019 (MSIAA), which are needed to address drug misclassification, as well as drug pricing and product data misreporting by manufacturers. Additionally, we are proposing several other program integrity and program administration provisions or modifications in this proposed rule including revising and proposing key definitions used in the MDRP. This proposed rule also designates a time limitation on manufacturers initiating audits with States; clarifies and establishes requirements for State feefor-service (FFS) pharmacy reimbursement; codifies conditions relating to States claiming FFP for physician-administered drugs (PADs); clarifies the requirement of accumulating price concessions when determining best price; designates drug price verification and transparency through data collection; and proposes two new contracting requirements between States and their Medicaid managed care plans. In addition, this rule includes a proposal unrelated to MDRP that would make revisions to the third-party liability regulation due to Bipartisan Budget Act (BBA) of 2018. Finally, we are proposing to rescind revisions made by the December 31, 2020 final rule ‘‘Medicaid Program; Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements’’ to the Determination of Best Price and Determination of Average Manufacturer Price (AMP) sections. ddrumheller on DSK120RN23PROD with PROPOSALS2 SUMMARY: VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 To be assured consideration, comments must be received at one of the addresses provided below, by July 25, 2023. ADDRESSES: In commenting, please refer to file code CMS–2434–P. Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed): 1. Electronically. You may submit electronic comments on this regulation to https://www.regulations.gov. Follow the ‘‘Submit a comment’’ instructions. 2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS–2434–P, P.O. Box: 8016, Baltimore, MD 21244–8016. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS–2434–P, Mail Stop C4–26–05, 7500 Security Boulevard, Baltimore, MD 21244–1850. For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section. FOR FURTHER INFORMATION CONTACT: Ruth Blatt, (410) 786–1767, for issues related to the definitions of vaccine, noninnovator multiple-source drug, market date, and covered outpatient drug (COD). Ginger Boscas, (410) 786–3098, for issues related to third party liability. Michael Forman, (410) 786–2666, for issues related to physician-administered drugs. Whitney Swears (410) 786–6543, for issues related to time limitation on audits, definition of vaccine, diagnosis on prescriptions, professional dispensing fees, definition of a manufacturer. Christine Hinds, (410) 786–4578, for issues related to internal investigation, removal of manufacturer rebate cap, drug cost transparency in Medicaid managed care contracts, ‘‘stacking’’ when determining best price, and drug price verification through data collection. Lisa Shochet, (410) 786–5445, for issues related to Beneficiary Identification Number and Processor Control Number (BIN/PCN) and drug misclassifications. Terry Simananda, (410) 786–8144, for issues related to the Collection of Information and Regulatory Impact Analysis sections. DATES: DEPARTMENT OF HEALTH AND HUMAN SERVICES PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received: https:// www.regulations.gov. Follow the search instructions on that website to view public comments. CMS will not post on Regulations.gov public comments that make threats to individuals or institutions or suggest that the individual will take actions to harm the individual. CMS continues to encourage individuals not to submit duplicative comments. We will post acceptable comments from multiple unique commenters even if the content is identical or nearly identical to other comments. I. Background A. Introduction Under the Medicaid program, States may provide coverage of prescribed drugs as an optional benefit under section 1905(a)(12) of the Social Security Act (the Act). Section 1903(a) of the Act provides for Federal Financial Participation (FFP) in State expenditures for these drugs. In the case of a State that provides for medical assistance for covered outpatient drugs (CODs), as provided under section 1902(a)(54) of the Act, the State must comply with the requirements of section 1927 of the Act. Section 1927 of the Act governs the Medicaid Drug Rebate Program (MDRP) and payment for CODs, which are defined in section 1927(k)(2) of the Act. In general, for payment to be made available for CODs under section 1903(a) of the Act, manufacturers must enter into a National Drug Rebate Agreement (NDRA) as set forth in section 1927(a) of the Act. See also section 1903(i)(10) of the Act. The rebates paid by manufacturers to States help to partially offset the Federal and State costs of most outpatient prescription drugs dispensed to Medicaid beneficiaries. The MDRP provides specific requirements for manufacturer rebate agreements, drug pricing submission and confidentiality requirements, the formulas for calculating rebate payments, drug utilization reviews (DUR), and requirements for States for CODs. With limited exceptions, if a manufacturer wants payment to be E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules available under Medicaid for their CODs, the manufacturer must participate (have entered into and have in effect a rebate agreement) in the MDRP, and agree to pay rebates for CODs dispensed and paid for under the State Plan. The amount of the rebate is determined by a formula set forth in section 1927(c) of the Act. Generally, the formula to calculate the rebate that applies to a particular drug depends on whether the drug is classified as (1) a single source drug (S drug) or innovator multiple source drug (I drug) (commonly referred to as a brand-name drug), or (2) other drugs, which include noninnovator multiple source drugs (N drug), commonly referred to as generic drugs, among others. Consistent with section 1927(b)(3)(A) of the Act, a manufacturer must report and certify certain drug product and drug pricing information for CODs to CMS not later than 30 days after the last day of each month and certain drug pricing information and drug product data 30 days after the last day of each quarter of a rebate period. For example, drug pricing information that manufacturers must submit and certify includes average manufacturer price (AMP) and best price data in addition to other information consistent with section 1927(b)(3)(A) of the Act each quarter. We use the reported data to calculate an accurate unit rebate amount (URA) for each covered outpatient drug to assist States with billing manufacturers for rebates. Drug product information that is reported includes the name of the drug, its National Drug Code (NDC), drug category, and drug type, among other items. However, manufacturers ultimately remain responsible for accurately calculating the URA for their drug products. Manufacturers pay rebates to States for each unit of the drug dispensed and paid for under the State Plan on the basis of the URA. Thus, the failure of a manufacturer to submit and certify timely monthly and quarterly pricing and drug product data for a drug may impede the States’ ability to invoice and collect appropriate rebate amounts. If a manufacturer fails to submit timely information, or misreports information, we may be unable to establish accurate URAs due to the misreporting or late reporting. While we provide URAs to the States each quarter to help facilitate billing manufacturers for rebates, it is ultimately the manufacturer’s responsibility to assure that accurate rebates are paid to States for their CODs. One specific element of drug product information that is required to be submitted by manufacturers includes VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 drug category or drug classification information. Generally, drugs classified as single source or innovator multiple source pay higher rebates than those that are classified as an ‘‘other drug,’’ such as noninnovator multiple source drugs. In accordance with section 1927(c) of the Act and 42 CFR 447.509, the rebate calculation for a particular COD may also include an additional inflationary component to account for increases in the drug’s Average Manufacturer’s Price from the base date AMP quarter to the current calendar quarter’s AMP. That is, this additional rebate is generally calculated based on the difference between the drug’s current quarter AMP and its base date AMP adjusted to the current period by the Consumer Price Index for All Urban Consumers (CPI–U). Prior to the enactment of the Medicaid Services Investment and Accountability Act of April 2019 (MSIAA) (Pub. L. 116–16; enacted April 18, 2019), section 1927(k)(7)(A)(iv) of the Act defined a single source drug as a covered outpatient drug which is produced or distributed under an original new drug application. Section 1927(k)(7)(A)(ii) of the Act similarly defined an innovator multiple source drug as a multiple source drug that was originally marketed under an original new drug application. A noninnovator multiple source drug was defined at section 1927(k)(7)(A)(iii) of the Act as a multiple source drug that is not an innovator multiple source drug. Prior to the 2016 Medicaid Covered Outpatient Drug final rule with comment period (COD final rule) (81 FR 5170), the regulatory definitions of a single source and an innovator multiple source drug largely mirrored the statute and defined a drug as a single source or innovator multiple source drug based on whether it was produced, distributed, or marketed under an ‘‘original new drug application.’’ The statute did not expressly define ‘‘original NDA’’. However, CMS’ longstanding interpretation of the term was that an original new drug application (NDA) is an NDA approved under section 505(b)(1) or (2) of the Federal Food, Drug, and Cosmetic Act (FFDCA), as distinguished from one approved under an abbreviated NDA (ANDA) under section 505(j) of the FFDCA (Manufacturer’s Release 113). We codified new regulatory definitions of single source and innovator multiple source drugs in the COD final rule and added a narrow exception for ‘‘certain drugs [that] might be more appropriately treated as if they were approved under an ANDA and classified as a noninnovator multiple PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 34239 source drug’’ (81 FR 5191). The COD final rule also added a drug approved under a Biologics License Application (BLA) to the definition of single source drug (81 FR 5203). In the COD final rule, we also introduced a process by which drug manufacturers could submit a request for a narrow exception to have us recognize individual drugs approved under an NDA as noninnovator multiple source drugs prospectively from the effective date of the COD final rule. Instructions to manufacturers regarding this process were included in Manufacturer Release #98, May 2, 2016 (https://www.medicaid.gov/medicaidchip-program-information/by-topics/ prescription-drugs/downloads/rxreleases/mfr-releases/mfr-rel-098.pdf). The COD final rule did not, however, excuse manufacturers from their obligation to correctly report drugs approved under an NDA as either single source or innovator multiple source drugs prior to the effective date of the COD final rule, which was April 1, 2016. Yet, notwithstanding our interpretation of the statute, many manufacturers have disregarded our reasonable interpretation of the statute and have continued to misreport drugs marketed under an NDA as noninnovator multiple source drugs for periods prior to April 1, 2016 (Manufacturer Release #113-https:// www.medicaid.gov/prescription-drugs/ downloads/mfr-rel-113.pdf). B. Amendments Made by the Medicaid Services Investment and Accountability Act of 2019 (MSIAA) to Section 1927 of the Act Regarding MDRP Drug Classification Enforcement and Penalties Section 6 of the MSIAA, titled ‘‘Preventing the Misclassification of Drugs Under the Medicaid Drug Rebate Program,’’ amended sections 1903 and 1927 of the Act to specify the definitions for multiple source drug, single source drug and innovator multiple source drug, and to provide the Secretary with additional compliance, oversight and enforcement authorities to ensure compliance with program requirements with respect to manufacturers’ reporting of drug product and pricing information, which includes the appropriate classification of a drug. Drug classification refers to how a drug should be classified—as a single source, innovator multiple source, or noninnovator multiple source drug for the purposes of determining the correct rebates that a manufacturer owes E:\FR\FM\26MYP2.SGM 26MYP2 34240 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules the States.1 In general, a misclassification in the MDRP occurs when a manufacturer reports and certifies its covered outpatient drug under a drug category that is not supported by the statutory and regulatory definitions of S, I, or N. A drug that is misclassified is likely paying different rebates to States than those supported by statute and regulation. We published guidance to manufacturers regarding compliance with drug pricing and drug product information reporting under this new law in Manufacturer Release #113 on June 5, 2020. See https:// www.medicaid.gov/prescription-drugs/ downloads/mfr-rel-113.pdf. Here, although much of this law is selfimplementing, we are proposing a series of regulatory amendments at §§ 447.509 and 447.510 to implement and codify the statutory changes in regulation. We propose that a misclassification of a drug under the MDRP has occurred or is occurring when a manufacturer reports and certifies to the agency a drug category or drug product information relating to that COD that is not supported by the statutory and regulatory definitions of S, I, or N. We also define a misclassification as a situation in which a manufacturer is correctly reporting its drug category or drug product information for a COD, but is paying a different rebate amount to the States than is supported by the classification. The MSIAA also amended the Act to expressly require a manufacturer to report not later than 30 days after the last day of each month of a rebate period under the agreement, such drug product information as the Secretary shall require for each of the manufacturer’s covered outpatient drugs. We are proposing a definition of ‘‘drug product information’’ for the purposes of the MDRP. Similarly, the MSIAA amended the Act to specify that the reporting of false drug product information and data related to false drug product information would also be subject to possible civil monetary penalties (CMPs) by the HHS Office of the Inspector General (OIG), and to provide specific new authority to the Secretary to issue civil monetary penalties related to knowing misclassifications of drug product or misreported information. These new OIG authorities will not be the subject of this rulemaking. Under the MSIAA, if a manufacturer fails to correct the misclassification of a drug in a timely manner after receiving notification from the agency that the drug is misclassified, in addition to the manufacturer having to pay past unpaid rebates to the States for the misclassified drug if applicable, the Secretary can take any or all of the following actions: (1) correct the misclassification, using drug product information provided by the manufacturer on behalf of the manufacturer; (2) suspend the misclassified drug, and the drug’s status as a covered outpatient drug under the manufacturer’s national rebate agreement, and exclude the misclassified drug from FFP (correlating amendments to section 1903 of the Act); and, (3) impose CMPs for each rebate period during which the drug is misclassified subject to certain limitations. The Act expressly provides that the imposition of such penalties may be in addition to other remedies, such as termination from the MDRP, or CMPs under Title XI. The manufacturer has an affirmative legal obligation to correctly report all necessary drug product and pricing information to the agency on a timely basis as described in the statute and regulations. When issues or questions regarding a drug’s classification arise, we generally rely upon various sources of information to be able to determine if a drug is misclassified in MDRP. In its oversight role, the agency will use information reported by manufacturers to us, in combination with publicly available information, to be able to make determinations of whether a drug is misclassified in the MDRP. The agency also uses manufacturer reported information, such as the COD status code, in combination with information available on the Food and Drug Administration’s (FDA’s) Comprehensive NDC Structured Product Labeling (SPL) Data Elements file (NSDE) https://download.open.fda.gov/ Comprehensive_NDC_SPL_Data_ Elements_File.zip, and information from FDA’s drugs@fda web page https:// www.accessdata.fda.gov/scripts/cder/ daf/ to be able to verify that the national drug codes (NDCs) reported to the MDRP by manufacturers are appropriately classified and reported. Codifying these statutory amendments in our regulations provides an opportunity for the agency to give additional clarity to and guidance on the new legal authorities for ensuring oversight of, compliance with, and enforcement of the provisions of the MDRP, and ultimately, to ensure that Federal and State programs are receiving appropriate rebates and that CMS continues to be a stringent steward of the Medicaid program. TABLE 1—HISTORY OF THE CHANGES IN THE DEFINITION OF SINGLE SOURCE DRUG AND INNOVATOR MULTIPLE SOURCE DRUG Statute ddrumheller on DSK120RN23PROD with PROPOSALS2 Prior to April 18, 2019 MSIIA enactment. Single Source drug Section 1927(k)(7)(A)(iv) of the Act A covered outpatient drug which is produced or distributed under an original new drug application approved by the Food and Drug Administration (FDA), including a drug product marketed by any cross-licensed producers or distributors operating under the new drug application. 1 Section 1927(c)(3) of the Act describes rebates for ‘‘other drugs’’ and section 1927(c)(3)(A) of the Act, more specifically describes rebates for covered outpatient drugs ‘‘other than single source drugs and innovator multiple source drugs.’’ The MDRP reporting system provides for all ‘‘other drugs’’ that are covered outpatient drugs to be classified in the VerDate Sep<11>2014 Regulation 19:21 May 25, 2023 Jkt 259001 system as N drugs, regardless of whether they expressly meet the definition of noninnovator multiple source drug. This reporting methodology has been in effect for the history of the program and interested parties have understood that a covered outpatient drug that was not an S or an I drug is reported in the system as an N drug. In a later PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 section of this proposed rule, we are proposing changes to the regulatory definition of a N drug to more clearly align with the statutory definition of N drug. This is a technical change and is not intended to modify any reporting requirements. E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules 34241 TABLE 1—HISTORY OF THE CHANGES IN THE DEFINITION OF SINGLE SOURCE DRUG AND INNOVATOR MULTIPLE SOURCE DRUG—Continued ddrumheller on DSK120RN23PROD with PROPOSALS2 Statute Regulation 2007 Final Rule .................... Innovator Multiple Source Drug Section 1927(k)(7)(A)(ii) of the Act A multiple source drug that was originally marketed under an original new drug application approved by the Food and Drug Administration. .......................................................................................... 2016 Final Rule .................... .......................................................................................... MSIAA enactment on April 18, 2019. Single Source drug Section 1927(k)(7)(A)(iv) of the Act The term ‘‘single source drug’’ means a covered outpatient drug, including a drug product approved for marketing as a non-prescription drug that is regarded as a covered outpatient drug under paragraph (4), which is produced or distributed under a new drug application approved by the Food and Drug Administration, including a drug product marketed by any cross-licensed producers or distributors operating under the new drug application unless the Secretary determines that a narrow exception applies (as described in 42 CFR 447.502 (or any successor regulation)). Such term also includes a covered outpatient drug that is a biological product licensed, produced, or distributed under a biologics license application approved by the Food and Drug Administration. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 § 447.502 Single source drug A covered outpatient drug that is produced or distributed under an original new drug application (NDA) approved by the FDA, including a drug product marketed by any cross-licensed producers or distributors operating under the NDA. It also includes a covered outpatient drug approved under a biological license application (BLA), product license approval (PLA), establishment license approval (ELA) or antibiotic drug approval (ADA) PLA, ELA, or ADA. Innovator Multiple Source Drug A multiple source drug that was originally marketed under an original NDA approved by the FDA, including an authorized generic drug. It includes a drug product marketed by any cross-licensed producers, labelers, or distributors operating under the NDA and a covered outpatient drug approved under a PLA, ELA, or ADA. The term ‘‘single source drug’’ means a covered outpatient drug that is produced or distributed under an original NDA approved by FDA and has an approved NDA number issued by FDA, including a drug product marketed by any cross licensed producers or distributors operating under the NDA. It also includes a covered outpatient drug approved under a BLA, PLA, ELA, or ADA. For purposes of this definition and the MDR program, an original NDA means an NDA, other than an ANDA, approved by the FDA for marketing, unless CMS determines that a narrow exception applies. The term ‘‘innovator multiple source drug’’ means a multiple source drug that was originally marketed under an original NDA approved by FDA, including an authorized generic drug. It also includes a drug product marketed by any cross-licensed producers, labelers, or distributors operating under the NDA and a covered outpatient drug approved under a BLA, ELA, or ADA. For purposes of this definition and the Medicaid drug rebates (MDR) program, an original NDA means an NDA, other than an Abbreviated New Drug Application (ANDA), approved by the FDA for marketing, unless CMS determines that a narrow exception applies. E:\FR\FM\26MYP2.SGM 26MYP2 34242 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules TABLE 1—HISTORY OF THE CHANGES IN THE DEFINITION OF SINGLE SOURCE DRUG AND INNOVATOR MULTIPLE SOURCE DRUG—Continued Statute ddrumheller on DSK120RN23PROD with PROPOSALS2 2020 Final Rule .................... Innovator Multiple Source Drug Section 1927(k)(7)(A)(ii) of the Act The term ‘‘innovator multiple source drug’’ means a multiple source drug that is marketed under a new drug application approved by the FDA, unless the Secretary determines that a narrow exception applies (as described in 42 CFR 447.502 (or any successor regulation)). .......................................................................................... C. MDRP Program Administration Proposed Changes We are focused on increasing efficiency and economy of directing overall operations, resources, and activities of MDRP to better facilitate the needs of Medicaid beneficiaries. In that regard, we are proposing a number of new regulatory policies and clarification of existing policies. Specifically, consistent with our statutory authorities, we are proposing to define, specify or amend the definitions for COD, internal investigation (for restatement purposes outside the 3-year time window), manufacturer (for NDRA purposes), market date, noninnovator multiple source drug, drug product information, and vaccine for the purpose of MDRP. We are also proposing to specify that the rebate provisions for a drug other than a single source drug or an innovator multiple source drug apply to an array of drugs, including those that may not satisfy the definition of multiple source drug. As noted above, based on longstanding operational processes, such drugs are properly classified as N drugs in the MDP reporting system. Next, we are also proposing new policies, including to add a time limitation on manufacturer ability to initiate audits with States, to further clarify and establish the requirements VerDate Sep<11>2014 Regulation 19:21 May 25, 2023 Jkt 259001 The term ‘‘single source drug’’ means a covered outpatient drug, including a drug product approved for marketing as a non-prescription drug that is regarded as a covered outpatient drug under section 1927(k)(4) of the Act, which is produced or distributed under a new drug application [removing ‘original’] approved by the FDA, including a drug product marketed by any cross-licensed producers or distributors operating under the new drug application unless the Secretary determines that a narrow exception applies (as described in this section), and includes a covered outpatient drug that is a biological product licensed, produced, or distributed under a biologics license application approved by the FDA. The term ‘‘innovator multiple source drug’’ means a multiple source drug that is marketed [removing ‘was originally marketed’] under a new drug application [removing ‘original’] approved by the Food and Drug Administration, unless the Secretary determines that a narrow exception applies (as described in 42 CFR 447.502 (or any successor regulation)). for FFS pharmacy reimbursement, and to clarify the required collection of all National Drug Codes (NDC) for single and multiple source physicianadministered drugs to receive FFP and secure manufacturer rebates. We also propose to revise Medicaid managed care standard contract requirements to adopt a requirement for inclusion of Beneficiary Identification Number and Processor Control Number (BIN/PCN) numbers on Medicaid prescription identification cards, as well as enhance drug cost transparency by adopting specific requirements relating to the third-party administration of the pharmacy benefit. These proposed revisions are designed to improve CMS oversight, and State administration of Medicaid pharmacy benefits by promoting greater consistency and accuracy of reporting, strengthened data, and robust stewardship of State and Federal funds. These proposals would help to strengthen and preserve the foundation of the MDRP by ensuring proper payments so Federal expenditures are spent appropriately on delivering quality, necessary care, while also ensuring sufficient access to care for Medicaid beneficiaries. PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 1. Proposal To Modify the Definition of Covered Outpatient Drug Sections 1927(k)(2) and (3) of the Act provide a definition of the term ‘‘covered outpatient drug’’ (COD) and a limiting definition, which excludes certain drugs, biological products, and insulin provided as part of, or as incident to and in the same setting as, enumerated services and settings. This exclusion is subject to a parenthetical, however, which limits the exclusion to when payment may be made as part of payment for the enumerated service or setting, and not as direct reimbursement for the drug. In the COD final rule, we finalized a regulatory definition of covered outpatient drug in § 447.502 that substantially mirrors the statutory definition, and consistent with section 1927(k)(3) of the Act, the regulatory language includes a limiting clause at § 447.502 (covered outpatient drug) that excludes from the definition of COD any drug, biological product, or insulin provided as part of or incident to and in the same setting in a list of services, and for which payment may be made as part of that service instead of as a direct reimbursement for the drug. Over the years we have received questions about when a payment is considered to be a direct reimbursement for a drug and whether identifying a E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 drug separately on a claim for payment may qualify as direct reimbursement for a drug, rendering the drug eligible for rebates under section 1927 of the Act, or in other words, making the limiting definition inapplicable. To provide greater clarity, we propose to amend the regulatory definition of the term covered outpatient drug at § 447.502 to clarify when a payment is considered direct reimbursement for the drug. Additionally, we propose to more closely align the regulatory language to the statute by changing ‘‘. . . instead of as a direct reimbursement . . .’’ to ‘‘. . . and not as direct reimbursement . . .’’ 2. Proposed Definition of an Internal Investigation for Purposes of Pricing Metric Revisions In accordance with section 1927(b)(3) of the Act, § 447.510 of the applicable regulations, and the terms of the NDRA, manufacturers are required to report certain pricing and drug product information to CMS on a timely basis or could incur penalties or other compliance and enforcement measures. As explained in the ‘‘Medicaid Program; Time Limitation on Price Recalculations and Recordkeeping Requirements Under the Drug Rebate Program’’ final rule (final time limitation rule) (68 FR 51912, August 29, 2003), in an effort to improve the administration and efficiency of the MDRP and assist States and manufacturers that would otherwise be required to retain drug utilization pricing data records indefinitely, we established the 12-quarter time frame for reporting revisions to AMP or best price information. Despite the 12-quarter time frame, we continued to receive requests from manufacturers to make revisions to their pricing data that fall outside of the 12quarter period. Consequently, in the COD final rule (81 FR 5278) we established § 447.510(b)(1), which provides that a manufacturer must report to CMS any revision to AMP, best price, customary prompt pay discounts or nominal prices (pricing data) for a period not to exceed 12 quarters from the quarter in which the data were due unless one of a number of enumerated exceptions applies. See § 447.510(b)(1)(i) through (vi). Section 447.510(b)(1)(v) provides an exception to the 12-quarter price reporting rule if the change is to address specific rebate adjustments to States by manufacturers, as required by CMS or court order, or under an internal investigation, or an OIG or Department of Justice (DOJ) investigation. However, as part of that rule, we did not define the term internal investigation which has led to different interpretations of the VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 nature of an internal investigation. Therefore, we propose to add a definition of internal investigation at § 447.502 and additional clarity around the 12-quarter rule at § 447.510. 3. Proposal To Modify the Definition of Manufacturer for National Drug Rebate Agreement (NDRA) Compliance Purposes At times, we receive requests from manufacturers to allow them to exclude a particular labeler that they may own or have a business affiliation with from participation in the MDRP, even though the labeler markets products that meet the definition of covered outpatient drug. It is our view that the statute requires that all labelers of a manufacturer that market CODs be required to participate in the MDRP to meet the statutory requirement that FFP is only available for a manufacturer’s drugs if they participate in the program. That is, all the labelers of the manufacturer have to be in the program, or none of the labelers can be in the program. We are proposing to further refine the definition manufacturer at § 447.502 to codify the requirements under section 1927(a)(1) of the Act which specifies that a manufacturer has to have entered into and have in effect a rebate agreement with the Secretary in order for payment to be available for their CODs under Medicaid. We are also proposing to codify in regulation that all labelers (with their applicable codes) that are associated or affiliated with a manufacturer must have a rebate agreement in effect in order for the manufacturer to satisfy the statutory requirement that the manufacturer have a rebate agreement in effect with the Secretary. Additionally, we are also proposing a new paragraph (h) in § 447.510 to further specify the responsibilities of a manufacturer with respect to rebate agreements when that manufacturer acquires or purchases another labeler, acquires or purchases covered outpatient drugs from another labeler, or forms a new subsidiary or associated entity to ensure that any of a manufacturer’s labeler codes that market CODs are included in the MDRP. We also specify that termination of one of the manufacturer’s labelers from the program results in all labelers of that manufacturer being terminated from the program whether initiated by the manufacturer or the government. If the manufacturer is terminated for noncompliance, they can come back into the program under certain conditions, including resolving all compliance issues. However, the one- PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 34243 quarter delay in program re-entry provided for in section 1927(b)(4)(C) of the Act still applies unless good cause is found. 4. Proposal To Establish a Definition of Market Date for a COD for the Purposes of Determining a Base Date AMP for a COD Section 1927 of the Act governs the MDRP and payment for CODs which are defined in section 1927(k)(2) of the Act. Manufacturers that participate in the MDRP are required to pay rebates for CODs that are dispensed and paid for under the State Medicaid plan. See section 1927(b)(1)(A) of the Act. The rebates due by manufacturers are calculated based on statutory formulas described in section 1927(c) of the Act and consist of a basic rebate and, in some cases, an additional rebate that is applicable when an increase in the AMP, with respect to each dosage form and strength of a drug, exceeds the rate of inflation. One of the factors in the calculation of the additional rebate is the base date AMP of the drug, a value that is determined based on the market date of the drug. Manufacturers are required to report the market date of each dosage form and strength of a COD for all of its CODs. We have received numerous inquiries regarding the determination of market date for reporting to MDRP, and some manufacturers have reported incorrect market dates for their CODs. Because the term market date has not been previously defined in regulation and it is a critical factor in the determination of base date AMP, and ultimately, the calculation of applicable rebates, we are proposing to define the term market date at § 447.502 for the purpose of the MDRP. 5. Proposal To Modify the Definition of Noninnovator Multiple Source Drug As discussed previously in this proposed rule, section 6(c) of the MSIAA included a number of amendments to statutory definitions in section 1927 of the Act. Generally, those statutory amendments were discussed in the ‘‘Medicaid Program; Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements’’ final rule published in the December 31, 2020 Federal Register (the December 31, 2020 final rule) (see 85 FR 87000, 87032), where the regulatory definitions of multiple source drug, innovator multiple source (I) drug, and single source drug were amended E:\FR\FM\26MYP2.SGM 26MYP2 34244 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 consistent with the MSIAA. One of the amendments to the regulatory definitions was to remove the phrase ‘‘was originally marketed’’ from the definition of an I drug and replace it with ‘‘is marketed.’’ The change in the statutory and regulatory definitions of an I drug should have prompted us to also change the regulatory definition of noninnovator multiple source (N) drug, however we neglected to do so in the December 31, 2020 final rule. We are now proposing to amend the definition of an N drug at § 447.502 to maintain the clear distinction between an I drug and an N drug. 6. Proposal To Define Vaccine for the Purposes of the MDRP Only Section 1927(k)(2)(B) of the Act specifically excludes vaccines from the definition of COD for purposes of the MDRP. This exclusion is codified in paragraph (1)(iv) of the regulatory definition of COD at § 447.502. Section 1927 of the Act, specifically, does not define vaccine. Nor is there a definition of vaccine in Title XI, XVIII, XIX, or XXI of the Act (applicable to Medicare, Medicaid, and Children’s Health Insurance Program (CHIP)), that speaks to the specific kinds of biological products that qualify as vaccines, in terms of their actions in the human body and how and when they are used.2 Moreover, we are not aware that any authorizing statutes for any other Department of Health and Human Services agencies include such a statutory definition of the term ‘‘vaccine.’’ To date, we have not established a regulatory definition of the term vaccine as used in section 1927(k)(2)(B) of the Act for the specific purposes of the MDRP. However, given therapeutic advances that have occurred since 1990, when the original rebate statute was enacted, we believe that a regulatory definition is necessary to identify which products are considered vaccines for the purposes of the MDRP and thus, appropriately excluded from the definition of COD. We are therefore proposing a definition of vaccine at § 447.502 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 2 While section 1928(h) of the Act defines ‘‘pediatric vaccine’’ and ‘‘qualified pediatric vaccine,’’ those definitions do not speak to the actions of a vaccine in the human body and how and when it is used, and therefore do not help CMS determine when a product should count as a vaccine (as opposed to a drug) for purposes of the Medicaid Drug Rebate Program. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 consistent with section 1927 of the Act, and applicable rebate liability under the MDRP. The regulatory definition of vaccine that is proposed to be added to § 447.502 would be established solely for the purposes of the MDRP, and be applicable only to that program. It would not apply under any title XIX statutory provisions other than section 1927(k)(2), or to separate CHIPs operating pursuant to 42 CFR 457.70(a)(1) and (d), or for purposes of the Vaccines for Children Program. Nor would it apply to any other programs within CMS or any other agencies within the Department of Health and Human Services, (for example, FDA, Centers for Disease Control and Prevention (CDC), or Health Resources and Services Administration (HRSA)). We note that these proposed changes would only specify which products are vaccines and are therefore excluded from the definition of a covered outpatient drug and are not subject to Medicaid drug rebates. This proposed policy would not apply with regard to any applicable Federal or State requirements to cover vaccines for Medicaid beneficiaries, as applicable. 7. Proposal To Accumulate Price Concessions and Discounts (‘‘Stacking’’) When Determining Best Price Section 1927(c)(1)(C) of the Act defines the term ‘‘best price’’ to mean with respect to a single source drug or innovator multiple source drug of a manufacturer (including the lowest price available to any entity for any such drug of a manufacturer that is sold under a new drug application approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act), the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States, subject to certain exceptions and special rules. The implementing regulations for the determination of best price are found at § 447.505, and we propose to revise § 447.505(d)(3) to add language to make clearer that the manufacturer must adjust the best price for a drug for a rebate period if cumulative discounts, rebates, or other arrangements to best price eligible entities subsequently adjust the prices available from the manufacturer, and that those discounts, rebates, or other arrangements must be stacked for a single transaction to determine a final price realized by the manufacturer for a drug. In other words, we are proposing to make clearer that manufacturers have to stack all applicable discounts that they offer on PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 a single sale of a covered outpatient drug, including discounts or rebates provided to more than one best price eligible entity. 8. Proposal To Establish a Time Limitation for Audits Over Utilization Data With States: 12-Quarter Rebate Dispute Time Limitation Currently, there is no time limit for a manufacturer to initiate an audit or resolve previously disputed State utilization data with respect to rebates owed, and section 1927 of the Act does not impose a specific timeframe on a manufacturer’s audit authority. As a result, any dispute of State invoices arising from audits, reviews, or hearings of State information on State utilization data is not limited to current quarter rebate invoices, but may also be initiated for prior quarterly rebate invoices that have been previously paid in full. We are proposing 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 of State invoice to the manufacturer. We propose to include a new paragraph (j), titled ‘‘Manufacturer audits of State-provided information,’’ at § 447.510, to limit the time a manufacturer has to initiate a dispute, hearing request or audit of Stateinvoiced utilization data with a State, to ensure more efficient administration of the Medicaid Drug Rebate Programs. 9. Proposal Regarding Drug Price Verification and Transparency Through Data Collection Since the beginning of the MDRP in 1991, the Secretary has had the authority, under section 1927(b)(3)(B) of the Act, to survey wholesalers and manufacturers that directly distribute their covered outpatient drugs, when necessary, to verify manufacturer prices that are reported under section 1927(b)(3)(A) of the Act, if required to make a payment. The prices that are subject to this survey include a manufacturer’s AMP, best price, Average Sales Price (ASP), and in certain cases, Wholesale Acquisition Cost (WAC) for a drug. (Note that in 2003, Congress amended section 1927(b)(3)(B) of the Act in the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108–173, enacted December 8, 2003), to expand the original survey authority to include manufacturer’s average sales prices (including wholesale acquisition cost or WAC).) These prices that are reported to the agency under section 1927(b)(3)(A) of the Act are used by various CMS programs, such as E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules Medicare Part B and State Medicaid agencies, to pay for drugs for beneficiaries, as well as calculate rebates paid by manufacturers to States under MDRP. Thus, there is a direct connection between the prices reported to us and the payments made by Medicaid. The types of drugs paid for by Medicaid, manufacturers’ pricing structures for these drugs, as well as the methods used by manufacturers to distribute these drugs, have evolved since the enactment of the MDRP, as well as the enactment of the MMA. New highly individualized gene and cell therapy drug treatments have resulted in manufacturer launch prices that have increased dramatically, impacting the manufacturers’ prices reported to CMS. In addition, manufacturers and health plans now own pharmacy benefit managers (PBMs), and manufacturers are more frequently limiting the distribution of drugs through specialty pharmacies, some of which are owned by the PBMs themselves. All of these factors impact how manufacturers set drug pricing, and, given that these prices are used to set payment rates, it affects the payments that State Medicaid programs make for these drugs. For example, State Medicaid programs use the ASP values reported by manufacturers to make payment for many physicianadministered drugs. A product’s WAC has generally tracked its acquisition cost to providers for brand name drugs, and this WAC value is used by payers to reimburse them for the drug cost component of providing the drug. AMP is used to calculate Federal Upper Limits (FULs) for multiple source drugs. While the model of distribution from manufacturer to wholesaler to provider still exists, and the predominant provider of pharmacy services remains the community-based pharmacy, there are other arrangements emerging for the production and distribution of specialty and high-cost gene therapy drugs, and pricing structures for these drugs that were not necessarily existing in the market when the MDRP was enacted. Section 1902(a)(30)(A) of the Act requires that Medicaid payments be consistent with economy, efficiency, and quality of care to enlist enough providers so that care and services are available under the plan to Medicaid beneficiaries at least to the extent that such care and services are available to the general population in the geographic area. It is important that the Medicaid program understand the production and distribution method for these drugs, as well as the impact on prices and charges, to assure beneficiary access to VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 these medications. Therefore, using the authority at section 1927(b)(3)(B) of the Act, which grants the Secretary the ability to survey wholesalers and manufacturers to obtain information about manufacturer’s prices for a drug reported to us under section 1927(b)(3)(A) of the Act, we are proposing rules to describe those situations when it is necessary for surveys to be sent to manufacturers and wholesalers to verify prices and charges, and the information that would be requested, to verify prices or charges such that payments can be made. 10. Proposal To Clarify and Establish Requirements for FFS Pharmacy Reimbursement In the COD final rule, we finalized regulations to move FFS pharmacy reimbursement to an actual acquisition cost-based reimbursement, under which pharmacists would be paid for the ingredient costs of the drug that was dispensed, and a professional dispensing fee (PDF) that reflected their costs of dispensing. Since that time, almost every State has made the appropriate transition, and the updated pharmacy reimbursement methodology is accurately reflected in approved amendments to their State Plans. Nonetheless, we are proposing to revise § 447.518, ‘‘State plan requirements, findings, and assurances,’’ in paragraph (d)(1) to ensure that pharmacy providers are reimbursed adequately for both their pharmacy ingredient costs and professional dispensing services costs consistent with the applicable statutory and regulatory requirements. This regulation currently indicates that States are required to provide adequate data to support any proposed changes to either component of the reimbursement methodology (ingredient cost or PDF), such as a State or national survey of retail pharmacy providers or other reliable data other than a survey. We are proposing to provide clarity regarding adequate data so that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available at least to the extent that such care and services are available to the general population in the geographic area, by expressly providing in regulation that the research and data must be based on costs and be sufficient to establish the adequacy of the pharmacy reimbursement methodology under the State Plan. In addition, we are proposing to state in regulatory text that other data, such as reimbursements that pharmacies accept from third parties, PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 34245 are not cost-based data, and therefore, cannot be used by States to justify PDFs. 11. Proposals Implementing Section 1927(a)(7) of the Act and Federal Financial Participation (FFP): Conditions Relating to PhysicianAdministered Drugs Generally, physician-administered drugs may satisfy the definition of a covered outpatient drugs (COD) under section 1927(k)(2) of the Act, subject to the limiting definition at section 1927(k)(3) of the Act. Prior to the Deficit Reduction Act (DRA) of 2005 (Pub. L. 109–171, enacted February 8, 2006), States did not collect rebates on all physician-administered drugs when they were not identified by NDC number, because the NDC number is necessary for States to invoice manufacturers for rebates. Section 6002 of the DRA added sections 1903(i)(10)(C) and 1927(a)(7) to the Act to require the States to collect and submit certain utilization data on certain physician-administered drugs in order for FFP to be available for these drugs, and for States to secure rebates. More specifically, in accordance with section 1927(a)(7) of the Act, titled ‘‘Requirement For Submission Of Utilization Data For Certain PhysicianAdministered Drugs’’, States are required to provide for the collection and submission of utilization data and coding (such as J-codes 3 and NDC numbers) for a covered outpatient drug that is a single source or a multiple source drug that is a top 20 high dollar volume physician-administered drug on a published list (based on highest dollar volume dispensed under Medicaid identified by the Secretary) that the Secretary may specify in order for payment to be available under section 1903 of the Act and for States to secure applicable Medicaid rebates.4 This list may be modified year to year to reflect changes in such volume. Regulations at § 447.520 were established to implement these statutory provisions in the final rule entitled ‘‘Medicaid Program; Prescription Drugs’’ (72 FR 39142, 39162) (hereinafter referred to as the July 17, 2007 final rule), specifying the conditions for FFP for physician-administered drugs.5 We are proposing to amend § 447.520 to require States to collect NDC information on all covered outpatient single and multiple source physician3 J codes are a subset of the Healthcare Common Procedure Coding System (HCPCS) Level II code set used to primarily identify injectable drugs. 4 https://www.govinfo.gov/content/pkg/CFR-2007title42-vol4/pdf/CFR-2007-title42-vol4-sec447520.pdf. 5 Ibid. E:\FR\FM\26MYP2.SGM 26MYP2 34246 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 administered drugs and to specify that States should be invoicing for rebates for all covered outpatient physicianadministered drugs to receive FFP and secure manufacturer rebates. 12. Proposal Related to Suspension of a Manufacturer’s Drug Rebate Agreement We are proposing regulatory changes to further implement section 1927(b)(3)(C)(i) of the Act, which provides authority to suspend a rebate agreement for a manufacturer’s failure to timely report drug pricing or drug product information to the agency, required under section 1927(b)(3)(A) of the Act, and when there is a continued failure to report after a 90-calendar day deadline for reporting of information is imposed by the agency. Specifically, the new § 447.510(i) proposes that a manufacturer who has failed to report timely information to the agency under § 447.510(a) and (d), would be imposed a 90-calendar day deadline determined by the agency, and communicated to electronically and in writing by the agency to report such information, or the manufacturer would have its rebate agreement suspended. This section further proposes that failure to report such information to the agency after the end of the imposed 90calendar day period would result in suspension of the rebate agreement, and that such agreement shall not be reinstated until such information is reported in full and certified, but not for a period of suspension of less than 30 calendar days. This suspension would apply to all of the manufacturer’s labelers that have a rebate agreement with the Secretary, consistent with the proposed regulatory definition of ‘‘manufacturer.’’ This rule also proposes that continued suspension of the rebate agreement could result in termination for cause. During the period of time of the suspension, FFP would not be available to the States for a manufacturer’s CODs. The States would be given 30 calendar days’ notice before such a suspension is implemented. This would allow States to notify prescribers and beneficiaries that a specific COD or specific CODs may be unavailable for a period of time, and to allow the beneficiary to switch to a different medication, if necessary. We are proposing that the suspension would only be applicable to the manufacturer’s Medicaid program participation, and would not affect manufacturer participation in Medicare Part B or the 340B Drug Pricing Program during the time the rebate agreement is suspended. However, if continued suspension results in termination, such termination could affect Medicare Part B VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 and 340B Drug Pricing Program participation. 13. Proposals Related to Managed Care Plan Standard Contract Requirements a. Requirement of BIN/PCN Inclusion on Medicaid Managed Care Pharmacy Identification Cards Patients enrolled in health care plans, including in Medicaid managed care plans such as Medicaid managed care organizations (MCOs), prepaid inpatient health plans (PIHPs), or prepaid ambulatory health plans (PAHPs), generally use identification cards at the pharmacy so they can obtain prescription drug benefits, as well as allow pharmacies to process and bill claims in real time. Health plans use two codes on the card to identify a patient’s prescription health insurance and benefits—the National Council for Prescription Drug Programs (NCPDP) Processing Bank Identification Number (BIN) and Processor Control Number (PCN). This information, along with a group number, can specify that a beneficiary is part of a specific patient insurance group, such as being a Medicaid managed care beneficiary. However, it is often difficult to determine from a Medicaid managed care beneficiary’s health insurance card if he or she is covered under a Medicaid managed care plan or under nonMedicaid coverage, such as an employer-sponsored group health plan or individual market insurance, offered by the same organization or entity that offers the Medicaid managed care plan. This is due to the fact that Medicaidspecific BIN, PCN, and group numbers are not always placed on Medicaid managed care plan identification cards. However, if Medicaid-specific BIN/PCN and group information were included on the card, the pharmacy could enter this information into its claims processing system which would identify that the beneficiary is enrolled in a Medicaid managed care plan. We believe it is important that unique BIN/ PCN/group numbers are established for Medicaid managed care plans for several program needs, including facilitating the appropriate identification of cost sharing and ensuring claims are billed and paid for appropriately. Use of Medicaid-specific BIN/PCN/ group numbers can help States and their managed care plans identify claims for drugs paid for under the 340B Drug Pricing Program (340B Program) and avoid invoicing for rebates on 340B drugs. Section 340B(a)(5)(A) of the Public Health Service Act (the PHS Act) prohibits duplicate discounts for drugs PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 purchased under the Medicaid drug rebate program. Section 1927(a)(5)(C) of the Act requires the establishment of a mechanism to ensure against duplicate discounts or rebates and section 1927(j)(1) of the Act provides that covered outpatient drugs are not subject the requirements of section 1927 of the Act if they are dispensed by health maintenance organizations (HMOs), including MCOs that contract under section 1903(m) of the Act, and are subject to discounts under section 340B(a)(5)(A) of the PHS Act. Certain eligible entities and hospitals are permitted to purchase drugs under the 340B Drug Pricing Program and dispense these drugs to Medicaid beneficiaries. Identifying claims where the dispensed drug has been discounted under the 340B program is necessary to avoid duplicating that discount in the MDRP. Duplicate discounts occur when a State erroneously bills a manufacturer for a Medicaid drug program rebate involving a drug that was purchased under the 340B Drug Pricing Program. That occurs because the claim was not identified as a 340B claim before it was sent to the State. If the identification card included a unique Medicaid BIN/ PCN/group number, and the State permits the use of 340B drugs at contract pharmacies for individuals enrolled in Medicaid managed care, then it would allow for the inclusion of a modifier at the point of dispensing that would identify the claim as ineligible for a Medicaid rebate. This would assist States with identifying 340B drug claims that should not be invoiced for Medicaid drug rebates. Section 1902(a)(4) of the Act allows the Secretary to specify ‘‘methods of administration’’ that are ‘‘found by the Secretary to be necessary for . . . proper and efficient operation.’’ We believe that having States require their MCOs, PIHPs, or PAHPs that provide CODs to Medicaid beneficiaries to add unique identifiers onto the identification cards would make the Medicaid drug program run more efficiently, help avoid duplicate discounts, and improve the level of pharmacy services provided to Medicaid beneficiaries. Therefore, under the authority of section 1902(a)(4) of the Act, as well as to ensure effective implementation of and compliance with sections 1927(a)(5)(C) and 1927(j)(1) of the Act, we are proposing to amend 42 CFR 438.3(s) to require MCOs, PIHPs, and PAHPs that provide coverage of CODs to assign and exclusively use unique Medicaid BIN, PCN, and group number identifiers for all Medicaid managed E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules care beneficiary identification cards for pharmacy benefits. ddrumheller on DSK120RN23PROD with PROPOSALS2 b. Drug Cost Transparency in Medicaid Managed Care Contracts Medicaid managed care plans often contract with a subcontractor PBM to operate the pharmacy benefit provided to Medicaid beneficiaries. In order for a Medicaid managed care plan to appropriately calculate and report its Medical Loss Ratio (MLR) under § 438.8, the plan must know from the subcontractor certain information relating to how much of the payments made to the Medicaid managed care plan by the State was used to pay for health care services and other specific categories outlined in § 438.8. To correctly report the MLR, a Medicaid managed care plan must distinguish between expenses that are for covered benefits (such as healthcare services and drug costs) and administrative expenses, such as fees paid to its PBM for PBM services (for example, claims adjudication, processing prior authorization requests, etc.). Therefore, we are proposing that MCOs, PIHPs, and PAHPs that provide coverage of CODs structure any contract with any subcontractor to require the subcontractor report the amounts related to the incurred claims described in § 438.8(e)(2), such as reimbursement for the covered outpatient drug, payments for other patient services, and the fees paid to providers or pharmacies for dispensing or administer a covered outpatient drug, separately from any administrative costs, fees, and expenses of the subcontractor. 14. Proposal To Rescind Revisions Made by the December 31, 2020 Final Rule to Determination of Best Price (§ 447.505) and Determination of Average Manufacturer Price (AMP) (§ 447.504) Consistent With Court Order On May 17, 2022, the United States District Court for the District of Columbia vacated and set aside the ‘‘accumulator adjustment rule of 2020’’ in response to a complaint filed against the Secretary regarding the best-price accumulator provisions within the December 31, 2020 final rule ‘‘Medicaid Program; Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements.’’ See Pharm. Rsch. & Mfrs. of Am. v. Becerra, 1:21–cv–01395– CJN (D.D.C. May 17, 2022). This final rule had revised the conditions for excluding patient assistance from AMP VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 at § 447.504(c)(25) through (29) and (e)(13) through (17), and best price at § 447.505(c)(8) through (12), to add language (effective January 1, 2023) that would require manufacturers to ‘‘ensure’’ the full value of the assistance provided by patient assistance programs is passed on to the consumer and that the pharmacy, agent, or other AMP or best price eligible entity does not receive any price concession. While the district court’s order focused on the changes to the patient-assistance program exclusions from best-price determinations, to which it referred as the ‘‘accumulator adjustment rule of 2020,’’ for consistency, we propose to withdraw the changes to both the AMP and best-price sections made by the December 31, 2020 final rule. As a result, the regulations would maintain the language that has been in place since 2016. 15. Proposals Related to Amendments Made by the American Rescue Act of 2021—Removal of Manufacturer Rebate Cap (100 Percent AMP) Section 9816 of the American Rescue Plan Act of 2021 (Pub. L. 117–2, enacted March 11, 2021) sunsets the limit on maximum rebate amounts for single source and innovator multiple source drugs by amending section 1927(c)(2)(D) of Act by adding ‘‘and before January 1, 2024,’’ after ‘‘December 31, 2009’’. In accordance with section 1927(c)(3)(C)(i) of the Act and the special rules for application of provision in section 1927(c)(3)(C)(ii)(IV) and (V) of the Act, this sunset provision also applies to the limit on maximum rebate amounts for CODs other than single source or innovator multiple source drugs. Therefore, to conform § 447.509 with section 1927(c)(2)(D) of Act, as amended by the American Rescue Plan Act of 2021, and sections 1927(c)(3)(C)(i), (ii)(IV), and (ii)(V) of the Act, we are proposing to make conforming changes to § 447.509 to reflect the removal of the maximum rebate amounts for rebate periods beginning on or after January 1, 2024. 16. Request for Information—Comments on Issues Relating to Requiring a Diagnosis on Medicaid Prescriptions as a Condition for Claims Payment Under the MDRP, a COD is generally defined as a prescribed drug that is FDA approved and used for a medically accepted indication. While the statute limits the definition of a COD to those products used for ‘‘medically accepted indications,’’ without a diagnosis on a prescription drug claims, it is difficult to determine whether a drug is being used for a medically accepted PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 34247 indication, and if it therefore satisfies the definition of a COD, and is rebate eligible. We are soliciting comments on the possibility and potential impact of proposing a requirement that a patient’s diagnosis be included on a prescription as a condition of receiving Medicaid FFP for that prescription. We are soliciting comment on the patient care, clinical, and operational impact of requiring that a patient’s diagnosis be included on a prescription as a condition of a State receiving FFP for that prescription. We are particularly interested in understanding any operational implications, privacy related concerns, the burden associated, and how to negate any foreseeable impact on beneficiaries and providers, including what steps would be needed by States to successfully implement a Medicaid requirement for diagnosis on prescriptions. This is a request for information only. 17. Background on Coordination of Benefits/Third Party Liability Regulation Due to Bipartisan Budget Act of 2018 (BBA 2018) Medicaid is generally the payer of last resort, which means that other available resources—known as third party liability, or TPL—must be used before Medicaid pays for services received by a Medicaid-eligible individual. Title XIX of the Act requires State Medicaid programs to identify and seek payment from liable third parties, before billing Medicaid. Section 53102 of the Bipartisan Budget Act of 2018 (BBA 2018) (Pub. L. 115–123, enacted February 9, 2018) amended the TPL provision at section 1902(a)(25) of the Act. Specifically, section 1902(a)(25)(A) of the Act requires that States take all reasonable measures to ascertain the legal liability of third parties to pay for care and services available under the plan. That provision further specifies that a third party is any individual, entity, or program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under a State Plan. Section 1902(a)(25)(A)(i) of the Act specifies that the State Plan must provide for the collection of sufficient information to enable the State to pursue claims against third parties. Examples of liable third parties include: Private insurance companies through employment-related or privately purchased health insurance; casualty coverage resulting from an accidental injury; payment received directly from an individual who has voluntarily accepted or been assigned legal responsibility for the health care of one or more Medicaid recipients; E:\FR\FM\26MYP2.SGM 26MYP2 34248 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules fraternal groups, unions, or State workers’ compensation commissions; and medical support provided by a parent under a court or administrative order. To update the regulation for the recent statutory changes, a final rule was published on December 31, 2020, which went into effect on March 1, 2021, to include changes as authorized under the BBA 2018. We are submitting a correction due to an omission in the regulation text to require a State to make payments without regard to TPL for pediatric preventive services unless the State has made a determination related to cost-effectiveness and access to care that warrants cost avoidance for up to 90 days. ddrumheller on DSK120RN23PROD with PROPOSALS2 II. Provisions of the Proposed Regulations A. Payment of Claims (42 CFR 433.139) In 1980, under the authority in section 1902(a)(25)(A) of the Act, we issued regulations at part 433, subpart D, establishing requirements for State Medicaid agencies to support the coordination of benefits (COB) effort by identifying third party liability. Section 433.139(b)(3)(i) and (b)(3)(ii)(B) detail the exception to standard COB cost avoidance by allowing pay and chase for certain types of care, as well as the timeframe allowed prior to Medicaid paying claims for certain types of care. Specifically, we proposed to revise § 433.139(b)(3)(i) by adding—‘‘that requires a State to make payments without regard to third party liability for pediatric preventive services unless the State has made a determination related to costeffectiveness and access to care that warrants cost avoidance for up to 90 days.’’ We propose to revise § 433.139(b)(3)(i) and (b)(3)(ii)(B) by adding ‘‘within’’ prior to the waiting periods Medicaid has to pay claims for preventive pediatric and medical child support claims. We also propose to revise § 433.139(b)(3)(ii)(B) by removing ‘‘from’’ and replacing it with ‘‘after;’’ and by removing ‘‘has not received payment from the liable third party’’ and adding the following language at the end of the sentence ‘‘provider of such services has initially submitted a claim to such third party for payment for such services, except that the State may make such payment within 30 days after such date if the State determines doing so is cost-effective and necessary to ensure access to care.’’ These revisions in language would permit States to pay claims sooner than the specified waiting periods, when appropriate. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 B. Standard Medicaid Managed Care Contract Requirements (§ 438.3(s)) 1. BIN/PCN on Medicaid Managed Care Cards We propose to amend § 438.3(s) to add a new paragraph (s)(7) to require States that contract with MCOs, PIHPs, or PAHPs that provide coverage of CODs, to require those managed care plans to assign and exclusively use unique Medicaid-specific BIN, PCN, and group number identifiers for all Medicaid managed care beneficiary identification cards for pharmacy benefits. We propose that the managed care contracts, and thus MCOs, PIHPs and PAHPs, must comply with this new requirement no later than the next rating period for Medicaid managed care contracts, following the effective date of the final rule adopting this new regulatory provision. We believe that the delay between the effective date of the final rule and the start of the next rating period would provide both States and the affected Medicaid managed care plans with adequate time to prepare both the necessary contract terms, and finish the necessary administrative processes for creating and issuing beneficiary identification cards with these newly required Medicaid-specific BIN, PCN, and group number identifiers. This proposal is under our authority in section 1902(a)(4) of the Act to specify ‘‘methods of administration’’ that are ‘‘found by the Secretary to be necessary for . . . proper and efficient operation.’’ Having States require their MCOs, PIHPs, or PAHPs that provide CODs to Medicaid beneficiaries to add these types of unique identifiers to the identification cards would make the Medicaid drug program run more efficiently, and improve the level of pharmacy services provided to Medicaid beneficiaries. With the inclusion of Medicaid-specific BIN/PCN and group numbers on the pharmacy identification cards issued to the enrollees of MCOs, PHIPs and PAHPs, pharmacies would be able to identify patients as Medicaid beneficiaries, and better provide pharmacy services. This would be helpful to all parties to ensure that Medicaid benefits are provided correctly, including the confirmation of accurate cost sharing amounts, along with assisting that claims are billed and paid for appropriately. This proposed change would also help to reduce the incidence of 340B duplicate discounts. Section 340B(a)(5)(A) of the PHS Act prohibits duplicate discounts; that is, manufacturers are not required to both provide a 340B discounted price and PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 pay the State a rebate under the Medicaid drug rebate program for the same drug. Section 1927(a)(5)(C) of the Act requires the establishment of a mechanism to ensure against duplicate discounts or rebates, and section 1927(j)(1) of the Act also provides that CODs are not subject to, among other requirements of section 1927 of the Act, MDRP rebates if: (1) they are dispensed by health maintenance organizations, including MCOs that contract under section 1903(m) of the Act, and are subject to 340B discounts and (2) the drugs are subject to 340B discounts. Therefore, CODs covered by MCOs, PIHPs, and PAHPs are within the scope of this provision designed to prevent duplicate discounts. The existing regulation at § 438.3(s)(3) already reflects the position that CODs covered by MCOs, PIHPs, and PAHPs must be identified to prevent duplicate discounts under both section 1927 of the Act and section 340B of the PHS Act. The identification of a Medicaid beneficiary at the point of dispensing can result in the pharmacy placing a code on the prescription, such as the NCPDP ‘‘20’’ submission clarification code, so that the claim will be excluded from the Medicaid rebate pool. Medicare Part D has supported the inclusion of BIN/PCN numbers for pharmacy cards. That is, 42 CFR 423.120(c)(4) requires that Part D sponsors assign and exclusively use a unique Part D BIN or RxBIN and Part D processor control number (RxPCN) combination in its Medicare line of business. The use of the BIN/PCN ensures that a pharmacy claim can be accurately billed by the pharmacy. Medicare made the BIN/PCN unique to Part D so that a Part D sponsor clearly identifies the Medicare enrollee as part of a particular Part D plan and the pharmacy knows that Medicare statute and rules may apply, such as not allowing certain manufacturer coupons, which plan benefits apply, appeals rights, etc. In the absence of Medicaid-specific BIN, PCN, and group numbers to identify beneficiaries as being Medicaid participants, it is difficult for pharmacies and other providers, such as physicians and hospitals that administer drugs to Medicaid beneficiaries, to determine whether the beneficiary is enrolled in a Medicaid managed care plan, since a group number alone is not sufficient for Medicaid identification. Adding unique identifiers would make the beneficiary’s Medicaid managed care status distinguishable from the other lines of business offered by the same organization or entity that contracts with the State to offer an E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 MCO, PIHP or PAHP for Medicaid beneficiaries. Accordingly, we propose to amend the regulatory language in § 438.3(s) to add paragraph (s)(7) to mandate that Medicaid managed care contracts require that Medicaid MCO, PIHPs, or PAHPs that provide coverage of CODs must assign and exclusively use unique Medicaid BIN, PCN, and group number identifiers for all Medicaid managed care beneficiary identification cards for pharmacy benefits. We propose that Medicaid managed care contract must include this new requirement (which would require compliance by MCOs, PIHPs, and PAHPs) no later than the next rating period for Medicaid managed care contracts, following the effective date of the final rule adopting this new provision. We are soliciting comments on the implementation time frame and other possible operational issues of requiring unique Medicaid BIN, PCN, and group numbers to be on Medicaid managed care beneficiary identification cards. 2. Drug Cost Transparency in Medicaid Managed Care Contracts We propose that the contracts between States and MCOs, PIHPs, or PAHPs that provide coverage of CODs require those plans to structure contracts with any subcontractor for the delivery or administration of CODs, in a manner that ensures drug cost spending transparency by requiring the subcontractor to report separately certain expenses and costs. These subcontractors may include PBMs. Most Medicaid beneficiaries receive either all or part of their health care benefits, including CODs, through Medicaid managed care plans. Because of the specialized nature of the COD benefit, many Medicaid managed care plans (that is, the MCOs, PIHPs, or PAHPs) may contract with, or have their own PBMs to administer the COD benefit. PBMs are the middlemen of the relationship between the managed care plans and the health care (medical and pharmacy) providers that provide CODs. That is, they have contracts with both the managed care plans to administer the pharmacy benefit, as well as with the health care providers that administer or provide the drugs to patients that are enrolled in the managed care plan. Among other tasks in the marketplace, a PBM may be responsible for developing a drug formulary, collecting manufacturer rebates on behalf of the managed care plan, performing drug utilization review (DUR), adjudicating claims, and contracting with retail community VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 pharmacies and other health care providers to develop a network of pharmacy providers that can dispense drugs to managed care enrolled patients. The PBM also negotiates reimbursement rates on behalf of the various health plans, including managed care plans with which it contracts, and pays the pharmacy and other health care providers for the drugs that are dispensed or administered. In most cases, the pharmacy reimbursement rates are specified in the contract between the PBM and the pharmacy providers, and these include reimbursement rates for brand name and generic prescription drugs, as well as the dispensing fees paid to dispense or administer the prescription drug to the beneficiary. There are also administrative fees paid to the PBM by the managed care plans for its administration and operation of the pharmacy benefit. PBMs’ methods of reimbursing health care providers for prescription drugs may differ from those used to determine the charges to managed care plans for the dispensed prescription. That is, a PBM’s set of reimbursement benchmarks can be used in one relationship, and another set of reimbursement benchmarks in another, making it difficult for health plans or Medicaid managed care plans to know how much they are paying for the actual cost of the drug compared to the fees for administering the benefit. For this reason, under Part D, CMS requires that the price the PBM pays to the pharmacy for the cost of the drug is passed through to the plan, and any ‘‘spread’’ that the PBM keeps is an administrative cost that must be reported to the plan. Medicaid-contracted PBMs (that is, PBMs contracted with or on behalf of Medicaid managed care plans) often reimburse health care providers using methods similar to those used in the commercial and Medicare Part D markets, which are heavily dependent on drug pricing benchmarks provided by manufacturers, and published by commercial publishers of drug pricing data (that is Average Wholesale Price (AWP) or Wholesale Acquisition Cost (WAC)). The PBMs may also use a Maximum Allowable Cost (MAC) benchmark for generic drugs, which is a PBM proprietary benchmark that reimburses pharmacy providers for generics. For PBMs’ payment to contracted health care providers, reimbursement might be based on a discount off AWP, a markup on WAC, or the Maximum Allowable Cost (MAC) for generics, plus any contractually defined professional dispensing fee (PDF), which determines PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 34249 the total reimbursement for each COD. In contrast, the PBM might charge the managed care plans for dispensing that same COD based upon a different fixed percentage discount from AWP, or a higher percentage of WAC, either on a per-claim or aggregate spend basis. That is, a PBM’s benchmarks, markups, or discount percentages may differ for the same COD. The result is that there is little to no transparency to the managed care plan as to how much the plan actually pays for the COD administered or dispensed to the patient, and how much is paid to the PBM for fees related to the administration of the COD benefit. The cost charged to the managed care plan for the COD by the PBM often includes both the amount that the PBM reimbursed the medical or pharmacy provider for the COD as well as the PBM’s administrative fees for operating the benefit program. The margin between the amount charged to a managed care plan for a COD, and the amount paid by a PBM to a pharmacy provider is referred to as the ‘‘spread’’ or ‘‘spread pricing.’’ This margin or ‘‘spread’’ may only be known by the PBM, unless a State Medicaid program or managed care plan (or other prime contractor in other contexts) specifically requires disclosure of the charge and payment data that are used to make these calculations. This information deficit results in a lack of accountability and transparency to the Medicaid program, which we believe is contrary to proper and efficient operation of the State Medicaid program and potentially creates conflicts of interest in connection with payment for CODs. Section 1902(a)(4)(A) of the Act requires that the State Plan for medical assistance comply with methods of administration that are found by the Secretary to be necessary for the proper and efficient operation of the State Plan. Greater transparency and accountability by Medicaid managed care plans (and their subcontractors) to the States for how Medicaid benefits are paid compared to how administrative fees or services are paid are necessary for efficient and proper operation of Medicaid programs. Moreover, this lack of transparency makes it more difficult for Medicaid managed care plans to assure that the plan’s MLR calculation is limited to the true medical costs associated with the provision of CODs. Medicaid managed care regulations at § 438.8 require States, through their contracts with managed care plans, to require each managed care plan to calculate and report an annual MLR starting on or after July 2017, consistent with the requirements of the regulation E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34250 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules detailing the calculation, including which expenses are in the numerator and the denominator. We issued a Center for Medicaid & CHIP Services (CMCS) Informational Bulletin on May 15, 2019, for Medicaid Managed Care plans, titled ‘‘Medicaid Loss Ratio (MLR) Requirements Related to Third Party Vendors’’ (‘‘2019 CIB’’) (see https://www.medicaid.gov/sites/default/ files/Federal-Policy-Guidance/ Downloads/cib051519.pdf), regarding calculation of the MLR when a managed care plan uses subcontractors for plan activities. MLR calculations are used to develop capitation rates paid to Medicaid managed care plans, thus their accuracy is critical in assuring that Medicaid payments are reasonable, appropriate and necessary for health care services when using a Medicaid managed care plan. Managed care capitation rates must (1) be developed such that the plan would reasonably achieve an 85 percent MLR (§ 438.4(b)(9)) and (2) are developed using past MLR information for the plan (§ 438.5(b)(5)). In addition to other standards outlined in §§ 438.4 through 438.7, these requirements for capitation rates related to the MLR are key to ensuring that Medicaid managed care capitation rates are actuarially sound. In addition, Medicaid managed care plans may need to pay remittances (that is, refund part of the capitation payments) to States should they not achieve the specific MLR target. Thus, the accuracy of MLR calculation is important to conserving Medicaid funds. This 2019 CIB provided additional guidance regarding the calculation of the MLR when third party vendors, such as PBMs, are involved. The purpose was to assist States in ensuring that revenues, expenditures and amounts are appropriately identified and classified for the MLRs submitted by managed care plans, especially when a subcontractor is used. The 2019 CIB uses PBM spread pricing as a specific example. Several States have already implemented prohibitions or other restrictions on the PBM practice of spread pricing. Although there is not currently a Federal prohibition on using spread pricing in Medicaid, as noted, we issued the 2019 CIB regarding the impact of the lack of transparency between costs for administrative functions versus actual Medicaid services on the managed care plan’s MLR calculation. The 2019 CIB is clear that when the subcontractor, in this case the PBM, is performing administrative VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 functions, such as eligibility and coverage verification, claims processing, utilization review, or network development, the expenditures and profits on these functions are a nonclaims administrative expense as described in § 438.8(e)(2)(v)(A), and should not be counted as an incurred claim for the purposes of MLR calculations. In addition, the Medicaid managed care regulation at § 438.230(c)(1) requires, through contractual requirements in the managed care contract between the managed care plan and the State, certain agreements to be in subcontracts, including that subcontractors agree to perform the delegated activities and reporting responsibilities in compliance with the managed care plan’s contract obligations. Moreover, the reporting standards at § 438.8(k)(3) specify that managed care plans must require any third-party vendor providing claims adjudication activities to provide all underlying data associated with MLR calculation and reporting. The 2019 CIB explains how these regulatory obligations mean that all subcontractors that administer claims for the managed care plan must report the incurred claims, expenditures for activities that improve health care quality, and information about mandatory deductions or exclusions from incurred claims (overpayment recoveries, rebates, other non-claims costs, etc.) to the managed care plan. The requirements and definitions in § 438.8 for these categories of costs and expenditures must be applied to the required reporting. The reporting from the subcontractor must have sufficient detail to allow a managed care plan to accurately incorporate the expenditures associated with the subcontractor’s activities into the managed care plan’s overall MLR calculation. The level of detail must meet the requirements in § 438.8(k)(3) and the level of detail that is required may vary based on what is necessary to accurately calculate an overall MLR or to comply with any additional reporting requirements imposed by the State in its contract with the managed care plan. Medicaid managed care plans are generally paid by States using single monthly capitation payments that for the plan’s coverage of the health care services covered under the Medicaid managed care contract, including CODs. If the managed care plan contracts with a PBM, there are different options for the managed care plan to pay the PBM PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 for the administrative services provided by the PBM. Payment for administrative services is made in addition to the amount the managed care plan would reimburse the PBM for the actual COD and dispensing fee costs. In general, managed care plans have paid PBMs for administrative services in one of two ways, or a mix of these approaches— either through a flat administrative fee per prescription, or, as described above, by including it in the overall COD payment (that is through ‘‘spread pricing’’). When payments to the PBM for the administration services are included in the managed care plans’ total COD payment without a clear delineation of which amount is for administrative services, it obscures how much of that total payment is actually paid to the provider for the prescription and what is paid for administrative services furnished by the PBM. In other words, it is difficult for the managed care plan to determine the proportion of the payment to the PBM that is attributable to the administrative service costs provided by the PBM. Furthermore, incorrectly attributing administrative service costs as medical expenditures, may increase the MLR numerator, and thus increase the permember-per-month (PMPM) revenue a managed care entity can receive while appearing to meet MLR requirements. Given this lack of transparency, the ‘‘spread’’, which has been the basis for generating significant PBM profit, obscures from Medicaid and the managed care plans the actual cost of the CODs dispensed to plan enrollees. This makes it difficult for managed care plans and State Medicaid agencies to determine whether the amount that the PBM is charging to administer the benefit is a reasonable expense to be borne by a Medicaid program. Moreover, it makes it difficult for plans to ensure that their MLR calculations appropriately classify and account for expenditures. We provide a representative example of how spread pricing occurs in the context of Medicaid prescription drug coverage provided by a managed care plan. Specifically, in Table 2, we illustrate how a PBM might leverage a 5 percent difference in the AWP value between the amount charged to the plan and the amount paid to the pharmacy for a commonly-dispensed generic drug product, to ultimately capture 30.76 percent of the dollars spent by the managed care plan for the prescription. E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules 34251 TABLE 2—EXAMPLE OF SPREAD PRICING Drug Product ............................................................................................ ddrumheller on DSK120RN23PROD with PROPOSALS2 Published AWP ......................................................................................... PBM Reimbursement to pharmacy (MAC) ............................................... Amount PBM billed to Managed care plan .............................................. PBM spread = ........................................................................................... PBM spread percentage = ....................................................................... Table 2 shows that, while the pharmacy only received $8.98 in reimbursement from the PBM for the prescription, PBM charged the managed care plan $12.97, or about 31 percent more for the same prescription. Depending on the specifics of the contract that the PBM has with the managed care plan, some of this margin or spread might be used to pay the PBM for managing or administering the pharmacy benefit but in some cases, this spread may be in addition to administrative fees paid by the plan to the PBM. For example, there may already be included in the contract a specific fee that the Medicaid MCO is paying for the administration of the COD benefit. These fees would be in addition to the amounts being paid as part of the ‘‘spread pricing.’’ However, unless the managed care plan knows the amounts that the pharmacy providers are being paid by the PBM, the managed care plan is unable to assess the full scope of payments to the PBM for administrative services furnished by the PBM. As a result, the plan may not know whether the PBM is being appropriately compensated for administering the COD benefit. While the per-prescription dollar amounts above may not appear substantial, the overall impact to a Medicaid managed care pharmacy program may be significant given generic claims represent greater than 90 percent of total pharmacy claims. For example, an analysis of Ohio’s Medicaid managed care program by the Ohio Auditor of State revealed $208.4 million of spread within their managed care plan’s PBM transactions for generic drug claims between April 1, 2017, and March 31, 2018.6 For the time period analyzed, this amount of PBM spread represented 31.4 percent of total generic drug expenditures within the State’s Medicaid managed care program. CMS has determined that 11 States 7 have enacted relevant legislation related to the practice of spread pricing. Four of 6 David Yost, Ohio’s Medicaid Managed Care Pharmacy Services Auditor of the State Report (2018), available at https://tinyurl.com/mbn75c. 7 https://nashp.org/comparison-of-statepharmacy-benefit-managers-laws/. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 NDC 1234567890, Drug 300 MG CAPSULE, 60 capsules in prescription. $1.33 per capsule. ((AWP¥90%) * 60) + $1 dispensing fee = $8.98. ((AWP¥85%) * 60) + $1 dispensing fee = $12.97. ($12.97¥$8.98) = $3.99. ($3.99/$12.97) = 30.76% of total cost to managed care plan. these States (Arkansas, Delaware, Michigan, and Oklahoma) have complete State-wide prohibitions on the practice of spread pricing for any PBM operating within the State, regardless of the payer. Five States (Kentucky, Louisiana, New York, Pennsylvania, and Virginia) prohibit the practice of spread pricing by PBMs or MCOs in Medicaid, explicitly. One State (Pennsylvania) further requires that all Medicaid MCOs include a spread pricing prohibition clause in all contracts with PBMs. Only 2 of the 11 States with spread pricing laws (Alabama and Montana) merely require disclosure of certain spread pricing information (that is, annual report of aggregate rebate information and whether the PBM engages in spread pricing). Spread pricing can increase Medicaid pharmacy program costs, reduce efficient operation of the Medicaid program, and reduce the transparency of State Medicaid expenditures within managed care programs. This makes it more difficult for managed care plans and States to discern which participants of the pharmacy supply chain retain the bulk of the COD reimbursement. For these reasons, we are proposing to amend § 438.3(s) to require Medicaid MCOs, PIHPs, and PAHPs that provide coverage of CODs to structure any contract with any subcontractor for the delivery or administration of the COD benefit require the subcontractor to report separately the amounts related to the incurred claims described in § 438.8(e)(2), such as reimbursement for the CODs, payments for other patient services, and the dispensing or administering providers fees, and subcontractor administrative fees. The proposal would ensure that MLRs reported by MCOs, PIHPs, and PAHPs that use subcontractors in the delivery of COD coverage would be more accurate and transparent. The separate payment requirements would help States and managed care plans better understand whether they are appropriately and efficiently paying for the delivery of CODs, a significant part of which is funded by the Federal Government. We note that this proposal does not change the applicability of the 2019 CIB to PBM subcontractors or to PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 other subcontracting arrangements used by a Medicaid managed care plan; the 2019 CIB remains CMS’ position on how §§ 438.8 and 438.230 apply. This proposal would create additional requirements for MCOs, PIHPs and PAHPs that help ensure that the objectives and responsibilities outlined in the 2019 CIB are met. The proposal requires MCOs, PIHPs, and PAHPs that cover CODs to require their subcontractors to report their costs in a way that aligns more fully with the specific categories specified in § 438.8(e)(2) regarding the MLR numerator. Fully aligning the subcontractor’s reports and billing (invoices) with how the MLR regulation categorizes and treats specific costs and expenditures would make clearer for the MCOs, PIHPs, and PAHPs how its payments to a subcontractor are used that would be subject to proposed § 438.3(s)(8), and allow those managed care plans to incorporate the subcontractor’s costs into the MLR reporting and calculation. However, having the subcontractor’s (in particular a PBM’s) expenditures and costs reported in the categories that we are proposing might not be representative of how the industry works, might require systems changes and impose burden that we have not taken into account, or might result in unintended consequences. Therefore, we are specifically soliciting comment on this point and on other alternatives for how MCOs, PIHPs, and PAHPs should require information from their subcontractors and how they should structure payment or billing arrangements to achieve the policy goals we have outlined. We believe this new transparency requirement would assist States and Medicaid managed care plans in complying with § 438.8 and related guidance because subcontractor PBMs would be required to appropriately identify certain costs, so that the managed care plan can appropriately calculate its MLR. In particular with COD spending, the managed care plan would have to separately identify prescription drug and dispensing or administration fee claim costs when calculating the MLR, in contrast to E:\FR\FM\26MYP2.SGM 26MYP2 34252 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules administrative costs. As a result, any payments for costs over and above the cost of the prescription and dispensing fee would be separately identifiable by the managed care plan and cannot be used to inappropriately inflate the MLR which may result in managed care plan capitation rates that are not actuarially sound. C. MDRP Administrative and Program Integrity Changes ddrumheller on DSK120RN23PROD with PROPOSALS2 1. Proposed Definitions (§ 447.502) a. Proposal To Modify the Definition of Covered Outpatient Drug (§ 447.502) Sections 1927(k)(2) and (3) of the Act provide a definition of the term ‘‘covered outpatient drug’’ (COD) and a limiting definition, which excludes certain drugs, biological products, and insulin provided as part of, or as incident to and in the same setting as, enumerated services and settings from the definition of COD. This exclusion is subject to a parenthetical, however, which limits the exclusion to when payment may be made as part of payment for the enumerated service or setting, and not as direct reimbursement for the drug. In the COD final rule, we finalized a regulatory definition of COD in § 447.502 that substantially mirrors the statutory definition. Consistent with section 1927(k)(3) of the Act, the regulatory definition includes a limiting definition in paragraph (2) of the definition of covered outpatient drug at § 447.502 that excludes from the definition of COD any drug, biological product, or insulin provided as part of or incident to and in the same setting as any one in a list of services, and for which payment may be made as part of that service instead of as a direct reimbursement for the drug. Over the years we have received questions about when a payment is considered to be a direct reimbursement for a drug and whether identifying a drug separately on a claim for payment may qualify as direct reimbursement for a drug, rendering the drug eligible for rebates under section 1927 of the Act as a COD, or in other words, garnering the limiting definition exclusion inapplicable. If a drug and its cost can be separately identified on a claim for payment it can be considered subject to direct reimbursement. That is, if the payment to the provider includes any reimbursement for the drug and the drug is separately identified, then the reimbursement for the drug is a direct reimbursement. Additionally, if the payment to the provider is solely for the drug (and no other services), and the drug is separately identified, it is also a VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 direct reimbursement. Therefore, direct reimbursement may be reimbursement for a drug alone, or reimbursement for a drug plus the service, in one inclusive payment, if the drug plus the itemized cost of the drug are separately identified on the claim. In other words, the payment for the drug is not required to be a separate payment in order for such payment to be considered direct reimbursement. To provide greater clarity on this point and the application of the limiting definition, we propose to amend the regulatory definition of the term covered outpatient drug at § 447.502 to add that direct reimbursement for the drug includes when a claim for payment identifies the drug plus the itemized cost of the drug. Specifically, we propose to add to the regulatory definition of covered outpatient drug at § 447.502 that the direct reimbursement for a drug may include both reimbursement for a drug alone, or reimbursement for a drug plus the service, in one inclusive payment, if the drug and the itemized cost of the drug are separately identified on the claim. Additionally, the limiting definition in section 1927(k)(3) of the Act includes the following parenthetical: ‘‘. . . (and for which payment may be made under this subchapter as part of payment for [certain services] and not as direct reimbursement for the drug).’’ The term covered outpatient drug is defined in § 447.502 and includes this limiting definition parenthetical at paragraph (2): ‘‘. . . (and for which payment may be made as part of that service instead of as a direct reimbursement for the drug).’’ There is no meaningful distinction between the statutory and regulatory language for purposes of the MDRP, and thus, we are proposing to make a technical change by modifying the regulatory language so that it more closely mirrors the statutory language. We propose to add ‘‘payment for’’ after ‘‘and for which payment may be made as part of’’ and to delete ‘‘instead of as a’’ in the limiting definition of covered outpatient drug and replace it with ‘‘and not as’’. The proposed definition would then read, in significant part, as ‘‘. . . (and for which payment may be made as part of payment for that service and not as direct reimbursement for the drug).’’ b. Proposal To Define Drug Product Information (§ 447.502) Section 6(a)(1)(A)(iv) of MSIIA amended section 1927(b)(3) of the Act by adding the words ‘‘and drug product’’ to the title of section (b)(3), and adding section (b)(3)(A)(v), to PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 require a manufacturer to report drug product information that the Secretary shall require for each of the manufacturer’s CODs no later than 30 days after the last day of each month of a rebate period. Section 1927(b)(3)(A) of the Act describes the manufacturer drug product and pricing information that is required to be reported to the agency by statute, and with respect to the pricing information, specifically provides for the reporting of such information, such as AMP and best price. To support the implementation of this new statutory requirement to report drug product information, we propose to define drug product information at § 447.502. We currently require manufacturers to submit drug product information when the covered outpatient drug is entered into the MDP system, although there is no regulatory definition of drug product information. When initially reporting drug product data upon the execution of an NDRA, manufacturers have 30 days after the date on which they enter into an NDRA to report drug product data for their existing CODs under section 1927(b)(3)(A) of the Act. After the execution of an NDRA, manufacturers have 30 days from the end of each rebate period to report drug product data for new CODs under section 1927(b)(3)(A)(v) of the Act. We propose to define ‘‘drug product information’’ in § 447.502 as information that includes, but is not limited to, NDC number, drug name, units per package size (UPPS), drug category (‘‘S’’, ‘‘I’’, ‘‘N’’), unit type (for example, TAB, CAP, ML, EA), drug type (prescription, over-the counter), base date AMP, therapeutic equivalent code (TEC), line extension drug indicator, 5i indicator and route of administration, if applicable, FDA approval date and application number or OTC monograph citation if applicable, market date, COD status, and any other information deemed necessary by the agency to perform accurate URA calculations. As previously discussed in this proposed rule, the drug category for an NDC should be single source or innovator for the entire history of the NDC if it was always produced, distributed, or marketed under an NDA, unless a narrow exception applies, or single source if marketed under a BLA. If a narrow exception has been granted by CMS, the drug category for that NDC should historically be reported as single source or innovator, and can be changed to noninnovator, effective April 1, 2016. We use the FDA ‘‘applications.txt’’ file to verify the type of application associated with an application number. The file may be accessed using the link to the Drugs@FDA download file found E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules on the FDA web page at https:// www.fda.gov/drugs/drug-approvalsand-databases/drugsfda-data-files. The only situation in which a drug that is produced or marketed under an NDA may be reported as a noninnovator drug is if a narrow exception was granted by CMS in accordance with the process established in the COD final rule. See 81 FR 5191. Definitions for these drug categories can be found at section 1927(k)(7) of the Act and at § 447.502. Manufacturers should evaluate all of their NDCs for compliance with drug product information reporting, and if they determine corrections are required, they should contact the agency for assistance. In Manufacturer Release No. 113, we address a manufacturer’s responsibility to ensure that all of their CODs are correctly classified and reported in the Drug Data Reporting system (DDR) for the history of the NDC, including such NDCs that may no longer be active: https://www.medicaid.gov/ prescription-drugs/downloads/mfr-rel113.pdf. As part of a manufacturer’s evaluation of their NDCs for compliance with accurate drug product information reporting, they should ensure that each NDC is reported with an accurate market date. In this proposed rule, we are proposing to add a definition for ‘‘market date’’ for the purposes of the MDRP. Please see proposed § 447.502 for that proposed definition and elsewhere in this preamble for an explanation of how market date is used to determine the quarter that establishes each drug’s base date AMP. Generally, a manufacturer cannot make the drug product information corrections in the CMS system without our intervention. To request corrections, a manufacturer should contact CMS using instructions that are available on Medicaid.gov (https:// www.medicaid.gov/medicaid/ prescription-drugs/medicaid-drugrebate-program/medicaid-drug-rebateprogram-change-request/) to correct drug product and pricing information. If we identify a misclassified or misreported NDC as part of the review of the information submitted by the manufacturer to support these drug pricing or product information changes, and notify the manufacturer, the link to the instructions for correcting the data would generally be included as part of that notification. For most drug product information changes, as outlined above, we would make the requested changes on behalf of the manufacturer in the CMS system, and those changes would subsequently VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 be available for manufacturer certification. However, in some situations where monthly and/or quarterly pricing data must be updated as a result of the drug product information change, if necessary, we would notify the manufacturer that certain pricing data fields have been ‘‘unlocked’’ in the CMS system to allow the manufacturer to enter or correct required pricing information if applicable. Regardless of whether we make a data change on behalf of a manufacturer or whether the manufacturer enters required data directly in the CMS system, manufacturers would be required to certify the information in accordance with § 447.510. If we make a data change at the request of a manufacturer, the manufacturer is not relieved of its responsibility to ensure the accuracy of such data, nor should it be inferred that we have approved a variance from the requirements of the statute. Until certification is complete, the changes in the CMS system are not considered final and would not be used in any quarterly rebate calculations or transmitted to the States as part of the quarterly rebate files; however, the manufacturer is still responsible for correct URA calculations and rebate payments. If drug product information changes are left uncertified, the previously certified values would remain in effect; therefore, corrections made in the CMS system that remain uncertified would result in the drug continuing to be considered misclassified or misreported. We would consider this to be late reporting of product data for which a manufacturer’s rebate agreement may be suspended from the MDRP under section 1927(b)(3)(C)(i) of the Act, and eventually terminated as authorized under section 1927(b)(4)(B) of the Act. c. Proposal To Define Internal Investigation for Purposes of Pricing Metric Revisions (§§ 447.502 and 447.510) In accordance with section 1927(b)(3) of the Act, § 447.510 of the implementing regulations, and the terms of the NDRA, manufacturers are required to report certain pricing and drug product information to CMS on a timely basis or else they could incur penalties or be subject to other compliance and enforcement measures. As explained in the final time limitation rule, in an effort to improve the administration and efficiency of the MDRP and assist States and manufacturers that would otherwise be required to retain drug utilization PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 34253 pricing data records indefinitely, we established the 12-quarter time frame for reporting revisions to AMP or best price information. Notwithstanding the 12quarter time frame for reporting revisions, we continued to receive requests outside of the 12-quarter period from manufacturers to revise pricing data. These types of manufacturer requests, which could span multiple years prior to the 12-quarter timeframe, and could sometimes result in substantial recoupment of Medicaid rebates already paid to States, impede the economic and efficient operation of the Medicaid program. Consequently, in the COD final rule (81 FR 5278) we finalized § 447.510(b)(1), which provides that a manufacturer must report to CMS any revision to AMP, best price, customary prompt pay discounts or nominal prices (pricing data) for a period not to exceed 12 quarters from the quarter in which the data were due unless one of a number of enumerated exceptions applies. See § 447.510(b)(1)(i) through (vi). Of note, § 447.510(b)(1)(v) provides an exception to the 12-quarter price reporting rule if the change is to address specific rebate adjustments to States by manufacturers, as required by CMS or court order, or under an internal investigation, or an OIG or Department of Justice (DOJ) investigation. In a response to comment in the preamble of the COD final rule, which added § 447.510(b)(1)(v), we indicated that internal investigation is intended to mean a manufacturer’s internal investigation, and we further explained that in the event that a manufacturer discovers any discrepancy with its reported product and pricing data to the MDRP that are outside of the applicable timeframes, the manufacturer should determine if the change satisfies one of the enumerated exceptions. (81 FR 5280) However, we did not further define or give any greater explanation for the applicability of the exception to the 12quarter rule, particularly in instances when manufacturers perform an internal investigation of the prices (AMP and best price) reported and certified in the Medicaid Drug Product systems by another manufacturer. Given the absence of a definition of internal investigation or specificity as to when this exception applies, some manufacturers have broadly interpreted the internal investigation exception to the 12-quarter rule. Some manufacturers have requested revisions to AMP and best price outside of the 12-quarter rule based upon an internal investigation related to newly acquired products or lines of business E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34254 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules previously certified by the prior manufacturers without making findings that the prior manufacturer violated any law. For example, some requests from manufacturers to revise AMP or best price for drug product and drug pricing information previously reported and certified from another manufacturer were based on internal reviews that did not result in proof that the prior manufacturer misapplied the laws or regulations, or acted in a fraudulent or illegal manner. In cases when a manufacturer requests an exception to the 12-quarter rule due to an internal investigation, we propose to specify that the manufacturer must make a finding that indicates a violation of statute or regulation made by the prior manufacturer before we consider such a request. For example, a request to restate or revise pricing outside of the 12-quarter time frame by a manufacturer to previously reported and certified data of a prior manufacturer based upon a mere disagreement with the prior manufacturer’s government pricing calculations and assumptions would not be considered a valid reason to revise a prior manufacturer’s pricing outside of the 12-quarter time frame. The manufacturer must make findings that include actual data as evidence that the prior manufacturer violated statute or regulation. Manufacturers should not use the internal investigation exception to permit restatements to allow manufacturers to apply a different methodology or reasonable assumption to determine AMP and best price to its favor when the methodology originally applied was consistent with statute and regulation, and drug product and pricing information was properly reported and certified by the manufacturer at the time. To ensure clarity on when the internal investigation exception may be appropriately applied, we are proposing to define internal investigation at § 447.502 to mean a manufacturer’s investigation of its AMP, best price, customary prompt pay discounts or nominal prices that have been previously certified in MDRP that results in a finding made by the manufacturer of fraud, abuse or violation of law or regulation. A manufacturer must make data available to CMS to support its finding. We are also proposing to amend § 447.510(b)(1)(v) to reference the proposed definition of internal investigation at § 447.502. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 d. Proposal To Revise Definition of Manufacturer for NDRA Compliance (§ 447.502) When Congress passed the drug rebate provisions in 1990, they established a framework for coverage and payment of covered outpatient drugs under Medicaid, and prescribed drugs, generally. Often referenced as the ‘‘grand bargain’’ between the States, the Federal Government, and manufacturers, the MDRP made clear that if manufacturers paid rebates for the covered outpatient drugs dispensed and paid for under the State Plan, States would be required to cover their covered outpatient drugs, subject to limited permissible restrictions and exclusions. These policies would help increase Medicaid beneficiaries’ access to medications, while assisting States in striving to deliver an economic and efficient Medicaid program. A key piece of the coverage and payment framework the MDRP established is captured in section 1927(a)(1) of the Act, which provides that in order for payment to be available under section 1903(a) or under part B of title XVIII for covered outpatient drugs of a manufacturer, the manufacturer must have entered into and have in effect a rebate agreement with the Secretary as described in section 1927(b) of the Act. With an effectuated rebate agreement in place, manufacturers participating in the MDRP are required to provide periodic rebates for CODs dispensed and paid for under the State Plan, and also provide certain drug price and drug product information on a monthly and/ or quarterly basis to the agency. While entering into a rebate agreement is voluntary, a manufacturer that does not enter into such an agreement forgoes payment and coverage, for their covered outpatient drugs under Medicaid. It also affects coverage under the 340B Drug Pricing Program and may affect Medicare Part B reimbursement. To implement the important requirement set forth at section 1927(a)(1) of the Act, and in an effort to prevent selective reporting of NDCs, the agency has required manufacturers to ensure that all their associated labeler codes with CODs enter into a rebate agreement to comply with the terms of the NDRA. This requirement has been included in the NDRA since the inception of the program. (See section II., Manufacturer’s Responsibilities, subsection (a) of the previous NDRA, and section II., Manufacturer’s Responsibilities, subsection (b) of the updated NDRA.) We also reiterated this point most recently in the preamble to the updated NDRA, 83 FR 12770 (Mar. PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 23, 2018). In that final notice, we explained that manufacturers are required to report all CODs under their labeler code(s) to the MDRP, and may not be selective in reporting their national drug codes (NDCs) to the program. We continue to maintain that this requirement applies to all the manufacturer’s labeler codes, including newly acquired labeler codes, newly formed subsidiaries, and labeler codes previously omitted from the original rebate agreement. 83 FR 12771; see also Manufacturer Releases #13 and #48. Thus, once we review a request for a rebate agreement and the manufacturer confirms, among other things, that all of a manufacturer’s CODs are listed, a rebate agreement will be issued. Manufacturers are then responsible for paying a rebate on those CODs that were dispensed and/or paid for, as applicable, under the State Plan. These rebates are paid by manufacturers on a quarterly basis to States, and are shared between the States and the Federal Government to partially offset the overall cost of prescription drugs under the Medicaid program. The term ‘‘manufacturer’’ was first defined in statute in 1990, when section 1927 of the Act was established, and was interpreted in regulation in 2007 at § 447.502. Section 1927(k)(5) of the Act defines the term ‘‘manufacturer’’ as any entity which is engaged in: (1) the production, preparation, propagation, compounding, conversion, or processing of prescription drug products, either directly or indirectly by extraction from substances of natural origin, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis; or (2) in the packaging, repackaging, labeling, relabeling, or distribution of prescription drug products. The regulations at § 447.502 define ‘‘manufacturer’’ to mean any entity that holds the NDC for a covered outpatient drug or biological product and meets the following criteria: • Is engaged in the production, preparation, propagation, compounding, conversion, or processing of covered outpatient drug products, either directly or indirectly by extraction from substances of natural origin, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis; or • Is engaged in the packaging, repackaging, labeling, relabeling, or distribution of covered outpatient drug products and is not a wholesale distributor of drugs or a retail pharmacy licensed under State law. E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules • For authorized generic products, the term ‘‘manufacturer’’ will also include the original holder of the NDA. • For drugs subject to private labeling arrangements, the term ‘‘manufacturer’’ will also include the entity under whose own label or trade name the product will be distributed. The labeler code is a unique 5-digit number within the NDC,8 assigned by the FDA, and one manufacturer may be assigned multiple labeler codes by FDA. A manufacturer can obtain a different labeler code for each manufacturing establishment or company under the same ownership since the labeler code identifies a company marketing a drug product.9 Some drug companies that have several divisions have more than one labeler code, and a single manufacturer may be marketing its drugs across or under multiple labeler codes. Furthermore, a manufacturer may own, operate, or be associated or affiliated with several labeler code subsidiaries, each of which makes CODs. Consistent with the statute and regulation, our current policy is that each of these associated labeler codes would have to have an effectuated rebate agreement in order for the single manufacturer to be considered to be in compliance with the requirement under section 1927(a)(1) of the Act that a manufacturer have a rebate agreement in effect, and this has been noted in related guidance.10 We treat each associated labeler code as part of the single manufacturer, and if any of the labeler codes of a manufacturer do not have an NDRA in effect, no FFP would be available for any of the CODs of the labeler codes of the manufacturer, and all of the labelers would be subject to potential termination from the MDRP. We also explained in the final notice for the updated NDRA that manufacturers that wish to terminate an NDRA that have active CODs must request termination for all associated labeler codes, and provide a reason for the request (for example, all CODs under the labeler code are terminated), or if the request for termination is only for certain labeler codes, provide justification for such request (83 FR 12770, 12771). In that same final notice, we indicated that for purposes of ensuring beneficiary access to single source drugs and/or drugs that are not otherwise available in the MDRP, we may choose to grant an exception to 8 See 21 CFR 207.33. Drug Registration and Listing Instructions | FDA. 10 Manufacturer Release 013 (October 6, 1994), Manufacturer Release 048 (November 15, 2000) and 83 FR 12770, 12771 (Mar. 23, 2018). 9 Electronic VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 issuing or reinstating an NDRA for certain labeler codes of a manufacturer prior to issuing an NDRA for all of the labeler codes of the manufacturer, or terminating certain labeler codes as mentioned above (83 FR 12771). The requirement that manufacturers that enter into a rebate agreement cannot exclude any covered outpatient drug from their listings applies to all CODs associated with any of the manufacturer’s labeler codes that market CODs, including newly-purchased labeler codes, and newly-formed subsidiaries. This means a manufacturer has to be ‘‘all in’’ for all its drugs, or ‘‘all out’’. Otherwise, there is a possibility that a manufacturer would create separate labeler codes for some of its drugs, and enter into a rebate agreement for some of its labeler codes, and not others. Permitting a manufacturer to do so would allow them the benefit of receiving FFP for some of their CODs, while potentially avoiding the financial obligation to pay rebates for other drugs that would otherwise qualify as CODs and be subject to rebates. If a product meets the definition of a covered outpatient drug, but the manufacturer of such drug does not have a rebate agreement in effect, that drug is not eligible for FFP and may not be claimed on the CMS–64 form, even though the drug may meet the definition of a prescribed drug. In these situations, while States would not be required to provide mandatory coverage of such drugs, a State may still elect to cover these products with State only funds. While we believe that the overwhelming majority of manufacturers are compliant with section 1927(a)(1) of the Act, and have had all their associated labelers enter into and maintain drug rebate agreements, this issue has been challenged by a few manufacturers. In more recent times, manufacturers have suggested certain associated labelers are exempt or not required to be included in the program under the manufacturer’s rebate agreement, stating that such associated companies, parent entities and brother-sister entities are distinct separate manufacturers. They have stated that the agency has not required such a policy through final regulations, but rather has articulated this policy only in program releases and preamble statements, which are subregulatory guidance that do not carry the force of law. To codify the requirement at section 1927(a)(1) of the Act, that a manufacturer have entered into and have in effect an agreement with the Secretary to receive FFP for its CODs, we are now proposing to modify the PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 34255 regulatory definition of manufacturer to specify how the term ‘‘manufacturer’’ is defined for purposes of complying with this statutory requirement. To satisfy the requirement that a manufacturer have entered into and have in effect an agreement with the Secretary, we are specifying at proposed § 447.510(h) that manufacturers must provide CMS with all labeler codes for all the manufacturer’s applicable drugs. More specifically, we are proposing at § 447.510(h)(2) that if any manufacturer with a signed rebate agreement in effect, acquires or purchases another labeler, acquires or purchases covered outpatient drugs from another labeler code, or forms a new subsidiary, they must ensure that a signed rebate agreement is in effect for these entities or covered outpatient drugs, consistent with the definition of manufacturer at § 447.502, within the first 30 days of the next full calendar quarter beginning at least 60 days after the acquisition, purchase, asset transfer, or formation of the subsidiary. As first described in the ‘‘Medicaid Program; Payment for Covered Outpatient Drugs Under Drug Rebate Agreements With Manufacturers’’ proposed rule (95 FR 48442; hereinafter referenced as the ‘‘1995 proposed rule’’), we have noted our intent that each associated manufacturer’s labeler codes would have to have an effectuated rebate agreement in order for the single manufacturer to be considered to be in compliance with the requirement under section 1927(a)(1) of the Act that a manufacturer have a rebate agreement in effect. This 1995 proposed rule is informative and helpful to understanding and describing the agency’s initial proposed policy and intentions with the Medicaid Drug Rebate Program.11 In this proposal, CMS proposed to interpret the term ‘‘manufacturer’’ to specify that if a corporation meets the statutory definition of manufacturer (that is, section 1927(k)(5) of the Act) and possesses legal title to the NDC, the agency would consider the term to include associated companies, including parent corporations, brothersister corporations, and subsidiary corporations. In addition, we further proposed to interpret the term to specify that if a corporation meets the statutory definition of manufacturer, and possesses legal title to the NDC number, we would consider the term to include: (1) Any corporation that owns at least 80 percent of the total combined voting power of all classes of stock or 80 percent of the total value of shares in all 11 60 E:\FR\FM\26MYP2.SGM FR 48447 through 48448. 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34256 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules classes of stock in such entity (that is a parent corporation); (2) Any other corporation in which a parent corporation of the entity owns at least 80 percent of the total combined voting power of all classes of stock or 80 percent of the total value of shares. (60 FR 48447–48448) This policy comports with Congress’ desire to maximize recipient access to medically necessary drugs, while at the same time providing a more favorable drug purchasing arrangement for State Medicaid programs.12 When Congress passed the drug rebate provisions in 1990, they made it clear that States that elect to cover prescription drugs must, except for certain restrictions or exclusions allowed under the statute, cover the CODs of a manufacturer that enters into and complies with a drug rebate agreement. In return for such coverage, a manufacturer would be responsible for providing a rebate to the State that would give the Medicaid program the benefit of those discounts that other large public and private purchasers receive.13 We believe it would be directly contrary to Congressional intent to apply the definition of a manufacturer in a manner that would permit a manufacturer (that is by forming a subsidiary corporation) to exclude some of its drugs from the drug rebate program.14 Our proposal would prevent manufacturers from manipulating the system as to select drugs by assigning separate labeler codes, without consequence to all of their CODs, and codify a longstanding policy that has faced scrutiny more recently. As such, we continue to believe that when defining a manufacturer, the term ‘‘entity’’ should be interpreted to include parent, brother-sister, or subsidiary corporations, as well as, labelers that are owned, acquired, subsidiaries, affiliates, parent companies, franchises, business segments, part of holding companies, or under common corporate ownership or control. Therefore, to provide a clearer definition of the meaning of manufacturer with respect to section 1927(a)(1) of the Act, we are proposing to amend the regulatory definition of manufacturer at § 447.502. Consistent with the statute and our understanding of Congressional intent of the MDRP, which was increasing access to medications while at the same time 12 H.R. Conf. Rept. No. 964, 101st Cong., 2d Sess. 822, 832 (1990); H.R. Rept. No. 881, 101st Cong., 2d Sess. 996 (1990). 13 Id. 14 Id. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 helping States manage pharmacy program costs and maximizing Medicaid savings, we are proposing to include a new paragraph (5) as part of the definition of a manufacturer. This change explains that, for purposes of meeting the requirements in section 1927(a)(1) of the Act of maintaining an effectuated rebate agreement, that the term ‘‘manufacturer’’ means that all associated labeler entities of the manufacturer that sell prescription drugs, including, but not limited to, owned, acquired, affiliates, brother or sister corporations, operating subsidiaries, franchises, business segments, part of holding companies, divisions, or entities under common corporate ownership or control, must each maintain an effectuated rebate agreement in order for a manufacturer to satisfy the requirement at section 1927(a)(1) of the Act to have entered into and have in effect a rebate agreement with the Secretary. Additionally, we are proposing a new paragraph (h), ‘‘Participation in the Medicaid Drug Rebate Program (MDRP),’’ in § 447.510 to further specify the responsibilities of a manufacturer, specifying in § 447.510(h)(1) that manufacturers participating in the MDRP must have a signed rebate agreement that complies with paragraph (5) in the definition of the manufacturer in § 447.502. Furthermore, with respect to rebate agreements when a manufacturer acquires or purchases another manufacturer, acquires or purchases covered outpatient drugs from another manufacturer, or forms a new subsidiary, we are proposing to add § 447.510(h)(2), ‘‘Newly purchased labeler codes and covered outpatient drugs.’’ We are proposing that any manufacturer with a rebate agreement in effect that acquires or purchases another labeler code, acquires or purchases covered outpatient drugs from another labeler, or forms a new subsidiary, must have in effect a rebate agreement for these entities or covered outpatient drugs consistent with definition of manufacturer at § 447.502. The newly associated entity of the manufacturer must also have a rebate agreement in effect within the first 30 days of the next full calendar quarter beginning at least 60 days after the acquisition, purchase, asset transfer, or creation of a subsidiary has occurred. By including these provisions in regulation, we would better specify that a manufacturer must, in part, assure that a NDRA is in effect with the Secretary for all associated labeler codes and that MDRP requirements apply to all CODs of a PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 manufacturer, including newly associated entities. Finally, we are proposing to add a provision on termination in at § 447.510(h)(3) specifying that each associated labeler code of a manufacturer is considered to be part of the single manufacturer, and if any of the associated labeler codes as defined in paragraph (5) of the definition of manufacturer at § 447.502 do not have an NDRA in effect, or are terminated, then all of the labeler codes will be subject to termination. e. Proposal To Define Market Date (§ 447.502) Section 1927 of the Act governs the MDRP and payment for CODs which are defined in section 1927(k)(2) of the Act. Manufacturers that participate in the MDRP are required to pay rebates for CODs that are dispensed and paid for under the State Medicaid plan. (See section 1927(b)(1)(A) of the Act.) Section 1927 of the Act provides specific requirements for program implementation, including requirements for rebate agreements, submission of drug pricing and product information, confidentiality, the formulas for calculating rebate payments, and many others related to State and manufacturer obligations under the program. The rebates due by manufacturers are calculated based on statutory formulas described in section 1927(c) of the Act and consist of a basic rebate and, in some cases, an additional rebate that is applicable when an increase in the AMP, with respect to each dosage form and strength of a drug, exceeds the rate of inflation. This additional rebate formula is set forth in sections 1927(c)(2) and 1927(c)(3)(C) of the Act, and codified in regulation at § 447.509(a)(2) and (7).15 The additional rebate calculation requires a determination of the AMP for the dosage form and strength of the drug for the current rebate quarter, and a comparison of that AMP to the AMP for the dosage form and strength of that drug for a certain calendar quarter, generally referenced as the base date AMP quarter.16 For S or I drugs, that 15 Section 602 of the Bipartisan Budget Act (BBA) of 2015 amended section 1927(c)(3) of the Act, to require that manufacturers pay additional rebates when their covered outpatient drugs other than single source or innovator multiple source drugs’ average manufacturer prices increase at a rate that exceeds the rate of inflation. In accordance with section 1927(c)(3) of the Act, as revised by section 602 of the BBA of 2015, manufacturers must calculate these additional rebates for these drugs beginning with the January 1, 2017 quarter (that is, first quarter of 2017). 16 Base Date AMP is defined in the National Drug Rebate Agreement (NDRA) at I.(c) as follows: ‘‘Base E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 base date AMP quarter is the third quarter of 1990, for drugs that were first marketed prior to fourth quarter of 1990, or the first full calendar quarter after the day on which the drug was first marketed for drugs that were first marketed on or after October 1, 1990.17 See sections 1927(c)(2)(A) and 1927(c)(2)(B) of the Act. For other drugs (including N drugs and other drugs reported as N), that base date AMP quarter is the third quarter of 2014 for drugs that were first marketed prior to April 1, 2013, or the fifth full calendar quarter after the day on which the drug was first marketed for drugs that were first marketed on or after April 1, 2013. See section 1927(c)(3)(C) of the Act. To determine the applicable base date AMP, and ultimately, to calculate the additional rebate for a quarter, a critical data point is the day on which the drug was first marketed. We reference this date as a COD’s ‘‘market date.’’ Manufacturers are required to report to CMS the market date of each dosage form and strength of a COD for all of its CODs. Section 1927(c)(2)(A)(ii)(II) of the Act expressly provides that the base date AMP quarter, with respect to a dosage form and strength of a drug, is established ‘‘without regard to whether or not the drug has been sold or transferred to an entity, including a division or subsidiary of the manufacturer. . .’’ This means the market date of a drug is the date that the drug was first marketed, regardless of the entity that marketed the drug. Consistent with the statute, the market date of a drug is not and cannot be based on the first date upon which a subsequent manufacturer first markets the drug, but rather the earliest date on which the drug was first marketed, by any manufacturer, or under any NDC. A new market date cannot be established for a drug that is marketed under the same FDA-approved NDA number, ANDA number or BLA license Date AMP’’ will have the meaning set forth in sections 1927(c)(2)(A)(ii)(II) and 1927(c)(2)(B) of the Act. See also I.(l) definition of ‘‘marketed’’. Section VIII.a, provides that the agreement is subject to any changes in the Medicaid statute or regulations that affect the rebate agreement. Thus, any changes to regulations will be incorporated into rebate agreements without further action. See also Manufacturer Release 113—Misclassification of Drugs (medicaid.gov); https://www.medicaid.gov/ medicaid-chip-program-information/by-topics/ prescription-drugs/downloads/rx-releases/mfrreleases/mfr-rel-009.pdf Manufacturer release No. 9; form 367c data definitions. 17 For a drug with a market date prior to October 1, 1990, the MDRP reporting system defaults to a market date of September 30, 1990. The system assigns a base date AMP quarter of fourth quarter of 1990 to such drugs as the statute defines (section 1927(c)(2)(A)(ii) of the Act). VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 unless the drug is a new dosage form or strength because the rebate statute requires an additional rebate amount based on the market date for each dosage form and strength of a COD.18 Thus, if a drug is purchased or otherwise acquired from another manufacturer, the market date should not change, and should equal the market date of the drug first marketed under the approved application. Some manufacturers have attempted to set a new market date to establish a new base date AMP for a drug by making changes to a drug already approved under an FDA application that are something other than changes to the dosage form or strength. If changes to the drug are approved under the same FDA application and do not constitute changes to the dosage form or strength, a new base date AMP is not appropriate. Over the years, manufacturers have sporadically engaged in debate regarding the determination of a COD’s market date, base date AMP quarter, and base date AMP under varied fact-driven scenarios. This proposed definition seeks to clarify the term ‘‘market date’’ as used in the MDRP and to end any further such debates. AMP is defined in section 1927(k)(1) of the Act and the definition includes that it is ‘‘. . . the average price paid to the manufacturer for the drug. . . .’’ If there have not been any sales of the drug, there is no data upon which to determine an average price paid to the manufacturer to most accurately calculate the AMP value. Historically, in such cases where no sales may have occurred in a base date AMP quarter (because sometimes a new NDC may be available for sale during a quarter, but no sales occurred during that quarter), we have advised manufacturers to use reasonable assumptions, as appropriate, and consistent with applicable law to establish an AMP. To assist manufacturers in reporting a more accurately calculated AMP, we are proposing to define market date based on the first sale of the drug, rather than the date the drug was first available for sale. Linking the market date determination to the date of the first sale, rather than the date the drug was first available for sale, would permit a manufacturer to establish and report a base date AMP without reliance on reasonable assumptions, and based on actual data. As a result, the URA would also be calculated more accurately because actual sales would be available for reporting. 18 The FDA approved application (for example the NDA itself) includes all FDA approved supplements to the application. PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 34257 For purposes of determining the base date AMP quarter and base date AMP, we propose that market date be based upon the earliest date on which the drug was first sold, by any manufacturer, or under any NDC, and define the term to mean the date on which the COD was first sold by any manufacturer. We propose that first sold means any sale of the COD. We understand defining market date, for purposes of determining a COD’s base date AMP, based on when the COD was first sold, may not completely eliminate a manufacturer’s need to make reasonable assumptions because the first sales may include only AMP ineligible sales. For example, if all the sales during the first quarter of a drug’s availability are made to entities other than retail community pharmacies or wholesalers, and are not eligible for a 5i AMP calculation, then there may not be any AMP eligible sales to use for the calculation of AMP for that quarter. In such cases, a manufacturer may still need to use reasonable assumptions to report an AMP for that quarter. We propose that ‘‘sold’’ means that the drug has been transferred (including in transit) to a purchasing entity. We are requesting comments on this topic to determine what qualifies as ‘‘sold’’ for the purposes of determining the market date of a drug, as we have also experienced manufacturers interpreting the term ‘‘sold’’ differently across the industry. Because the term market date has not been previously defined in regulation and it is data used in the determination of base date AMP, we are proposing a definition of market date for the purposes of the MDRP. We are proposing at § 447.502 that market date, for the purpose of establishing the base date AMP quarter, means the date on which the COD was first sold by any manufacturer. f. Proposal To Modify the Definition of Noninnovator Multiple Source Drug (§ 447.502) As discussed previously in this proposed rule, section 6(c) of the MSIAA included a number of amendments to statutory definitions in section 1927 of the Act. Generally, those statutory amendments were discussed in the December 31, 2020 final rule (85 FR 87000, 87032) where the regulatory definitions of multiple source drug, innovator multiple source drug, and single source drug were amended consistent with the MSIAA. Although we made conforming changes to the regulatory definition of an I drug in the December 31, 2020 final rule, because the MSIAA did not E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34258 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules expressly amend or clarify the statutory definition of an N drug we did not consider whether any changes to the regulatory definition of an N drug were necessary at that time. After further evaluation, we propose to amend the regulatory definition of an N drug to conform the regulatory definition of an N drug to the regulatory definition of an I drug. When we established a regulatory definition of an N drug in the July 17, 2007 final rule, we did so to distinguish between multiple source drugs approved under an ANDA (generally referenced as N drugs) and multiple source drugs approved under an NDA (that is, S or I drugs). Both I drugs and N drugs are generally multiple source drugs. The main difference between the definitions is the authority under which the drug is marketed. Generally speaking, I drugs are marketed under an NDA and N drugs are marketed under ANDA, or are unapproved. Section 1927(k)(7)(A)(iii) of the Act, which was not expressly amended or clarified by the MSIAA, defines a noninnovator multiple source (N) drug as a multiple source drug that is not an I drug. As noted, the MSIAA amended the statutory definition of an I drug by removing ‘‘was originally marketed’’ and adding ‘‘is marketed,’’ and we made conforming changes to the regulatory definition of an I drug in the December 31, 2020 final rule. When we modified the regulatory definition of an I drug to replace ‘‘was originally marketed’’ with ‘‘is marketed’’, we neglected to make a corresponding change to the definition of an N drug to maintain the clear distinction between an I drug, which is marketed under an NDA, and an N drug, which is not marketed under an NDA. Paragraph (3) of the regulatory definition of an N drug, codified at § 447.502, continues to refer to a COD that entered the market before 1962 that was not originally marketed under an NDA. To maintain the clear distinction between an I drug and an N drug, we propose to amend paragraph (3) of the definition of an N drug at § 447.502 by removing ‘‘was not originally marketed’’ and inserting in place ‘‘is not marketed.’’ As amended, the regulatory definition of an N drug would, in relevant part, have the same structure as the statutory and regulatory definitions of an I drug and distinguish between a multiple source drug approved under an ANDA (that is, an N drug) and a multiple source drug approved under an NDA (that is, an S or I drug) based on the authority under which the drug is marketed, not how the drug was originally marketed. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 Accordingly, we propose to amend § 447.502 by revising paragraph (3) of the definition of an N drug to read, a COD that entered the market before 1962 that is not marketed under an NDA. We believe this to be a technical correction to the regulatory text. g. Proposal To Define Vaccine for Purposes of the MDRP Only (§ 447.502) States that opt to cover prescribed drugs under section 1905(a)(12) of the Act in their State Plan are required to do so consistent with section 1927 of the Act, as set forth at section 1902(a)(54) of the Act. With limited exceptions, if a manufacturer wants payment to be available under Medicaid for their CODs, the manufacturer must participate (have entered into and have in effect a rebate agreement) in the MDRP, and agree to pay rebates for CODs dispensed and paid for under the State Plan. States are then required to cover the drugs of a manufacturer participating in the MDRP, if the drug satisfies the definition of COD, and then are required to invoice manufacturers for rebates on those CODs that are dispensed and paid for under the State Plan. If a particular drug or biological product of a participating manufacturer is excluded from or does not satisfy the definition of COD, then with limited exceptions, a State is not required to cover the product under the prescribed drugs benefit nor would it be subject to section 1927 of the Act. Moreover, those drugs or biological products are not eligible for rebate invoicing, even though a State may cover them and seek FFP. Section 1927(k)(2)(B) of the Act specifically excludes vaccines from the definition of COD for purposes of the MDRP. This exclusion is codified in paragraph (1)(iv) of the regulatory definition of COD at § 447.502. Section 1927 of the Act, specifically, does not define vaccine. Nor is there a definition of vaccine in Title XI, XVIII, XIX, or XXI of the Act (applicable to Medicare, Medicaid, and CHIP), that speaks to the specific kinds of biological products that qualify as vaccines, in terms of their actions in the human body and how and when they are used. Moreover, we are not aware that any authorizing statutes for any other Department of Health and Human Services agencies include such a statutory definition of the term ‘‘vaccine.’’ We have not established a regulatory definition of vaccine for purposes of the MDRP, and we are not aware of any other statutory or regulatory definition of vaccine (that speaks to the actions of a product in the human body and how and when it is used) that would be applicable for PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 purposes of the MDRP. However, for the reasons discussed in this section, we believe that a regulatory definition of vaccine is necessary for the purposes of the MDRP to specify which products are considered vaccines and thus excluded from the definition of COD.19 Generally, drugs and biological products that are used to treat a disease fall into one of the categories of CODs set forth at section 1927(k)(2) of the Act. Since Congress excluded vaccines from the definition of COD in the original 1990 law, and vaccines that were licensed at that time have a different intended use than therapeutics, we believe that vaccines were excluded because of their unique characteristics among medical products marketed at the time of preventing disease by inducing an immune response. When the MDRP statute was enacted as part of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101– 508, enacted November 5, 1990), the term ‘‘vaccine’’ referred to a product administered to provide active immunity to a person to prevent an infectious disease.20 At the time, it was generally understood that vaccines are administered prophylactically, to prevent the development of an infectious disease, not to treat an existing non-infectious disease (such as a cancer). Although we have not found any legislative history specifically indicating why Congress chose to exclude vaccines from the definition of COD, it is likely Congress understood the term ‘‘vaccine’’ to refer to preventive vaccines only (that is, we do not believe that Congress understood the term to 19 Currently, for vaccines other than COVID–19 vaccines, Medicaid coverage of vaccines and vaccine administration for adults is generally optional for States. Coverage of certain vaccinations recommended by the Advisory Committee on Immunization Practices (ACIP) is required for children and youth under age 21 who are eligible for the Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit and for beneficiaries receiving Medicaid coverage through an Alternative Benefit Plan. Additionally, to receive a one percentage point increase in the Federal medical assistance percentage for certain expenditures, States must cover certain services, including approved adult vaccinations recommended by the Advisory Committee on Immunization Practices (ACIP), without cost-sharing. See https:// www.medicaid.gov/state-resource-center/ downloads/covid-19-vaccine-toolkit.pdf for more information. Beginning October 1, 2023, under section 11405 of the Inflation Reduction Act of 2022, States are required to cover approved adult vaccines recommended by the ACIP, and their administration, for many adults enrolled in Medicaid and the CHIP program, without cost sharing. 20 See https://purplebooksearch.fda.gov/. The database at this link provides information about all FDA-licensed biological products, including the date on which they were licensed. All the vaccines listed in the ‘‘Purple Book’’ are licensed to prevent an infectious disease. E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules include therapeutic vaccines) because all licensed vaccines at the time the law was enacted shared those characteristics. As the science of immunology has become more advanced, drugs and biological products have been, and continue to be, developed that treat diseases using immunotherapy, such as immunotherapy used to treat certain cancers. Some manufacturers refer to such products as ‘‘therapeutic’’ vaccines. While both preventive vaccines and ‘‘therapeutic vaccines’’ work by creating an immune response, each type of product has a unique role in health care. In general, a preventive vaccine provides active immunity to a disease, that is, it causes the body’s immune system to produce an antigen-specific immune response (for example, antibodies and/or a cellular immune response) to antigens of the diseasecausing organism.21 A preventive vaccine is generally administered to induce immunity and a ‘‘memory’’ response to a particular infectious disease-causing organism so that in the event an individual is later exposed to that disease, the body will recognize the disease and respond before the disease has a chance to manifest or to reduce the severity of illness. There are also situations in which a preventive vaccine may be administered to an individual who has already been exposed to a disease-causing organism but the disease has not yet developed and may be prevented by a timely and robust vaccine-induced immune response (for example, rabies and anthrax vaccines). In contrast, ‘‘therapeutic vaccines’’ are generally biological products that are intended to induce an antigen specific immune response to treat an already established disease (for example, treatment of cancer by inducing a specific immune response to the tumor). This type of product is generally intended to be a treatment modality similar to other forms of immunotherapy such as the checkpoint inhibitors or strategies that are based on the transfer of a preformed immune response (for example, transfer of antibodies or immune effector cells.) If ‘‘therapeutic vaccines’’ were considered vaccines that are excluded from the definition of COD at section 1927(k)(2)(B) of the Act, a Medicaid beneficiary’s access to these products 21 CDC describes active immunity as a longlasting immunity that develops by triggering antibody production. Conversely, they describe passive immunity as a short-term immunity provided by the administration of antibodycontaining products. See https://www.cdc.gov/ vaccines/vac-gen/immunity-types.htm. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 under the prescribed drugs benefit could be limited because States would not be required to cover them under that benefit. Moreover, coverage of such a product under other benefits might only be available if the CDC’s Advisory Committee on Immunization Practices (ACIP) issued a recommendation for such a product. This potential lack of access to important therapies for Medicaid beneficiaries is a critical concern. Clinical research into ‘‘therapeutic vaccines’’ has been increasing and several have been licensed by FDA that offer treatments for diseases that previously had limited or no effective treatment available. Similarly, if products that provide passive immunity, such as immune globulins, were excluded from the definition of a COD, because they were identified as vaccines, such treatments may not be made available to Medicaid beneficiaries. Thus, with the increasing development and availability of products that use immunology to treat diseases, and because sometimes these products are referred to as ‘‘therapeutic vaccines’’, we believe that adopting an MDRP regulatory definition of ‘‘vaccine’’ that reflects Congress’ likely intent at the time of the enactment of section 1927 of the Act is imperative to ensure that only the appropriate products are excluded from the definition of a COD. This would ensure manufacturers are able to report their drug product and drug pricing data for all CODs accurately, pay appropriate rebates to States, and most critically, that Medicaid beneficiaries have access to these important therapies under the prescribed drugs benefit.22 Therefore, we are proposing to define ‘‘vaccine’’ at § 447.502 for the specific purposes of the MDRP, so that manufacturers understand which products are considered vaccines under the MDRP and are excluded from the definition of COD, and not subject to rebates. The definition would be applicable only to the MDRP and would not be applicable to any other agencies or agency program implementation, including FDA, CDC, and HRSA. The proposed definition of vaccine would not apply under any Title XIX statutory provisions other than section 1927(k)(2), or to separate CHIPs operating pursuant to § 457.70(a)(1) and (d), or for purposes of the Vaccines for Children Program. The definition would apply to the MDRP for purposes of Medicaid 22 Even if a ‘‘therapeutic vaccine’’ product is required coverage under other Medicaid benefits, this proposal would help to ensure that manufacturers report product and pricing data accurately and pay rebates to States, as applicable. PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 34259 expansion CHIPs, pursuant to § 457.70(c)(2). This proposed policy would not alter any applicable Federal or State requirements to cover immunizations for Medicaid beneficiaries, as applicable. Specifically, we are proposing to define ‘‘vaccine’’ to mean a product that is administered prophylactically to induce active, antigen-specific immunity for the prevention of one or more specific infectious diseases and is included in a current or previous FDA published list of vaccines licensed for use in the United States. We are including in the proposed definition that a vaccine must be administered prophylactically—that is, to prevent a disease and not to treat a disease—because we believe that States should generally not exclude from coverage, under the prescribed drugs benefit, drugs or biologicals that treat disease. We are also proposing that a vaccine must be administered to induce active, antigen-specific immunity because that is a characteristic of preventive vaccines. Finally, we are proposing to limit the definition of vaccine to those products that satisfy the conditions of being administered prophylactically, to prevent a disease, and induce active antigen-specific immunity, that also appear on a current or previous list compiled by FDA. FDA publishes a list of vaccines licensed for use in the United States.23 As FDA is the agency responsible for licensing vaccines, we believe that if a product satisfying the previously described conditions appears on this list, it should be treated as a vaccine for the purposes of the MDRP. We seek comment on whether the proposed definition of vaccine, for purposes of the MDRP only, appropriately distinguishes between preventive vaccines (which would satisfy the definition of vaccine and, therefore, not satisfy the definition of a covered outpatient drug and would not be eligible for statutory rebates), and therapeutic vaccines (which would not satisfy the definition of vaccine and therefore could satisfy the definition of a covered outpatient drug and could therefore be eligible for statutory rebates). Additionally, while we propose to cabin this definition to the MDRP, we seek comment on whether this definition might result in indirect consequences for Medicaid benefits other than the prescribed drugs benefit. We are also requesting comment about the consequences for Medicaid of ACIP recommending immunization with a 23 Vaccines E:\FR\FM\26MYP2.SGM Licensed for Use in the United States. 26MYP2 34260 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 product that would not qualify as a vaccine under this definition. D. Proposal To Account for Stacking When Determining Best Price— (§ 447.505) Section 1927(c)(1)(C) of the Act defines the term ‘‘best price’’ to mean with respect to a single source drug or innovator multiple source drug of a manufacturer (including the lowest price available to any entity for any such drug of a manufacturer that is sold under a new drug application approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act), the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States, subject to certain exceptions and special rules. The implementing regulations for the determination of best price are at § 447.505. In the COD final rule, we addressed a comment to our proposal to make revisions to the determination of best price, and specify which prices are included in best price. The comment requested that CMS further adopt a policy with regard to the practice of a manufacturer stacking two different price concessions provided to two different entities, such that under these circumstances, the best price for a drug should reflect all rebates and payments associated with a transaction of a covered outpatient drug to a particular customer. (See 81 FR 5252.) In response to the commenter’s request, we indicated that a manufacturer is responsible for including all price concessions that adjust the price realized by the manufacturer for the drug in its determination of best price. We also explained that if a manufacturer offers multiple price concessions to two entities for the same drug transaction, such as rebates to a PBM where the rebates are designed to adjust prices at the retail or provider level, in addition to discounts to a retail community pharmacy’s final drug price, all discounts related to that transaction which adjust the price available from the manufacturer should be considered in the final price of that drug when determining best price (81 FR 5252 through 5253). In the COD final rule with comment, we made minor revisions to the regulatory text at § 447.505(b) by deleting the reference to ‘‘associated’’ rebate and discounts and inserting a reference to ‘‘applicable discounts, rebates’’ so that it presently reads that the best price for CODs includes all VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 prices, including applicable discounts, rebates or other transactions that adjust prices either directly or indirectly to the best price-eligible entities listed in § 447.505(a). We addressed the question regarding stacking in the response to comments in the COD final rule, specifying that if multiple price concessions are provided to two entities for the same drug transaction, all discounts related to that transaction which adjust the price available from the manufacturer should be considered when determining best price. However, we did not revise or propose to revise the regulation text at § 447.505(d)(3) to address stacking in such detail. Section 447.505(d)(3) currently indicates that the manufacturer must adjust the best price for a rebate period if cumulative discounts, rebates or other arrangements subsequently adjust prices available, to the extent that such cumulative discounts, rebates or other arrangements are not excluded from the determination of best price by statute or regulation. However, in the case United States ex rel. Sheldon v. Allergan Sales, LLC., a relator alleged that a drug manufacturer failed to aggregate discounts provided to separate customers for purposes of determining best price, and the manufacturer argued that the stacking requirement was not sufficiently clear. The district court granted Allergan’s motion to dismiss, ruling that relator failed to plausibly allege either falsity or knowledge because Allergan’s interpretation ‘‘is objectively reasonable’’ and CMS’ rule had not specifically warned against it. On appeal, a panel of the United States Court of Appeals for the Fourth Circuit stated that, in that case, the drug manufacturer had not been ‘‘warned . . . by the authoritative guidance from CMS’’ and that CMS had ‘‘failed to clarify’’ the stacking issue.24 The Government filed an amicus brief supporting the relator’s petition for rehearing en banc, which the Fourth Circuit granted. Following argument, the Fourth Circuit issued its decision with no substantive opinion that vacated the prior panel decision and affirmed the district court by an equally divided court. As noted, section 1927(c)(1)(C) of the Act defines the term ‘‘best price’’ to mean with respect to a single source drug or innovator multiple source drug of a manufacturer (including the lowest price available to any entity for any 24 United States ex rel. Sheldon v. Allergan Sales, LLC, 24 F.4th 340, 351, 354 (4th Cir. 2022), reh’g en banc granted, No. 20–2330, 2022 WL 1467710 (4th Cir. May 10, 2022). PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 such drug of a manufacturer that is sold under a new drug application approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act), the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States. We interpreted this section expansively as the statute refers to a manufacturer’s lowest price ‘‘available’’ ‘‘to any’’ entity on this statutory list. That is, if a manufacturer provides a discount to a wholesaler, then a rebate to the provider who dispensed the drug unit, and then another rebate to the insurer who covered that drug unit, CMS has concluded that ‘‘best price’’ must include (or ‘‘stack’’) all the discounts and rebates associated with the final price, even if the entity did not buy the drug directly from the manufacturer. By stacking, best price reflects the lowest realized price at which the manufacturer made that drug unit available. We also note that manufacturers are required to take rebates into account for multiple entities when calculating AMP, and for logical reasons, best price should do so as well, since including them in AMP and not accounting for them in best price could result in AMP being lower than best price. Therefore, to remove any potential doubt prospectively, we are proposing to revise § 447.505(d)(3) to add to the existing regulatory statement that the manufacturer must adjust the best price for a covered outpatient drug for a rebate period if cumulative discounts, rebates or other arrangements to best price eligible entities subsequently adjust the price available from the manufacturer for the drug. We are adding the clarifying statement that cumulative discounts, rebates or other arrangements must be stacked to generate a final price realized by the manufacturer for a covered outpatient drug, including discounts, rebates or other arrangements provided to different best price eligible entities. E. Proposal To Rescind Revisions Made by the December 31, 2020 Final Rule to Determination of Best Price (§ 447.505) and Determination of Average Manufacturer Price (AMP) (§ 447.504) Consistent With Court Order Pharmaceutical manufacturers have provided purported financial assistance payments (for example, in the form of copay coupons) to patients for purposes of paying the patient cost obligation of certain drugs. E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules On June 19, 2020, CMS proposed regulations to address the effect of PBM accumulator adjustment programs on best price calculations (85 FR 37286) in relation to these purported manufacturer financial assistance payments by instructing manufacturers on how to consider the implementation of such programs when determining best price and AMP for purposes of the Medicaid Drug Rebate Program (MDRP). In particular, CMS proposed revising its regulations to provide that the exclusions for manufacturer’s financial assistance payments ‘‘apply only to the extent the manufacturer ensures the full value of the assistance or benefit is passed on to the consumer or patient’’ (85 FR 37299). On December 31, 2020, CMS finalized its proposed revisions (85 FR 87000, 87048 through 87055, and 87102 through 87103). The final rule codified the proposed language to require that ‘‘the manufacturer ensures that the full value’’ of the assistance or benefit is passed on to the consumer or patient to exclude that assistance or benefit to an insured patient from the manufacturer’s best price calculation and AMP. The final rule also delayed the effective date of the change until January 1, 2023, to ‘‘give manufacturers time to implement a system that will ensure the full value of assistance under their manufacturer-sponsored assistance program is passed on to the patient.’’ In May 2021, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed a complaint against the Secretary asking the court to vacate these amendments to § 447.505(c)(8) through (11) (85 FR 87102 and 87103), as set forth in the 2020 final rule (referred to by the Court as ‘‘the accumulator adjustment rule of 2020’’). On May 17, 2022, the United States District Court for the District of Columbia ruled in favor of the plaintiff and ordered that the accumulator adjustment rule of 2020 be vacated and set aside. In response to this court order, we propose to withdraw the changes made to best price and to also withdraw the changes to AMP to apply consistent rules for determining best price and AMP. Therefore, we propose to remove the language added to these sections as part of the 2020 final rule: §§ 447.504(c)(25) through (29) and (e)(13) through (17) and 447.505(c)(8) through (12). See 85 FR 87102 and 87103. Specifically, we would remove ‘‘the manufacturer ensures’’ from these provisions. As a result, these regulations would maintain the language that has been in place since 2016. To be clear, the changes to these regulations made by the 2020 final rule on January 1, VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 2023, were not effective as a result of the court’s order. F. Drug Classification; Oversight and Enforcement of Manufacturer’s Drug Product Data Reporting Requirements— Proposals Related to the Calculation of Medicaid Drug Rebates and Requirements for Manufacturers (§§ 447.509 and 447.510) 1. Medicaid Drug Rebates (MDR) and Penalties (§ 447.509) Section 6 of the MSIAA, titled ‘‘Preventing the Misclassification of Drugs Under the Medicaid Drug Rebate Program,’’ amended sections 1903 and 1927 of the Act to clarify the definitions for multiple source drug, single source drug and innovator multiple source drug, and to provide the Secretary with additional compliance, oversight and enforcement authorities to ensure compliance with program requirements with respect to manufacturers’ reporting of drug product and pricing information, which includes the appropriate classification of a drug. Drug classification refers to how a drug should be classified—as a single source, innovator multiple source, or noninnovator multiple source drug—for the purposes of determining the correct rebates that a manufacturer owes the States.25 When manufacturers misclassify their drugs in the rebate program, it can result in manufacturers paying rebates to States that are different than those that are supported by statute and regulation, and in some cases, can result in the manufacturer paying a lower per-unit rebate amount to the States. Specifically, section 1927(c)(4)(A) of the Act, ‘‘Recovery of Unpaid Rebate Amounts due to Misclassification of Drugs,’’ was added to the statute to provide new authorities to the agency to identify and correct a manufacturer’s misclassification of a drug, as well as impose other penalties on manufacturers that fail to correct their misclassifications. In general, a misclassification in the MDRP occurs when a manufacturer reports and certifies its covered outpatient drug under a drug category, or uses drug 25 Note that section 1927(c)(3) of the Act describes rebates for covered outpatient drugs other than single source and innovator multiple source drugs in section 1927(c)(3) of the Act as ‘‘rebates for other drugs.’’ The MDRP reporting system provides for all ‘‘other drugs’’ that are covered outpatient drugs to be classified in the system as N drugs, regardless of whether they expressly meet the statutory definition of noninnovator multiple source drug. This reporting methodology has been in effect for the history of the program and interested parties have understood that a covered outpatient drug that was not an S or an I drug is reported in the system as an N drug. PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 34261 product information, that is not supported by the statutory and regulatory definitions of S, I, or N. We published guidance to manufacturers regarding compliance with drug pricing and drug product information reporting under this new law in Manufacturer Release #113 on June 5, 2020. See https:// www.medicaid.gov/prescription-drugs/ downloads/mfr-rel-113.pdf. Although much of this law is selfimplementing, we are proposing a series of regulatory amendments at §§ 447.509 and 447.510 to implement and codify the statutory changes in regulation. We propose that a misclassification of a drug under the MDRP has occurred or is occurring when a manufacturer reports its drug under a category that is not supported by the statutory and regulatory definitions of S, I, or N. A misclassification can also occur when a manufacturer’s drug is appropriately classified, but the manufacturer is paying rebates at a different amount than required by the statute, or where the drug manufacturer’s certified drug product information for the COD is also inconsistent with statute and regulation. The MSIAA also amended the Act to expressly require a manufacturer to report not later than 30 days after the last day of each month of a rebate period under the agreement, such drug product information as the Secretary shall require for each of the manufacturer’s covered outpatient drugs. In a separate section, we are proposing a definition of ‘‘drug product information’’ for the purposes of the MDRP. Similarly, the MSIAA amended the Act to clarify that the reporting of false drug product information and data related to false drug product information would also be subject to possible CMPs by the HHS Office of the Inspector General (OIG), and to provide specific new authority to the Secretary to issue civil monetary penalties related to knowing misclassifications of drug product or misreported information. These new OIG authorities will not be the subject of this rulemaking. Under the MSIAA, if a manufacturer fails to correct the misclassification of a drug in a timely manner after receiving notification from the agency that the drug is misclassified, in addition to the manufacturer having to pay past unpaid rebates to the States for the misclassified drug if applicable, the Secretary can take any or all of the following actions: (1) correct the misclassification, using drug product information provided by the manufacturer on behalf of the manufacturer; (2) suspend the misclassified drug, and the drug’s status as a covered outpatient drug under the E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34262 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules manufacturer’s national rebate agreement, and exclude the misclassified drug from FFP (correlating amendments to section 1903 of the Act); and, (3) impose civil monetary penalties (CMP) for each rebate period during which the drug is misclassified subject to certain limitations. The Act expressly provides that the imposition of such penalties may be in addition to other remedies, such as termination from the MDRP, or CMPs under Title XI. In § 447.509, we propose to include a new paragraph (d), ‘‘Manufacturer misclassification of a covered outpatient drug and recovery of unpaid rebate amounts due to misclassification and other penalties,’’ to implement additional penalty and compliance authorities outlined in section 6 of the MSIAA, which amended sections 1903 and 1927 of the Act. As some manufacturers may continue to misclassify drug products, we believe these proposed penalties are necessary so that manufacturers do not neglect to correct and certify their information, to assure that States receive the rebates that they deserve, to assure that public MDRP data are accurate, to protect the integrity of the MDRP, and to ensure the efficient and economic administration of the Federal Medicaid program. Under the MDRP, a drug should be classified as a single source, innovator multiple source, or noninnovator multiple source drug for the purposes of determining the correct rebates that a manufacturer owes the States. We propose that a misclassification in the MDRP occurs when a manufacturer reports and certifies its covered outpatient drug under a drug category or other drug product data related to a COD that is not supported by the statutory and regulatory definitions of S, I, or N. We also propose to define as a misclassification a situation in which the manufacturer accurately reports and certifies its COD under a drug category or other related drug product data for a COD, but is paying a different rebate amount than that required by the statute and regulations. The statute expressly indicates at section 1927(d)(4) of the Act that a misclassification can occur without regard to whether the manufacturer knowingly made the misclassification or should have known that the misclassification was being made. It is the legal responsibility of the manufacturer to report and certify the correct classification of its covered outpatient drugs to the agency, and the drug product information related to a COD. The agency does not as a routine matter review or verify the drug category classifications and related drug VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 product information reported and certified by the manufacturer. However, in its oversight role, the agency will review the classification and other drug product and pricing information reported by the manufacturer for a drug to determine its accuracy, as needed. For example, when questions arise, the agency will generally review the drug product and pricing information reported and certified by a manufacturer. To this end, we generally rely upon various sources of information to determine if a drug is misclassified in the MDRP. This includes information reported by manufacturers to CMS in combination with publicly available information in making determinations of whether a drug is misclassified in the MDRP. The agency also uses manufacturer reported information, such as the COD status code, in combination with information available on the FDA’s Comprehensive NDC SPL Data Elements file (NSDE) https://download.open.fda.gov/ Comprehensive_NDC_SPL_Data_ Elements_File.zip, and information from FDA’s Drugs@FDA web page https:// www.accessdata.fda.gov/scripts/cder/ daf/ to verify that the national drug codes (NDCs) reported to the MDRP by manufacturers are appropriately classified and reported to MDRP. Therefore, we propose in the new § 447.509(d), the following process to identify, notify and correct a manufacturer’s drug category misclassifications, and impose other penalties, while at the same time notifying the HHS OIG and/or other governmental agencies about possible violations of MDRP requirements. a. Identification and Notification to Manufacturer To Correct Misclassification (§ 447.509(d)(1) Through (4)) We are proposing in new paragraphs (d)(1) through (4) of § 447.509, requirements relating to the process by which the agency would identify when a misclassification of a drug has occurred in MDRP, subsequently notify a manufacturer that we have determined that a drug is misclassified in MDRP, indicate the penalties that may be imposed on the manufacturer, as well that the manufacturer may owe past due rebates. We propose to define what constitutes a misclassification in paragraph (d)(1). As proposed at § 447.509(d)(1)(i), misclassification in the MDRP occurs when a manufacturer reports and certifies to the agency its drug category or drug product information related to a covered outpatient drug that is not supported by applicable statute or PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 regulation. For example, a drug is misclassified by the manufacturer if it is reported as a noninnovator multiple source drug when the correct classification for the COD, as determined by the agency, is a single source drug or an innovator multiple source drug, based on application of relevant statutes and regulations. In such an example, it is likely that the manufacturer has paid or is paying a lower per unit rebate amount to a State as a result of the misclassification, and the agency would notify the manufacturer as part of the communication regarding the misclassification that rebates are owed to the States. However, there may be circumstances where a manufacturer is reporting its drug as a S or I drug, when the appropriate category is a N drug. For example, a manufacturer may be categorizing a non-prescription drug as a brand drug, when it should be classified as a noninnovator drug for the purposes of MDRP. These situations would be considered misclassifications as well. These situations may result in States needing to pay rebates back to the manufacturer, which creates recordkeeping and fiscal issues for the States, as well as the need for the States to request FFP from the Federal Government to pay its share of the rebates that are due back to the manufacturer. There are two-year timely claims filing deadlines under section 1132(A) of the Act, which may prohibit States from claiming FFP in these situations. A manufacturer may also have reported and certified an incorrect base date AMP to calculate its inflation penalty rebates, thus paying overall lower rebates to the States. This example would also be considered a misclassification under paragraph (d)(1)(i), as the incorrect drug product information related to a COD is being used by the manufacturer. We also propose in § 447.509(d)(1)(ii) that a misclassification includes a situation where a manufacturer has correctly reported and certified its drug classification as well its drug product information for a COD, but is paying rebates to States at a level other than that supported by statute and regulation applicable to the reported and certified data. For example, if a manufacturer is correctly reporting and certifying a COD as an S or I drug, but paying rebates that would be expected for that of an N drug, we would consider that to be a misclassification as well. Note that while the statute and regulations specify that rebates are paid to States based on classifications of CODs as S, I, or ‘‘other E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 drugs’’, the MDP system only allows for the classification of CODs as S, I, or N. The N category would include any drug that is not an S or I, which may include non-prescription drugs. Manufacturers should assure that those drugs that are classified as N in the MDP system are drugs other than S or I drugs.26 We propose at § 447.509(d)(2) that if the agency makes a determination of a misclassification, the agency would send a written and electronic notification to the manufacturer that misclassified a drug of such misclassification, and any past rebates due, and the manufacturer would have 30 calendar days from date of the notification to submit to the agency the drug product and pricing information necessary to correct the misclassification or the incorrect product information, and calculate rebate obligations. If the manufacturer misclassified the drug as an N when it should have been an S or I, then the data submitted to the agency must include the drug’s ‘‘best price’’ data for the period or periods during which it was misclassified. Once the information is changed in the MDP, the manufacturer must certify the data. Upon receipt from the manufacturer of the requested corrected information as proposed in § 447.509(d)(2), we propose in § 447.509(d)(4) to review the information submitted by the manufacturer in response to the notice sent under proposed § 447.509(d)(2) to ensure consistency with published drug product information, and if the manufacturer fails to correct the misclassification, fails to certify applicable pricing and product data, and/or fails to pay rebates due as a result of misclassification in the timeframes proposed, we propose the enforcement actions the agency may further take. Upon notification by CMS that the manufacturer’s information was updated in the system, we propose that the manufacturer certify the applicable price and drug product data. The proposed time period the manufacturer has to correct the misclassification, and respond to the agency’s request to 26 Since the beginning of the MDRP, the term noninnovator multiple source drug, and its abbreviation (N), has been used very generally to identify a covered outpatient drug other than a single source drug or an innovator multiple source drug. The rebate is calculated using the same formula for all drugs other than a single source drug or an innovator multiple source drug, including both those that satisfy the definition of noninnovator multiple source drug and those that do not. Therefore, manufacturers are to report all of their drugs other than a single source drug or an innovator multiple source drug and identify them with the drug category of N, regardless if they satisfy the statutory definition of noninnovator multiple source drug. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 certify the information in the system, is 30 calendar days from the date of the original notification to the manufacturer of the misclassification. The determination made by CMS and notification provided by CMS to the manufacturer as a result of the process proposed in § 447.509(d) regarding misclassification is limited by the information available to CMS and is specific to the facts and circumstances for each scenario. It does not release the manufacturer from any additional liabilities, or preclude actions against manufacturers by HHS, OIG, DOJ, or otherwise. b. Manufacturer Payment of Unpaid Rebates Due to Misclassification (§ 447.509(d)(3)) As required in section 1927(c)(4)(A) of the Act, the manufacturer is required to pay unpaid rebates to the State for a misclassified drug in an amount equal to the product of the difference of the URA paid to the State for the period, and the URA that the manufacturer would have paid to the State for the period, as determined by the agency, if the drug had been correctly classified or correctly reported by the manufacturer, or the drug product information had been reported correctly, and the total units of the drug paid for under the State Plan in the rebate period(s). Therefore, once we determine that a misclassification has occurred in § 447.509(d)(1) and notify the manufacturer of the misclassification in accordance with the proposed process steps at § 447.509(d)(2), we are proposing in § 447.509(d)(3) the process by which manufacturers would pay unpaid rebates to the States resulting from a misclassification of a drug in the MDRP. Specifically, we propose at § 447.509(d)(3) that when the agency determines that a misclassification of COD occurs as proposed under § 447.509(d)(1), and notification has been provided to the manufacturer as proposed under § 447.509(d)(2), a manufacturer shall pay to each State an amount equal to the sum of the products of the difference between: the per URA paid by the manufacturer for the COD to the State for each period during which the drug was misclassified, and the per URA that the manufacturer would have paid to the State for the COD for each period, as determined by the agency based on the data provided by the manufacturer under proposed paragraph (d)(2), if the drug had been correctly classified by the manufacturer, multiplied by the total units of the drug paid for under the State Plan in each period. PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 34263 Consistent with section 1927(d)(4)(A) of the Act, we are proposing regulatory text in § 447.509(d)(3)(i) that requires manufacturers to pay these unpaid rebates amounts. We are also proposing to codify at § 447.509(d)(3) the time frame by which the manufacturer shall pay such unpaid rebates to the States for the period or periods of time that such COD was misclassified, based upon the proposed URA provided to the States by the agency for the unpaid rebate amounts. We are proposing to include a regulatory provision that requires such rebates be paid to the States by the manufacturer within 60 calendar days of the date of the notice that is sent by the agency to the manufacturer indicating that the drug is misclassified, and specifies that it is the manufacturer’s burden to contact the States and pay the rebates that are due. We are also proposing that a manufacturer would be required to provide documentation to the agency that all past due rebates have been paid to the States within the 60 calendar day timeframe. c. Agency Authority To Correct Misclassifications and Additional Penalties for Drug Misclassification (§ 447.509(d)(4)) Consistent with section 1927(c)(4)(B) of the Act, which provides the authority to the Secretary to correct drug misclassifications in the system and impose other penalties, we propose to add § 447.509(d)(4), allowing CMS to correct the drug’s misclassification on behalf of the manufacturer, as well as provide a plan of action for enforcement against the manufacturer. Specifically, we propose at § 447.509(d)(4) that the agency would review the information submitted by the manufacturer based on the notice sent under proposed paragraph (d)(2), and if a manufacturer fails to correct the misclassification within 30 calendar days from the date of the notification of the misclassification by the agency to the manufacturer, fails to certify applicable pricing and drug product data, and/or fails to pay the rebates that are due to the States as a result of the misclassification within 60 calendar days of receiving such notification, the agency may do any or all of the following: • Correct the misclassification of the drug in the system, using any pricing and drug product information that may have been provided by the manufacturer, on behalf of the manufacturer; • Suspend the misclassified drug, and the drug’s status as a COD under the manufacturer’s rebate agreement from the MDRP, and exclude the E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34264 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules misclassified drug from FFP in accordance with section 1903(i)(10)(E) of the Act; • Impose a Civil Monetary Penalty (CMP) for each rebate period during which the drug is misclassified, not to exceed an amount equal to the product of: ++ The total number of units of each dosage form and strength of such misclassified drug paid for under any State Plan during such a rebate period; and ++ 23.1 percent of the AMP for the dosage form and strength of such misclassified drug for that period. Also, we propose at § 447.509(d)(4)(iv) to indicate that, in addition to the actions described previously in this proposed rule, we may take other actions or seek additional penalties that are available under section 1927 of the Act (or any other provision of law), against manufacturers that misclassify their drugs including referral to the HHS OIG and termination from the MDRP. Section 1927(b)(4)(B)(i) of the Act provides that the Secretary may terminate a manufacturer from the program for violation of the rebate agreement or other good cause. Furthermore, section 1927(c)(4)(D) of the Act indicates that other actions and penalties against a manufacturer for misclassification of a drug include termination from the program. Therefore, we propose that a manufacturer is subject to termination from the program if it fails to meet agency’s specifications for participation in the MDRP program as proposed when it is in violation of section 1927(b)(4)(B)(i) or 1927(c)(4)(D) of the Act, which includes failing to correct misclassified drugs as identified to the manufacturer by the agency, and continuing to have one or more drugs suspended from MDRP because of the lack of certification of the correct drug classification data in the system. We note that as provided in section 1927(b)(4)(C) of the Act, a manufacturer with a terminated NDRA is prohibited from entering into a new NDRA for a period of not less than one calendar quarter from the effective date of the termination until all of the above or any subsequently discovered violations have been resolved, unless the Secretary finds good cause for an earlier reinstatement. In accordance with section 1927(b)(4)(B)(ii) of the Act, and section VII.(e) of the NDRA, termination shall not affect the manufacturer’s liability for the payment of rebates due under the agreement before the termination effective date. Consequently, invoicing by States may VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 continue beyond the manufacturer’s termination from the program for any utilization that occurred prior to the effective date of the termination. In addition to affecting Medicaid coverage of a manufacturer’s drugs, the termination of the manufacturer’s NDRA may impact the coverage of the drugs under the Medicare Part B program as well as the 340B Drug Pricing Program. Alternatively, we propose that suspension of a drug under this section as a COD would not affect its status as a reimbursable drug under the 340B Drug Pricing Program or Medicare Part B. d. Transparency of Manufacturer Misclassification (§ 447.509(d)(5)) Section 1927(c)(4)(C)(i) and (ii) of the Act requires information on CODs that have been identified as misclassified be reported to Congress on an annual basis, and that the annual report be made available to the public on a public website. Therefore, we propose to add new paragraph (d)(5) to § 447.509 to indicate that the agency would make available on a public website an annual report as required under section 1927(d)(4)(C)(ii) of the Act on the COD(s) that were identified as misclassified during the previous year. This report would include a description of any steps taken by the agency with respect to the manufacturer to reclassify the drugs, ensure the payment by the manufacturer of unpaid rebate amounts resulting from the misclassifications, and disclose the use of the expenditures from the fund created in section 1927(b)(3)(C)(iv) of the Act. 2. Proposed Requirements for Manufacturers Relating to Drug Category—Requirements for Manufacturers (§ 447.510) To implement section 1927(c)(4) of the Act, we propose to rename § 447.510 as ‘‘Requirements and penalties for manufacturers’’. a. Suspension of Manufacturer NDRA for Late Reporting of Pricing and Drug Product Information (§ 447.510(i)) In accordance with section 1927(b)(3)(C)(i) of the Act, we propose to add paragraph (i) to § 447.510 to describe the process by which the suspension of a manufacturer’s NDRA would occur when a manufacturer fails to report timely information, which includes drug pricing and drug product information, as described in section 1927(b)(3)(A) of the Act, which also includes the reporting timeframes for such information. This drug product and pricing information includes, but is not limited to AMP, best price, and drug PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 product information as described in the proposed definition of drug product information included in this rule. Specifically, the new paragraph § 447.510(i)(1) proposes that if a manufacturer fails to provide timely information required to be reported to the agency under § 447.510(a) and (d) of this section, the agency would provide written notice to the manufacturer of the failure to provide timely information. If such information is not reported within 90 calendar days of a deadline determined by the agency, and communicated to the manufacturer electronically and in writing by the agency, it shall result in suspension of the manufacturer’s rebate agreement for all CODs furnished after the end of the 90-calendar day period for purposes of Medicaid and the MDRP only, and the rebate agreement shall remain suspended for Medicaid until such information is reported in full and certified, but not for a period of suspension of less than 30 calendar days. This section also proposes that continued suspension of the rebate agreement could result in termination for cause. During the period of the suspension, the CODs of the manufacturer are not eligible for Medicaid coverage or reimbursement and Medicaid FFP. However, the manufacturer must continue to offer its CODs for purchase by 340B eligible entities, and reimbursement availability for such drugs under Medicare Part B would not change because, while suspended for purposes of the MDRP, the Medicaid drug rebate agreement with the manufacturer would remain in effect for purposes of Medicare Part B reimbursement and the 340B Drug Pricing Program. Under proposed § 447.510(i)(2), the agency would notify the States 30 calendar days before the effective date of the manufacturer’s suspension, which is 60 calendar days after the notice is sent to the manufacturer that the data are late. If a manufacturer fails to report and certify the complete information within this 30-calendar day period before the suspension begins, they would continue to be suspended from the program until such information is reported and certified, and would be subject to termination of the manufacturer rebate agreement. We understand that suspension of a manufacturer’s agreement, and loss of the availability of FFP for a period of time, would likely mean that these manufacturers’ drugs would not be available to Medicaid beneficiaries during the period of the suspension. We would give States sufficient time before E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 the suspension begins—30 calendar days—to work with beneficiaries and their prescribers to transition to other covered outpatient drugs that would meet the clinical needs of the beneficiaries during the suspension period. We believe that the intermediate step of suspension rather than termination should be sufficient incentive to manufacturers to report pricing and product information within the statutory and regulatory requirements, without initially resorting to termination, which means that a manufacturer’s drug could be unavailable to beneficiaries for a possible longer period of time. We believe this proposed process provides clearer implementation of the statutory authority to suspend a manufacturer’s rebate agreement in the event of a failure to provide timely information, and would hopefully incentivize manufacturers to ensure the timely reporting of pricing and drug product information, which would further the efficient and economic operation of the MDRP. For example, every month it is common that several manufacturers either do not report or only partially report their AMP data to the agency, which are used to calculate the Federal Upper Limits (FULs) for multiple source drugs, among other purposes. Such conduct reduces the agency’s ability to set FULs on Medicaid payment for certain drugs, which means States may spend more money on multiple source drugs than they otherwise should. As a standard practice, we already notify these manufacturers that they are late in reporting or only have partially reported their information, and we also provide information about late reporting by manufacturers to OIG for possible imposition of CMPs. We consider partial reporting of information to also be late reporting, as the information that was not reported is late. Consistent with the proposed clarification to the definition of manufacturer, the proposed suspension of the manufacturer’s NDRA would be applied to all the associated labeler rebate agreements of the manufacturer. G. Proposals Related to Amendments Made by the American Rescue Act of 2021—Removal of Manufacturer Rebate Cap (100 Percent AMP) Section 9816 of the American Rescue Plan Act of 2021 sunsets the limit on maximum rebate amounts for single source and innovator multiple source drugs by amending section 1927(c)(2)(D) of Act by adding ‘‘and before January 1, 2024,’’ after ‘‘December 31, 2009’’. In accordance with section 1927(c)(3)(C)(i) VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 of the Act and the special rules for application of provision in sections 1927(c)(3)(C)(ii)(IV) and (V) of the Act, this sunset provision also applies to the limit on maximum rebate amounts for CODs other than single source or innovator multiple source drugs. Section 2501(e) of the Affordable Care Act amended section 1927(c)(2) of the Act by adding a new subparagraph (D) and established a maximum on the total rebate amount for each single source or innovator multiple source drug at 100 percent of AMP, effective January 1, 2010. This limit on maximum rebate amounts was codified at § 447.509(a)(5) for single source and innovator multiple source drugs, effective January 1, 2010. This limit was later extended to apply to drugs other than single source or innovator multiple source drugs by section 602 of the Bipartisan Budget Act of 2015 (Pub. L. 114–74, enacted November 2, 2015) (BBA 2015), which amended section 1927(c)(3) of the Act to require that manufacturers pay additional rebates on such drugs if the AMPs of the drug increase at a rate that exceeds the rate of inflation. This provision of BBA 2015 was effective beginning with the January 1, 2017 quarter, and the limit on maximum rebates for drugs other than single source or innovator multiple source drugs was added at § 447.509(a)(9). Therefore, to conform § 447.509 with section 1927(c)(2)(D) of the Act, as amended by the American Rescue Plan Act of 2021, and sections 1927(c)(3)(C)(i), (ii)(IV), and (ii)(V) of the Act, we are proposing to make conforming changes to § 447.509 to reflect the removal of the maximum rebate amounts for rebate periods beginning on or after January 1, 2024. Specifically, we propose to amend § 447.509(a)(5) and (9) to state that the limit on maximum rebate amounts applies to certain time frames, which for all drugs, ends on December 31, 2023. That is, no maximum rebate amount would apply to rebate periods beginning on or after January 1, 2024. H. Proposal To Clarify § 447.509(a)(6), (7), (8), and (9) and (c)(4) With Respect to ‘‘Other Drugs’’ Section 1927(c) of the Act describes how the unit rebate amount (URA) is determined for a covered outpatient drug. There is a defined calculation of the applicable basic rebate and additional rebate for a covered outpatient drug that is either a single source drug or innovator multiple source drug at sections 1927(c)(1) and (2) of the Act, and a different defined calculation for ‘‘other drugs,’’ that is, a covered outpatient drug that is a drug PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 34265 other than a single source drug or an innovator multiple source drug at section 1927(c)(3) of the Act. Section 1927(c)(3) of the Act, titled ‘‘Rebate for other drugs,’’ describes in subsections (c)(3)(A) and (B) the basic rebate calculation for covered outpatient drugs other than single source drugs and innovator multiple source drugs. Section 1927(c)(3)(C) of the Act describes the additional rebate calculation for a covered outpatient drug other than a single source drug or an innovator multiple source drug. Thus, the statute makes it clear that rebates are applicable to all covered outpatient drugs, whether they are single source drugs, innovator multiple source drugs, or drugs other than such drugs. Manufacturers are required to report all of their covered outpatient drugs in our MDRP reporting system and must select the appropriate drug category for each (that is, S, I, or N). Since the beginning of the MDRP, the term noninnovator multiple source drug, and its abbreviation (N), have been used very generally to identify a covered outpatient drug other than a single source drug or an innovator multiple source drug in our system for operational purposes. Choosing N in our reporting system thus can result in capturing drugs that satisfy the statutory definition of an N drug, but also other drugs that are not single source or innovator multiple source drugs. Because manufacturers are to report all of their covered outpatient drugs and identify the applicable drug category, all covered outpatient drugs other than a single source drug or an innovator multiple source drug should be identified with the drug category of N, regardless if they satisfy the definition of noninnovator multiple source drug. In the July 17, 2007 final rule, we finalized a definition for ‘‘noninnovator multiple source drug’’ to clarify the distinction between multiple source drugs approved under an abbreviated new drug application (ANDA) and multiple source drugs approved under a new drug application (NDA). We also finalized that the term includes a drug that entered the market prior to 1962 that was not originally marketed under an NDA (72 FR 39162). Over the years, interested parties too have used the term ‘‘noninnovator multiple source drug’’ synonymously with ‘‘a covered outpatient drug that is a drug other than a single source drug or an innovator multiple source drug.’’ However, the statute specifically defines ‘‘noninnovator multiple source drug’’ at section 1927(k)(7)(iii) of the Act as a multiple source drug that is not an E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34266 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules innovator multiple source drug. The regulatory definition of noninnovator multiple source drug goes beyond this statutory definition but does not capture every covered outpatient drug that is something other than a single source drug or an innovator multiple source drug because not every ‘‘other drug’’ is a multiple source drug. As a result, ‘‘other drugs’’ and ‘‘noninnovator multiple source drugs’’ are not synonymous. While the terms are not synonymous, they are treated so for purposes of reporting the COD in the MDRP system, as ‘‘other drugs’’ should be classified as N, if not an S or I drug. As noted previously, the statute makes it clear that rebates apply to all covered outpatient drugs, regardless if they are single source drugs, innovator multiple source drugs or something other than a single source drug or innovator multiple source drug. To align our longstanding policy and practices of identifying ‘‘other drugs referenced in section 1927(c)(3) of the Act as N drugs, for purposes of the MDRP, we are proposing to modify language in § 447.509 by replacing each appearance of ‘‘noninnovator multiple source drug(s)’’ with ‘‘drug(s) other than a single source drug or an innovator multiple source drug.’’ 27 We propose to delete each appearance of ‘‘noninnovator multiple source drug(s)’’ in § 447.509 and replace it with ‘‘drug other than a single source drug or innovator multiple source drug(s).’’ The clarification is proposed to be made in § 447.509(a)(6), (7), (8), and (9) and (c)(4), and the language would change as set out in the proposed regulatory text at the end of the document. • In paragraph (a)(8), we would specify the ‘‘total rebate’’. Specifically, the total rebate amount for a drug other than a single source drug or innovator multiple source drug is equal to the basic rebate amount plus the additional rebate amount, if any. • In paragraph (a)(9), we would specify the ‘‘limit on rebate’’. Specifically, in no case would the total rebate amount exceed 100 percent of the AMP for a drug other than a single source drug or innovator multiple source drug. • In paragraph (c)(4), we would specify that for a drug other than a single source drug or innovator multiple source drug, the offset amount is equal to 2.0 percent of the AMP (the difference between 13.0 percent of AMP and 11.0 percent of AMP). 27 Drugs other than single source drugs and innovator multiple source drugs should continue to be reported in the MDRP system with the drug category of ‘‘N’’. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 I. Proposal To Establish a 12-Quarter Rebate Audit Time Limitation (§ 447.510) In accordance with sections 1927(b)(1) and 1927(c) of the Act, and section II. (b) of the NDRA, manufacturers are required to pay quarterly rebates to States for the CODs dispensed and paid for under the State Plan for the rebate period. Section 1927(b)(2)(B) of the Act provides that a manufacturer may audit the rebate billing information provided by the State as set forth under section 1927(b)(2)(A) of the Act on the total number of units of each dosage form, strength and package size of each COD dispensed and paid for under the State Plan during a rebate period, and authorizes that adjustments to rebates shall be made to the extent that the information provided by States indicates that utilization was greater or less than the amount previously specified. The statute does not impose a specific timeframe on a manufacturer’s audit authority or limit when adjustments to rebates may occur. For the purposes of this proposed regulation, audit authority is intended to refer to any process a manufacturer is using to seek an adjustment to utilization data under section 1927(b)(2)(B) of the Act. That audit authority encompasses many processes for seeking adjustments in utilization data, including disputes, assessments, reviews and hearings, and may involve paper procedures, informal phone calls, and emails or other mechanisms. This proposed provision is intended to provide a 12-quarter timeline for any of those processes related to initiation of audits. Section V. of the NDRA describes how the agency operationalizes the manufacturer audit authority; that is, it describes the procedures for dispute resolution once an audit identifies a dispute with the utilization data (that is, number of units for any given quarter) for which States are requesting rebates using a rebate invoice. A manufacturer can dispute State utilization on an original invoice or initiate a dispute on utilization that was previously paid. See section V, Dispute Resolution, ‘‘Medicaid Program: Announcement of Medicaid Drug Rebate Program National Rebate Agreement,’’ Final Notice, 83 FR 12770 (Mar. 23, 2018). The audit/ dispute resolution processes are further discussed in a number of manufacturer releases (State Release 177,28 State 28 https://www.law.cornell.edu/definitions/ index.php. PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 Release 181,29 Manufacturer Release 95,30 Manufacturer Release 105,31 and Manufacturer Release 115 32). As provided at section 1927(b)(2)(A) of the Act, no later than 60 days of the end of each quarter, States invoice manufacturers for rebates based on utilization of the manufacturer’s drugs in that quarter (§ 447.511(a)). Consistent with section 1927(b)(2)(B) of the Act, manufacturers may audit State utilization data for their covered outpatient drugs reported under section 1927(b)(2)(A) of the Act to determine if the data are accurate and appropriate. If a manufacturer’s review of a quarterly State invoice determines that no adjustments are necessary, and that the total quarterly rebate amount can be paid as reflected on the invoice, the manufacturer pays the total invoiced amount in full. The manufacturer will use identifying documentation about payment from the State’s records which may include, for example, the labeler code, the labeler name, the quarter and applicable Federal program(s) covered by the payment, or any other such pertinent information that would help identify from whom the rebate payment is being sent and for which quarter and Federal program the payment applies. In the event a potential discrepancy with State drug utilization data on the rebate invoice is discovered for a current period, the manufacturer will submit a Reconciliation of State Invoice (ROSI) form to the State, or if such a discrepancy is discovered for a prior rebate period’s invoice after that rebate period has already been invoiced and paid, the manufacturer will submit a Prior Quarter Adjustment Statement (PQAS) to the State. When completing the ROSI or the PQAS, manufacturers must enter the appropriate code(s) to explain the bases or reasons for any adjustments. Both forms assist in standardizing data exchange elements and improving communication between manufacturers and States. Consistent with section 1927(b)(2)(B) of the Act, adjustments to rebates are made to the extent that the audit results in information indicating that utilization was greater or less than the amount previously specified by the State in its rebate invoice, and can result in manufacturers owing additional rebate 29 https://www.cbo.gov/system/files/2020-03/ PDPRA-SFC.pdf. 30 https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/ downloads/rx-releases/mfr-releases/mfr-rel-095.pdf. 31 https://www.medicaid.gov/prescription-drugs/ downloads/mfr-rel-113.pdf. 32 https://www.accessdata.fda.gov/scripts/cder/ daf/. E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules amounts to the States, or the States owing credits to manufacturers. In State Release 56 and Manufacturer Release 20, we explained an adjustment is a correction in the number of units for any given NDC, or a correction to the unit rebate amount (URA) by the labeler for any given NDC. We clarified a dispute to mean ‘‘a disagreement between the labeler and the State regarding the number of units the State invoiced for any given quarter.’’ Consistent with section 1927(b)(2)(B) of the Act, all disputes must be resolved on a unit basis only, and not on any other factor (for example, monetary amounts, percentages, etc.) (State Release 181). State Release Number 45 sets forth the Dispute Resolution Process for manufacturers and States to follow when engaged in a dispute. In that release, we specified that the manufacturer should notify a State of the disputed data no later than 38 days after the State utilization data is sent. However, we have been made aware that manufacturers initiate disputes far past this suggested timeline. For example, States have reported receiving new disputes on claims from more than 30 years ago. Previous OIG reports indicated that manufacturers have initiated disputes dating back many years. Although the rebate agreement notes that States and manufacturers should strive to resolve disputes within a reasonable timeframe, there is no mention of how far back a dispute can be initiated once a manufacturer receives an invoice.33 While section V. of the NDRA, along with several CMS-issued program releases address dispute resolution procedures for when a manufacturer identifies State drug utilization data (SDUD) discrepancies based on the audit authority at section 1927(b)(2)(B) of the Act, no law or regulation, provides a specific time limitation for initiating a dispute over drug utilization data.34 Section V of the NDRA describes the dispute resolution processes available to manufacturers and States when a manufacturer discovers a potential discrepancy with State drug utilization data on the rebate invoice, when the manufacturer and State in good faith are unable to resolve prior to the payment due date. As noted above, manufacturers use the ROSI or PQAS 33 United States, Congress, Office of Inspector General. Medicaid Drug Rebate Dispute Resolution Could Be Improved, OEI–05–11–00580. Available at https://oig.hhs.gov/oei/reports/oei-05-11-00580.pdf. 34 https://www.ncpdp.org/NCPDP/media/pdf/ WhitePaper/Medicaid-Drug-Rebate-ProgramChallenges-Across-the-Industry.pdf?ext=.pdf. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 process, and shall use their best efforts to resolve a dispute within a reasonable timeframe, and if they are not able to resolve the dispute within a reasonable time frame, CMS will employ best efforts to ensure the State makes available to manufacturers (in accordance with § 447.253(e)) and as explained in State Release 181, the same State hearing mechanism available to providers for Medicaid payment disputes. The State hearing option is available to both States and manufacturers when they have reached an impasse through the normal dispute resolution process, or when one of the parties is not being responsive to another’s efforts to engage in dispute resolution. Once a hearing has taken place and a finding is issued, States and manufacturers are expected to act in accordance with the finding. We believe having an unlimited timeframe to initiate such disputes on rebates can result in manufacturer, State and Federal resources being spent to adjudicate excessively old disputes and is not an efficient use of resources. Given the lack of timeframe for dispute resolution, both States and manufacturers have requested greater CMS involvement in resolving disputes.35 More specifically, States have requested we establish a time limit for when a manufacturer may initiate a dispute. Establishing a time limit for manufacturers to initiate a dispute concerning State utilization data on the rebate invoice would promote the timely identification of outstanding disputes. Having an unlimited period to initiate disputes is not consistent with the proper and efficient operation of the rebate program. Due to recalculations involving hundreds of millions of State and Federal Medicaid dollars involving years of paperwork, we believe it is essential that a standard timeframe be established within which disputes are permitted. We propose to use our authority under sections 1102 and 1902(a)(4) of the Act to require efficient handling of disputes by limiting the period for manufacturers to initiate disputes, hearing requests and audits concerning State-specified COD utilization data to 12 quarters from the last day of the quarter from the date of the State invoice. Section 1102 of the Act requires the Secretary to ‘‘make and publish such rules and regulations, not inconsistent with this Act, as may be necessary to the efficient administration of the functions 35 United States, Congress, Office of Inspector General. Medicaid Drug Rebate Dispute Resolution Could Be Improved, OEI–05–11–00580. Available at https://oig.hhs.gov/oei/reports/oei-05-11-00580.pdf. PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 34267 with which [he or she] is charged’’ under the Act. Consistent with this authority, and with the authority found in section 1902(a)(4) of the Act, which allows the Secretary to specify such methods necessary for the proper and efficient operation of the plan, we are proposing to establish a 12-quarter time limit for manufacturers to initiate disputes, hearing requests, and audits for Stateinvoiced units on current rebates as well as to initiate disputes, hearing requests, and audits on rebates that have been paid in full. We are proposing a time limitation to help ensure that discrepancies are timely identified and resolved, thereby providing increased financial certainty to manufacturers and States and promoting the efficient operation of the MDRP. This limitation would only apply to disputes regarding State drug utilization data on State rebate invoices. We would continue to work with manufacturers to process appropriate change requests (for example: COD Status change requests, Market Date change requests, Base Date AMP change requests, and 5i Drug Indicator change requests). We understand this proposal implicates the authority at section 1927(b)(2)(B) of the Act, and would result in adding a time limitation to a manufacturer’s authority to audit information provided by States under section 1927(b)(2)(A) of the Act. However, we believe that this proposal and implications to the authority to audit comport with our policy goals and the authority bestowed by Congress to ensure the proper and efficient operation of the program. In considering an approach that is fair for both States and manufacturers, we believe that a regulation adopted in 2003 provides a way forward. The ‘‘Medicaid Program; Time Limitation on Price Recalculations and Recordkeeping Requirements Under the Drug Rebate Program’’ final rule with comment period, 68 FR 51912 (August 29, 2003), set forth a 12-quarter time limitation during which manufacturers must report changes to average manufacturer price and best price for purposes of reporting data to CMS.36 Establishing a 12-quarter time limitation for manufacturers to initiate disputes concerning State-invoiced utilization data would align with the timelines for manufacturers to report changes to data elements relevant to the calculation of 36 As stated in current regulation in § 447.510(b), manufacturers must report to CMS any revision to AMP, best price, customary prompt pay discounts, or nominal prices for a period not to exceed 12 quarters from the quarter in which the data were due, with limited exceptions. E:\FR\FM\26MYP2.SGM 26MYP2 34268 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 MDRP rebate amounts and for manufacturers to initiate disputes concerning State-supplied utilization data also necessary to the rebate calculation (§ 447.510(b)(1)), and would allow for more efficient administration of State operated drug rebate programs. This 12-quarter timeframe would also assist States that would otherwise be required to retain their drug utilization data indefinitely to verify changes in rebate amounts resulting from retroactive manufacturer recalculations. We would also like to specify, whenever we refer to a 3-year timeframe for disputes, we are interpreting it as 12 quarters from the last day of the quarter from the date of the State invoice. We recognize the potential burden for States and manufacturers to comply with a 38-day dispute initiation timeframe as mentioned in State Release Number 45; however, we believe that a 12-quarter timeframe is reasonable because it comports with requirements for maintenance of records on State Medicaid expenditures at § 433.32. It also mirrors the manufacturer’s timeline for reporting revisions to monthly AMP at § 447.510(d)(3). We also understand that there are two-year timely claims filing deadlines under section 1132(A) of the Act, and regulations at 45 CFR 95.7, which may prohibit States from claiming FFP in these situations, unless under a good cause waiver. Therefore, consistent with our authority at sections 1102 and 1902(a)(4) of the Act, we propose to ensure the efficient handling of rebate disputes, by limiting the period for manufacturers to initiate disputes, hearing requests or audits concerning State utilization data submitted pursuant to section 1927(b)(2)(A) of the Act to 12 quarters from the last day of the quarter from the date of the State invoice. Accordingly, we are proposing a new paragraph (j), titled ‘‘Manufacturer audits of State-provided information,’’ at § 447.510, specifying that a manufacturer may, within 12 quarters from the last day of the quarter from the State invoice date, initiate a dispute, request a hearing or seek an audit with a State for any discrepancy with State drug utilization data reported under section 1927(b)(2)(A) of the Act on the State rebate invoices. J. Proposal To Establish a Drug Price Verification Survey Process of Certain Reported CODs (§ 447.510) In this section of the proposed regulation, we describe the legal basis, rationale, and process we propose to survey manufacturers and wholesalers that directly distribute their CODs using our authority at section 1927(b)(3)(B) of VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 the Act to obtain information about the prices they are reporting to us under section 1927(b)(3)(A) of the Act and in accordance with § 447.510. The purpose of this survey is to verify prices reported under section 1927(b)(3)(A) of the Act to assure that Medicaid payments and applicable rebates for CODs can be made, and that Medicaid payments are economical and efficient, as well as sufficient, to provide access to care. Currently, there is no centralized collection of specific data from manufacturers (or wholesalers) used by CMS to verify prices manufacturers reported to us under section 1927(b)(3)(A) of the Act. Our proposal to survey manufacturers for certain information on specific CODs and our proposal to make certain manufacturer information publicly available (unless it is proprietary), would allow States to access this information and understand the derivation of a COD’s price so that States may establish and negotiate payment for Medicaid CODs consistent with section 1902(a)(30)(A) of the Act. For example, transparency into a manufacturer’s costs and process for establishing a drug price via the survey, along with other factors, would give States the ability to better negotiate supplemental rebates, and better understand the impact of the drug on its budget as supplemental rebates are negotiated. The proposed drug price verification survey is not intended to limit or deny access to any of the CODs included on the survey list, assess cost effectiveness of such drugs, or supplant findings from the applicable FDA approval process. That is, we would not be using the survey data to further assess either the clinical or cost effectiveness of the COD. Furthermore, neither the selection of CODs subject to the survey, nor the information collected in response to a survey under this proposal, would impact coverage of a COD consistent with section 1927 of the Act, or supplant any of the Federal requirements established under section 1927 of the Act and the implementing regulations at 42 CFR part 447, subpart I. Section 1902(a)(30)(A) of the Act (42 U.S.C. 1396a(a)(30)(A)) requires that States have a State Plan that provides methods and procedures to ensure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available at least to the extent that such care and services are available to the general population in the geographic area. In turn, the agency has an overarching obligation under section 1902(a)(30)(A) of the Act to ensure that Medicaid PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 payments are made in an economical and efficient, as well as sufficient, manner to provide access to care. Section 1927(b)(3)(B) of the Act authorizes the Secretary to survey wholesalers and manufacturers that directly distribute their CODs, when necessary, to verify manufacturer prices reported to us under section 1927(b)(3)(A) of the Act. We are proposing to interpret this language broadly to provide authority to verify prices and charges from wholesalers and manufacturers that distribute their own drugs, including when the manufacturer distributes drugs directly to pharmacies and other providers. In other words, we believe it is meant to allow the Secretary to verify prices reported in both situations in which a manufacturer sells to wholesalers and/or distributes them directly on their own. The statute expressly provides at section 1927(b)(3)(B) of the Act the authority to verify ‘‘manufacturer prices and manufacturer’s average sales prices (including wholesale acquisition cost)’’ and that requests for information may span ‘‘charges or prices.’’ We discuss later in this section which charges and prices we may request to verify the reported manufacturer prices. The meaning of the term ‘‘verify,’’ as set forth in the Oxford English Dictionary means ‘‘make sure or demonstrate that (something) is true, accurate, or justified’’. Viewing the authority provided under section 1927(b)(3)(B) of the Act through the lens of section 1902(a)(30)(A) of the Act obligations, we are proposing the following: (1) to describe the criteria by which we would develop a list of CODs (identified by NDC) that may be subject to a survey, and the manufacturers to whom the agency intends to send such a survey, to obtain additional information from said manufacturers or wholesalers to verify prices or charges of certain CODs that are reported to us under section 1927(b)(3)(A) of the Act; and, (2) the information that manufacturers and wholesalers would be required to report to satisfy the verification survey request. Under our proposal, a process would be established such that once the agency determines that a manufacturer and its COD would be subject to verification, the prices or charges that would be subject to verification may include those that are described in section 1927(b)(3)(A) of the Act and reported by manufacturers, including a manufacturer’s AMP, best price, ASP, and WAC for a drug. We note that WAC is generally available through public sources, while the manufacturer reported AMP, best price, and ASP for E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules CODs are generally not available through public sources. The CODs to which this verification survey would apply would be limited to those for which manufacturers that have a National Drug Rebate Agreement in place with the Secretary of HHS, as required under section 1927(a)(1) of the Act. Only these manufacturers would report applicable product and pricing data under section 1927(b)(3)(A) of the Act and proposed § 447.510. We note this rulemaking does not address the separate authority to conduct surveys under section 1847A(f)(2) of the Act to verify prices reported under section 1847A(f)(2). We note that participating manufacturers are required to report and certify certain product and pricing data for each of their CODs on a monthly and quarterly basis to CMS. The COD pricing and product information is primarily used for the determination of the quarterly Medicaid drug rebates paid by participating manufacturers, but also serves as the basis for Medicaid payment for CODs. For example, the AMPs that are reported to the agency are used in the calculation of the Medicaid Federal Upper Limits (FULs) for payment of certain multiple source CODs under section 1927(e)(5) of the Act. The 340B Drug Pricing Program uses the AMP and the Unit Rebate Amount (which is the amount calculated to determine the Medicaid rebate for each dosage form and strength of a COD, and is based in part on AMP) to calculate the 340B ceiling price. Many States require that 340B entities are paid no more than the 340B ceiling price for CODs dispensed by 340B entities. Additionally, many State Medicaid programs use the ASP (as defined in section 1847A(b)(4)(A) of the Act) and the Wholesale Acquisition Cost (as defined in section 1847A(b)(4)(B) of the Act) for Medicaid payment for physician administered drugs, such as those administered in hospital outpatient departments and physician offices. Since the aforementioned pricing data that manufacturers report to us under section 1927(b)(3)(A) of the Act (AMP, ASP, WAC) are often used by States for reimbursement under Medicaid, serve as a basis for payment to providers for CODs, including physician administered drugs, and thus have a significant impact on how much the Federal Government pays for CODs under Medicaid, CMS must ensure, in accordance with section 1902(a)(30)(A) of the Act, that Medicaid payments for CODs based on these reported prices, are made in an economical and efficient, VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 as well as sufficient manner, to provide access to care. To provide additional background on the need for the agency to use this survey authority, we note that Medicaid pays for CODs under both FFS programs and through Medicaid managed care plans. State Medicaid programs and their contracted managed care plans have been successful in managing the costs of the pharmacy benefit programs through the implementation of various drug cost containment strategies. The primary mechanisms used by States and managed care plans to manage their pharmacy program spending consist of manufacturer rebates that are collected under the MDRP, the use of lower-cost generic or multiple source drugs, prior authorization, and preferred drug lists, which allow States to leverage crowded therapeutic classes to negotiate supplemental rebates with manufacturers. Manufacturer rebates collected by the States totaled $42.9 billion on a total drug spending of $77.6 billion for the four-quarter period Q1 2022 through Q4 2022 or 55.3 percent of total drug spending. We also finalized regulations in the COD final rule that require that reimbursement for drugs dispensed through retail pharmacies be based on a two-part formula which consists of: (1) the ingredient cost of the drug based on actual acquisition costs (AAC); and, (2) a professional dispensing fee (PDF) for the drug based on the pharmacy’s cost of professional dispensing. See §§ 447.502, 447.512, and 447.518. States establish reimbursement methodologies for these two components based on actual acquisition cost data and costs associated with dispensing. To further assist States to pay for CODs, the agency publishes the National Average Drug Acquisition Cost (NADAC) file on a monthly basis, which is based on community pharmacy invoice prices for CODs. The NADAC is one source States can use to support their ingredient cost AAC-based portion of pharmacy reimbursement. This methodology provides greater transparency into Medicaid payment for prescription drugs dispensed through community pharmacies, and most States use this file to help assure that pharmacies are paid for the cost of the drug that is dispensed and the professional dispensing costs. No such survey process, however, exists for CODs paid for by Medicaid that are not traditionally dispensed through retail pharmacies, such as many physician-administered drugs and gene therapy drugs, which are not required to follow the regulations noted above with regard to pharmacy reimbursement and AAC and PDF requirements. PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 34269 Thus, while Medicaid has implemented policies that generally provide effective management of traditional retail community pharmacy drug spending, while creating greater transparency around payment for drugs dispensed by retail community pharmacies, there are fewer effective policies in place for management of COD purchasing and reimbursement to non-retail health care providers. Substantial growth in non-retail community pharmacy drug spending is expected to continue. In March 2022, we estimated that for CY 2022, drugs that may require special handling or inpatient or outpatient hospitals stays will account for about 50 percent of the drug supply chain spending.37 Additionally, Medicaid expenditures for CODs dispensed in non-retail community pharmacy settings continue to experience similar growth. Based on an analysis of CMS State utilization data from 2012 to 2019, total Medicaid nonretail community pharmacy drug expenditures as a percentage of total Medicaid drug expenditures grew from 28 percent to 47 percent, and total Medicaid non-retail community pharmacy dispensed drug expenditures grew from $10.58 billion to $30.70 billion.38 Thus, it is evident that the evolution in the types of drugs paid for by Medicaid, manufacturers’ pricing structures for these drugs, as well as the methods used by manufacturers to distribute these drugs, have changed since the enactment of the MDRP, as well as the enactment of the MMA. While the model of distribution from manufacturer to wholesaler to provider still exists, and the predominant provider of pharmacy services remains the community-based pharmacy, there are other distribution and pricing arrangements for certain drugs, including high-cost gene therapy drugs that were not necessarily in existence in the market when the MDRP was enacted. In some of these situations, there is a need for more information or verification regarding how certain prices or charges reported to us for these highcost CODs are calculated in order to make payment under Medicaid. For example, there is little or no public information available about the factors 37 Iqvia, National Sales Perspective, February 2022. Presentation given by Doug Long at Asembia, May 2022. 38 Myers and Stauffer LC, Specialty Drugs Spend Trend 2012–2019 (2020) (unpublished analysis) (on file with Agency) (this analysis reviewed FFS and MCO combined spend for specialty drugs included on the Myers and Stauffer LC specialty list, based upon eight years of CMS National Utilization Data). E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34270 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules that influence the pricing of drugs dispensed in non-retail community pharmacy settings in Medicaid, the prices that pharmacies or wholesalers pay for these CODs, whether the prices or charges bear any relationship to the cost components of the COD, or whether the costs of distribution or preparation methods are included in the prices reported to us. States do not have access to invoice data of manufacturers or purchasers, or information as to how manufacturers have arrived at the prices they charge wholesalers or direct distributers. Therefore, States may assume that manufacturer prices reflect the manufacturer’s cost inputs such as research, development, and production costs. However, States do not know how those costs relate to the prices available from the manufacturer. Manufacturers may also consider the relative value of that drug to the patient/payer versus other treatments for similar conditions when developing their prices. As such, States may assume that the manufacturer prices its drug(s) at a certain value because it either has the potential to cure the patient or substantially reduce other medical costs (for example, reduces a patient’s need for higher cost inpatient hospital care). However, these assumptions may not be accurate since how the manufacturer arrives at its price is generally opaque. We believe our proposed drug price verification survey process, along with the NADAC that we publish for retail community pharmacy costs, should provide CMS and the States a clearer understanding into a manufacturer’s pricing for its covered outpatient drug to verify those prices and charges, and ensure that Medicaid payments are made in an economical and efficient, as well as sufficient manner, to provide access to care. A lack of current understanding of manufacturer pricing bears directly on whether payments can be made consistent with section 1902(a)(30)(A) of the Act. Moreover, Medicaid managed care plans may be able to use such public information about the prices or charges that are collected under this process to determine the appropriateness of their payments to PBMs, or for States and managed care plans to determine the appropriateness of the drug spending component of the overall Medicaid managed care capitation rate attributable to pharmacy services. For the foregoing reasons, and as described below, we propose to use the statutory authority in section 1927(b)(3)(B) of the Act, coupled with that in section 1902(a)(30)(A) of the Act, and this proposed regulatory process, to VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 collect additional charges and pricing information from manufacturers to verify the prices reported to us for CODs. We believe this verification is extremely important given the significant number of high cost drugs and biologics, including cell and gene therapy drugs entering the market; the prices associated with new and different distribution channels; and the continued use of WAC as a pricing metric in instances when actual acquisition cost data are not available. Gene and cell therapy drugs especially, while transformative in terms of therapeutic benefits, are being priced in the millions of dollars. States, with their limited budgets, are concerned about how they would be able to afford these medications as they are generally required to pay for these drugs that are CODs as part of the prescribed drugs benefit in accordance with the requirements of section 1927 of the Act and the Medicaid drug rebate program. As stated earlier in this rule, our proposal to survey manufacturers to verify price(s) and charge(s) involves collecting certain information on specific CODs, and our proposal to make certain manufacturer information publicly available (unless it is proprietary), would give States an additional tool to negotiate payment for Medicaid CODs consistent with section 1902(a)(30)(A) of the Act. For instance, while the survey would be used by CMS to verify prices, the access to certain non-proprietary data via the survey, for example, patient outcomes of the covered outpatient drug, could give States the ability to negotiate supplemental rebates with a full understanding of the impact of the drug on its budget and Medicaid patient population. This is important, particularly in light of the limited ability of States to negotiate additional supplemental rebates because of the few novel products in a particular drug class. We have also seen pricing-related issues relating to the production methods for these drugs, and query whether and how such methods should factor into the prices that are reported to us under section 1927(b)(3)(A) of the Act. For example, there are new preparation methods that modify or treat a patient’s own cells, which are then placed back into the body to treat the patient’s condition. This type of preparation method, while novel, raises issues of how such costs are included in the prices that are reported to us. We have also observed that certain manufacturers are using limiteddistribution specialty pharmacies to PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 distribute their drugs to providers and patients. Certain closed-door specialty pharmacies may have access to limiteddistribution specialty drugs due to specific arrangements with pharmaceutical manufacturers or special monitoring provisions required by FDA.39 Of the drugs approved by FDA in 2020 that were distributed through specialty pharmacies, 96 percent were for limited-distribution drugs.40 In addition to retail community and closed-door specialty pharmacies, other provider types may dispense and/or administer drugs dispensed in nonretail community pharmacy settings to Medicaid beneficiaries. These providers include, but are not limited to, physicians, home infusion pharmacies, hemophilia treatment centers, and clinics. In these situations, there may be questions regarding how a manufacturer calculates its AMP and best price that are reported to us under section 1927(b)(3)(A) of the Act, and how those data points compare to the actual invoice cost of the drug to the pharmacy. This directly affects Medicaid payments and rebates. Manufacturers are also using innovative versions of third-party logistic arrangements to distribute their drugs, which include specialty pharmacies, under which the title of the drug does not transfer to the pharmacy. Questions have been raised by States as to how such arrangements work with respect to the Medicaid program’s payment to the pharmacy, as well as the calculation of the covered outpatient drug’s AMP and best price that are reported to us under section 1927(b)(3)(A) of the Act and used for purposes of calculating Medicaid rebates. And we note that many States and Medicaid programs continue to use WAC as the basis for reimbursement of many drugs dispensed in a non-retail community pharmacy setting—because of the lack of availability of acquisition cost data. However, we have observed that there may be a trend in Medicaid by some manufacturers with recentlymarketed high cost CODs to increase their WACs at a rate faster than their AMPs, especially for specialty drugs. We have not identified this trend with respect to long-marketed drugs covered by Medicaid and dispensed at retail community pharmacies based upon a 39 Erin M. Turingan, et al., Financial Effect of a Drug Distribution Model Change on a Health System. 52 Hosp. Pharm. 422 (2017). 40 Anton Health, 2020 Specialty Approvals—96% Via Limited Distribution, Anton RX Report (Jan. 15, 2021), https://antonhealth.com/2020-specialtypharmacy-approvals/. E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules May 2023 CMS comparison research of changes to invoice prices vs. changes in WAC. This comparison showed consistent changes in invoice pricing and WAC. We believe consistent changes in invoice pricing and WAC also occur for drugs covered by Medicare Part D and dispensed at retail community pharmacies. Generally, when manufacturers increase their WACs at a rate faster than their AMPs, the higher the WAC for the COD, the greater the spread between the Medicaid reimbursement and the actual acquisition cost. This trend could affect whether Medicaid payments are consistent with sections 1927 and 1902(a)(30)(A) of the Act, as discussed previously in this proposed rule. That is, the use of WAC by the State for reimbursement purposes for certain drugs, such as high cost specialty drugs, may result in States overspending for a drug and manufacturers underpaying in rebates because of the much lower reported AMP for the drug. For example, based on an agency analysis of the relationship between WAC and AMP for a specific high-cost specialty drug, we found in 2018 that there was an 8.5 percent difference between the WAC and the AMP. Based on the latest data available, that difference is now 23 percent. Thus, States that use WAC that is reported to us under section 1927(b)(3)(A) of the Act to pay providers may significantly overspend for specialty drugs, given that AMP has traditionally been considered a closer proxy for the approximate revenues received by the manufacturer from sales of the drugs in the non-retail community pharmacy setting. Given these situations, we propose that significant enough changes have occurred in the marketplace to warrant the use of the Secretary’s authority to survey manufacturers and wholesalers in certain situations with respect to the prices and charges reported to us under section 1927(b)(3)(A) of the Act to make payment. Specifically, section 1927(b)(3)(B) of the Act gives the Secretary the authority to survey wholesalers and manufacturers that directly distribute their CODs, when necessary, to verify manufacturer prices and manufacturer’s average sales prices (including wholesale acquisition cost) if required to make payment reported under section 1927(b)(3)(A) of the Act. Therefore, we propose at § 447.510(k)(1) to use the authority granted to the Secretary under section 1927(b)(3)(B) of the Act to survey manufacturers with rebate agreements in effect with the Secretary to verify prices or charges for certain CODs for which drug product and pricing VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 information is submitted under section 1927(b)(3)(A) of the Act and § 447.510, to make payment for the COD. We do not believe it is required or necessary that we survey every manufacturer’s price or charge submitted under section 1927(b)(3)(A) of the Act, as the authority to verify via a survey of the prices under section 1927(b)(3)(B) of the Act indicates that the Secretary ‘‘may’’ verify. Notably, we propose to exclude those CODs that are subject to certain CMS drug pricing program(s) or initiatives under which participating manufacturers negotiate the COD’s price directly with CMS. For example, under the Medicare Drug Price Negotiation program established under sections 11001 and 11002 of the Inflation Reduction Act of 2022, or potentially certain CMMI models that are developed in response to the President’s Executive Order 14087 (see HHS response at https:// innovation.cms.gov/data-and-reports/ 2023/eo-rx-drug-cost-response-report), participating manufacturers will negotiate and collaborate with CMS on prices for certain CODs. This being the case, we propose to exclude CODs subject to these programs and initiatives from the survey verification, as CMS may have already successfully negotiated lower prices for the Medicare and/or Medicaid programs with these manufacturers. We intend to include a list of CMS drug pricing programs and initiatives under which manufacturers directly negotiate with CMS on a public website and would expect to update that list to reflect any future CMS drug pricing programs and initiatives that result in manufacturers’ directly negotiating COD pricing with CMS. We further note that under section 1927(c)(1)(C)(ii)(V) of the Act, maximum fair prices (MFPs) that are negotiated for selected drugs under the Medicare Drug Price Negotiation Program would be included in the Medicaid best price; thus, State Medicaid programs will benefit from the MFPs negotiated under Medicare Part B and Part D to the extent that such drugs are CODs. In other words, the MFP negotiated for these drugs could potentially lower the best price and potentially increase the Federal Medicaid drug rebate. Furthermore, it is unlikely that CODs with an MFP would be selected for the proposed drug price verification survey under section 1927(b)(3)(B) of the Act because we expect that our proposal would verify drug prices that are more recently marketed high cost drugs not typically dispensed at non-retail community pharmacies, while drugs for which an MFP has been negotiated must have been approved for at least 7 years, PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 34271 in the case of drugs approved and marketed under section 505(c) of the FFDCA, or licensed for at least 11 in the case of biological products that are licensed and marketed under section 351 of the PHS Act. Moreover, as noted previously in this proposed rule, we do not believe the trend of WACs increasing at a rate faster than their AMPs is relevant for the types of drugs for which MFP likely will be negotiated. Therefore, in this rule, we are proposing to survey manufacturers to verify price (or prices) and/or charges regarding specific CODs based on a three-step process. The first step would use objective measures related to Medicaid spending to identify CODs with the highest drug spending per claim, highest total Medicaid drug spending, highest 1 year price increase, or highest launch price, as determined and explained below. Specifically, we propose at § 447.510(k)(2) that CMS, on an annual basis, would compile a list of single source CODs that may be subject to a survey based on one or more of the criteria proposed at § 447.510(k)(2)(i) through (iv). The proposed measures in § 447.510(k)(2)(i) (highest drug spending per claim) and (ii) (highest total Medicaid drug spending) would use Medicaid drug spending data as reported from States to CMS in accordance with the State drug utilization data (SDUD) reporting (https://www.medicaid.gov/medicaid/ prescription-drugs/state-drugutilization-data/). We note that the per claim Medicaid spending data used in § 447.510(k)(2)(i) is not reduced by Federal rebates since such rebates are not reported at the claim level. Further, the supplemental rebate data are reported in the aggregate to CMS from States on a quarterly basis, thus it is difficult to identify individual State supplemental rebate data to net State supplemental rebates from per claim Medicaid spending. However, we would review the reported annual total Medicaid spending at § 447.510(k)(2)(ii) as reported by the States net of Federal rebates when determining if a COD spend is greater than 0.5 percent of total annual Medicaid drug spend, net of Federal rebates. For proposed measure § 447.510(k)(2)(iii), we would look at published WACs to determine when a COD’s price increase falls in the top 1 percent of CODs with the highest median WAC increase over a 12-month period. In proposed measure § 447.510(k)(2)(iv), we propose to look at the highest launch price, which we E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34272 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules propose to do by estimating whether or not the covered outpatient drug’s cost would be in the top 5th percentile of Medicaid spending by comparing a manufacturer’s published launch price (available as a published WAC or published by the manufacturer) to Medicaid per claim spending or if treatment costs are greater than $500,000 (indexed for inflation using the CPI–U). We expect application of the measures proposed at § 447.510(k)(2)(i) through (iv) would capture an initial set of high-cost CODs that could significantly impact Medicaid covered outpatient drug spending. From a process standpoint, in subregulatory guidance, we would provide the applicable time periods that CMS would review the data in order to determine the initial list of CODs, which we propose to be finalized in April following publication of this final rule, and each April thereafter. We expect that we would use data from the prior calendar year or Federal fiscal year. The list of CODs as a result of this analysis would not be made public. We propose at § 447.510(k)(3) to further refine this initial survey list of CODs in the second step by considering additional criteria such as a manufacturer’s willingness to negotiate further rebates either through a CMSauthorized supplemental rebate, or a manufacturer’s participation in a CMS drug pricing program or initiative under which participating manufacturers negotiate directly with CMS (see discussion above about proposal to exclude drugs under a CMS drug pricing program or initiative). At § 447.510(k)(3)(i), CMS proposes to exclude the CODs of manufacturers that participate in any CMS pricing program or initiative under which participating manufacturers negotiate a COD’s price directly with CMS. CMS believes that a manufacturer’s willingness to negotiate also may be demonstrated by the manufacturer’s level of effort to work with States to make the identified COD more affordable, especially considering States’ limited budgets. Therefore, by way of a State survey to determine a manufacturer’s level of effort, we propose at § 447.510(k)(3)(ii) to further exclude covered outpatient drugs of manufacturers that have negotiated CMS-authorized supplemental rebates with at least 50 percent of the States, that when in combination with the Federal rebate results in a total (State and Federal) rebate for the drug of interest to total Medicaid spend (State and Federal) for the drug of interest, that is greater than the total Medicaid rebates VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 (State and Federal) to total Medicaid drug spend for States that cover CODs only through fee-for-service, as reflected in the most recent Medicaid Financial Management Report (FMR).41 The FMR reflects annual State expenditures collected on the CMS–64 report.42 We propose to use the Federal fiscal year Medicaid FMR and analyze the rebates for those States that currently provide coverage of covered outpatient drugs only through fee-for-service (fee-forservice States). Specifically, we would determine total computable prescribed drugs expenditures for the States that cover CODs only through fee-for-service (currently 10 States) and determine the percentage of prescribed drug expenditures that are offset by State and Federal drug rebates. We propose to consider only States that cover CODs entirely through fee-for-service because the prescribed drugs expenditures in the FMR do not include COD expenditures made by managed care entities, while the rebate lines do include the managed care rebate offset. In other words, the denominator in the comparison of rebates to total expenditures would be understated, resulting in a higher percentage, if we included managed care COD expenditures and rebates in the calculation. Based upon the Federal fiscal year 2021 Medicaid FMR, the total Federal and State rebates range from 38 percent to 72 percent of total prescribed drug expenditures based upon analysis of eight States that pay for CODs entirely through fee-for-service (2 of the 10 such States had insufficient data reported for Federal fiscal year (FFY) 2021). We request comment on this proposal to refine the list of covered outpatient drugs to be surveyed, based upon a manufacturer’s level of effort at reducing the price for the identified high cost drugs (that is, those drugs identified by applying measures proposed at § 447.510(k)(2)). We also propose § 447.510(k)(3)(iii)(A) that if after application of § 447.510(k)(3)(i) and (ii), more than 10 CODs still remain, CMS would proceed to the third step and consider soliciting State-specific Medicaid program information as to the manufacturer’s level of effort to lower drug price for the Medicaid program, such as a manufacturer offering other programs to lower the cost of the drug to the State such as subscription models, VBP arrangements under the 41 https://www.medicaid.gov/medicaid/financialmanagement/state-expenditure-reporting-formedicaid-chip/expenditure-reports-mbescbes/ index.html. 42 https://www.medicaid.gov/medicaid/financialmanagement/state-expenditure-reporting-medicaidchip/. PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 multiple best price approach, or other special arrangements. We do not intend these examples of manufacturer effort to lower drug prices in § 447.510(k)(3)(iii)(A) to be exclusive or to encourage or discourage specific pricing approached; CMS recognizes that the pharmaceutical pricing market is fluid and States and manufacturers may pursue or negotiate arrangements not specifically listed in regulation. Additionally, we propose at § 447.510(k)(3)(iii)(B) that we would consider narrowing the list based on the highest cost CODs based on the factors outlined under § 447.510(k)(2) of this section, and before application of § 447.510(k)(3). We propose to collect the information in § 447.510(k)(3)(ii) and (k)(3)(iii)(A) using a State survey tool that we would develop if the rule is finalized as proposed. Once CMS determines a final list of CODs to be verified after the application of 447.510(k)(3), we would send a letter to the manufacturers of the identified drugs sometime in August, as discussed further below. While currently not proposed in regulation at § 447.510(k)(2) and (3), we also invite comments on whether CMS should consider surveying manufacturers of certain CODs that are identified under the proposed criteria at § 447.510(k)(2)(i) through (iv) that are also granted accelerated approval by FDA. The approval of a COD using the accelerated approval pathway relies on demonstrating an effect on surrogate or intermediate endpoint(s) that is reasonably likely to predict clinical benefit. Drug sponsors have been required by the FDA to conduct confirmatory trials after approval to verify and describe the predicted clinical benefit. However, the HHS OIG 43 found that drug sponsors do not always complete trials promptly, which can result in drugs staying on the market—often at high prices with limited competition—and being administered for years with unverified clinical benefit. Subjecting accelerated approval drugs to the drug price verification survey process would not supplant any determination made by the FDA. However, CMS surveying manufacturers for verification of prices may be warranted by recent trends of high costs of some of these therapies, particularly in view of some manufacturers’ noncompliance with FDA’s requirement for further confirmatory trials. Accordingly, we seek comments regarding whether CODs included on the list under the proposed 43 https://oig.hhs.gov/oei/reports/OEI-01-2100401.asp. E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules § 447.510(k)(2) that are approved under the FDA accelerated approval pathway should be surveyed when a manufacturer has failed to demonstrate the clinical benefits of the drug through further confirmatory trials required by the FDA. We propose at § 447.510(k)(4) that after a survey list of CODs is compiled after the application of the criteria in § 447.510(k)(2) and (3), the agency would post on a publicly accessible, government website the letter sent to the manufacturer indicating the name of the COD to be surveyed and the request for completion of the drug price verification survey. In proposed § 447.510(k)(5), we propose that such survey to a manufacturer or wholesaler would request in a standard reporting format specific information that would include the information proposed at § 447.510(k)(5)(i) through (iv). The survey tool would be developed after the publication of the final rule, if this proposal is finalized. In § 447.510(k)(5)(i), we propose to collect information on the pricing, charges, distribution and utilization for the COD. We propose to collect these utilization and pricing metrics from manufacturers to verify that the prices reported at section 1927(b)(3)(A) of the Act do not have the potential to negatively impact State budgets to the extent States are not able to cover the drugs, thus impeding Medicaid beneficiary access to treatment. In § 447.510(k)(5)(ii), we propose to collect product and clinical information for the COD described in the proposed regulation text at § 447.511(k)(5)(ii)(A) through (E) to understand the clinical benefits and risks of the covered outpatient drug to verify that the price reported fairly represents the benefits and/or risks of the COD. In § 447.510(k)(5)(iii), we propose to collect information on the costs of production, research, and marketing of the COD. We believe it is important to understand the costs to the manufacturer of researching, producing, and marketing of the drug and how those costs are accounted for in the prices and charges they report. We also note in this proposed subparagraph that research and development costs of a line extension drug shall not include the research and development costs of the initial single source or innovator multiple source covered outpatient drug. In § 447.510(k)(5)(iv), we propose to collect other information as determined by the Secretary specific to the particular COD in question that would help inform CMS and States with their VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 verification of drug prices. This additional information would likely be specific to each individual covered outpatient drug and may include additional requests associated with changes to the pharmaceutical marketplace. We may consider issuing additional guidance on the nature and scope of the other information we may request. The agency understands that some of the data proposed to be collected would be confidential and likely protected under section 1927(b)(3)(D) of the Act, in addition to other privacy and confidentiality provisions, including the Trade Secrets Act. Although the statute does not prescribe a method to verify prices or charges, we propose in § 447.510(k)(6) that CMS may post non-proprietary information provided by the manufacturer and wholesaler in response to the verification survey. By posting the non-proprietary information on our website, the public, beneficiaries, State Medicaid agencies, other Federal Government agencies and other affected interested parties would be afforded the opportunity to comment on public information as part of the verification process to ensure that those Medicaid payments are economical and efficient, as well as sufficient, to provide access to care and are sufficient to enlist enough providers so that care and services are available at least to the extent that such care and services are available to the general population in the geographic area. Finally, section 1927(b)(3)(B) of the Act allows the Secretary to impose a civil monetary penalty in an amount not to exceed $100,000 on a wholesaler, manufacturer, or direct seller, if the wholesaler, manufacturer, or direct seller of a covered outpatient drug refuses a request for information about charges or prices by the Secretary in connection with a survey as proposed under § 447.510(k) or knowingly provides false information. The provisions of section 1128A of the Act (other than subsections (a) (with respect to amounts of penalties or additional assessments) and (b)) shall apply to a civil money penalty (CMP) under this subparagraph in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a) of the Act. The civil monetary penalty authority set forth in section 1927(b)(3)(B) of the Act has been delegated to OIG. We would provide information obtained through, and in connection with, this survey to OIG for the purposes of potential imposition of CMPs for failure to report information in connection with a survey or for PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 34273 knowingly providing false information. Therefore, we propose at § 447.510(k)(7) that if a manufacturer or wholesaler refuses a request for information pursuant to a drug price verification survey within 90 calendar days of CMS’ request, or knowingly provides false information, the manufacturer or wholesaler would be referred to OIG for possible imposition of civil monetary penalties (CMPs) as set forth in section 1927(b)(3)(B) of the Act and section IV of the National Drug Rebate Agreement. K. Proposals Related to State Plan Requirements, Findings, and Assurances (§ 447.518) Section 1902(a)(30)(A) of the Act requires that States include in their State Plan, methods and procedures to ensure that payments to providers are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available to the general population in the geographic area. Under that authority, the Secretary issued Federal regulations at §§ 447.502, 447.512, and 447.518 that further elaborate that generally, payments to pharmacies for drugs that they dispense, and are paid for under the State Plan, are to be based on a two-part formula which consists of: (1) the ingredient cost of the drug that is dispensed based on the actual acquisition cost (AAC); and, (2) a professional dispensing fee (PDF) for the drug based on the pharmacy’s cost of dispensing, that is, the cost of the pharmacist’s professional services for ensuring that the appropriate COD is dispensed or transferred to a Medicaid beneficiary. AAC is defined at § 447.502 to mean the agency’s determination of the pharmacy providers’ actual prices paid to acquire drug products marketed or sold by specific manufacturers. As discussed in the COD final rule implementing this definition of AAC, a State can implement an AAC model of reimbursement based on various pricing methodologies for the ingredient cost of the drug so long as the ingredient cost represents the actual, current ingredient cost of the drug and is calculated based on the amounts that pharmacies pay for the drug (§ 447.518). We also discussed our view that the definition of AAC requires that States establish payment rates based on pharmacies’ actual prices paid to acquire drug products, and explained that the expectation is that those prices would reflect current prices (see 81 FR 5176). In accordance with § 447.502, the professional dispensing fee is incurred at the point of sale or service and pays for pharmacy costs in excess of the E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34274 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ingredient cost of a COD each time a COD is dispensed. The fee includes, but is not limited to, reasonable costs associated with delivery, special packaging and overhead associated with maintaining the facility and equipment necessary to operate the pharmacy. Costs also include a pharmacist’s time spent checking the computer for information about an individual’s coverage, performing drug utilization review (DUR) and preferred drug list review activities, measuring or mixing, filling the prescription, counseling a beneficiary; and physically providing the completed prescription to the Medicaid beneficiary. Under § 447.518, States are required to ensure that pharmacy providers are reimbursed adequately for both their pharmacy ingredient costs and professional dispensing services in accordance with the requirements of section 1902(a)(30)(A) of the Act. The State Plan must comprehensively describe the agency’s payment methodology for prescription drugs, including the agency’s payment methodology for drugs and the professional dispensing fee. As provided under § 447.518(d)(1), when proposing changes to either AAC (ingredient cost reimbursement) or PDF reimbursement, States are required to evaluate their proposed changes consistent with section 1927 of the Act, and must consider both parts of the reimbursement formula to ensure that total reimbursement under the proposed changes are consistent with section 1902(a)(30)(A) of the Act. These reimbursement formulas and any proposals to change either or both components of the reimbursement formula are subject to review and approval by CMS through the State Plan Amendment (SPA) process. In their SPA submission, States must provide adequate data such as a State or national survey of retail pharmacy providers or other reliable data (other than a survey) to support any proposed changes to either or both of the components of the reimbursement methodology. While States are afforded the flexibility to adjust their professional dispensing fees through the SPA process in accordance with the requirements of sections 1902(a)(30)(A) and 1927 of the Act, they must substantiate how their reimbursement to pharmacy providers reasonably reflects the actual cost of the ingredients used to dispense the drug, and the actual costs of dispensing the drug, consistent with the regulatory definitions of AAC and professional dispensing fee. We review each State’s proposed reimbursement methodology to assure it meets Federal requirements VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 under sections 1902(a)(30)(A) and 1927 of the Act, and the implementing regulations, specifically at §§ 447.502, 447.512, and 447.518. More recently, we have seen States submit proposed changes to either or both of the components of the reimbursement methodology without adequate supporting data that reflects current drug acquisition cost prices or actual costs to dispense. This is inconsistent with applicable law because the data submitted should reflect the actual cost of dispensing, consistent with Federal requirements under sections 1902(a)(30)(A) and 1927 of the Act and the implementing regulations, specifically at §§ 447.502, 447.512 and 447.518. The professional dispensing fee should be based on pharmacy cost data, and not be based on a market-based review, such as an assessment or comparison of what other third-party payers may reimburse pharmacies for dispensing prescriptions. A State’s periodic review and examination of market-based research for a comparison of what other payers reimburse for dispensing costs is an insufficient basis for determining or proposing changes to professional dispensing fees because it does not reflect actual costs to pharmacies to dispense prescriptions. The State must submit adequate cost data to CMS as part of its SPA process to justify its professional dispensing fee amounts. We are proposing that the data submitted cannot solely rely on the amounts that pharmacies are accepting from other private third-party payers. Similarly, with respect to reimbursement of drug ingredient costs, which must be consistent with AAC, States must support determinations or proposed changes for ingredient cost reimbursement with adequate cost based data. With respect to the AAC, we discussed in the preamble of the COD final rule our view that the definition of AAC requires that States establish payment rates based on pharmacies’ actual prices paid to acquire drug products, and explained that the expectation is that those prices would reflect current prices. (See 81 FR 5176.) Pharmacy purchase prices for drugs are subject to many external factors and market conditions which can cause purchase prices to go up or down. Many of these factors are out of the control of the purchasing pharmacy. We explained various ways States could establish pharmacy reimbursement methodologies, noting that the pricing benchmarks CMS provide to States, for example, the weekly NADAC files, and the weekly and monthly AMP are PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 updated regularly to reflect current prices. After the COD final rule was issued, we issued further guidance to States in the State Medicaid Directors Letter, SHO #16–001, dated February 11, 2016, and Frequently Asked Questions (FAQs), dated July 6, 2016. In that SHO, CMS provided further detail on ways States can implement an AAC model of reimbursement, including utilizing a nationwide survey, like the NADAC files (which are published on a monthly basis and updated weekly, and are designed to represent a current national pricing methodology based upon a simple average of voluntarily-submitted retail pharmacy acquisition costs for most covered outpatient drugs), a State survey of retail community pharmacy providers’ pricing, published compendia prices, or average manufacturer price-based pricing. In each of these instances, the ingredient cost represents the actual, current ingredient cost of the drug and is calculated based on the amounts that pharmacies pay for the drug. Freezing AAC rates and establishing a static provider reimbursement would not be consistent with applicable laws and regulations. Reduced beneficiary access to medically necessary drugs can result if pharmacy providers are unable to purchase drugs at a rate reflective of current market conditions. Pharmacies are not likely to purchase and dispense a covered outpatient drug to a Medicaid beneficiary if the reimbursement for the drug is not sufficient. Certain pharmacies, such as small rural pharmacies, rely primarily on revenue from prescriptions. When reimbursement rates for drugs do not adapt to changing market conditions, pharmacies may stop filling prescriptions for Medicaid beneficiaries, or, depending on the number of Medicaid prescriptions they fill, could have to permanently go out of business. This can result in reduced access to medications and negatively impact health equity, as Medicaid beneficiaries may have to go to multiple pharmacies to obtain the medication, or may not be able to obtain it at all. This can also result in the need for other costlier medical interventions, such as hospitalization. In this proposed rule, we are proposing to clarify the data requirements that States must submit to establish the adequacy of both the current ingredient cost and the professional dispensing fee reimbursement. Furthermore, we are specifying professional dispensing fees cannot simply be determined by a market-based review of what other E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 third-party payers may reimburse for dispensing prescriptions. That is, we are proposing to clarify in regulatory text that in a State’s periodic review of the rates being paid to pharmacies, the examination of market-based research data used to justify dispensing costs is an inappropriate basis for determining professional dispensing fees. A State cannot rely on the amounts that pharmacies are accepting from other third-party payers as a means of determining professional dispensing costs. The data that are acceptable could be a State’s own survey, a neighboring States’ survey, or other credible survey data, but it must be adequate and must reflect the current cost of dispensing a prescription in the State (81 FR 5311). To pay based on costs, States need to periodically assess whether current rates being paid to pharmacies to reflect current costs. There is no specific requirement as to how often and when States have to review their current fees. However, any State currently reimbursing pharmacy providers a professional dispensing fee that does not reflect the pharmacy’s actual acquisition cost and cost of dispensing must come into compliance. Therefore, in consideration of ensuring that payments to providers are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers, we believe an update to the regulatory text is necessary so that care and services continue to be available to the general population. Accordingly, we are proposing to update § 447.518(d) heading as ‘‘Data requirements’’ and to include paragraph (d)(1) as set out at in the regulatory text at the end of this document. Updating this language would assure that States provide adequate data to establish pharmacy reimbursement for ingredient costs and professional dispensing fees, and that such reimbursement is based on current actual costs. L. Federal Financial Participation (FFP): Conditions Relating to PhysicianAdministered Drugs (§ 447.520) Generally, physician-administered drugs (PADs) may satisfy the definition of a covered outpatient drugs (COD) under section 1927(k)(2) of the Act, subject to the limiting definition at section 1927(k)(3) of the Act, and manufacturer rebates can be collected on these PADs. Prior to section 6002 of the DRA of 2005, which added sections 1927(a)(7) and 1903(i)(10)(C) to the Act to require the States to collect and submit certain utilization data on certain PADs in order VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 for FFP to be available for these drugs, and for States to secure rebates, many States did not collect rebates on PADs when they were not identified by a National Drug Code (NDC) number because the NDC number is necessary for States to bill manufacturers for rebates. The NDC identifies the specific manufacturer, product, and package size. In the past, many PADs were classified by Healthcare Common Procedure Coding System (HCPCS) 44 codes (commonly referred to as J-codes), which group together different manufacturers of the same drug in the same code. These broad codes cannot be used to bill for rebates, as they do not identify the specific manufacturer. Many providers were submitting only these HCPCS codes to the States, rather than the NDC code of the specific drug, making it difficult for the State to bill for rebates. In its report titled ‘‘Medicaid Rebates for Physician Administered Drugs’’ (April 2004, OEI–03–02–00660),45 the OIG reported that, by 2003, 24 States either required providers to bill using NDC numbers or identified NDC numbers using a HCPCS-to-NDC crosswalk for PADs to collect rebates. Four of the 24 States were able to collect rebates for all PADs, both single source and multiple source drugs (one State only collected these rebates from targeted providers). To address this situation, and to increase the rebates being invoiced by States for PADs, section 6002 of the DRA added sections 1927(a)(7) and 1903(i)(10)(C) to the Act to require the States to collect and submit certain utilization data on certain PADs in order for FFP to be available for these drugs, and for States to collect manufacturer rebates. More specifically, these provisions required that for payment to be available under section 1903(a) of the Act for a COD that is a PAD, States had to provide for the collection and submission of utilization data and coding (such as J-codes and NDC numbers) for a PAD that is a single source (after January 1, 2006) or a multiple source drug (after January 1, 2008) that is a top 20 high dollar volume PAD on a published list (based on 44 HCPCS is a collection of standardized codes that represent medical procedures, supplies, products and services. The codes are used to facilitate the processing of health insurance claims by Medicare and other insurers. HCPCS is divided into two subsystems, Level I and Level II. Level I is comprised of Current Procedural Terminology codes (HCPT). Level II HCPCS codes identify products, supplies, and services not included in CPT. 45 https://oig.hhs.gov/oei/reports/oei-03-0200660.pdf. PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 34275 highest dollar volume dispensed under Medicaid identified by the Secretary, after January 1, 2007) that the Secretary may specify in order for payment to be available under section 1903 of the Act and for States to secure applicable Medicaid rebates. This list of the top 20 multiple source drugs may be modified year to year to reflect changes in such volume. (See section 1927(a)(7)(B)(i) of the Act.) The statute also required that only NDCs be used after January 1, 2007 for billing for all PADs that are CODs, unless the Secretary authorized that another alternative coding system be used. If States are not collecting NDCs and submitting the appropriate utilization data for these drugs, States should not receive Federal matching payments. In addition, States would be foregoing available rebates for these drugs. Regulations at § 447.520 were established to implement these statutory provisions in the 2007 Medicaid Program; Prescription Drugs; Final Rule, specifying the conditions for FFP for PADs (72 FR 39142). Section 447.520(a) specifies that no FFP is available for PADs if the State has not required the submission of codes from its providers that allow it to appropriately bill manufacturers for rebates for PADs. For single source PADs, the requirement to submit appropriate coding went into effect as of January 1, 2006, and specifies under § 447.520(a)(1) that States must require providers to submit claims for single source PADs using HCPCS or NDC codes to secure rebates. Section 447.502(a)(2) further specifies that as of January 1, 2007, a State must require providers to submit claims for single source and the top 20 multiple source PADs identified by the Secretary, using NDC codes. Under § 447.520(b), as of January 1, 2008, a State must require providers to submit claims for the top 20 multiple source drugs identified by the Secretary as having the highest dollar volume using NDC numbers to secure rebates, and § 447.520(c) provided the opportunity for States that require additional time to comply with the requirements of the applicable laws and regulations to apply for an extension to comply with the requirements. We proposed to retain this current regulatory language without modification in the 2012 COD proposed rule (77 FR 5367) and since no comments were received on that proposal, the current regulations were finalized without any modifications in the 2016 COD final rule. See 81 FR 5322. We propose to update the regulatory language at § 447.520 to more E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34276 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules specifically and accurately conform with the statutory requirements captured at section 1927(a)(7) of the Act. In proposed § 447.520(a)(1) through (3) we specify the conditions under which FFP is available for States, as they relate to the codes they must require providers to use in order for the State to secure rebates for PADs that are CODs. The proposed language clarifies that rebates are only due for PADs that are CODs, and provides the conditions that data must be submitted by providers in the State in order for States to receive FFP and secure applicable rebates. We are proposing at § 447.520(b) a State require providers to submit claims for all covered outpatient drug single source and multisource physician-administered drugs using NDC numbers to collect FFP and secure rebates. States also need to ensure that their managed care plans report required drug utilization data in order for States to invoice manufacturers for rebates for CODs, consistent with § 438.3(s)(2) and (3), which were adopted in the 2016 Medicaid Managed Care final rule.46 Per § 438.3(s)(2) and (3), an MCO, PIHP or PAHP that covers CODs under its Medicaid managed care contract must (1) report drug utilization data to the State that is necessary for the State to bill manufacturers for rebates under section 1927 of the Act using NDC numbers for all CODs, including all single and multiple source PADs; and, (2) establish procedures to exclude utilization data for covered outpatient drugs that are subject to discounts under the 340B Drug Pricing Program from those reports if the State does not require submission of managed care drug claims data from covered entities directly to the State. Additionally, we are proposing at § 447.520(c) to continue to publish the top 20 list of multiple source PADs on an annual basis, as statutorily required, but it is our expectation that States would invoice rebates for all multiple source physician-administered drugs that are CODs. This section would make it clear that States are required to invoice for rebates for multiple source PADs on this list to receive Federal matching funds and to secure rebates. The proposed regulation would specify to States that they should invoice for rebates for all multiple source PADs that are CODs, and not limit such rebate invoicing to the top 20 high dollar volume list. As technology and systems are currently in place, this proposed regulation would reduce the 46 86 FR 27498, May 6, 2016 (https:// www.govinfo.gov/content/pkg/FR-2016-05-06/pdf/ 2016-09581.pdf). VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 administrative burden of monitoring any revisions to the top 20 multiple source PADs and allow States to secure rebates for these PADs that are CODs. M. Request for Information on Requiring a Diagnosis on Medicaid Prescriptions Generally, a COD is a prescribed drug approved under section 505(c) or 505(j) of the FFDCA or section 351 of the Public Health Service (PHS) Act when used for a medically accepted indication. The term ‘‘medically accepted indication’’ is defined in statute at section 1927(k)(6) of the Act and means any use for a COD which is approved under the FFDCA or the use of which is supported by one or more citations included or approved for inclusion in compendia described in section 1927(g)(1)(B)(i) of the Act, which is the American Hospital Formulary Service–Drug Information (AHFS–DI), Drugdex, or United States Pharmacopoeia–Drug Information (USP–DI). Medicaid COD claims do not currently require a diagnosis code as a condition for payment. When reviewing claims, without a diagnosis, it is difficult to determine whether a drug is indeed being used for a medically accepted indication, and appropriately satisfies the definition of a COD, and therefore, is rebate eligible. Despite statutory language limiting Medicaid payment for covered outpatient drugs to when used for a ‘‘medically accepted indication,’’ there are not systems in place for States to determine whether a patient’s outpatient prescription drug use is in fact for a medically accepted indication, or in other words, there is no mechanism to cross-reference a prescription drug use with a Medicaid patient’s medical diagnoses to ensure a drug is being used for a medically accepted indication. In 2011, the OIG discovered in a Medicare audit that without a diagnosis, it is difficult for Part D sponsors to determine whether a drug claim is medically appropriate.47 OIG stated that without access to diagnosis information, Part D sponsors cannot determine the indications for which drugs were used. Although this audit referenced Medicare, the same issue is applicable to Medicaid prescriptions. If States are not aware of the diagnosis for which the medication is being used, they are unable to determine if the drug is being used for a medically accepted indication and cannot determine if they should bill for rebates or if coverage is mandatory. Additionally, an article written by then Principal Deputy Inspector General (and 47 https://oig.hhs.gov/oei/reports/oei-07-0800150.pdf. PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 now current Inspector General) and Chief Medical Officer from OIG. recently advocated for a new mandate that physicians include a diagnosis code with prescriptions.48 In 2011, CMS did not concur with OIG’s finding, stating that diagnosis information is not a required data element of pharmacy billing transactions, nor is it generally included on prescriptions. Since 2011, automation of prescribing has grown significantly, and in 2020 an estimated 84 percent of all prescriptions were e-prescriptions.49 Electronic prescribing has increased so much so that in early 2021, most prescriptions for controlled substances under Medicare Part D must be transmitted electronically.50 There are several instances in which a diagnosis on a prescription could help States implement certain Medicaid programs in which they are eligible for enhanced Federal matching funds, or for which they must implement a mandatory benefit. Federal funds support States in responding to the increased need for services, such as testing and treatment during the COVID–19 public health emergency, family planning, or allows States to provide innovative treatment services. For certain conditions, an increase in States’ Federal medical assistance percentage (FMAP) leverages Medicaid’s existing financing structure and allows enhanced Federal funds to treat that condition. For example, to be eligible for enhanced Federal funds in certain instances, such as when birth control drugs are used for family planning as opposed to other indications such as acne, moderate to severe abnormal vasomotor function, or postmenopausal osteoporosis the State needs to document when expenditures are being used to treat that condition. Without access to diagnosis information, States cannot accurately determine the indications for which drugs were used, especially when drugs have multiple indications, making identification of these costs very difficult, if not impossible, and very resource intensive. For example, if a family planning drug has multiple indications, and the family planning indication is eligible for enhanced Federal matching, then the State will only know when the drug is 48 STAT Op-Ed by Christi A. Grimm & Julie K. Taitsman | Office of Inspector General | Government Oversight | U.S. Department of Health and Human Services (hhs.gov). 49 E-prescription rate U.S. 2020 | Statista available at https://www.statista.com/statistics/864380/shareof-us-e-prescriptions/?msclkid=a1c545e9b44d 11ec81f5391e8e8d23cb. 50 E-Prescribing | CMS available at https:// www.cms.gov/Medicare/E-Health/Eprescribing? msclkid=27a13cf3b44e11ecb30d5dd85675d203. E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules being used for birth control if there is a related diagnosis on the prescription. A requirement of diagnosis on prescriptions would allow States to easily and accurately identify drug expenditures qualifying for these enhanced Federal matching funds. State programs will be able to better determine if prescriptions meet payment requirements and can more accurately capture expenditures required for Federal matching. There are additional benefits for adding diagnosis on prescriptions for both providers and beneficiaries. For example, practitioners and beneficiaries benefit from systematic authorizations that are diagnosis based. Vulnerable groups, such as pregnant women, or specific diagnoses (COVID–19) can be easily exempt from out-of-pocket costs and copayments for certain services or conditions. Diagnosis information on prescriptions can help pharmacists identify safety issues and helps supplement prior DUR standards under section 1927(g) of the Act in ensuring prescriptions are appropriate, medically necessary, and not likely to result in adverse medical results. Adding diagnosis to prescriptions can contribute to safer prescribing, improved patient outcomes and medication use in multiple, synergistic ways. Including diagnosis on prescriptions may be a way to ensure drugs are being only used for FDA approved indications. State Medicaid programs may also be able to better manage drug utilization by mandating diagnosis codes on drug claims to ensure payments are limited to drugs with medically accepted indications as required by statute. Finally, we believe, if such a provision were implemented, that the design and implementation of any adjudication specifications would be left to the States’ discretion to meet State-specific needs. Given this flexibility, States can continue to monitor and fine-tune program specifics as they determine what works best for their population’s health and wellbeing. For continuity of care among programs, if this provision was implemented in the future, we envision all Medicaid managed care programs would be included in this requirement, including MCOs, PIHPs, or PAHPs. There are many interested parties that would have views on this requirement to include diagnosis on a prescription: patients, prescribers, pharmacists, States, and drug manufacturers. We are specifically soliciting comments on this topic, its impact on beneficiaries, providers, States, Medicaid, and any operational implications. We are particularly interested in understanding the burden with such a proposal and seeking comments on how to negate any foreseeable impact on beneficiaries and providers and steps which would be needed by States to successfully implement a Medicaid requirement for diagnosis on prescriptions as a condition of FFP. We are requesting comments regarding the potential impact of supporting such a policy to require Medicaid diagnoses on prescriptions on payment, health care quality, stigma and access to care, and program integrity. We are also requesting comments on what steps we should take to protect beneficiary access to commonly used, medically accepted, compendia supported, off-label prescriptions if we propose to implement such a policy. We are seeking comments from all interested parties on potential approaches and invite all comments on this topic. III. Collection of Information Requirements Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.), 34277 we are required to provide 60-day notice in the Federal Register and solicit public comment before a ‘‘collection of information’’ requirement is submitted to the Office of Management and Budget (OMB) for review and approval. For the purposes of the PRA and this section of the preamble, collection of information is defined under 5 CFR 1320.3(c) of the PRA’s implementing regulations. To fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comment on the following issues: • The need for the information collection and its usefulness in carrying out the proper functions of our agency. • The accuracy of our estimate of the information collection burden. • The quality, utility, and clarity of the information to be collected. • Recommendations to minimize the information collection burden on the affected public, including automated collection techniques. We are soliciting public comment (see section III.D. of this proposed rule) on each of these issues for the following sections of this document that contain collection of information requirements. Comments, if received, will be responded to within the subsequent final rule. A. Wage Estimates To derive average costs, we used data from the U.S. Bureau of Labor Statistics’ (BLS’) May 2021 National Occupational Employment and Wage Estimates for all salary estimates (https://www.bls.gov/ oes/current/oes_nat.htm). In this regard, Table 3 presents BLS’ mean hourly wage, our estimated cost of fringe benefits and other indirect costs (calculated at 100 percent of salary), and our adjusted hourly wage. ddrumheller on DSK120RN23PROD with PROPOSALS2 TABLE 3—NATIONAL OCCUPATIONAL EMPLOYMENT AND WAGES ESTIMATES Occupation title Occupation code Mean hourly wage ($/hr) Fringe benefits and other indirect costs ($/hr) Adjusted hourly wage ($/hr) Operations Research Analyst .......................................................................... 15–2031 46.07 46.07 92.14 As indicated, we are adjusting our hourly wage estimates by a factor of 100 percent. This is necessarily a rough adjustment, both because fringe benefits and other indirect costs vary significantly from employer to employer, and because methods of estimating these costs vary widely from VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 study to study. Nonetheless, we believe that doubling the hourly wage to estimate the total cost is a reasonably accurate estimation method. PO 00000 Frm 00041 Fmt 4701 Sfmt 4702 B. Proposed Information Collection Requirements (ICRs) 1. ICRs Regarding Identification and Notification to Manufacturer To Correct Misclassification (§ 447.509(d)(1) Through (4)) As discussed in section II.F.1.a. of this proposed rule, we are proposing to add E:\FR\FM\26MYP2.SGM 26MYP2 34278 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 new paragraphs (d)(1) through (4) to § 447.509 that would add new requirements relating to the process by which CMS would identify when a misclassification of a drug has occurred in MDRP and subsequently notify the manufacturer of the misclassified drug. As such, a manufacturer’s efforts to address the misclassification is currently approved by OMB under control number 0938–0578 (CMS–367). This package currently takes into account the time and cost incurred by manufacturers when compiling and reporting, or changing, Medicaid drug product and price information on a monthly, quarterly, and on an as-needed basis. The burden, however, is subject to a regulatory impact analysis which can be found in section V. of this proposed rule. 2. ICRs Regarding Definitions (§ 447.502) As discussed in section II.C.1.d. of this proposed rule, we are proposing to modify the definition of manufacturer for NDRA purposes. The modification would establish a regulatory definition of manufacturer for purposes of satisfying the requirement that a manufacturer maintain an effectuated rebate agreement with the Secretary consistent with section 1927(a)(1) of the Act. Specifically, we are proposing that the term ‘‘manufacturer’’ means that all associated labeler entities of the manufacturer that sell CODs, including, but not limited to, owned, acquired, affiliates, brother or sister corporations, operating subsidiaries, franchises, business segments, part of holding companies, divisions, or entities under common corporate ownership or control, must each maintain an effectuated rebate agreement. The preparation and maintenance of an effectuated rebate agreement has been a long-standing requirement that we propose to codify in this rule. The effectuated rebate agreement requirement and burden are currently approved by OMB under control number 0938–0578 (CMS–367). This rule’s proposed actions have no impact on our currently approved requirements and burden estimates and assumptions, including the universe of manufacturers. Consequently, we are not making any changes under that control number. Additionally, we do not believe any of the following new terms and definition modifications and clarifications would require any effort or impose burden on any public or private entities: (1) proposal to modify the definition of ‘‘covered outpatient drug (§ 447.502), (2) proposal to define ‘‘drug product VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 information’’ (§ 447.502), (3) proposal to define ‘‘market date’’ (§ 447.502), (4) proposal to modify the definition of ‘‘noninnovator multiple source drug’’ (§ 447.502), (5) proposal to clarify § 447.509(a)(6) through (9) and (c)(4) with respect to ‘‘other drugs’’, and (6) proposal to define ‘‘vaccine for purposes of the MDRP only’’ (§ 447.502). Consequently, none of the definition changes are subject to the requirements of the PRA. 3. ICRs Regarding Proposals Related to State Plan Requirements, Findings, and Assurances (§ 447.518) As discussed in section II.K. of this proposed rule, we are proposing to specify in § 447.518(d)(1) that the professional dispensing fee (PDF) must be based on pharmacy cost data, and that it cannot be solely determined or supported by a market-based review or by an assessment or comparison of what other payers may reimburse pharmacies for dispensing prescriptions. The clarification also specifies the type of supporting data that we would accept as adequate to support a change to the PDF. The proposed clarification would not add any new or revised requirements or burden. If a State chooses to revise their State Plan for any updates to include a modification to their PDF, a SPA can be submitted to CMS for review and approval. The burden for such SPA submissions is currently approved by OMB under control number 0938–0193 (CMS–10398 #179 under attachment 4.19–B pertaining to the: methods and standards used for the payment of certain services, and methods and standards used for establishing payment rates for prescribed drugs). Since the proposed clarification would not add any new or revised requirements or burden, we are not making any changes under that control number. 4. ICRs Regarding Federal Financial Participation (FFP): Conditions Relating to Physician-Administered Drugs (§ 447.520) We propose to update § 447.520 to make it consistent with section 1927(a)(7) of the Act, and to codify the requirement that States must collect NDC information on all single and multiple source physician-administered drugs that are CODs for the purposes of invoicing manufacturers for rebates, and ensuring that FFP is available, as appropriate. We are proposing to require that States must be invoicing for rebates for all physician-administered drugs that are CODs. We propose to continue to publish the top 20 high dollar volume list of multiple source physician- PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 administered drugs, as statutorily required, to provide a means of prohibiting Federal matching funds, as necessary, if States are not requiring the use of NDC codes, and invoicing for rebates on these drugs. This proposal would be applicable to all 50 States and the District of Columbia; however, we believe that this proposal would have no additional burden because States, based on their State Drug Utilization Data (SDUD) reported to CMS, are currently collecting NDC numbers for all CODs, including all single and multiple source physician-administered drugs and invoicing manufacturers for rebates as applicable under OMB control number 0938–1026 (CMS– 10215). Since the proposed provisions would not add any new or revised requirements or burden, we are not making any changes under that control number. 5. ICRs Regarding Verification Survey of Reported CODs Through Data Collection (§ 447.510) We are proposing at § 447.510(k) a process to survey wholesalers and manufacturers to verify prices and charges for certain CODs by requesting and collecting certain information about such prices and charges for a drug reported to us under section 1927(b)(3)(A) of the Act. The proposed survey instruments will be submitted to OMB for review after this proposed rule is finalized and our survey instruments (one for requesting information from States as proposed under § 447.510(k)(3)) and another for surveying manufacturers) have been developed. The tools are not ready yet, but will be made available to the public for its review under the standard nonrule PRA process which includes the publication of 60- and 30-day Federal Register notices. The CMS ID number for that package is CMS–10822 (OMB control number 0938–TBD 1). Since this would be a new collection of information request, the OMB control number has yet to be determined. OMB would issue that number upon its approval of the non-rule collection of information request. We are however setting out our preliminary burden figures (see below) as a means of scoring the impact of the proposed provisions. Since the beginning of the MDRP in 1991, the Secretary has had the authority, under section 1927(b)(3)(B) of the Act, to survey wholesalers and manufacturers that directly distribute their covered outpatient drugs, when necessary, to verify manufacturer prices, such as AMP and ASP, including wholesale acquisition cost (WAC), reported under section 1927(b)(3)(A) of E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules the Act, if required to make payment. Furthermore, section 1902(a)(30)(A) of the Act (42 U.S.C. 1396a(a)(30)(A)) requires that States have a State Plan that provides methods and procedures to ensure that such payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available at least to the extent that such care and services are available to the general population in the geographic area. Therefore, the agency has an overarching obligation under section 1902(a)(30)(A) of the Act to ensure that Medicaid payments are made in an efficient, economical, as well as sufficient manner to provide access to care. We have never used the section 1927(b)(3)(B) of the Act authority to survey manufacturers or wholesalers, nor have we interpreted this statutory section in regulation. Therefore, we are proposing at § 447.510(k) to identify a process to survey wholesalers and manufacturers to verify prices and charges for certain CODs by requesting and collecting certain information about such prices and charges for a drug reported to us under section 1927(b)(3)(A) of the Act. As part of the drug price verification survey process, CMS proposes to post the survey’s nonproprietary information on its website. In addition to the manufacturer survey, CMS also proposes to collect information from States to determine which drugs would be surveyed under § 447.510(k)(3). The simplified State survey would ask States whether or not manufacturers meet any of the criteria for excluding drugs from the list from application of § 447.510(k)(2) from such drug verification surveys, such as the level of manufacturer’s effort in accordance with proposed § 447.510(k)(3)(ii). That is, the survey will ask a State if they were able to negotiate with the manufacturer a CMSauthorized supplemental rebate that when in combination with the Federal rebate results in a total (State and Federal) rebate that is greater than the average percentage of total national average Medicaid rebates (State and Federal) to total Medicaid drug spend as reflected in the most recent Medicaid Financial Management Report. With regard to the State survey, we estimate that once a year, 52 respondents consisting of: the 50 States, the District of Columbia, and one territory participating in the Medicaid drug rebate program (Puerto Rico), would be surveyed to determine if manufacturers of high cost drugs are participating in negotiating supplemental rebates and any VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 additional State Medicaid input under § 447.510(k)(3)(iii)(A). At this time, we estimate that the simplified State survey would take 15 minutes at $92.14/hr for an operations research analyst to complete. In aggregate, we estimate an annual burden of 13 hours ((52 surveys × 0.25 hr/survey) at a cost of $1,198 (13 hr × $92.14/hr). While CMS may seek additional information via nonstandardized follow-up questions, the burden associated with such a request is not subject to the requirements of the PRA as described under 5 CFR 1320.3(h)(9). With regard to the manufacturer survey, there are currently 792 labelers participating in the MDRP. While there is no way to know the exact number of labeler codes used by these manufacturers, most manufacturers have at least 2 labeler codes, so we are estimating approximately selecting from a universe of 396 (792 labelers/2 labeler codes) manufacturers could potentially be subject to completing a verification survey. However, the proposed requirement to survey would be limited to only when the Secretary determines it is necessary, such as when the drug prices reported under section 1927(b)(3)(A) of the Act exceed a proposed criteria. While we anticipate that there is the potential that 396 manufacturers may be eligible to receive a survey, we estimate that based upon the criteria proposed at § 447.510(k) for when a COD would be identified and selected and a manufacturer would be surveyed with respect to that drug, we would likely to undertake a minimum of three manufacturer surveys per year, with a maximum of ten surveys per year, taking 5 hours at $92.14/hr for an operations research analyst to complete the survey. So as to not under estimate the impact of this rule’s proposed provisions, we are using the maximum of ten manufacturers surveyed per year. In aggregate, we estimate an annual burden of 50 hours (10 surveys × 5 hr/ survey) at a cost of $4,607 (50 hr × $92.14/hr). While CMS may seek additional information via nonstandardized follow-up questions, the burden associated with such a request is not subject to the requirements of the PRA as described under 5 CFR 1320.3(h)(9). Through this proposed rule we are soliciting comments to help us develop the manufacturer survey and the State survey. 6. ICRs Regarding Standard Medicaid Managed Care Contract Requirements (§ 438.3(s)) The following proposed changes regarding drug cost transparency in PO 00000 Frm 00043 Fmt 4701 Sfmt 4702 34279 Medicaid managed care contracts will be submitted to OMB for review under control number 0938–TBD 2 (CMS– 10855). We are proposing to amend § 438.3(s) to require MCOs, PIHPs, and PAHPs that provide coverage of covered outpatient drugs to assign and exclusively use unique Medicaidspecific BIN, PCN, and group number identifiers on all issued Medicaid managed care beneficiary identification cards for pharmacy benefits. It is a usual and customary business practice for the MCOs, PIHPs, and PAHPs to routinely issue identification cards for pharmacy benefits, as they do routinely for all of their lines of business across the industry, to include commercial/private and public sector programs, such as Medicare and Medicaid. Since we believe that this is a usual and customary business practice that is exempt from the PRA (see 5 CFR 1320.3(b)(2)), we are not setting out such burden for managed care entities to program the new codes onto the cards and to issue such cards under this section of the preamble. The burden, however, is subject to a regulatory impact analysis which can be found in section V. of this proposed rule. Additional proposed amendments to § 438.3(s) would require that MCOs, PIHPs, and PAHPs that provide coverage of covered outpatient drugs structure any contract with any subcontractor for the delivery or administration of the covered outpatient drug benefit to require the subcontractor to report separately the amounts related to: (1) The incurred claims described in § 438.8(e)(2) such as reimbursement for the covered outpatient drug, payments for other patient services, and the fees paid to providers or pharmacies for dispensing or administering a covered outpatient drug; and (2) Administrative costs, fees and expenses of the subcontractor. We estimate that the proposed reporting requirements would affect 282 managed care plans in the country and 40 States. We further estimate that it would take an operations research analyst at the State level, 25 hours at $92.14/hr to restructure 282 managed care contracts to require those plans to structure their subcontracts to require the subcontractor to separately report incurred claims expenses described in § 438.8(e)(2) from fees paid for administrative activities. In aggregate, we estimate a one-time burden of 1,000 hours (40 State responses × 25 hr/ response) at a cost of $92,140 (1,000 hr × $92.14/hr). E:\FR\FM\26MYP2.SGM 26MYP2 34280 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules For the same contract changes between the MCOs and the subcontractors (mainly PBMs), we also estimate a one-time private sector burden of 7,050 hours (282 managed care plans × 25 hr/response) at a cost of $649,587 (7,050 hr × $92.14/hr). With respect to the reporting burden, we estimate that 282 PBMs of those 282 managed care plans to separately report incurred claims expenses described in § 438.8(e)(2) from fees paid for administrative activities would take approximately 2 hours to identify these costs separately and report separately to the managed care plans. In aggregate we estimate an annual burden of 564 hours (282 PBMs × 2 hr/response) at a cost of $51,967 (564 hr × $92.14/hr). C. Summary of Proposed Burden Estimates In Table 4, we present a summary of this rule’s proposed collection of information requirements and associated burden estimates. TABLE 4—SUMMARY OF PROPOSED BURDEN ESTIMATES Regulatory section(s) under title 42 of the CFR § 447.510 ....... § 447.510 ....... § 438.8(e)(2) .. § 438.8(e)(2) .. § 438.8(e)(2) .. Total ........ OMB control No. (CMS ID No.) 0938–TBD 0938–TBD 0938–TBD 0938–TBD 0938–TBD 1 1 2 2 2 (CMS–10822) (CMS–10822) (CMS–10855) (CMS–10855) (CMS–10855) 344 ....................................... ddrumheller on DSK120RN23PROD with PROPOSALS2 Labor cost ($/hr) Total cost ($) 0.25 5 25 25 2 13 50 1,000 7,050 564 92.14 92.14 92.14 92.14 92.14 1,198 4,607 92,140 649,587 51,967 (52 States + 10 manufacturers + 282 managed care plans). 666 Varies 8,677 92.14 799,499 IV. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document. V. Regulatory Impact Analysis A. Statement of Need The intent of this proposed rule is to implement several new legislative Jkt 259001 Total time (hr) 52 10 40 282 282 We have submitted a copy of this proposed rule’s information collection requirements to OMB for their review. The requirements are not effective until they have been approved by OMB. To obtain copies of the supporting statement and any related forms for the proposed collections discussed above, please visit the CMS website at https:// www.cms.gov/regulations-andguidance/legislation/paperwork reductionactof1995/pra-listing, or call the Reports Clearance Office at 410– 786–1326. We invite public comments on these potential information collection requirements. If you wish to comment, please submit your comments electronically as specified in the DATES and ADDRESSES sections of this proposed rule and identify the rule (CMS–2434–P), the ICR’s CFR citation, and OMB control number. 19:21 May 25, 2023 Time per response (hr) 52 States ..................................................... 10 manufacturers ........................................ 40 States ..................................................... 282 managed care plans ............................ Subcontractor PBMs of the 282 managed care plans. D. Submission of PRA-Related Comments VerDate Sep<11>2014 Total number of responses Number of respondents requirements relating to the operation of the MDRP and other program integrity, and program administration proposals. For example, section 6 of the MSIAA was signed into law on April 18, 2019. Section 6 of the MSIAA amended sections 1903 and 1927 of the Act to grant the Secretary additional authorities needed to address drug misclassification, drug pricing, and product data misreporting by manufacturers for purposes of the MDRP. This proposed rule includes policies to implement these new statutory authorities, as required. This proposed regulation also aims to implement a provision in section 9816 of the American Rescue Plan Act of 2021, which amended section 1927(c)(2)(D) of the Act, by inserting a sunset date on the limitation on the maximum rebate amount for single source and innovator multiple source drugs, and other drugs. We are also proposing several important MDRP program administration and integrity policies, which include the following: clarifying the definition of manufacturer for NDRA purposes; adopting a regulatory definition of vaccine for MDRP purposes; and, implementing a time limitation on manufacturer disputes and audits with States regarding rebates. This proposed rule also proposes to specify a number of existing policies, including: requirements for manufacturers for determining their best price for a covered outpatient drug; the requirements for State reimbursement for prescribed drugs, and the conditions relating to payment of FFP for PADs that are CODs dispensed and paid for under the State Plan. PO 00000 Frm 00044 Fmt 4701 Sfmt 4702 We are proposing to include two new requirements for the contracts between States and their Medicaid managed care plans, specifically MCOs, PIHPs, and PHAPs. That is, States would be required to include in their contracts with MCOs, PIHPs, and PHAPs a requirement that each Medicaid enrollee’s identification card used for pharmacy benefits would include a unique Medicaid-specific BIN/PCN. This inclusion of this unique Medicaidspecific BIN/PCN on these cards would have to be effective no later than the next rating period for Medicaid managed care contracts, following the effective date of the final rule adopting this new regulatory requirement. This requirement would assist providers in identifying patients as Medicaid beneficiaries. In addition, we are proposing that Medicaid managed care plans that subcontract with a pharmacy benefit administrator or pharmacy benefit manager require the subcontractor to provide specific details to the Medicaid managed care plans about the various pharmacy and non-pharmacy (administrative) costs associated with providing the pharmacy benefit, so the managed care plan can appropriately calculate its Medicaid managed care MLR. Moreover, we are also proposing additional program integrity and administration policies including: amending the regulatory definition of noninnovator multiple source drug; adding regulatory definitions of a manufacturer’s internal investigation; drug product information; market date; and, modifying the definition of COD. There is also included a proposal E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules ddrumheller on DSK120RN23PROD with PROPOSALS2 unrelated to MDRP; that, is a proposed revision to third party liability regulation resulting from statutory changes in the BBA 2018. We are solicitating comments relating to the issues, benefits and challenges of requiring a patient’s diagnosis be included on Medicaid prescriptions, and the patient care and operational aspects of such a requirement. We are particularly interested in understanding the burden with such a proposal and seeking comments on how to mitigate any foreseeable impact on beneficiaries and providers, and steps which would be needed by States to successfully implement a Medicaid requirement for diagnosis on prescriptions. On May 17, 2022, the United States District Court for the District of Columbia vacated and set aside the ‘‘accumulator adjustment rule of 2020’’ in response to a complaint filed against the Secretary regarding the accumulator provisions within the December 31, 2020 final rule. The December 31, 2020 final rule had revised the various the regulatory patient assistance program exclusions from AMP and best price at §§ 447.504(c)(25) through (29) and (e)(13) through (17) and 447.505(c)(8) through (12), to add language (effective January 1, 2023), such that they would require manufacturers to ‘‘ensure’’ the full value of the assistance provided by these patient assistance programs is passed on to the consumer and that the pharmacy, agent, or other AMP or best price eligible entity does not receive any price concession, before excluding such amounts from the determination of best price or AMP. In response to the district court’s order, we propose to withdraw the changes made to these sections by the December 31, 2020 final rule. B. Overall Impact We have examined the impacts of this proposed rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96–354), section 1102(b) of the Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104–4), Executive Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)). Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Section 3(f) of Executive Order 12866 defines a ‘‘significant regulatory action’’ as an action that is likely to result in a rule: (1) having an annual effect on the economy of $200 million or more in any 1 year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising legal or policy issues or which centralized review would meaningfully further the President’s priorities or the principles set forth in the Executive order. Based on our estimates, OMB’s Office of Information and Regulatory Affairs has determined this rulemaking is significant per section 3(f)(1) as measured by $200 million or more in any 1 year. Therefore, OMB has reviewed this proposed rule, and the Departments have provided the following assessment of their impact. C. Detailed Economic Analysis There is a need for greater clarity regarding some of the administrative policies of the MDRP, and this proposed rule aims to establish regulations to provide guidance to States, manufacturers and other related parties. This proposed rule addresses these policy issues after considering the evolution of the pharmaceutical marketplace since the development of the MDRP, and the economic, social and other factors affecting Medicaid providers and beneficiaries. At the same time, this proposed rule is mindful of the impact of changes in regulations on affected interested parties, and the degree of compliance promulgated by the agency. Therefore, for these reasons, we prepared the economic impact estimates utilizing a baseline of ‘‘no action,’’ comparing the effect of the proposals against not proposing the rule at all. If the proposals in this rule are not implemented, there would be no specific policies in place in the MDRP related to the new legislative requirements in the MSIAA, and no clear policies to address drug misclassification, drug pricing and product data misreporting by manufacturers. Accordingly, this PO 00000 Frm 00045 Fmt 4701 Sfmt 4702 34281 proposed rule would address other situations in which manufacturers are paying fewer rebates to States than are supported by the pricing and product data that they are currently reporting to MDP. While we believe that most of the drugs in MDP are appropriately classified, we do not know an exact number of those which may be misclassified. For this reason, a robust analytical framework, with baseline scenarios and benchmarks, cannot be conducted at this time. Additionally, if these proposals are not implemented, there would be no regulatory policies for addressing the authority for the American Rescue Plan Act to sunset the date on the limitation on the maximum rebate amount paid by manufacturers for single source and innovator multiple source drugs, in addition to noninnovator multiple source drugs. At this time, program integrity and program administration provisions need to be proposed or specified to address the definitions for: covered outpatient drug (COD); drug product information; internal investigation; manufacturer; market date; noninnovator multiple source drug; and vaccine. Moreover, at this time there is a need to: establish a time limitation on manufacturer rebate disputes and audits with States; refine State requirements for State reimbursement for prescribed drugs; specify conditions relating to payment for PAD; specify the process for manufacturer to accumulate price concessions and discounts (‘‘stacking’’) when determining best price; establish a drug price verification survey process through data collection. The reasons and rationales for these provisions were detailed in the preamble section of this proposed rule. The economic impacts of these provisions are detailed below. We are solicitating comments relating to the issues, benefits and challenges of requiring a diagnosis be included on Medicaid prescriptions, as well as any current data and estimates that could be used to develop an analytical framework for the proposals in this rule. 1. Benefits The provision requiring that PBAs and PBMs report specific categories of drug expenditures to their contracted managed care entity would benefit States and Medicaid managed care plans, since it can help assure a more accurate calculation of their MLRs and managed care plan capitation rates, resulting in more accurate Medicaid spending. Some States have already eliminated ‘‘spread pricing’’ in their managed care contracts, meaning that the State requires the PBM pays the E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34282 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules pharmacy the same price that the managed care plan is charged for the prescription, such that there would be no ‘‘spread’’ or difference between the two prices. That is, the PBM would not be allowed to charge the managed care plan a higher price than the amount paid to the pharmacy. This removes the ‘‘spread’’ or the difference of which is traditionally kept by the PBM to pay for administrative and other fees. Instead, such administrative fees would have to be separately identified by the PBM for the managed care plan. While this shift in policy has begun in many States, this benefit cannot be quantified at the national level as we do not have data on which States do this now versus States that would need to implement this because of the proposed rule. However, a March 2020 Congressional Budget Office (CBO) estimate of the Federal proposal 51 to require pass through pharmacy pricing finds the spread pricing provision would produce Federal savings of $929 million over 10 years, which translates to a less than 1 percent drop in Federal Medicaid prescription drug spending. It is unclear what analysis or assumptions went into these estimates, but they are highly dependent on assumptions or understanding of the extent to which spread pricing currently exists in Medicaid. We are soliciting comments relating to this provision. In regards to Medicaid Drug Rebates (MDR) and penalties with respect to manufacturer misclassification of drugs, benefits also include monetary and nonmonetary penalties, which are not quantifiable at this time. For example, these provisions would implement the existing statute and would benefit States as they would be receiving any past rebates that are due to them as a result of a manufacturer’s misclassification of drugs. That is, the manufacturers would be finally paying the appropriate amount in past due rebates. The overwhelming majority of drugs are appropriately classified in the manufacturer discount program (MDP) at this time, but there may be some manufacturers that continue to list their drug as a noninnovator multiple-source drug in MDP, when the drug should be listed as a single-source drug or an innovator multiple source drug. The provision allows us to also pursue penalties against manufacturers that will not change their classification as a result of the denial of their narrow exception request, and would also allow 51 https://www.kff.org/medicaid/issue-brief/costsand-savings-under-federal-policy-approaches-toaddress-medicaid-prescription-drug-spending/ #:∼:text=This%20estimate%20is%20based%20in, between%20states%20and%20the%20federal. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 us to impose penalties on manufacturers that pay a different amount in rebates to States than is supported by the product and pricing data that they are reporting to MDP. For example, manufacturers have the opportunity to request that certain drugs be classified in the MDP as a noninnovator multiple source drug instead of a single source or innovator multiple source drug. If this request is denied, and the manufacturer will not change the classification, CMS can use the authority under the misclassification provisions of the statute to change the classification. Moreover, we have had instances of manufacturers who have decided to take it upon themselves to pay fewer rebates to States, even though the product and pricing information they report to MDP would support a different rebate amount, in most cases, a higher rebate than they are paying to States. This provision would allow us to consider both these situations to be misclassifications, subject to the penalties that are identified in the statute, and that we further describe in the proposed regulation. Modifying the definition of covered outpatient drug would benefit the manufacturers, States, and CMS. The provision would support the States’ ability to collect rebates on drugs administered in certain settings when a drug and its reimbursement amount are separately identified on a claim billed. It would benefit manufacturers by providing clarity on drugs that would satisfy the definition of covered outpatient drug and for which compliance with section 1927 of the Act is required. This is currently not quantifiable because we do not know how many drugs this would affect. Defining internal investigation for purposes of pricing metric revisions would benefit States and manufacturers. It would benefit manufacturers because it would provide a clear definition of what CMS views as an internal investigation for purposes of requesting CMS consideration of recalculation of AMP, best price, and customary prompt pay outside of the 12-quarter rule as permitted under § 447.510. Additionally, defining this term would benefit States because it would deter manufacturers from submitting to CMS a request for restatement of AMP, best price, and customary prompt pay discounts outside of the 12-quarter timeframe, which could trigger manufacturers seeking to collect overpaid rebates unexpectedly. This benefit is not quantifiable as it is not known how many manufacturers would be deterred from submitting the request to restate outside of the 12-quarter PO 00000 Frm 00046 Fmt 4701 Sfmt 4702 timeframe. However, we do not get these requests frequently. Revising the definition of manufacturer for greater NDRA compliance would benefit CMS and States, as well as manufacturers, by providing greater clarity, codifying existing policy, and specifying direction on an area of statutory and regulatory compliance that some manufacturers previously interpreted as ambiguous. Manufacturers would now know, with certainty, that all of their associated labeler codes with CODs must enter into a rebate agreement to comply with section 1927(a)(1) of the Act and the terms of the NDRA. The benefit is not quantifiable as we do not know how many manufacturers are not reporting all of their CODs because they do not have rebate agreements in effect for all of their associated labeler codes. However, we believe the majority of manufacturers have entered into a rebate agreement for all of their associated labeler codes. The States also benefit as noncompliant manufacturers must now enter into the rebate program and pay rebates on all their CODs. While the clear majority of manufacturers are compliant with this provision, any manufacturer that is noncompliant must ensure that every labeler code that satisfies the definition of manufacturer has a rebate agreement in effect and that the manufacturer pays rebates on all of their CODs for all labeler codes. Rebates are paid by drug manufacturers on a quarterly basis to States and are shared between the States and the Federal Government. These outstanding manufacturers’ rebates would be paid to the States and shared with the Federal Government to offset the overall cost of prescription drugs under the Medicaid program. This requirement helps ensure program integrity and prevents future underpayments of rebates by noncompliant manufacturers. As previously stated, the benefit is not quantifiable as we do not know how many manufacturers are not reporting all of their CODs because they do not have rebate agreements for all of their associated labeler codes. However, we believe the majority of manufacturers have entered into a rebate agreement for all of their associated labeler codes. The proposal to define market date using the date of first sale, rather than the date first available for sale, would benefit some manufacturers, CMS, and States. Manufacturers would not be required to report AMP information until they have actual data to report. They will appreciate not having to rely on reasonable assumptions to report AMP without actual data on which to E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules base the AMP. CMS and States would also benefit because we would now have regulatory support for the longstanding policy of determining the baseline information for a drug based on the date the drug was first sold by any manufacturer. Some manufacturers have been incorrectly interpreting that the market date of their drug is the date on which their NDC was first sold or marketed, regardless of any prior manufacturer’s marketing or sale of the same drug. That is, some manufacturers believe that they can reset the baseline information for a drug once they purchase the drug. States are likely to benefit from the proposal to establish a 12-quarter rebate manufacturer dispute, hearing, and audit time limitation in § 447.510(j). While the NDRA addresses rebate disputes, the lack of policy on audit and dispute-initiation timeframes has been interpreted as there being no timeline on initiation of disputes on drug utilization data, unreasonably burdening State rebate programs. We have heard from States that manufacturers are initiating rebate audits and disputes on claims greater than 30 years old. Some States have even stated that there have been repeated disputes on the same paper claim over the years. With this provision, States would no longer have to look back at and research paper claims dating back to as early as 1991 and the origin of the Medicaid Drug Rebate Program. We estimate this proposal would reduce the amount of time it would take States to research disputes on rebate claims since manufacturer disputes, hearing requests, and audits initiated after 12-quarters from the last day of the quarter from the date of State invoice would no longer be considered. In regards to the proposed regulatory revisions regarding Federal Financial Participation for conditions relating to physician-administered drugs, these provisions would benefit States and the Federal Government. By revising the regulations to be consistent with the statute, States would gain a better understanding of the requirement that they must invoice for all covered outpatient single and multiple source physician-administered drugs. This proposed rule would assure Federal financial participation and provide additional rebate collection to increase State and Federal revenue. This benefit is not quantifiable because PAD utilization and costs vary among all State programs, but we believe that most if not all States are already billing for rebates for all PADs. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 The proposal for inclusion of a BIN/ PCN on Medicaid Managed Care Cards would benefit States, the Federal Government, providers and manufacturers. With the inclusion of Medicaid-specific BIN/PCN and group numbers on the pharmacy identification cards issued to the enrollees of MCOs, PHIPs and PAHPs, pharmacies would be able to identify patients as Medicaid beneficiaries. This would be helpful to all parties to ensure that Medicaid benefits are applied appropriately. This would also help avoid duplicate discounts between Medicaid and the 340B Drug Pricing Program, which occurs when a State bills for a Medicaid rebate on a discounted 340B drug, by providing notice to the provider that the claim should be identified as being for a 340B drug. This benefit is not quantifiable because it is currently unknown how often patients are not identified as Medicaid beneficiaries. However, we do believe that a significant number of duplicate discounts can be avoided through better identification of a 340B eligible individual at the time the prescription is being filled. The provision for drug cost transparency in Medicaid Managed Care Contracts would benefit States and the Federal Government. It would assist Medicaid managed care plans in complying with Federal regulations regarding MLRs and guidance by effectively requiring subcontractors to appropriately identify and classify certain costs, so that the managed care plan can appropriately calculate their MLR. In particular, we propose that managed care plans that provide coverage of covered outpatient drugs must structure any contract with any subcontractor for the delivery or administration of the covered outpatient drug benefit to require the subcontractor to report separately the amounts related to the incurred claims described in § 438.8(e)(2) (such as reimbursement for the covered outpatient drug, payments for other patient services, and the fees paid to providers or pharmacies for dispensing or administering a covered outpatient drug) from administrative costs, fees and expenses of the subcontractor. By receiving reports that separately identify fees that are outside of the prescription and dispensing fee costs of a drug, the MCO, PIHP, or PAHP would be able to accurately calculate and report its MLR. MLR calculations are used to develop capitation rates paid to Medicaid managed care plans, thus their accuracy is critical in assuring that Medicaid payments are reasonable, appropriate PO 00000 Frm 00047 Fmt 4701 Sfmt 4702 34283 and necessary for health care services when using a Medicaid managed care plan. Managed care capitation rates must (1) be developed such that the plan would reasonably achieve an 85 percent MLR (§ 438.4(b)(9)) and (2) are developed using past MLR information for the plan (§ 438.5(b)(5)). In addition to other standards outlined in §§ 438.4 through 438.7, these requirements for capitation rates related to the MLR are key to ensuring that Medicaid managed care capitation rates are actuarially sound. In addition, Medicaid managed care plans may need to pay remittances (that is, refund part of the capitation payments) to States should they not achieve the specific MLR target. Thus, the accuracy of MLR calculation is important to conserving Medicaid funds. The payment of claims provision would benefit States, the Federal Government, providers, and beneficiaries. This provision would benefit both the Federal Government and States as it corrects omissions in regulatory language to align with statutory language, permitting Medicaid to remain the payer of last resort. These revisions would also benefit beneficiaries and providers as it permits States to pay claims sooner than the specified waiting period, when doing so is cost-effective and necessary to ensure access to care. The proposal to account for manufacturer stacking of discounts when determining best price would benefit the States and Federal Government. It would remove any potential doubt prospectively that when determining the best price for a COD, the manufacturer should aggregate discounts such that cumulative discounts, rebates or other arrangements must be stacked to generate a final price realized by the manufacturer for a covered outpatient drug, including discounts, rebates or other arrangements provided to different best price eligible entities. The proposal regarding verification of manufacturer drug prices for certain CODs through data collection would benefit the States, Federal Government, consumers, and insurers. The impact is that it would allow the Federal Government to verify prices by obtaining from the manufacturer various related information used by the manufacturer to determine a drug’s list price and, when permissible, share the non-proprietary information submitted by the manufacturer with the general public. This would benefit States in that it could help them negotiate further rebates with manufacturers for certain E:\FR\FM\26MYP2.SGM 26MYP2 34284 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules high cost or high spending Medicaid CODs. 2. Costs ddrumheller on DSK120RN23PROD with PROPOSALS2 a. Medicaid Drug Rebates (MDR) and Penalties In regards to the costs associated with this provision, if CMS identifies a drug misclassification, or other situations that would fall under the misclassification provisions, the manufacturer would be responsible for paying back past rebates to the States as a result of the misclassification. This would mean that the manufacturers would have to determine which prices to use to calculate the past due rebates, and for which units rebates are owed, and pay the States for these rebates. They would also have to proactively determine that all States that are due rebates are subsequently paid. In some cases, the States may have to pay rebates back to the manufacturer if the manufacturer’s misclassification resulted in overpayment of rebates to the States. This provision will not impose new costs on States, rather it will help assure that manufacturers are accurately paying rebates to States, thus benefitting the States. However, the amount of rebates that would be recovered because of these new misclassification provisions cannot be estimated. While there are several validation checks, we cannot predict how many, if any, drugs are or would be misclassified especially since the amount would also include penalties for misclassification of future drugs that have yet to be released to market. b. Suspension of Manufacturer NDRA for Late Reporting of Pricing and Drug Product Information This provision would implement existing statute and is being implemented to encourage manufacturer adherence with program requirements and enhance administrative efficiency. Manufacturers that are not reporting their pricing or product information in a timely manner per statutory and regulatory requirements would have their rebate agreement (and those of their associated labelers) suspended for purposes of Medicaid and the MDRP. This means that States would not have to cover or pay for the drugs of the manufacturer during the period of the suspension. Lack of timely reporting by manufacturers can also reduce rebates that are owed to States by a manufacturer, and can affect the number of multiple source drugs for which Federal Upper Limits (FULs) can be established. Thus, this suspension authority would serve as an incentive VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 for manufacturers to report their product and pricing information timely so that drugs of the manufacturer would continue to be covered under Medicaid and the drug rebate program. This provision would have minimal cost to the States as their only responsibility would be to notify prescribers and patients that a drug is not available under the MDRP for the period of the suspension. Similar to §§ 431.211 and 435.917, we are requiring that States notify beneficiaries at least 30 days before a drug is no longer available because of a suspension of a manufacturer’s drug rebate agreement. Since States may choose their preferred method of notification of beneficiaries including through email, form letters, list serves, or Medicaid portals, we are requesting comments on how to develop a cost estimate. c. Modify the Definition of Covered Outpatient Drug This proposed provision may increase manufacturers’ rebate liability to the States because it would clarify those CODs that could be billed for rebates. At this time, we cannot determine an estimate of burden for manufacturers regarding this item because we do not have an estimate of the number of drugs that could potentially be billed for rebates as result of this clarification. States only have to report utilization of drugs for which rebates are invoiced. If States were not invoicing for rebates for certain types of claims previously, we do not have quantifiable information about the additional rebates that may be now collected. Additionally, States may need to educate their providers on billing procedures. We believe this would be involve minimal burden, as States could inform their providers as part of their regular communications. d. Define Internal Investigation for Purposes of Pricing Metric Revisions The cost of this new proposed definition would be the amount of time that needs to be taken by manufacturers’ personnel to determine how to apply the definition of internal investigation when considering submitting a request to CMS for a recalculation. Furthermore, this legal analysis would not apply to every manufacturer or to every drug of the manufacturer. It would only apply if the manufacturer wants to submit a request for CMS to consider recalculation outside of 12-quarters for one or more of its CODs. At this time, we have received only a minimal number of such requests from manufacturers. We assume the time to perform legal analysis is 5 hours. Using the May, 2021 mean (average) wage PO 00000 Frm 00048 Fmt 4701 Sfmt 4702 information from the BLS for lawyers (Code 23–1011), we estimate that the cost of reviewing this provision is $142.34 per hour, including fringe benefits and other indirect costs (https://www.bls.gov/oes/current/ oes231011.htm) with a total cost of ($142.34 × 5) is $711.70 for each manufacturer. We estimate that only one percent of manufacturers would submit a request for a recalculation annually outside of the 12-quarters. One percent of 792 manufacturers is approximately 8 manufacturers, with a total one-time cost of $5,693.60 (8 × $711.70). We estimated one percent because currently only one manufacturer has submitted such a request. This proposed provision will not impose substantial costs on the State. e. Revise Definition of Manufacturer for NDRA Compliance To better assess current manufacturer compliance with the requirement that all associated labeler codes of a manufacturer have a rebate agreement in effect, several analyses and reviews were performed. Our initial analysis identified 24 instances of related-party manufacturers and labelers that appear to have included some, but not all, of their product line within the MDRP representing 144 products, approximately 0.3 percent of all products in MDRP. Additionally, if a manufacturer is noncompliant, the manufacturer would be responsible for having associated entities sign a rebate agreement and agree to participate in MDRP. That is, the manufacturers would have to determine which labelers are not currently participating in the program, submit rebate agreements, and pay the States for rebates for CODs of those labelers. For this reason, we are estimating a collection burden to allow manufacturers time to review and ensure compliance with this requirement. Manufacturers would need to review their respective labeler codes in the CMS-hosted online information technology system and ensure the list is complete. We estimate that the burden associated with the proposed modification to the definition of manufacturer is a one-time cost of $43,884.72, estimating it would take 792 manufacturers 0.5 hours at $110.82 per hour, including fringe benefits and other indirect costs, for an operations manager to log onto the CMS system and review associated labeler codes. This provision will not impose substantial costs on States. States would receive additional monetary rebates if a noncompliant manufacturer comes into compliance. E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules While this policy has already been specified in guidance and preambles, codifying the requirement is necessary to ensure compliance and eliminate ambiguity. f. Define Market Date In regards to costs associated with defining market date, if manufacturers have not provided CMS with accurate market dates, they may need to develop a methodology to determine the accurate dates. In addition, going forward, manufacturers will have to identify when their first sales of the COD occur to accurately identify the market date of the COD. At this time, we cannot determine cost estimates associated for this provision. This provision will not impose substantial costs on States. g. Modify the Definition of Noninnovator Multiple Source Drug This provision proposes a technical correction to the regulatory text to conform the language in the definition of an N drug to the language in the definition of an I drug. We do not anticipate any impact on interested parties. ddrumheller on DSK120RN23PROD with PROPOSALS2 h. Define Vaccine for Purposes of the MDRP Only In regards to costs associated with the provision, if a manufacturer has not been reporting and paying rebates on a product because it believed the product was a vaccine, and the proposed definition would result in the product being a COD, not a vaccine, then the manufacturer would have both reporting and rebate liability on that product if the proposed definition is finalized. At this time, we cannot determine an estimate for this item. This provision would not impose substantial costs on the State. i. Proposal To Establish a 12-Quarter Rebate Audit Time Limitation We are estimating a decrease in burden associated with this proposal. After contacting several States, we estimate that per State, between 10 and 80 disputes are initiated routinely in a quarter on rebate claims greater than 3 years old, and those disputes on average take an Operations Research Analyst between 30 minutes to 4 months to resolve, depending on the complexity of the dispute and how long ago the claim was paid. For our best estimate of the quantifiable impact, with all 50 States, the District of Columbia, and Puerto Rico being affected, we estimate it would take 52 Operations Research Analysts (1 for each State) 7 hours to resolve a dispute at $92.14/hr (https:// VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 www.bls.gov/oes/current/ oes152031.htm) $644.98 ($92.14 × 7) (for 45 outstanding disputes [(10 disputes + 80 disputes)/2] per State for claims greater than 3 years old. We, therefore, estimate a one-time decreased burden reduction of $6,037,012.80 (45 disputes × $644.98 hr/dispute × 52 States × 4 quarters (1 year)). Once this rule is finalized, manufacturers will only have the ability to dispute claims for up to 12-quarters, from the last day of the quarter from the date of State invoice. j. Proposals Related to State Plan Requirements, Findings, and Assurances This proposed clarification is necessary so payments to pharmacy providers are consistent with efficiency, economy, and quality of care, and are sufficient to provide access to care equivalent to the general population. Pharmacists must be accurately reimbursed by the State for drug ingredient costs and professional dispensing services under § 447.518. All but one State, are currently in compliance with the PDF requirements. We have not included time and cost burdens for individual State dispensing fee surveys in this proposed rule because we cannot accurately determine whether a State would choose to conduct a State-specific cost of dispensing survey or use another State’s survey. As such, this is an unquantifiable cost to States and therefore, we have not included an estimate. States have several options when reviewing and adjusting their professional dispensing fee (including using a neighboring State’s survey results, conducting their own survey, or using survey data from a prior survey). In this proposed rule, we specify that the type of data that States must submit to justify their professional dispensing fees must be based on actual costs of dispensing. k. Federal Financial Participation: Conditions Relating to PhysicianAdministered Drugs All States currently have an existing process in place to collect and invoice for covered outpatient single source and the top 20 high volume multiple source physician-administered drugs in accordance with regulatory language in § 447.520, which may limit the additional burden associated with collecting and invoicing NDC information for all covered outpatient single and multiple source physicianadministered drugs. It is difficult to quantify a specific dollar value for the expected revenue PO 00000 Frm 00049 Fmt 4701 Sfmt 4702 34285 increase at this time. PAD utilization and costs vary among all State programs; however, once implemented, and all States are collecting rebates for all single and multiple source COD PADs, a baseline can be established. All States currently have this process well established pursuant to regulatory language in § 447.520. These provisions clarity the existing statute to ensure Federal financial participation and rebate collection for all covered outpatient single and multiple source physician-administered drugs. l. BIN/PCN on Medicaid Managed Care Cards The cost is limited to the time the Medicaid managed care entities need to program the new codes onto the cards. m. Drug Cost Transparency in Medicaid Managed Care Contracts The costs associated with this change is the cost to managed care plans and their subcontractors to negotiate and revise contracts to ensure administrative fees are separately identifiable from reimbursement for CODs, dispensing fee costs and other patient costs that need to be captured as incurred claims under § 483.8(e)(2). As discussed in the section III. of this proposed rule, we estimate that these requirements would affect 282 managed care plans and their subcontractors (mainly PBMs) in the country and 40 States. We estimate it would take an Operations Research Analyst (Code 15–2031) 25 hours at $92.14 per hour, including fringe benefits and other indirect costs, to renegotiate and restructure 282 Medicaid managed care contracts to require the MCO, PIHP or PAHP to require its subcontractors to separately report information on incurred costs (as described in § 438.8(e)(2)) and fees paid to the subcontractor for administrative services. We, therefore, estimate that the burden associated with the proposed dispute timeline limitation would be a one-time cost for each managed care plan of $2,303.50 or $649,587 for all managed care plans. There are 40 States with Medicaid managed care plans, therefore, we estimate the State’s Operations Research Analyst (Code 15– 2031) 25 hours at $92.14 per hour including fringe benefits and other indirect costs to restructure State contracts for a one-time cost per State of $2,303.50 or $92,140 for all 40 States. Federal savings may be captured by an estimate associated with a statutory change to eliminate PBM spread pricing E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 34286 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules at $929 Million over 10 years.52 A March 2020 CBO estimate for the Federal proposal to require pass through pricing finds the spread pricing provision would produce Federal savings of $929 million over 10 years, which translates to a less than 1 percent drop in Federal Medicaid prescription drug spending. It is unclear what analysis or assumptions went into these estimates, but they are highly dependent on assumptions or understanding of the extent to which spread pricing currently exists in Medicaid. There is not currently a Federal prohibition on using spread pricing in Medicaid. As noted, we issued guidance in 2019 regarding the impact of the lack of transparency between costs for administrative functions versus actual costs for Medicaid-covered benefits on the managed care plan’s MLR calculation. The 2019 CIB is clear that when the subcontractor, in this case the PBM, is performing administrative functions such as eligibility and coverage verification, claims processing, utilization review, or network development, the expenditures and profits on these functions are a nonclaims administrative expense as described in § 438.8(e)(2)(v)(A), and should not be counted as an incurred claim for the purposes of MLR calculations. If a subcontractor incorrectly categorizes these administrative fees as incurred claims under § 438.8(e)(2), it increases the MLR numerator, and thus increases the per-member-per-month (PMPM) revenue a managed care entity can receive from the State while still appearing to meet MLR requirements. By proposing to require that managed care plans require subcontractors to separately report their administrative fees (that is, separately identified from incurred claims such as reimbursement for covered outpatient drugs, dispensing fees, and other patient services), the managed care plan is better able to ensure the accuracy of MLR, which sets the PMPM revenue for Medicaid managed care plans, and accurately reflects only medical expenditures, thus generating savings to the Medicaid program. For those States that may not already have this requirement as part of its contract with the managed care plan, this provision would be a cost to the State to revise managed care plan contracts. It provides transparency to the State and the managed care plan as 52 https://www.kff.org/medicaid/issue-brief/costsand-savings-under-federal-policy-approaches-toaddress-medicaid-prescription-drug-spending/ #:∼:text=This%20estimate%20is %20based%20in,between%20states %20and%20the%20federal. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 to which subcontractor costs are incurred claims under § 438.8(e)(2) (costs of CODs and dispensing fees) versus administrative fees. n. Proposals Related to Amendments Made by the American Rescue Act of 2021—Removal of Manufacturer Rebate Cap (100 Percent AMP) This provision is a direct result of a statutory change to remove the cap on Medicaid drug rebates (the maximum rebate amount). Medicaid savings would be generated by the increased rebates due to the removal of the cap on rebates with an estimate of an average of $14.21 billion over 10 years.53 54 By removing the cap on the amount manufacturers would be required to pay for Medicaid drug rebates, Medicaid rebate revenue would increase thus producing savings to the Federal Government (Table 6 includes the savings which are CBO estimates from when statute was amended). The costs associated with this requirement are to manufacturers. Manufacturers would also need to make minor changes to their systems to address the removal of the cap. As stated previously in this proposed rule, States would realize some savings because of the increase in rebates; however, it is not known if manufacturer drug prices to Medicaid would decrease because of the removal of the cap as manufacturers adjust pricing to reflect the increase in Medicaid drug rebates. o. Payment of Claims At this time, there is no need to determine cost estimates for this item. The December 31, 2020 final rule revised the regulations and captured cost estimations and collection of information. This revision would add omitted statutory language to the existing regulation. This change would not produce new burden not already captured in final rule CMS–2482–F. p. Requests for Information on Requiring a Diagnosis on Medicaid Prescriptions This provision is a request for information only. We are seeking comments on how to negate any foreseeable impact on beneficiaries and providers and steps which would be needed by States to successfully 53 https://www.kff.org/medicaid/issue-brief/costsand-savings-under-federal-policy-approaches-toaddress-medicaid-prescription-drug-spending/ #:∼:text=This%20estimate%20is %20based%20in,between%20states %20and%20the%20federal. 54 https://www.macpac.gov/wp-content/uploads/ 2019/06/Next-Steps-in-Improving-MedicaidPrescription-Drug-Policy.pdf. PO 00000 Frm 00050 Fmt 4701 Sfmt 4702 implement a Medicaid requirement for diagnosis on prescriptions. q. Proposal To Account for Stacking When Determining Best Price When calculating the lowest price realized by a manufacturer by aggregating discounts and rebates across all best price eligible entities, the Medicaid drug rebate to the State and Federal Government increases. At this time, we cannot determine cost estimates for this item. r. Proposal Regarding Drug Price Verification Survey Through Data Collection The costs for States to determine which manufacturers would be included in the State survey would be 0.25 hours per State for an Operations Research Analyst (Code 15–2031) at $92.14 an hour, including fringe benefits and other indirect costs, or $23.04 per State. We estimate that the Federal Government would survey 52 States (including the District of Columbia and Puerto Rico) annually for a cost of $1,198.08 (52 States × $23.04 per State). The costs for the manufacturer/ wholesaler who are selected for completing the survey would be 50 hours per manufacturer for an Operations Research Analysts (Code 15– 2031) at $92.14 an hour, including fringe benefits and other indirect costs, or $4,607.00 per manufacturer (50 hrs × $92.14/hr). Federal Government would survey a minimum of three manufacturers per year, with a maximum of ten surveys per year, for an annual cost of $46,070.00 ($4,607.00 × 10 surveys), using the maximum of ten surveys per year. Savings is not quantifiable because we do not know if manufacturers would revise pricing in the event they are requested to verify their drug prices. s. Proposal To Rescind Revisions Made by the December 31, 2020 Final Rule to Determination of Best Price (§ 447.505) and Determination of Average Manufacturer Price (AMP) (§ 447.504) Consistent With Court Order In the December 31, 2020 final rule, CMS revised the various patient assistance program exclusions from AMP and best price at §§ 447.504(c)(25) through (29) and (e)(13) through (17) and 447.505(c)(8) through (12) to add language that would require manufacturers ‘‘to ensure’’ the assistance provided by these patient assistance programs is passed on to the consumer, to the pharmacy, to the agent, or to other AMP or best price eligible E:\FR\FM\26MYP2.SGM 26MYP2 34287 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules entity who does not receive any price concession. As part of the December 31, 2020 final rule, the impact analysis for the exclusions to ensure such patient assistance is passed on to the patient is discussed at length (see 85 FR 87098 through 87100). We concluded at that time that based upon the studies noted in the analysis, the value of patient assistance programs are being eroded by PBM copay accumulator programs because the patient assistance is accumulating to the economic benefits of health plans, not to patients, given that the health plans’ spending on drugs for patient decreases. We also believed even with the changes in the rule, that manufacturers would continue to offer patient assistance because the infrastructure was there to ensure, in accordance with the regulation, the patient assistance accrued to the patient, rather than the plan. Therefore, we believed that patients would not be significantly impacted by the modifications that the manufacturers may have needed to do to ensure the pass through of the patient assistance to the patient consistent with section 1927 of the Act. In May 2021, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed a complaint against the Secretary asking the court to vacate these amendments to § 447.505(c)(8) through (11) (85 FR 87102 and 87103), as set forth in the 2020 final rule (referred to by the Court as ‘‘the accumulator adjustment rule of 2020’’). On May 17, 2022, the United States District Court for the District of Columbia ruled in favor of the plaintiff and ordered that the accumulator adjustment rule of 2020 be vacated and set aside. In response to the order made by the United States District Court for the District of Columbia to vacate the ‘‘accumulator adjustment rule of 2020,’’ we are proposing to withdraw the changes made to these sections and, for consistency, withdraw revisions to regulations addressing AMP made by the accumulator adjustment rule. At the time of the December 31, 2020 final rule, we could not quantify to what degree the changes would impact manufacturers or patients. Therefore, we cannot quantify the impact on manufacturers and patients because of the rescinding of this rule. TABLE 5—SUMMARY OF THE ONE-TIME QUANTITATIVE COSTS AND BENEFITS Line item Cost Regulatory review .................................................... $851,977.32 Define manufacturer internal investigation .............. Modify definition of manufacturer/labeler ................. Establish a 12-Quarter Rebate Audit Time Limitation. Restructure State Contracts ..................................... Total .................................................................. (5,043,317.16) Entity Timeframe 5,693.60 43,884.72 (6,037,012.80) Manufacturers, States, Trade Association. Manufacturers .............................. Manufacturers .............................. States and Federal Government .. One-time cost. One-time cost. One-time cost. One-time cost savings. 92,140.00 States ........................................... One-time cost. TABLE 6—SUMMARY OF THE ANNUAL QUANTITATIVE COSTS AND BENEFIT Line item Cost Federal Government Survey for States ............... Federal Government Survey for Manufacturers .. Drug cost transparency in Medicaid managed care contracts. Removal of manufacturer rebate cap (100% of AMP). Total .............................................................. ddrumheller on DSK120RN23PROD with PROPOSALS2 3. Regulatory Review Cost Estimation If regulations impose administrative costs on private entities, such as the time needed to read and interpret this proposed rule, we should estimate the cost associated with regulatory review. Due to the uncertainty involved with accurately quantifying the number of entities that will be directly impacted and will review this proposed rule, we assume that the total number of unique commenters are based on the current 792 manufacturers participating in the MDRP. While there is no way for CMS to specify the exact number of how many labeler codes are associated with each other, most manufacturers have at least 2 labeler codes. Nevertheless, we are estimating that the current 792 VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 Entity Timeframe $1,198.08 46,607.00 (929,000,000.00) Federal Government ................. Federal Government ................. Federal Government ................. Annually over 10 years. Annually over 10 years. Annually over 10 years. (14,211,000,000.00) Federal and State Governments Annually over 10 years. (15,139,952,731.92) manufacturers would need to review the proposed rule. Furthermore, we anticipate one medical and health service manager (Code 11–9111) from each of the 50 States, the District of Columbia, and Puerto Rico that cover prescription drugs under the MDRP, will review this proposed rule. Additionally, we estimate that 19 trade organizations may review the proposed rule. This estimate of trade organizations is based on a previous rule pertaining to the MDRP, in which 19 formal comments were received from trade organizations. It is possible that not all commenters or drug manufacturers will review this proposed rule in detail, and it is also possible that some reviewers will choose not to comment on the proposed rule. In PO 00000 Frm 00051 Fmt 4701 Sfmt 4702 addition, we assume that some entities will read summaries from trade newsletters, trade associations, and trade law firms within the normal course of keeping up with current news, incurring no additional cost. Therefore, we assume that approximately 863 (792 manufacturers + 52 States + 19 trade associations) entities may review the proposed rule. For these reasons, we thought that the number of commenters would be a fair estimate of the number of reviewers who are directly impacted by this proposed rule. We are soliciting comments on this assumption. We also recognize that different types of entities are in many cases affected by mutually exclusive sections of this proposed rule. However, for the purposes of our estimate, we assume E:\FR\FM\26MYP2.SGM 26MYP2 34288 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules that each reviewer reads 100 percent of this proposed rule. Using the May 2021 mean (average) wage information from the BLS for medical and health service managers (Code 11–9111), we estimate that the cost of reviewing this proposed rule is $115.22 per hour, including fringe benefits and other indirect costs (https://www.bls.gov/oes/current/ oes119111). Assuming an average reading speed of 250 words per minute, we estimate that it would take approximately 230 minutes (3.833 hours) for the staff to read this proposed rule, which is approximately 57,500 words. For each medical and health service manager (Code 11–9111) that reviews the proposed rule, the estimated cost is (3.833 × $115.22) or $441.64. In part, we estimate that the cost of reviewing this proposed rule by medical and health service managers is $381,133.82 ($441.64 × 863 reviewers). Additionally, there is also a lawyer who will review this proposed rule. Using the May, 2021 mean (average) wage information from the BLS for lawyers (Code 23–1011), we estimate that the cost of reviewing this proposed rule is $142.34 per hour, including fringe benefits and other indirect costs (https://www.bls.gov/oes/current/ oes231011.htm). Assuming an average reading speed of 250 words per minute, we estimate that it would take approximately 230 minutes (3.833 hours) for the staff to review this proposed rule, which is approximately 57,000 words. For each lawyer (Code 23–1011) that reviews the proposed rule, the estimated cost is (3.833 × $142.34) or $545.59. In part, we estimate that the cost of reviewing this proposed rule by lawyers is $470,843.50 ($545.59 × 863 reviewers). In total, we estimate the one-time cost of reviewing this proposed rule is $851,977.32 ($381,133.82 + $470,843.50). We acknowledge that these assumptions may understate or overstate the costs of reviewing this proposed rule. D. Alternatives Considered Some provisions are directly linked to statute and therefore alternatives cannot be considered. Nevertheless, alternatives which we have considered are detailed below. We are proposing to modify the definition of manufacturer for purposes of satisfying the requirement at section 1927(a)(1) of the Act which requires a manufacturer to have entered into and have in effect a NDRA. While this policy has already been specified in guidance and preambles, codifying the requirement is necessary to ensure compliance and eliminate ambiguity. We have reiterated this point several times in subregulatory guidance; however, some manufacturers still challenge our policy. We do not permit manufacturers to selectively report CODs which would allow a manufacturer to benefit from the coverage of some of their CODs, while avoiding their financial obligation to pay rebates. Therefore, we considered an alternative to retain the current definition of manufacturer for the NDRA, however, we believe the term ‘‘manufacturer’’ needs to be updated in regulation to ensure legal compliance with this requirement. In regards to proposing to define vaccine, we could have refrained from defining the term and relied on manufacturers to make their own determination. At this time, we are only aware of one manufacturer who is making a claim that a product that would not be a vaccine under the proposed definition should be treated as a vaccine for the purposes of the Medicaid Drug Rebate Program. However, we are endeavoring to prevent future disputes of this type given that there may be more products coming to market for which this definition might help provide clarity. We are proposing to specify the time limitation on manufacturers initiating disputes, hearings, or audits with States. While the NDRA addresses dispute resolution, it provides no guidance on whether a timeline applies to the initiation of such disputes, hearings or audits. There have been reports of new disputes being initiated on claims dating back several decades to paper claims, which is placing unnecessary burden on many State rebate programs. Implementation of this provision is necessary to ensure administrative efficiency. An alternative considered was to not clarify this provision; however, then disputes initiated on claims would continue to be disputed ongoing for any defined time-period, causing undue strain, work hours and costs on rebate programs, which directly counters the purpose of the program to offset the Federal and State costs of most outpatient prescription drugs dispensed to Medicaid patients. E. Accounting Statement and Table As required by OMB Circular A–4 (available at https:// www.whitehouse.gov/wp-content/ uploads/legacy_drupal_files/omb/ circulars/A4/a-4.pdf), we have prepared an accounting statement in Table 7 showing the classification of the impact associated with the provisions of this proposed rule. TABLE 7—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS/SAVINGS Units Category Estimates Costs/Savings: Annualized Monetized ($million/year) .............................................................................. ddrumheller on DSK120RN23PROD with PROPOSALS2 Costs/Savings .................................................................................................................. Annualized Monetized ($million/year) .............................................................................. F. Regulatory Flexibility Act (RFA) The RFA requires agencies to analyze options for regulatory relief of small entities, if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, we estimate that almost all Pharmaceutical VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 ($0.67) (0.57) ¥1,328.91 ¥1,433.49 and Medicine manufacturers are small entities, as that term is used in the RFA (including small businesses, nonprofit organizations, and small governmental jurisdictions). The great majority of hospitals and most other health care providers and suppliers are small PO 00000 Frm 00052 Fmt 4701 Sfmt 4702 Year dollar 2021 2021 2021 2021 Discount rate (%) Period covered 7 3 7 3 2024–2034 2024–2034 2024–2034 2024–2034 entities, either by being nonprofit organizations or by meeting the Small Business Administration (SBA) definition of a small business (having employees of less than 1,250 in any 1 year) for businesses classified in the Pharmaceutical and Medicine E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules Manufacturing industries. Note, the SBA does not provide any revenue data at this time as a measure of size for these industries. According to the SBA’s website at https://www.sba.gov/content/smallbusiness-size-standards, the drug manufactures referred to in this proposed rule fall into both NAICS 325412, Pharmaceutical Preparation Manufacturing and NAICS 325414, Biologic Product (except Diagnostic) Manufacturing. The SBA defines small businesses engaged in Pharmaceutical and Medicine Manufacturing as businesses having less than 1,250 34289 employees annually each for Pharmaceutical Preparation Manufacturing and Biologic Product (except Diagnostic) manufacturing industries. Table 8 presents the total number of small businesses in each of the two industries mentioned. TABLE 8—NAICS 32541 PHARMACEUTICAL AND MEDICINE MANUFACTURING SIZE STANDARDS NAICS (6-digit) Industry subsector description SBA size standard/ small entity threshold 325412 .............. 325414 .............. Pharmaceutical Preparation Manufacturing ..................................................................... Biologic Product (except Diagnostic) ................................................................................ 1,250 Employees ...... 1,250 Employees ...... Total small businesses 2,722 587 Source: 2019 Economic Census. TABLE 9—CONCENTRATION RATIOS (NAICS 325412) PHARMACEUTICAL PREPARATION Firm size (by number of employees) Firm count Small Firms: 02: <5 employees ............................................................................................. 03: 5–9 employees ........................................................................................... 04: 10–14 employees ....................................................................................... 05: 15–19 employees ....................................................................................... 06: <20 employees ........................................................................................... 07: 20–24 employees ....................................................................................... 08: 25–29 employees ....................................................................................... 09: 30–34 employees ....................................................................................... 10: 35–39 employees ....................................................................................... 11: 40–49 employees ....................................................................................... 12: 50–74 employees ....................................................................................... 13: 75–99 employees ....................................................................................... 14: 100–149 employees ................................................................................... 15: 150–199 employees ................................................................................... 16: 200–299 employees ................................................................................... 17: 300–399 employees ................................................................................... 18: 400–499 employees ................................................................................... 19: <500 employees ......................................................................................... 20: 500–749 employees ................................................................................... 21: 750–999 employees ................................................................................... 22: 1,000–1,499 employees ............................................................................. Large Firms: Employees >1,499 ............................................................................................ Percentage of small firms (%) Total employees Employee per firm to total employee (%) 2,722 390 159 65 48 662 25 25 19 21 30 45 31 49 27 42 22 13 1,011 19 10 9 100 14 6 2 2 24 1 1 1 1 1 2 1 2 1 2 1 0 37 1 0 0 93,181 633 1,058 752 766 3,209 535 648 587 700 1,329 2,600 2,439 5,292 3,793 6,853 6,204 3,907 38,096 6,514 3,635 3,631 100 0.679 1.135 0.807 0.822 3.444 0.574 0.695 0.630 0.751 1.426 2.790 2.617 5.679 4.071 7.355 6.658 4.193 40.884 6.991 3.901 3.897 68 NA 94,707 NA Source: 2019 Economic Census. TABLE 10—CONCENTRATION RATIOS (NAICS 325414) BIOLOGIC PRODUCT (EXCEPT DIAGNOSTIC) MANUFACTURING ddrumheller on DSK120RN23PROD with PROPOSALS2 Firm size (by number of employees) Firm count Small Firms: 02: <5 employees ............................................................................................. 03: 5–9 employees ........................................................................................... 04: 10–14 employees ....................................................................................... 05: 15–19 employees ....................................................................................... 06: <20 employees ........................................................................................... 07: 20–24 employees ....................................................................................... 08: 25–29 employees ....................................................................................... 09: 30–34 employees ....................................................................................... 11: 40–49 employees ....................................................................................... 12: 50–74 employees ....................................................................................... 13: 75–99 employees ....................................................................................... 14: 100–149 employees ................................................................................... 15: 150–199 employees ................................................................................... 16: 200–299 employees ................................................................................... VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 PO 00000 Frm 00053 Fmt 4701 Sfmt 4702 Percentage of small firms (%) 587 71 42 13 13 139 12 7 6 6 13 5 8 6 8 E:\FR\FM\26MYP2.SGM 100 12 7 2 2 24 2 1 1 1 2 1 1 1 1 26MYP2 Total employees 21,789 141 282 145 224 792 261 167 184 247 624 384 799 720 1,561 Employee per firm to total employee (%) 100 0.65 1.29 0.67 1.03 3.63 1.20 0.77 0.84 1.13 2.86 1.76 3.67 3.30 7.16 34290 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules TABLE 10—CONCENTRATION RATIOS (NAICS 325414) BIOLOGIC PRODUCT (EXCEPT DIAGNOSTIC) MANUFACTURING— Continued Firm size (by number of employees) Firm count 18: 400–499 employees ................................................................................... 19: <500 employees ......................................................................................... 20: 500–749 employees ................................................................................... 21: 750–999 employees ................................................................................... 22: 1,000–1,499 employees ............................................................................. Large Firms: Employees >1,499 ............................................................................................ Percentage of small firms (%) Total employees Employee per firm to total employee (%) 5 219 4 5 5 1 37 1 1 1 1,758 8,012 1,293 1,868 2,327 8.07 36.77 5.93 8.57 10.68 41 NA 42,822 NA ddrumheller on DSK120RN23PROD with PROPOSALS2 Source: 2019 Economic Census. Note: data are not available for businesses with 1,500 to 2,500 employees. As can be seen in Tables 9 and 10, the economic impacts are disproportionate for small firms. Tables 9 and 10 show the employees for each of the size categories and the employee impact per small entity. For example, in Table 9, 390 of the smallest firms employ only 0.68 percent of the employees in its industry; while, in Table 10, 71 of the smallest firms employ only 0.65 percent of the employees in its industry. Therefore, as can be seen in Tables 9 and 10, almost all Pharmaceutical and Medicine Manufactures are small entities as that term is used in the RFA. Additionally, Tables 9 and 10 show the disproportionate impacts among firms, and between small and large firms. In Tables 9 and 10, each industry, Pharmaceutical Preparation Manufacturing and Biologic Product (except Diagnostic) manufacturing (by employment), firm count, percentage of small firms, total employee and percentage of total employee per firm size to total employees of the small firms were estimated separately to determine the Pharmaceutical and Medicine manufacturer concentration ratios. For purposes of the RFA, approximately 98 percent of Pharmaceutical Preparation Manufacturing (2,722/2,790 firms) and approximately 93 percent of Biologic Product (except Diagnostic) (587/628) firms are considered small businesses according to the SBA’s size standards with total employee of 1,250 in any one year. At this time, revenue data are not currently available. However, 2012 revenue data from the U.S. Economic Census was used to obtain a proxy for revenue earned in the Pharmaceutical Preparation Manufacturing industry. Therefore, as of 2012, the total annual receipts for small establishments in the Pharmaceutical Preparation Manufacturing industry, earning less VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 than $45 million accounted for approximately 3.1 percent of the revenue. Similarly, according to the 2012 data, total annual receipts for small establishments in the Biologic Product (except Diagnostic) accounted for approximately 3.5 percent of the revenue in its industry. Individuals and States are not included in the definition of a small entity. This proposed rule will not have a significant impact measured change in revenue of 3 to 5 percent on a substantial number of small businesses or other small entities. As its measure of significant economic impact on a substantial number of small entities, HHS uses a change in revenue of more than 3 to 5 percent. At this time, we do not believe that this threshold will be reached by the requirements in this proposed rule. Therefore, the Secretary has certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a metropolitan statistical area and has fewer than 100 beds. This proposed rule will not have a significant impact on small rural hospitals. We are not preparing an analysis for section 1102(b) of the Act because we have determined, and the Secretary has certified, that this proposed rule will not have a significant impact on the operations of a substantial number of small rural hospitals. PO 00000 Frm 00054 Fmt 4701 Sfmt 4702 G. Unfunded Mandates Reform Act (UMRA) Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2023, that threshold is approximately $177 million. This proposed rule imposes mandates that would result in anticipated costs to State, local, and Tribal governments or private sector, but the transfer costs will be less than the threshold. Some of the costs that the States may incur for the requirements of reimbursement for prescribed drugs is the cost of conducting an individual State survey as an optional tool. This proposed rule would result in multiple benefits to the States including assuring that rebates would be paid accurately and timely to the States. States would receive additional monetary rebates from manufacturers brought into compliance with drug misclassification, would limit the timeframe manufacturers have to dispute rebates, identify patients to the pharmacist as Medicaid beneficiaries, provide transparency to the State as to which PBM costs are true services costs (costs of prescriptions and dispensing fees) versus administrative costs, and permit States to pay claims sooner than the specified waiting period, when doing so is cost-effective and necessary to ensure access to care. As a result, this proposed rule would not impose a mandate that would result in the expenditure by State, local, and Tribal Governments, in the aggregate, or by the private sector, of more than $165 million in any 1 year. H. Federalism Executive Order 13132 establishes certain requirements that an agency E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules must meet when it promulgates a proposed rule that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has federalism implications. This proposed rule will not have a substantial direct effect on State or local governments, preempt States, or otherwise have a federalism implication, therefore the requirements of Executive Order 13132 are not applicable. Chiquita Brooks-LaSure, Administrator of the Centers for Medicare & Medicaid Services, approved this document on May 2, 2023. List of Subjects 42 CFR Part 433 Administrative practice and procedure, Child support, Claims, Grant programs—health, Medicaid, Reporting and recordkeeping requirements. 42 CFR Part 438 PART 438—MANAGED CARE Citizenship and naturalization, Civil rights, Grant programs—health, Individuals with disabilities, Medicaid, Reporting and recordkeeping requirements, Sex discrimination. ■ 42 CFR Part 447 ■ Accounting, Administrative practice and procedure, Drugs, Grant programs— health, Health facilities, Health professions, Medicaid, Reporting and recordkeeping requirements, Rural areas. For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR chapter IV as set forth below: PART 433—STATE FISCAL ADMINISTRATION 1. The authority citation for part 433 continues to read as follows: ■ Authority: 42 U.S.C. 1302. 2. Amend § 433.139 by revising paragraphs (b)(3)(i) and (b)(3)(ii)(B) to read as follows: ■ § 433.139 Payment of claims. * ddrumheller on DSK120RN23PROD with PROPOSALS2 doing so is cost-effective and will not adversely affect access to care, only make such payment if a third party so liable has not made payment within 90 days after the date the provider of such services has initially submitted a claim to such third party for payment for such services; or (ii) * * * (B) For child support enforcement services beginning February 9, 2018, the provider certifies that before billing Medicaid, if the provider has billed a third party, the provider has waited up to 100 days after the date of the service and provider of such services has initially submitted a claim to such third party for payment for such services, except that the State may make such payment within 30 days after such date if the State determines doing so is costeffective and necessary to ensure access to care. * * * * * * * * * (b) * * * (3) * * * (i) The claim is for preventive pediatric services, including early and periodic screening, diagnosis and treatment services provided for under part 441, subpart B, of this chapter, that are covered under the State Plan that requires a State to make payments without regard to third party liability for pediatric preventive services except that the State may, if the State determines VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 3. The authority citation for part 438 continues to read as follows: Authority: 42 U.S.C. 1302. 4. Amend § 438.3 by adding paragraphs (s)(7) and (8) to read as follows: § 438.3 * Standard contract requirements. * * (s) * * * * * (7) Assign and exclusively use unique Medicaid-specific Beneficiary Identification Number (BIN), Processor Control Number (PCN), and group number identifiers for all Medicaid managed care beneficiary identification cards for pharmacy benefits, beginning no later than the State’s next rating period for the applicable Medicaid managed care contract, following [effective date of final rule]. (8) Structure any contract with any subcontractor for the delivery or administration of the covered outpatient drug benefit to require the subcontractor to report separately the amounts related to: (i) The incurred claims described in § 438.8(e)(2) such as reimbursement for the covered outpatient drug, payments for other patient services, and the fees paid to providers or pharmacies for dispensing or administering a covered outpatient drug; and, (ii) Administrative costs, fees and expenses of the subcontractor. * * * * * PO 00000 Frm 00055 Fmt 4701 Sfmt 4702 34291 PART 447—PAYMENTS FOR SERVICES 5. The authority citation for part 447 continues to read as follows: ■ Authority: 42 U.S.C. 1302 and 1396r–8. 6. Amend § 447.502 by— a. In the definition of ‘‘Covered outpatient drug’’: ■ i. In the introductory text, adding ‘‘(COD)’’ immediately following ‘‘Covered outpatient drug’’; and ■ ii. Revising paragraph (2) introductory text; ■ b. Adding the definitions of ‘‘Drug product information’’ and ‘‘Internal investigation’’ in alphabetical order; ■ c. In the definition of ‘‘Manufacturer,’’ adding paragraph (5); ■ d. Adding the definition of ‘‘Market date’’ in alphabetical order; ■ e. In the definition of ‘‘Noninnovator multiple source drug,’’ revising paragraph (3); and ■ f. Adding the definition of a ‘‘Vaccine’’ in alphabetical order. The revisions and additions read as follows: ■ ■ § 447.502 Definitions. * * * * * Covered outpatient drug (COD) * * * (2) A covered outpatient drug does not include any drug, biological product, or insulin provided as part of or incident to and in the same setting as any of the services in paragraphs (2)(i) through (viii) of this definition (and for which payment may be made as part of payment for that service and not as direct reimbursement for the drug). Direct reimbursement for a drug may include both reimbursement for a drug alone, or reimbursement for a drug plus the service, in one inclusive payment if the drug and the itemized cost of the drug are separately identified on the claim. * * * * * Drug product information includes but is not limited to National Drug Code (NDC), drug name, units per package size (UPPS), drug category (‘‘S’’, ‘‘I’’, ‘‘N’’), unit type (for example, TAB, CAP, ML, EA), drug product type (prescription, over-the-counter), base date AMP, therapeutic equivalent code (TEC), line extension indicator, 5i indicator and route of administration, if applicable, FDA approval date, FDA application number or OTC monograph citation as applicable, market date, COD status, and any other information deemed necessary by the agency to perform accurate unit rebate amount (URA) calculations. * * * * * Internal investigation means a manufacturer’s investigation of its AMP, E:\FR\FM\26MYP2.SGM 26MYP2 34292 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules best price, customary prompt pay discounts or nominal prices that have been previously certified in the Medicaid Drug Rebate Program (MDRP) that results in a finding made by the manufacturer of fraud, abuse, or violation of law or regulation. A manufacturer must make data available to CMS to support its finding. * * * * * Manufacturer * * * (5) For the purposes of maintaining an effectuated rebate agreement consistent with section 1927(a)(1) of the Social Security Act, the term ‘‘manufacturer’’ means that all associated entities of the manufacturer that sell prescription drugs, including, but not limited to, owned, acquired, affiliates, brother or sister corporations, operating subsidiaries, franchises, business segments, part of holding companies, divisions, or entities under common corporate ownership or control, must each maintain an effectuated rebate agreement. Market date, for the purpose of establishing the base date AMP quarter, means the date on which the covered outpatient drug was first sold by any manufacturer. * * * * * Noninnovator multiple source drug * * * (3) A covered outpatient drug that entered the market before 1962 that is not marketed under an NDA; * * * * * Vaccine means a product that is administered prophylactically to induce active, antigen-specific immunity for the prevention of one or more specific infectious diseases and is included in a current or previous FDA published list of vaccines licensed for use in the United States. * * * * * ■ 7. Amend § 447.504 by revising paragraphs (c)(25) through (29) and (e)(13) through (17) to read as follows: § 447.504 Determination of average manufacturer price. ddrumheller on DSK120RN23PROD with PROPOSALS2 * * * * * (c) * * * (25) Manufacturer coupons to a consumer redeemed by the manufacturer, agent, pharmacy or another entity acting on behalf of the manufacturer, but only to the extent that the full value of the coupon is passed on to the consumer and the pharmacy, agent, or other AMP-eligible entity does not receive any price concession. (26) Manufacturer-sponsored programs that provide free goods, including but not limited to vouchers and patient assistance programs, but VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 only to the extent that: The voucher or benefit of such a program is not contingent on any other purchase requirement; the full value of the voucher or benefit of such a program is passed on to the consumer; and the pharmacy, agent, or other AMP eligible entity does not receive any price concession. (27) Manufacturer-sponsored drug discount card programs, but only to the extent that the full value of the discount is passed on to the consumer and the pharmacy, agent, or other AMP eligible entity does not receive any price concession. (28) Manufacturer-sponsored patient refund/rebate programs, to the extent that the manufacturer provides a full or partial refund or rebate to the patient for out-of-pocket costs and the pharmacy, agent, or other AMP eligible entity does not receive any price concessions. (29) Manufacturer copayment assistance programs, to the extent that the program benefits are provided entirely to the patient and the pharmacy, agent, or other AMP eligible entity does not receive any price concession. * * * * * (e) * * * (13) Manufacturer coupons to a consumer redeemed by the manufacturer, agent, pharmacy or another entity acting on behalf of the manufacturer, but only to the extent that the full value of the coupon is passed on to the consumer and the pharmacy, agent, or other AMP eligible entity does not receive any price concession. (14) Manufacturer-sponsored programs that provide free goods, including, but not limited to vouchers and patient assistance programs, but only to the extent that the voucher or benefit of such a program is not contingent on any other purchase requirement; the full value of the voucher or benefit of such a program is passed on to the consumer; and the pharmacy, agent, or other AMP eligible entity does not receive any price concession. (15) Manufacturer-sponsored drug discount card programs, but only to the extent that the full value of the discount is passed on to the consumer and the pharmacy, agent, or other AMP eligible entity does not receive any price concession. (16) Manufacturer-sponsored patient refund/rebate programs, to the extent that the manufacturer provides a full or partial refund or rebate to the patient for out-of-pocket costs and the pharmacy, agent, or other AMP eligible entity does not receive any price concessions. PO 00000 Frm 00056 Fmt 4701 Sfmt 4702 (17) Manufacturer copayment assistance programs, to the extent that the program benefits are provided entirely to the patient and the pharmacy, agent, or other AMP eligible entity does not receive any price concession. * * * * * ■ 8. Amend § 447.505 by revising paragraphs (c)(8) through (12) and (d)(3) to read as follows: § 447.505 Determination of best price. * * * * * (c) * * * (8) Manufacturer-sponsored drug discount card programs, but only to the extent that the full value of the discount is passed on to the consumer and the pharmacy, agent, or other entity does not receive any price concession. (9) Manufacturer coupons to a consumer redeemed by a consumer, agent, pharmacy, or another entity acting on behalf of the manufacturer; but only to the extent that the full value of the coupon is passed on to the consumer, and the pharmacy, agent, or other entity does not receive any price concession. (10) Manufacturer copayment assistance programs, to the extent that the program benefits are provided entirely to the patient and the pharmacy, agent, or other entity does not receive any price concession. (11) Manufacturer-sponsored patient refund or rebate programs, to the extent that the manufacturer provides a full or partial refund or rebate to the patient for out-of-pocket costs and the pharmacy, agent, or other entity does not receive any price concession. (12) Manufacturer-sponsored programs that provide free goods, including but not limited to vouchers and patient assistance programs, but only to the extent that the voucher or benefit of such a program is not contingent on any other purchase requirement; the full value of the voucher or benefit of such a program is passed on to the consumer; and the pharmacy, agent, or other entity does not receive any price concession. * * * * * (d) * * * (3) The manufacturer must adjust the best price for a drug for a rebate period if cumulative discounts, rebates, or other arrangements to best price eligible entities subsequently adjust the price available from the manufacturer. Cumulative discounts, rebates, or other arrangements must be stacked to determine a final price realized by the manufacturer for a covered outpatient drug, including discounts, rebates, or E:\FR\FM\26MYP2.SGM 26MYP2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules other arrangements provided to different best price eligible entities. ■ 9. Amend § 447.509 by— ■ a. Revising paragraphs (a)(5), (a)(6) introductory text, (a)(7) introductory text, (a)(8) and (9), and (c)(4); and ■ b. Adding paragraph (d). The revisions and addition read as follows: ddrumheller on DSK120RN23PROD with PROPOSALS2 § 447.509 Medicaid drug rebates (MDR). (a) * * * (5) Limit on rebate. For a rebate period beginning after December 31, 2009, and before January 1, 2024, in no case will the total rebate amount exceed 100 percent of the AMP of the single source or innovator multiple source drug. (6) Rebate for drugs other than a single source drug or innovator multiple source drug. The amount of the basic rebate for each dosage form and strength of a drug other than a single source drug or innovator multiple source drug will be equal to the product of: * * * * * (7) Additional rebate for drugs other than a single source drug or innovator multiple source drug. In addition to the basic rebate described in paragraph (a)(6) of this section, for each dosage form and strength of a drug other than a single source drug or innovator multiple source drug, the rebate amount will be increased by an amount equal to the product of the following: * * * * * (8) Total rebate. The total rebate amount for a drug other than a single source drug or innovator multiple source drug is equal to the basic rebate amount plus the additional rebate amount, if any. (9) Limit on rebate. For a rebate period beginning after December 31, 2014, and before January 1, 2024, in no case will the total rebate amount exceed 100 percent of the AMP for a drug other than a single source drug or innovator multiple source drug. * * * * * (c) * * * (4) For a drug other than a single source drug or innovator multiple source drug, the offset amount is equal to 2.0 percent of the AMP (the difference between 13.0 percent of AMP and 11.0 percent of AMP). (d) Manufacturer misclassification of a covered outpatient drug and recovery of unpaid rebate amounts due to the misclassification and other penalties— (1) Definition of misclassification. A misclassification in the MDRP has occurred when a manufacturer has: (i) Reported and certified to the agency its drug category or drug product information related to a covered VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 outpatient drug that is not supported by the statute and applicable regulations; or, (ii) Reported and certified to the agency its drug category or drug product information that is supported by the statute and applicable regulations, but pays rebates to States at a level other than that associated with that classification. (2) Manufacturer notification by the agency of drug misclassification. If the agency determines that a misclassification has occurred as described in paragraph (d)(1) of this section, the agency will send written and electronic notification of this misclassification to the manufacturer of the covered outpatient drug, which may include a notification that past rebates are due. The manufacturer has 30 calendar days from the date of notification to: (i) Provide the agency such drug product and drug pricing information needed to correct the misclassification of the covered outpatient drug and calculate rebate obligations due, if any pursuant to paragraph (d)(3) of this section. The required pricing data submitted by the manufacturer to the agency shall include the best price information for the covered outpatient drug, if applicable, for the rebate periods for which the manufacturer misclassified the covered outpatient drug; and, (ii) Certify applicable price and drug product data after entered into the system by the agency. (3) Manufacturer payment of unpaid rebates due to misclassification determined by agency. (i) When the agency has determined that a manufacturer has misclassified a covered outpatient drug as described in paragraph (d)(1) of this section, such that rebates are owed to the States, and notification has been provided to the manufacturer as provided under paragraph (d)(2) of this section, a manufacturer must pay to each State an amount equal to the sum of the products of: (A) The difference between: (1) The per URA paid by the manufacturer for the covered outpatient drug to the State for a period during which the drug was misclassified; and (2) The per URA that the manufacturer would have paid to the State for the covered outpatient drug for each period, as determined by the agency based on the data provided and certified by the manufacturer under paragraph (d)(2) of this section, if the drug had been correctly classified by the manufacturer; and, PO 00000 Frm 00057 Fmt 4701 Sfmt 4702 34293 (B) The total units of the drug paid for under the State Plan in each period. (ii) Manufacturers must pay such rebates to the States for the period or periods of time that such covered outpatient drug was misclassified, based on the formula described in this section, within 60 calendar days of notification by the agency to the manufacturer of the misclassification, and provide documentation to the agency that the States were contacted by the manufacturer, and that such payments were made to the States within the 60 calendar days. (4) Agency authority to correct misclassifications and additional penalties for drug misclassification. The agency will review the information submitted by the manufacturer based on the notice sent under paragraph (d)(2) of this section. If a manufacturer fails to comply with paragraph (d)(2) of this section within 30 calendar days from the date of the notification by the agency of the misclassification to the manufacturer under paragraph (d)(1) of this section, fails to pay the rebates that are due to the States as a result of the misclassification within 60 calendar days from the date of the notification, if applicable, and/or fails to provide to the agency such documentation that such rebates have been paid, as described in paragraph (d)(3) of this section, the agency may do any or all of the following: (i) Correct the misclassification of the drug in the system on behalf of the manufacturer, using any pricing and drug product information that may have been provided by the manufacturer. (ii) Suspend the misclassified drug and the drug’s status as a covered outpatient drug under the manufacturer’s rebate agreement from the MDRP, and exclude the misclassified drug from FFP in accordance with section 1903(i)(10)(E) of the Act. (iii) Impose a civil monetary penalty (CMP) for each rebate period during which the drug is misclassified, not to exceed an amount equal to the product of: (A) The total number of units of each dosage form and strength of such misclassified drug paid for under any State Plan during such a rebate period; and (B) 23.1 percent of the AMP for the dosage form and strength of such misclassified drug for that period. (iv) Other actions and penalties available under section 1927 of the Act (or any other provision of law), including referral to the HHS Office of the Inspector General and termination from the MDRP. E:\FR\FM\26MYP2.SGM 26MYP2 34294 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules (5) Transparency of manufacturers’ drug misclassifications. The agency will make available on a public website an annual report as required under section 1927(c)(4)(C)(ii) of the Act on the covered outpatient drug(s) that were identified as misclassified during the previous year, any steps taken by the agency with respect to the manufacturer to reclassify the drugs and ensure the payment by the manufacturer of unpaid rebate amounts resulting from the misclassifications, and a disclosure of the expenditures from the fund created in section 1927(b)(3)(C)(iv) of the Act. ■ 10. Amend § 447.510 by— ■ a. Revising the section heading and paragraph (b)(1)(v); ■ b. Adding paragraphs (h) through (k). The additions and revision read as follows: § 447.510 Requirement and penalties for manufacturers. ddrumheller on DSK120RN23PROD with PROPOSALS2 * * * * * (b) * * * (1) * * * (v) The change is to address specific rebate adjustments to States by manufacturers, as required by CMS or court order, or under an internal investigation as defined at § 447.502 or an Office of Inspector General (OIG) or Department of Justice investigation. * * * * * (h) Participation in the Medicaid Drug Rebate Program (MDRP). Manufacturers that participate in MDRP must meet the following requirements: (1) Signed rebate agreement with the Secretary. Manufacturers participating in the MDRP must have a signed rebate agreement in effect that complies with paragraph (5) in the definition of manufacturer in § 447.502. (2) Newly purchased labeler codes and covered outpatient drugs. Any manufacturer with a signed rebate agreement in effect that acquires or purchases another labeler, acquires or purchases covered outpatient drugs from another labeler code, or forms a new subsidiary, must ensure that a signed rebate agreement is in effect for these entities or covered outpatient drugs, consistent with the definition of manufacturer at § 447.502, within the first 30 days of the next full calendar quarter beginning at least 60 days after the acquisition, purchase, asset transfer, or formation of the subsidiary. (3) Termination. Each associated labeler code of a manufacturer is considered to be part of the single manufacturer. If any of the associated labeler codes as defined in paragraph (5) in the definition of manufacturer at § 447.502 do not have a National Drug Rebate Agreement (NDRA) in effect, or VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 are terminated, all of the labeler codes will be subject to termination. (i) Suspension of manufacturer’s NDRA for late reporting of drug pricing and drug product information. (1) If a manufacturer fails to timely provide information required to be reported to the agency under section 1927(b)(3)(A) of the Act, and paragraphs (a) and (d) of this section, the agency will provide written notice to the manufacturer of failure to provide timely information. If such information is not reported within 90 calendar days of the date of the notice communicated to the manufacturer electronically and in writing by the agency, such failure by the manufacturer to report such information in a timely manner shall result in suspension of the manufacturer’s rebate agreement for all covered outpatient drugs furnished after the end of the 90-day calendar period. The rebate agreement will remain suspended until the date the information is reported to the agency in full and certified, and the agency reviews for completeness, but not for a period of fewer than 30 calendar days. Continued suspension of the rebate agreement could result in termination for cause. Suspension of a manufacturer’s rebate agreement under this section applies for Medicaid purposes only, and does not affect manufacturer obligations and responsibilities under the 340B Drug Pricing Program or reimbursement under Medicare Part B during the period of the suspension. (2) During the period of the suspension, the covered outpatient drugs of the manufacturer are not eligible for FFP. The agency will notify the States 30 calendar days before the beginning of the suspension period for the manufacturer’s rebate agreement and any applicable associated labeler rebate agreements. (j) Manufacturer audits of Stateprovided information. A manufacturer may only initiate a dispute, request a hearing, or seek an audit of a State regarding State drug utilization data, during a period not to exceed 12 quarters from the last day of the quarter from the date of the State invoice. (k) Verification survey of reported covered outpatient drug pricing—(1) Survey of manufacturers. CMS may survey a manufacturer with a rebate agreement with the Secretary under this section, or a wholesaler as defined in § 447.502, to verify prices or charges for a covered outpatient drug identified through paragraphs (k)(2) and (3) of this section, reported to the agency under section 1927(b)(3)(A) of the Act and this PO 00000 Frm 00058 Fmt 4701 Sfmt 4702 section, to make payment for the covered outpatient drug. (2) Identification of covered outpatient drugs potentially subject to price verification. On an annual basis, CMS will compile a list of single source covered outpatient drugs that may be subject to a survey based on one or more of the following criteria (further refined based upon criteria in paragraph (k)(3) of this section). This list will identify drugs that have: (i) The highest Medicaid drug spend per claim, which is when the claim is in the top 5th percentile of Medicaid spending per claim; (ii) The highest total Medicaid drug spend, which is when the annual Medicaid drug spend, net of Federal Medicaid drug rebates, is greater than 0.5 percent of total annual Medicaid drug spend, net of Federal Medicaid drug rebates; (iii) The highest 1-year price increase among single source covered outpatient drugs, which is when the covered outpatient drug falls in the top 1 percent of covered outpatient drugs with the highest median Wholesale Acquisition Cost (WAC) increase over 12 months; or (iv) The highest launch price, which is a launch price estimated to be in the top 5th percentile of Medicaid spending per claim, or a launch price that is estimated to result in a total annual treatment price that is greater than $500,000 (indexed annually for inflation using the Consumer Price Index for all Urban Consumers (CPI–U)). (3) Selection of covered outpatient drugs for price verification. The survey list compiled under paragraph (k)(2) of this section will be further refined by excluding covered outpatient drugs of manufacturers that have: (i) Participated in any CMS drug pricing program or initiative under which participating manufacturers negotiate a covered outpatient drug’s price directly with CMS; or, (ii) Negotiated CMS-authorized supplemental rebate with at least 50 percent of States, that when in combination with the Federal rebate results in a total (State and Federal) rebate for the drug of interest to total Medicaid spend (State and Federal) for the drug of interest, that is greater than the total Medicaid rebates (State and Federal) to total Medicaid drug spend for States that cover CODs only through the FFS delivery system, as reflected in the most recent Medicaid Financial Management Report. (iii) If after application of the criteria in paragraphs (k)(3)(i) and (ii) of this section more than 10 covered outpatient drugs remain on the survey list, CMS E:\FR\FM\26MYP2.SGM 26MYP2 ddrumheller on DSK120RN23PROD with PROPOSALS2 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules will consider narrowing the list based on: (A) State-specific Medicaid program input regarding manufacturer effort to lower drug price (including through mechanisms such as subscription models, value-based purchasing arrangements under the multiple best price approach, or other purchasing arrangements favorable to the Medicaid program); or, (B) Highest cost covered outpatient drugs based on the factors outlined under paragraph (k)(2) of this section, and before application of paragraph (k)(3) of this section. (4) Posting of survey request. After a survey list is compiled based on the application of the criteria in paragraphs (k)(2) and (3) of this section, the agency will post on a publicly accessible, government website, the letter sent to the manufacturer indicating the name of the covered outpatient drug to be surveyed and the request for completion of the drug price verification survey. (5) Covered outpatient drug price verification survey. Such survey to a manufacturer or wholesaler will request in a standard reporting format specific information that will include: (i) Pricing, charges, distribution, and utilization. (A) WAC of the covered outpatient drug, including the types of discounts available to purchasers on the commercial market, or for a wholesaler or pharmacy affiliated with a manufacturer or wholesaler, the invoice price for the drug; (B) Calculated average price of the drug from the manufacturer to wholesalers and other direct purchasers for sales outside of the U.S.; (C) Actual or expected utilization of the covered outpatient drug in the United States, including among the Medicare and Medicaid populations; (D) Public prices for the drug to other Federal agencies, such as the Department of Veterans Affairs; and, (E) Information relating to the costs of distribution of the covered outpatient drug. (ii) Product and clinical information. (A) Characteristics of the covered outpatient drug, including route and setting of administration, dosing frequency, duration of therapy, side effects, interactions and contraindications, and potential for misuse or abuse. (B) Manufacturer information regarding the clinical efficacy, effectiveness and outcomes of the drug. (C) Therapeutic benefits to the patient including information such as the: (1) Seriousness and prevalence of the disease or condition that is treated by the covered outpatient drug. VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 (2) The extent to which the covered outpatient drug addresses an unmet medical need. (3) The extent to which the use of the covered outpatient drug will reduce or eliminate the need for other health care services. (4) Whether there are therapeutic equivalents and the number of such equivalents available for the covered outpatient drug. (D) Whether there are other existing therapies (pharmacological and nonpharmacological) available to a patient to address the indicated medical condition and the estimated costs of such other therapies to the patient compared to the price of the covered outpatient drug. (E) If the drug is approved using FDA’s accelerated approval pathway in section 506(c) of the FFDCA, any additional post-market studies required by FDA. (iii) Costs of production, research, and marketing. (A) Manufacturer expenditures on materials and manufacturing for such covered outpatient drug, any costs of purchasing or acquiring the covered outpatient drug, and other processes needed to obtain, manufacture or license the covered outpatient drug. (B) Research and development costs, including total public funds used for such research and development. If the covered outpatient drug is a line extension of a single source or innovator multiple source drug, manufacturers shall not include the research and development costs of the initial single source or innovator multiple source covered outpatient drug. (C) Total expenditures of the manufacturer associated with marketing and advertising for the applicable covered outpatient drug. (D) Total revenue and net profit generated from the covered outpatient drug for each calendar year since drug approval, if applicable. (iv) Secretary information. Any other information as determined by the Secretary to verify the price or charge of the covered outpatient drug reported under section 1927(b)(3)(A) of the Act and this section. (6) Posting of manufacturer/ wholesaler information from survey for further verification. To further verify the prices and charges submitted by the manufacturer for a covered outpatient drug, CMS may post publicly nonproprietary information provided by the manufacturer and wholesaler in response to the verification survey. CMS may request that a manufacturer address the non-proprietary information specified in paragraph (k)(6) of this PO 00000 Frm 00059 Fmt 4701 Sfmt 4702 34295 section in a public forum. CMS will seek comments from the public, beneficiaries, State Medicaid agencies, other governmental agencies, and other affected interested parties on the information posted. (7) Civil monetary penalties (CMPs). A manufacturer or wholesaler that refuses a request for information pursuant to the drug price verification survey within 90 calendar days of CMS’ request for such information, or knowingly provides false information, will be referred to the OIG for possible imposition of CMPs as set forth in section 1927(b)(3)(B) of the Act and section IV of the National Drug Rebate Agreement. ■ 11. Amend § 447.518 by adding a heading to paragraph (d) and revising paragraph (d)(1) to read as follows: § 447.518 State plan requirements, findings, and assurances. * * * * * (d) Data requirements. (1) When proposing changes to either the ingredient cost reimbursement or professional dispensing fee reimbursement, States are required to evaluate their proposed changes in accordance with the requirements of this subpart, and States must consider both the ingredient cost reimbursement and the professional dispensing fee reimbursement when proposing such changes to ensure that total reimbursement to the pharmacy provider is in accordance with requirements of section 1902(a)(30)(A) of the Act. States must provide adequate cost-based data, such as a State or national survey of retail pharmacy providers or other reliable cost-based data other than a survey to support any proposed changes to either or both of the components of the reimbursement methodology. States must submit to CMS the proposed change in reimbursement and the supporting data through a State Plan Amendment formal review process. Research and data must be based on pharmacy costs and be sufficient to establish the adequacy of both current ingredient cost reimbursement and professional dispensing fee reimbursement. Submission by the State of data that are not based on pharmacy costs, such as market-based research (for example, third party payments accepted by pharmacies) to support the professional dispensing fee would not qualify as supporting data. * * * * * ■ 12. Revise § 447.520 to read as follows: E:\FR\FM\26MYP2.SGM 26MYP2 34296 Federal Register / Vol. 88, No. 102 / Friday, May 26, 2023 / Proposed Rules § 447.520 Federal Financial Participation (FFP): Conditions relating to physicianadministered drugs. ddrumheller on DSK120RN23PROD with PROPOSALS2 (a) Availability of FFP. No FFP is available for physician-administered drugs that are covered outpatient drugs for which a State has not required the submission of claims using codes that identify the drugs sufficiently for the State to invoice a manufacturer for rebates. (1) Single source drugs. For a covered outpatient drug that is a single source, physician-administered drug, administered on or after January 1, 2006, a State must require providers to submit claims for using National Drug Code (NDC) numbers to secure rebates and receive FFP. (2) Multiple source drugs. For a covered outpatient drug that is a VerDate Sep<11>2014 19:21 May 25, 2023 Jkt 259001 multiple source, physician-administered drug on the list published by CMS described in paragraph (c) of this section, administered on or after January 1, 2008, a State must require providers to submit claims using NDC numbers to secure rebates and receive FFP. States are required to invoice for rebates for all multiple source physician-administered drugs that are CODs, and not limit such rebate invoicing to the top 20 multiple source physician-administered drug list. (b) Required coding. As of January 1, 2007, a State must require providers to submit claims for a covered outpatient drug that is described in paragraph (a)(1) or (2) of this section (any covered outpatient drug that is a physicianadministered drug) using NDC numbers. PO 00000 Frm 00060 Fmt 4701 Sfmt 9990 (c) Top 20 multiple source physicianadministered drug list. The top 20 multiple source physician-administered drug list, identified by the Secretary as having the highest dollar volume of physician administered drugs dispensed under the Medicaid program, will be published and may be modified from year to year to reflect changes in such volume. (d) Hardship waiver. A State that requires additional time to comply with the requirements of this section may apply to the Secretary for an extension. Dated: May 18, 2023. Xavier Becerra, Secretary, Department of Health and Human Services. [FR Doc. 2023–10934 Filed 5–23–23; 4:15 pm] BILLING CODE 4120–01–P E:\FR\FM\26MYP2.SGM 26MYP2

Agencies

[Federal Register Volume 88, Number 102 (Friday, May 26, 2023)]
[Proposed Rules]
[Pages 34238-34296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10934]

[[Page 34237]]

Vol. 88

Friday,

No. 102

May 26, 2023

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 433, 438, and 447

Medicaid Program; Misclassification of Drugs, Program Administration
and Program Integrity Updates Under the Medicaid Drug Rebate Program;
Proposed Rules

Federal Register / Vol. 88 , No. 102 / Friday, May 26, 2023 /
Proposed Rules

[[Page 34238]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 433, 438, and 447

[CMS-2434-P]
RIN 0938-AU28

Medicaid Program; Misclassification of Drugs, Program
Administration and Program Integrity Updates Under the Medicaid Drug
Rebate Program

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would seek to implement policies in the
Medicaid Drug Rebate Program (MDRP) related to the new legislative
requirements in the Medicaid Services Investment and Accountability Act
of 2019 (MSIAA), which are needed to address drug misclassification, as
well as drug pricing and product data misreporting by manufacturers.
Additionally, we are proposing several other program integrity and
program administration provisions or modifications in this proposed
rule including revising and proposing key definitions used in the MDRP.
This proposed rule also designates a time limitation on manufacturers
initiating audits with States; clarifies and establishes requirements
for State fee-for-service (FFS) pharmacy reimbursement; codifies
conditions relating to States claiming FFP for physician-administered
drugs (PADs); clarifies the requirement of accumulating price
concessions when determining best price; designates drug price
verification and transparency through data collection; and proposes two
new contracting requirements between States and their Medicaid managed
care plans. In addition, this rule includes a proposal unrelated to
MDRP that would make revisions to the third-party liability regulation
due to Bipartisan Budget Act (BBA) of 2018. Finally, we are proposing
to rescind revisions made by the December 31, 2020 final rule
``Medicaid Program; Establishing Minimum Standards in Medicaid State
Drug Utilization Review (DUR) and Supporting Value-Based Purchasing
(VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and
Third Party Liability (TPL) Requirements'' to the Determination of Best
Price and Determination of Average Manufacturer Price (AMP) sections.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, by July 25, 2023.

ADDRESSES: In commenting, please refer to file code CMS-2434-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to https://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-2434-P, P.O. Box: 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-2434-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
Ruth Blatt, (410) 786-1767, for issues related to the definitions
of vaccine, noninnovator multiple-source drug, market date, and covered
outpatient drug (COD).
Ginger Boscas, (410) 786-3098, for issues related to third party
liability.
Michael Forman, (410) 786-2666, for issues related to physician-
administered drugs.
Whitney Swears (410) 786-6543, for issues related to time
limitation on audits, definition of vaccine, diagnosis on
prescriptions, professional dispensing fees, definition of a
manufacturer.
Christine Hinds, (410) 786-4578, for issues related to internal
investigation, removal of manufacturer rebate cap, drug cost
transparency in Medicaid managed care contracts, ``stacking'' when
determining best price, and drug price verification through data
collection.
Lisa Shochet, (410) 786-5445, for issues related to Beneficiary
Identification Number and Processor Control Number (BIN/PCN) and drug
misclassifications.
Terry Simananda, (410) 786-8144, for issues related to the
Collection of Information and Regulatory Impact Analysis sections.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to
view public comments. CMS will not post on Regulations.gov public
comments that make threats to individuals or institutions or suggest
that the individual will take actions to harm the individual. CMS
continues to encourage individuals not to submit duplicative comments.
We will post acceptable comments from multiple unique commenters even
if the content is identical or nearly identical to other comments.

I. Background

A. Introduction

Under the Medicaid program, States may provide coverage of
prescribed drugs as an optional benefit under section 1905(a)(12) of
the Social Security Act (the Act). Section 1903(a) of the Act provides
for Federal Financial Participation (FFP) in State expenditures for
these drugs. In the case of a State that provides for medical
assistance for covered outpatient drugs (CODs), as provided under
section 1902(a)(54) of the Act, the State must comply with the
requirements of section 1927 of the Act. Section 1927 of the Act
governs the Medicaid Drug Rebate Program (MDRP) and payment for CODs,
which are defined in section 1927(k)(2) of the Act. In general, for
payment to be made available for CODs under section 1903(a) of the Act,
manufacturers must enter into a National Drug Rebate Agreement (NDRA)
as set forth in section 1927(a) of the Act. See also section
1903(i)(10) of the Act. The rebates paid by manufacturers to States
help to partially offset the Federal and State costs of most outpatient
prescription drugs dispensed to Medicaid beneficiaries. The MDRP
provides specific requirements for manufacturer rebate agreements, drug
pricing submission and confidentiality requirements, the formulas for
calculating rebate payments, drug utilization reviews (DUR), and
requirements for States for CODs.
With limited exceptions, if a manufacturer wants payment to be

[[Page 34239]]

available under Medicaid for their CODs, the manufacturer must
participate (have entered into and have in effect a rebate agreement)
in the MDRP, and agree to pay rebates for CODs dispensed and paid for
under the State Plan. The amount of the rebate is determined by a
formula set forth in section 1927(c) of the Act. Generally, the formula
to calculate the rebate that applies to a particular drug depends on
whether the drug is classified as (1) a single source drug (S drug) or
innovator multiple source drug (I drug) (commonly referred to as a
brand-name drug), or (2) other drugs, which include noninnovator
multiple source drugs (N drug), commonly referred to as generic drugs,
among others.
Consistent with section 1927(b)(3)(A) of the Act, a manufacturer
must report and certify certain drug product and drug pricing
information for CODs to CMS not later than 30 days after the last day
of each month and certain drug pricing information and drug product
data 30 days after the last day of each quarter of a rebate period. For
example, drug pricing information that manufacturers must submit and
certify includes average manufacturer price (AMP) and best price data
in addition to other information consistent with section 1927(b)(3)(A)
of the Act each quarter. We use the reported data to calculate an
accurate unit rebate amount (URA) for each covered outpatient drug to
assist States with billing manufacturers for rebates. Drug product
information that is reported includes the name of the drug, its
National Drug Code (NDC), drug category, and drug type, among other
items. However, manufacturers ultimately remain responsible for
accurately calculating the URA for their drug products. Manufacturers
pay rebates to States for each unit of the drug dispensed and paid for
under the State Plan on the basis of the URA.
Thus, the failure of a manufacturer to submit and certify timely
monthly and quarterly pricing and drug product data for a drug may
impede the States' ability to invoice and collect appropriate rebate
amounts. If a manufacturer fails to submit timely information, or
misreports information, we may be unable to establish accurate URAs due
to the misreporting or late reporting. While we provide URAs to the
States each quarter to help facilitate billing manufacturers for
rebates, it is ultimately the manufacturer's responsibility to assure
that accurate rebates are paid to States for their CODs.
One specific element of drug product information that is required
to be submitted by manufacturers includes drug category or drug
classification information. Generally, drugs classified as single
source or innovator multiple source pay higher rebates than those that
are classified as an ``other drug,'' such as noninnovator multiple
source drugs. In accordance with section 1927(c) of the Act and 42 CFR
447.509, the rebate calculation for a particular COD may also include
an additional inflationary component to account for increases in the
drug's Average Manufacturer's Price from the base date AMP quarter to
the current calendar quarter's AMP. That is, this additional rebate is
generally calculated based on the difference between the drug's current
quarter AMP and its base date AMP adjusted to the current period by the
Consumer Price Index for All Urban Consumers (CPI-U).
Prior to the enactment of the Medicaid Services Investment and
Accountability Act of April 2019 (MSIAA) (Pub. L. 116-16; enacted April
18, 2019), section 1927(k)(7)(A)(iv) of the Act defined a single source
drug as a covered outpatient drug which is produced or distributed
under an original new drug application. Section 1927(k)(7)(A)(ii) of
the Act similarly defined an innovator multiple source drug as a
multiple source drug that was originally marketed under an original new
drug application. A noninnovator multiple source drug was defined at
section 1927(k)(7)(A)(iii) of the Act as a multiple source drug that is
not an innovator multiple source drug.
Prior to the 2016 Medicaid Covered Outpatient Drug final rule with
comment period (COD final rule) (81 FR 5170), the regulatory
definitions of a single source and an innovator multiple source drug
largely mirrored the statute and defined a drug as a single source or
innovator multiple source drug based on whether it was produced,
distributed, or marketed under an ``original new drug application.''
The statute did not expressly define ``original NDA''. However, CMS'
longstanding interpretation of the term was that an original new drug
application (NDA) is an NDA approved under section 505(b)(1) or (2) of
the Federal Food, Drug, and Cosmetic Act (FFDCA), as distinguished from
one approved under an abbreviated NDA (ANDA) under section 505(j) of
the FFDCA (Manufacturer's Release 113).
We codified new regulatory definitions of single source and
innovator multiple source drugs in the COD final rule and added a
narrow exception for ``certain drugs [that] might be more appropriately
treated as if they were approved under an ANDA and classified as a
noninnovator multiple source drug'' (81 FR 5191). The COD final rule
also added a drug approved under a Biologics License Application (BLA)
to the definition of single source drug (81 FR 5203).
In the COD final rule, we also introduced a process by which drug
manufacturers could submit a request for a narrow exception to have us
recognize individual drugs approved under an NDA as noninnovator
multiple source drugs prospectively from the effective date of the COD
final rule. Instructions to manufacturers regarding this process were
included in Manufacturer Release #98, May 2, 2016 (https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-098.pdf).
The COD final rule did not, however, excuse manufacturers from their
obligation to correctly report drugs approved under an NDA as either
single source or innovator multiple source drugs prior to the effective
date of the COD final rule, which was April 1, 2016.
Yet, notwithstanding our interpretation of the statute, many
manufacturers have disregarded our reasonable interpretation of the
statute and have continued to misreport drugs marketed under an NDA as
noninnovator multiple source drugs for periods prior to April 1, 2016
(Manufacturer Release #113-https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf).

B. Amendments Made by the Medicaid Services Investment and
Accountability Act of 2019 (MSIAA) to Section 1927 of the Act Regarding
MDRP Drug Classification Enforcement and Penalties

Section 6 of the MSIAA, titled ``Preventing the Misclassification
of Drugs Under the Medicaid Drug Rebate Program,'' amended sections
1903 and 1927 of the Act to specify the definitions for multiple source
drug, single source drug and innovator multiple source drug, and to
provide the Secretary with additional compliance, oversight and
enforcement authorities to ensure compliance with program requirements
with respect to manufacturers' reporting of drug product and pricing
information, which includes the appropriate classification of a drug.
Drug classification refers to how a drug should be classified--as a
single source, innovator multiple source, or noninnovator multiple
source drug for the purposes of determining the correct rebates that a
manufacturer owes

[[Page 34240]]

the States.\1\ In general, a misclassification in the MDRP occurs when
a manufacturer reports and certifies its covered outpatient drug under
a drug category that is not supported by the statutory and regulatory
definitions of S, I, or N. A drug that is misclassified is likely
paying different rebates to States than those supported by statute and
regulation.
---------------------------------------------------------------------------

\1\ Section 1927(c)(3) of the Act describes rebates for ``other
drugs'' and section 1927(c)(3)(A) of the Act, more specifically
describes rebates for covered outpatient drugs ``other than single
source drugs and innovator multiple source drugs.'' The MDRP
reporting system provides for all ``other drugs'' that are covered
outpatient drugs to be classified in the system as N drugs,
regardless of whether they expressly meet the definition of
noninnovator multiple source drug. This reporting methodology has
been in effect for the history of the program and interested parties
have understood that a covered outpatient drug that was not an S or
an I drug is reported in the system as an N drug. In a later section
of this proposed rule, we are proposing changes to the regulatory
definition of a N drug to more clearly align with the statutory
definition of N drug. This is a technical change and is not intended
to modify any reporting requirements.
---------------------------------------------------------------------------

We published guidance to manufacturers regarding compliance with
drug pricing and drug product information reporting under this new law
in Manufacturer Release #113 on June 5, 2020. See https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf. Here,
although much of this law is self-implementing, we are proposing a
series of regulatory amendments at Sec. Sec. 447.509 and 447.510 to
implement and codify the statutory changes in regulation. We propose
that a misclassification of a drug under the MDRP has occurred or is
occurring when a manufacturer reports and certifies to the agency a
drug category or drug product information relating to that COD that is
not supported by the statutory and regulatory definitions of S, I, or
N. We also define a misclassification as a situation in which a
manufacturer is correctly reporting its drug category or drug product
information for a COD, but is paying a different rebate amount to the
States than is supported by the classification.
The MSIAA also amended the Act to expressly require a manufacturer
to report not later than 30 days after the last day of each month of a
rebate period under the agreement, such drug product information as the
Secretary shall require for each of the manufacturer's covered
outpatient drugs. We are proposing a definition of ``drug product
information'' for the purposes of the MDRP.
Similarly, the MSIAA amended the Act to specify that the reporting
of false drug product information and data related to false drug
product information would also be subject to possible civil monetary
penalties (CMPs) by the HHS Office of the Inspector General (OIG), and
to provide specific new authority to the Secretary to issue civil
monetary penalties related to knowing misclassifications of drug
product or misreported information. These new OIG authorities will not
be the subject of this rulemaking.
Under the MSIAA, if a manufacturer fails to correct the
misclassification of a drug in a timely manner after receiving
notification from the agency that the drug is misclassified, in
addition to the manufacturer having to pay past unpaid rebates to the
States for the misclassified drug if applicable, the Secretary can take
any or all of the following actions: (1) correct the misclassification,
using drug product information provided by the manufacturer on behalf
of the manufacturer; (2) suspend the misclassified drug, and the drug's
status as a covered outpatient drug under the manufacturer's national
rebate agreement, and exclude the misclassified drug from FFP
(correlating amendments to section 1903 of the Act); and, (3) impose
CMPs for each rebate period during which the drug is misclassified
subject to certain limitations. The Act expressly provides that the
imposition of such penalties may be in addition to other remedies, such
as termination from the MDRP, or CMPs under Title XI.
The manufacturer has an affirmative legal obligation to correctly
report all necessary drug product and pricing information to the agency
on a timely basis as described in the statute and regulations. When
issues or questions regarding a drug's classification arise, we
generally rely upon various sources of information to be able to
determine if a drug is misclassified in MDRP. In its oversight role,
the agency will use information reported by manufacturers to us, in
combination with publicly available information, to be able to make
determinations of whether a drug is misclassified in the MDRP. The
agency also uses manufacturer reported information, such as the COD
status code, in combination with information available on the Food and
Drug Administration's (FDA's) Comprehensive NDC Structured Product
Labeling (SPL) Data Elements file (NSDE) https://download.open.fda.gov/Comprehensive_NDC_SPL_Data_Elements_File.zip, and information from
FDA's [email protected] web page https://www.accessdata.fda.gov/scripts/cder/daf/ to be able to verify that the national drug codes (NDCs) reported
to the MDRP by manufacturers are appropriately classified and reported.
Codifying these statutory amendments in our regulations provides an
opportunity for the agency to give additional clarity to and guidance
on the new legal authorities for ensuring oversight of, compliance
with, and enforcement of the provisions of the MDRP, and ultimately, to
ensure that Federal and State programs are receiving appropriate
rebates and that CMS continues to be a stringent steward of the
Medicaid program.

Table 1--History of the Changes in the Definition of Single Source Drug
and Innovator Multiple Source Drug
------------------------------------------------------------------------
Statute Regulation
------------------------------------------------------------------------
Prior to April 18, 2019 Single Source drug
MSIIA enactment. Section
1927(k)(7)(A)(iv)
of the Act.
A covered outpatient
drug which is
produced or
distributed under
an original new
drug application
approved by the
Food and Drug
Administration
(FDA), including a
drug product
marketed by any
cross-licensed
producers or
distributors
operating under the
new drug
application.

[[Page 34241]]

Innovator Multiple
Source Drug
Section
1927(k)(7)(A)(ii)
of the Act.
A multiple source
drug that was
originally marketed
under an original
new drug
application
approved by the
Food and Drug
Administration.
2007 Final Rule............. .................... Sec. 447.502
Single source drug
A covered outpatient
drug that is
produced or
distributed under
an original new
drug application
(NDA) approved by
the FDA, including
a drug product
marketed by any
cross-licensed
producers or
distributors
operating under the
NDA. It also
includes a covered
outpatient drug
approved under a
biological license
application (BLA),
product license
approval (PLA),
establishment
license approval
(ELA) or antibiotic
drug approval (ADA)
PLA, ELA, or ADA.
Innovator Multiple
Source Drug
A multiple source
drug that was
originally marketed
under an original
NDA approved by the
FDA, including an
authorized generic
drug. It includes a
drug product
marketed by any
cross-licensed
producers,
labelers, or
distributors
operating under the
NDA and a covered
outpatient drug
approved under a
PLA, ELA, or ADA.
2016 Final Rule............. .................... The term ``single
source drug'' means
a covered
outpatient drug
that is produced or
distributed under
an original NDA
approved by FDA and
has an approved NDA
number issued by
FDA, including a
drug product
marketed by any
cross licensed
producers or
distributors
operating under the
NDA. It also
includes a covered
outpatient drug
approved under a
BLA, PLA, ELA, or
ADA. For purposes
of this definition
and the MDR
program, an
original NDA means
an NDA, other than
an ANDA, approved
by the FDA for
marketing, unless
CMS determines that
a narrow exception
applies.
The term ``innovator
multiple source
drug'' means a
multiple source
drug that was
originally marketed
under an original
NDA approved by
FDA, including an
authorized generic
drug. It also
includes a drug
product marketed by
any cross-licensed
producers,
labelers, or
distributors
operating under the
NDA and a covered
outpatient drug
approved under a
BLA, ELA, or ADA.
For purposes of
this definition and
the Medicaid drug
rebates (MDR)
program, an
original NDA means
an NDA, other than
an Abbreviated New
Drug Application
(ANDA), approved by
the FDA for
marketing, unless
CMS determines that
a narrow exception
applies.
MSIAA enactment on April 18, Single Source drug
2019. Section
1927(k)(7)(A)(iv)
of the Act.
The term ``single
source drug'' means
a covered
outpatient drug,
including a drug
product approved
for marketing as a
non-prescription
drug that is
regarded as a
covered outpatient
drug under
paragraph (4),
which is produced
or distributed
under a new drug
application
approved by the
Food and Drug
Administration,
including a drug
product marketed by
any cross-licensed
producers or
distributors
operating under the
new drug
application unless
the Secretary
determines that a
narrow exception
applies (as
described in 42 CFR
447.502 (or any
successor
regulation)). Such
term also includes
a covered
outpatient drug
that is a
biological product
licensed, produced,
or distributed
under a biologics
license application
approved by the
Food and Drug
Administration.

[[Page 34242]]

Innovator Multiple
Source Drug
Section
1927(k)(7)(A)(ii)
of the Act.
The term ``innovator
multiple source
drug'' means a
multiple source
drug that is
marketed under a
new drug
application
approved by the
FDA, unless the
Secretary
determines that a
narrow exception
applies (as
described in 42 CFR
447.502 (or any
successor
regulation)).
2020 Final Rule............. .................... The term ``single
source drug'' means
a covered
outpatient drug,
including a drug
product approved
for marketing as a
non-prescription
drug that is
regarded as a
covered outpatient
drug under section
1927(k)(4) of the
Act, which is
produced or
distributed under a
new drug
application
[removing
`original']
approved by the
FDA, including a
drug product
marketed by any
cross-licensed
producers or
distributors
operating under the
new drug
application unless
the Secretary
determines that a
narrow exception
applies (as
described in this
section), and
includes a covered
outpatient drug
that is a
biological product
licensed, produced,
or distributed
under a biologics
license application
approved by the
FDA.
The term ``innovator
multiple source
drug'' means a
multiple source
drug that is
marketed [removing
`was originally
marketed'] under a
new drug
application
[removing
`original']
approved by the
Food and Drug
Administration,
unless the
Secretary
determines that a
narrow exception
applies (as
described in 42 CFR
447.502 (or any
successor
regulation)).
------------------------------------------------------------------------

C. MDRP Program Administration Proposed Changes

We are focused on increasing efficiency and economy of directing
overall operations, resources, and activities of MDRP to better
facilitate the needs of Medicaid beneficiaries. In that regard, we are
proposing a number of new regulatory policies and clarification of
existing policies.
Specifically, consistent with our statutory authorities, we are
proposing to define, specify or amend the definitions for COD, internal
investigation (for restatement purposes outside the 3-year time
window), manufacturer (for NDRA purposes), market date, noninnovator
multiple source drug, drug product information, and vaccine for the
purpose of MDRP. We are also proposing to specify that the rebate
provisions for a drug other than a single source drug or an innovator
multiple source drug apply to an array of drugs, including those that
may not satisfy the definition of multiple source drug. As noted above,
based on longstanding operational processes, such drugs are properly
classified as N drugs in the MDP reporting system.
Next, we are also proposing new policies, including to add a time
limitation on manufacturer ability to initiate audits with States, to
further clarify and establish the requirements for FFS pharmacy
reimbursement, and to clarify the required collection of all National
Drug Codes (NDC) for single and multiple source physician-administered
drugs to receive FFP and secure manufacturer rebates.
We also propose to revise Medicaid managed care standard contract
requirements to adopt a requirement for inclusion of Beneficiary
Identification Number and Processor Control Number (BIN/PCN) numbers on
Medicaid prescription identification cards, as well as enhance drug
cost transparency by adopting specific requirements relating to the
third-party administration of the pharmacy benefit.
These proposed revisions are designed to improve CMS oversight, and
State administration of Medicaid pharmacy benefits by promoting greater
consistency and accuracy of reporting, strengthened data, and robust
stewardship of State and Federal funds. These proposals would help to
strengthen and preserve the foundation of the MDRP by ensuring proper
payments so Federal expenditures are spent appropriately on delivering
quality, necessary care, while also ensuring sufficient access to care
for Medicaid beneficiaries.
1. Proposal To Modify the Definition of Covered Outpatient Drug
Sections 1927(k)(2) and (3) of the Act provide a definition of the
term ``covered outpatient drug'' (COD) and a limiting definition, which
excludes certain drugs, biological products, and insulin provided as
part of, or as incident to and in the same setting as, enumerated
services and settings. This exclusion is subject to a parenthetical,
however, which limits the exclusion to when payment may be made as part
of payment for the enumerated service or setting, and not as direct
reimbursement for the drug. In the COD final rule, we finalized a
regulatory definition of covered outpatient drug in Sec. 447.502 that
substantially mirrors the statutory definition, and consistent with
section 1927(k)(3) of the Act, the regulatory language includes a
limiting clause at Sec. 447.502 (covered outpatient drug) that
excludes from the definition of COD any drug, biological product, or
insulin provided as part of or incident to and in the same setting in a
list of services, and for which payment may be made as part of that
service instead of as a direct reimbursement for the drug.
Over the years we have received questions about when a payment is
considered to be a direct reimbursement for a drug and whether
identifying a

[[Page 34243]]

drug separately on a claim for payment may qualify as direct
reimbursement for a drug, rendering the drug eligible for rebates under
section 1927 of the Act, or in other words, making the limiting
definition inapplicable. To provide greater clarity, we propose to
amend the regulatory definition of the term covered outpatient drug at
Sec. 447.502 to clarify when a payment is considered direct
reimbursement for the drug.
Additionally, we propose to more closely align the regulatory
language to the statute by changing ``. . . instead of as a direct
reimbursement . . .'' to ``. . . and not as direct reimbursement . .
.''
2. Proposed Definition of an Internal Investigation for Purposes of
Pricing Metric Revisions
In accordance with section 1927(b)(3) of the Act, Sec. 447.510 of
the applicable regulations, and the terms of the NDRA, manufacturers
are required to report certain pricing and drug product information to
CMS on a timely basis or could incur penalties or other compliance and
enforcement measures. As explained in the ``Medicaid Program; Time
Limitation on Price Recalculations and Recordkeeping Requirements Under
the Drug Rebate Program'' final rule (final time limitation rule) (68
FR 51912, August 29, 2003), in an effort to improve the administration
and efficiency of the MDRP and assist States and manufacturers that
would otherwise be required to retain drug utilization pricing data
records indefinitely, we established the 12-quarter time frame for
reporting revisions to AMP or best price information.
Despite the 12-quarter time frame, we continued to receive requests
from manufacturers to make revisions to their pricing data that fall
outside of the 12-quarter period. Consequently, in the COD final rule
(81 FR 5278) we established Sec. 447.510(b)(1), which provides that a
manufacturer must report to CMS any revision to AMP, best price,
customary prompt pay discounts or nominal prices (pricing data) for a
period not to exceed 12 quarters from the quarter in which the data
were due unless one of a number of enumerated exceptions applies. See
Sec. 447.510(b)(1)(i) through (vi).
Section 447.510(b)(1)(v) provides an exception to the 12-quarter
price reporting rule if the change is to address specific rebate
adjustments to States by manufacturers, as required by CMS or court
order, or under an internal investigation, or an OIG or Department of
Justice (DOJ) investigation. However, as part of that rule, we did not
define the term internal investigation which has led to different
interpretations of the nature of an internal investigation. Therefore,
we propose to add a definition of internal investigation at Sec.
447.502 and additional clarity around the 12-quarter rule at Sec.
447.510.
3. Proposal To Modify the Definition of Manufacturer for National Drug
Rebate Agreement (NDRA) Compliance Purposes
At times, we receive requests from manufacturers to allow them to
exclude a particular labeler that they may own or have a business
affiliation with from participation in the MDRP, even though the
labeler markets products that meet the definition of covered outpatient
drug. It is our view that the statute requires that all labelers of a
manufacturer that market CODs be required to participate in the MDRP to
meet the statutory requirement that FFP is only available for a
manufacturer's drugs if they participate in the program. That is, all
the labelers of the manufacturer have to be in the program, or none of
the labelers can be in the program.
We are proposing to further refine the definition manufacturer at
Sec. 447.502 to codify the requirements under section 1927(a)(1) of
the Act which specifies that a manufacturer has to have entered into
and have in effect a rebate agreement with the Secretary in order for
payment to be available for their CODs under Medicaid. We are also
proposing to codify in regulation that all labelers (with their
applicable codes) that are associated or affiliated with a manufacturer
must have a rebate agreement in effect in order for the manufacturer to
satisfy the statutory requirement that the manufacturer have a rebate
agreement in effect with the Secretary.
Additionally, we are also proposing a new paragraph (h) in Sec.
447.510 to further specify the responsibilities of a manufacturer with
respect to rebate agreements when that manufacturer acquires or
purchases another labeler, acquires or purchases covered outpatient
drugs from another labeler, or forms a new subsidiary or associated
entity to ensure that any of a manufacturer's labeler codes that market
CODs are included in the MDRP. We also specify that termination of one
of the manufacturer's labelers from the program results in all labelers
of that manufacturer being terminated from the program whether
initiated by the manufacturer or the government. If the manufacturer is
terminated for noncompliance, they can come back into the program under
certain conditions, including resolving all compliance issues. However,
the one-quarter delay in program re-entry provided for in section
1927(b)(4)(C) of the Act still applies unless good cause is found.
4. Proposal To Establish a Definition of Market Date for a COD for the
Purposes of Determining a Base Date AMP for a COD
Section 1927 of the Act governs the MDRP and payment for CODs which
are defined in section 1927(k)(2) of the Act. Manufacturers that
participate in the MDRP are required to pay rebates for CODs that are
dispensed and paid for under the State Medicaid plan. See section
1927(b)(1)(A) of the Act.
The rebates due by manufacturers are calculated based on statutory
formulas described in section 1927(c) of the Act and consist of a basic
rebate and, in some cases, an additional rebate that is applicable when
an increase in the AMP, with respect to each dosage form and strength
of a drug, exceeds the rate of inflation. One of the factors in the
calculation of the additional rebate is the base date AMP of the drug,
a value that is determined based on the market date of the drug.
Manufacturers are required to report the market date of each dosage
form and strength of a COD for all of its CODs.
We have received numerous inquiries regarding the determination of
market date for reporting to MDRP, and some manufacturers have reported
incorrect market dates for their CODs. Because the term market date has
not been previously defined in regulation and it is a critical factor
in the determination of base date AMP, and ultimately, the calculation
of applicable rebates, we are proposing to define the term market date
at Sec. 447.502 for the purpose of the MDRP.
5. Proposal To Modify the Definition of Noninnovator Multiple Source
Drug
As discussed previously in this proposed rule, section 6(c) of the
MSIAA included a number of amendments to statutory definitions in
section 1927 of the Act. Generally, those statutory amendments were
discussed in the ``Medicaid Program; Establishing Minimum Standards in
Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based
Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug
Rebate and Third Party Liability (TPL) Requirements'' final rule
published in the December 31, 2020 Federal Register (the December 31,
2020 final rule) (see 85 FR 87000, 87032), where the regulatory
definitions of multiple source drug, innovator multiple source (I)
drug, and single source drug were amended

[[Page 34244]]

consistent with the MSIAA. One of the amendments to the regulatory
definitions was to remove the phrase ``was originally marketed'' from
the definition of an I drug and replace it with ``is marketed.''
The change in the statutory and regulatory definitions of an I drug
should have prompted us to also change the regulatory definition of
noninnovator multiple source (N) drug, however we neglected to do so in
the December 31, 2020 final rule. We are now proposing to amend the
definition of an N drug at Sec. 447.502 to maintain the clear
distinction between an I drug and an N drug.
6. Proposal To Define Vaccine for the Purposes of the MDRP Only
Section 1927(k)(2)(B) of the Act specifically excludes vaccines
from the definition of COD for purposes of the MDRP. This exclusion is
codified in paragraph (1)(iv) of the regulatory definition of COD at
Sec. 447.502. Section 1927 of the Act, specifically, does not define
vaccine. Nor is there a definition of vaccine in Title XI, XVIII, XIX,
or XXI of the Act (applicable to Medicare, Medicaid, and Children's
Health Insurance Program (CHIP)), that speaks to the specific kinds of
biological products that qualify as vaccines, in terms of their actions
in the human body and how and when they are used.\2\ Moreover, we are
not aware that any authorizing statutes for any other Department of
Health and Human Services agencies include such a statutory definition
of the term ``vaccine.''
---------------------------------------------------------------------------

\2\ While section 1928(h) of the Act defines ``pediatric
vaccine'' and ``qualified pediatric vaccine,'' those definitions do
not speak to the actions of a vaccine in the human body and how and
when it is used, and therefore do not help CMS determine when a
product should count as a vaccine (as opposed to a drug) for
purposes of the Medicaid Drug Rebate Program.
---------------------------------------------------------------------------

To date, we have not established a regulatory definition of the
term vaccine as used in section 1927(k)(2)(B) of the Act for the
specific purposes of the MDRP. However, given therapeutic advances that
have occurred since 1990, when the original rebate statute was enacted,
we believe that a regulatory definition is necessary to identify which
products are considered vaccines for the purposes of the MDRP and thus,
appropriately excluded from the definition of COD. We are therefore
proposing a definition of vaccine at Sec. 447.502 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 consistent with section 1927 of the Act, and
applicable rebate liability under the MDRP. The regulatory definition
of vaccine that is proposed to be added to Sec. 447.502 would be
established solely for the purposes of the MDRP, and be applicable only
to that program. It would not apply under any title XIX statutory
provisions other than section 1927(k)(2), or to separate CHIPs
operating pursuant to 42 CFR 457.70(a)(1) and (d), or for purposes of
the Vaccines for Children Program. Nor would it apply to any other
programs within CMS or any other agencies within the Department of
Health and Human Services, (for example, FDA, Centers for Disease
Control and Prevention (CDC), or Health Resources and Services
Administration (HRSA)). We note that these proposed changes would only
specify which products are vaccines and are therefore excluded from the
definition of a covered outpatient drug and are not subject to Medicaid
drug rebates. This proposed policy would not apply with regard to any
applicable Federal or State requirements to cover vaccines for Medicaid
beneficiaries, as applicable.
7. Proposal To Accumulate Price Concessions and Discounts
(``Stacking'') When Determining Best Price
Section 1927(c)(1)(C) of the Act defines the term ``best price'' to
mean with respect to a single source drug or innovator multiple source
drug of a manufacturer (including the lowest price available to any
entity for any such drug of a manufacturer that is sold under a new
drug application approved under section 505(c) of the Federal Food,
Drug, and Cosmetic Act), the lowest price available from the
manufacturer during the rebate period to any wholesaler, retailer,
provider, health maintenance organization, nonprofit entity, or
governmental entity within the United States, subject to certain
exceptions and special rules.
The implementing regulations for the determination of best price
are found at Sec. 447.505, and we propose to revise Sec.
447.505(d)(3) to add language to make clearer that the manufacturer
must adjust the best price for a drug for a rebate period if cumulative
discounts, rebates, or other arrangements to best price eligible
entities subsequently adjust the prices available from the
manufacturer, and that those discounts, rebates, or other arrangements
must be stacked for a single transaction to determine a final price
realized by the manufacturer for a drug. In other words, we are
proposing to make clearer that manufacturers have to stack all
applicable discounts that they offer on a single sale of a covered
outpatient drug, including discounts or rebates provided to more than
one best price eligible entity.
8. Proposal To Establish a Time Limitation for Audits Over Utilization
Data With States: 12-Quarter Rebate Dispute Time Limitation
Currently, there is no time limit for a manufacturer to initiate an
audit or resolve previously disputed State utilization data with
respect to rebates owed, and section 1927 of the Act does not impose a
specific timeframe on a manufacturer's audit authority. As a result,
any dispute of State invoices arising from audits, reviews, or hearings
of State information on State utilization data is not limited to
current quarter rebate invoices, but may also be initiated for prior
quarterly rebate invoices that have been previously paid in full. We
are proposing 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 of
State invoice to the manufacturer. We propose to include a new
paragraph (j), titled ``Manufacturer audits of State-provided
information,'' at Sec. 447.510, to limit the time a manufacturer has
to initiate a dispute, hearing request or audit of State-invoiced
utilization data with a State, to ensure more efficient administration
of the Medicaid Drug Rebate Programs.
9. Proposal Regarding Drug Price Verification and Transparency Through
Data Collection
Since the beginning of the MDRP in 1991, the Secretary has had the
authority, under section 1927(b)(3)(B) of the Act, to survey
wholesalers and manufacturers that directly distribute their covered
outpatient drugs, when necessary, to verify manufacturer prices that
are reported under section 1927(b)(3)(A) of the Act, if required to
make a payment. The prices that are subject to this survey include a
manufacturer's AMP, best price, Average Sales Price (ASP), and in
certain cases, Wholesale Acquisition Cost (WAC) for a drug. (Note that
in 2003, Congress amended section 1927(b)(3)(B) of the Act in the
Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of
2003 (Pub. L. 108-173, enacted December 8, 2003), to expand the
original survey authority to include manufacturer's average sales
prices (including wholesale acquisition cost or WAC).) These prices
that are reported to the agency under section 1927(b)(3)(A) of the Act
are used by various CMS programs, such as

[[Page 34245]]

Medicare Part B and State Medicaid agencies, to pay for drugs for
beneficiaries, as well as calculate rebates paid by manufacturers to
States under MDRP. Thus, there is a direct connection between the
prices reported to us and the payments made by Medicaid.
The types of drugs paid for by Medicaid, manufacturers' pricing
structures for these drugs, as well as the methods used by
manufacturers to distribute these drugs, have evolved since the
enactment of the MDRP, as well as the enactment of the MMA. New highly
individualized gene and cell therapy drug treatments have resulted in
manufacturer launch prices that have increased dramatically, impacting
the manufacturers' prices reported to CMS. In addition, manufacturers
and health plans now own pharmacy benefit managers (PBMs), and
manufacturers are more frequently limiting the distribution of drugs
through specialty pharmacies, some of which are owned by the PBMs
themselves.
All of these factors impact how manufacturers set drug pricing,
and, given that these prices are used to set payment rates, it affects
the payments that State Medicaid programs make for these drugs. For
example, State Medicaid programs use the ASP values reported by
manufacturers to make payment for many physician-administered drugs. A
product's WAC has generally tracked its acquisition cost to providers
for brand name drugs, and this WAC value is used by payers to reimburse
them for the drug cost component of providing the drug. AMP is used to
calculate Federal Upper Limits (FULs) for multiple source drugs.
While the model of distribution from manufacturer to wholesaler to
provider still exists, and the predominant provider of pharmacy
services remains the community-based pharmacy, there are other
arrangements emerging for the production and distribution of specialty
and high-cost gene therapy drugs, and pricing structures for these
drugs that were not necessarily existing in the market when the MDRP
was enacted.
Section 1902(a)(30)(A) of the Act requires that Medicaid payments
be consistent with economy, efficiency, and quality of care to enlist
enough providers so that care and services are available under the plan
to Medicaid beneficiaries at least to the extent that such care and
services are available to the general population in the geographic
area. It is important that the Medicaid program understand the
production and distribution method for these drugs, as well as the
impact on prices and charges, to assure beneficiary access to these
medications. Therefore, using the authority at section 1927(b)(3)(B) of
the Act, which grants the Secretary the ability to survey wholesalers
and manufacturers to obtain information about manufacturer's prices for
a drug reported to us under section 1927(b)(3)(A) of the Act, we are
proposing rules to describe those situations when it is necessary for
surveys to be sent to manufacturers and wholesalers to verify prices
and charges, and the information that would be requested, to verify
prices or charges such that payments can be made.
10. Proposal To Clarify and Establish Requirements for FFS Pharmacy
Reimbursement
In the COD final rule, we finalized regulations to move FFS
pharmacy reimbursement to an actual acquisition cost-based
reimbursement, under which pharmacists would be paid for the ingredient
costs of the drug that was dispensed, and a professional dispensing fee
(PDF) that reflected their costs of dispensing. Since that time, almost
every State has made the appropriate transition, and the updated
pharmacy reimbursement methodology is accurately reflected in approved
amendments to their State Plans. Nonetheless, we are proposing to
revise Sec. 447.518, ``State plan requirements, findings, and
assurances,'' in paragraph (d)(1) to ensure that pharmacy providers are
reimbursed adequately for both their pharmacy ingredient costs and
professional dispensing services costs consistent with the applicable
statutory and regulatory requirements.
This regulation currently indicates that States are required to
provide adequate data to support any proposed changes to either
component of the reimbursement methodology (ingredient cost or PDF),
such as a State or national survey of retail pharmacy providers or
other reliable data other than a survey. We are proposing to provide
clarity regarding adequate data so that payments are consistent with
efficiency, economy, and quality of care and are sufficient to enlist
enough providers so that care and services are available at least to
the extent that such care and services are available to the general
population in the geographic area, by expressly providing in regulation
that the research and data must be based on costs and be sufficient to
establish the adequacy of the pharmacy reimbursement methodology under
the State Plan. In addition, we are proposing to state in regulatory
text that other data, such as reimbursements that pharmacies accept
from third parties, are not cost-based data, and therefore, cannot be
used by States to justify PDFs.
11. Proposals Implementing Section 1927(a)(7) of the Act and Federal
Financial Participation (FFP): Conditions Relating to Physician-
Administered Drugs
Generally, physician-administered drugs may satisfy the definition
of a covered outpatient drugs (COD) under section 1927(k)(2) of the
Act, subject to the limiting definition at section 1927(k)(3) of the
Act. Prior to the Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171,
enacted February 8, 2006), States did not collect rebates on all
physician-administered drugs when they were not identified by NDC
number, because the NDC number is necessary for States to invoice
manufacturers for rebates.
Section 6002 of the DRA added sections 1903(i)(10)(C) and
1927(a)(7) to the Act to require the States to collect and submit
certain utilization data on certain physician-administered drugs in
order for FFP to be available for these drugs, and for States to secure
rebates. More specifically, in accordance with section 1927(a)(7) of
the Act, titled ``Requirement For Submission Of Utilization Data For
Certain Physician-Administered Drugs'', States are required to provide
for the collection and submission of utilization data and coding (such
as J-codes \3\ and NDC numbers) for a covered outpatient drug that is a
single source or a multiple source drug that is a top 20 high dollar
volume physician-administered drug on a published list (based on
highest dollar volume dispensed under Medicaid identified by the
Secretary) that the Secretary may specify in order for payment to be
available under section 1903 of the Act and for States to secure
applicable Medicaid rebates.\4\ This list may be modified year to year
to reflect changes in such volume.
---------------------------------------------------------------------------

\3\ J codes are a subset of the Healthcare Common Procedure
Coding System (HCPCS) Level II code set used to primarily identify
injectable drugs.
\4\ https://www.govinfo.gov/content/pkg/CFR-2007-title42-vol4/pdf/CFR-2007-title42-vol4-sec447-520.pdf.
---------------------------------------------------------------------------

Regulations at Sec. 447.520 were established to implement these
statutory provisions in the final rule entitled ``Medicaid Program;
Prescription Drugs'' (72 FR 39142, 39162) (hereinafter referred to as
the July 17, 2007 final rule), specifying the conditions for FFP for
physician-administered drugs.\5\
---------------------------------------------------------------------------

\5\ Ibid.
---------------------------------------------------------------------------

We are proposing to amend Sec. 447.520 to require States to
collect NDC information on all covered outpatient single and multiple
source physician-

[[Page 34246]]

administered drugs and to specify that States should be invoicing for
rebates for all covered outpatient physician-administered drugs to
receive FFP and secure manufacturer rebates.
12. Proposal Related to Suspension of a Manufacturer's Drug Rebate
Agreement
We are proposing regulatory changes to further implement section
1927(b)(3)(C)(i) of the Act, which provides authority to suspend a
rebate agreement for a manufacturer's failure to timely report drug
pricing or drug product information to the agency, required under
section 1927(b)(3)(A) of the Act, and when there is a continued failure
to report after a 90-calendar day deadline for reporting of information
is imposed by the agency. Specifically, the new Sec. 447.510(i)
proposes that a manufacturer who has failed to report timely
information to the agency under Sec. 447.510(a) and (d), would be
imposed a 90-calendar day deadline determined by the agency, and
communicated to electronically and in writing by the agency to report
such information, or the manufacturer would have its rebate agreement
suspended.
This section further proposes that failure to report such
information to the agency after the end of the imposed 90-calendar day
period would result in suspension of the rebate agreement, and that
such agreement shall not be reinstated until such information is
reported in full and certified, but not for a period of suspension of
less than 30 calendar days. This suspension would apply to all of the
manufacturer's labelers that have a rebate agreement with the
Secretary, consistent with the proposed regulatory definition of
``manufacturer.''
This rule also proposes that continued suspension of the rebate
agreement could result in termination for cause. During the period of
time of the suspension, FFP would not be available to the States for a
manufacturer's CODs. The States would be given 30 calendar days' notice
before such a suspension is implemented. This would allow States to
notify prescribers and beneficiaries that a specific COD or specific
CODs may be unavailable for a period of time, and to allow the
beneficiary to switch to a different medication, if necessary. We are
proposing that the suspension would only be applicable to the
manufacturer's Medicaid program participation, and would not affect
manufacturer participation in Medicare Part B or the 340B Drug Pricing
Program during the time the rebate agreement is suspended. However, if
continued suspension results in termination, such termination could
affect Medicare Part B and 340B Drug Pricing Program participation.
13. Proposals Related to Managed Care Plan Standard Contract
Requirements
a. Requirement of BIN/PCN Inclusion on Medicaid Managed Care Pharmacy
Identification Cards
Patients enrolled in health care plans, including in Medicaid
managed care plans such as Medicaid managed care organizations (MCOs),
prepaid inpatient health plans (PIHPs), or prepaid ambulatory health
plans (PAHPs), generally use identification cards at the pharmacy so
they can obtain prescription drug benefits, as well as allow pharmacies
to process and bill claims in real time. Health plans use two codes on
the card to identify a patient's prescription health insurance and
benefits--the National Council for Prescription Drug Programs (NCPDP)
Processing Bank Identification Number (BIN) and Processor Control
Number (PCN). This information, along with a group number, can specify
that a beneficiary is part of a specific patient insurance group, such
as being a Medicaid managed care beneficiary.
However, it is often difficult to determine from a Medicaid managed
care beneficiary's health insurance card if he or she is covered under
a Medicaid managed care plan or under non-Medicaid coverage, such as an
employer-sponsored group health plan or individual market insurance,
offered by the same organization or entity that offers the Medicaid
managed care plan. This is due to the fact that Medicaid-specific BIN,
PCN, and group numbers are not always placed on Medicaid managed care
plan identification cards. However, if Medicaid-specific BIN/PCN and
group information were included on the card, the pharmacy could enter
this information into its claims processing system which would identify
that the beneficiary is enrolled in a Medicaid managed care plan. We
believe it is important that unique BIN/PCN/group numbers are
established for Medicaid managed care plans for several program needs,
including facilitating the appropriate identification of cost sharing
and ensuring claims are billed and paid for appropriately.
Use of Medicaid-specific BIN/PCN/group numbers can help States and
their managed care plans identify claims for drugs paid for under the
340B Drug Pricing Program (340B Program) and avoid invoicing for
rebates on 340B drugs. Section 340B(a)(5)(A) of the Public Health
Service Act (the PHS Act) prohibits duplicate discounts for drugs
purchased under the Medicaid drug rebate program. Section 1927(a)(5)(C)
of the Act requires the establishment of a mechanism to ensure against
duplicate discounts or rebates and section 1927(j)(1) of the Act
provides that covered outpatient drugs are not subject the requirements
of section 1927 of the Act if they are dispensed by health maintenance
organizations (HMOs), including MCOs that contract under section
1903(m) of the Act, and are subject to discounts under section
340B(a)(5)(A) of the PHS Act. Certain eligible entities and hospitals
are permitted to purchase drugs under the 340B Drug Pricing Program and
dispense these drugs to Medicaid beneficiaries. Identifying claims
where the dispensed drug has been discounted under the 340B program is
necessary to avoid duplicating that discount in the MDRP.
Duplicate discounts occur when a State erroneously bills a
manufacturer for a Medicaid drug program rebate involving a drug that
was purchased under the 340B Drug Pricing Program. That occurs because
the claim was not identified as a 340B claim before it was sent to the
State. If the identification card included a unique Medicaid BIN/PCN/
group number, and the State permits the use of 340B drugs at contract
pharmacies for individuals enrolled in Medicaid managed care, then it
would allow for the inclusion of a modifier at the point of dispensing
that would identify the claim as ineligible for a Medicaid rebate. This
would assist States with identifying 340B drug claims that should not
be invoiced for Medicaid drug rebates.
Section 1902(a)(4) of the Act allows the Secretary to specify
``methods of administration'' that are ``found by the Secretary to be
necessary for . . . proper and efficient operation.'' We believe that
having States require their MCOs, PIHPs, or PAHPs that provide CODs to
Medicaid beneficiaries to add unique identifiers onto the
identification cards would make the Medicaid drug program run more
efficiently, help avoid duplicate discounts, and improve the level of
pharmacy services provided to Medicaid beneficiaries.
Therefore, under the authority of section 1902(a)(4) of the Act, as
well as to ensure effective implementation of and compliance with
sections 1927(a)(5)(C) and 1927(j)(1) of the Act, we are proposing to
amend 42 CFR 438.3(s) to require MCOs, PIHPs, and PAHPs that provide
coverage of CODs to assign and exclusively use unique Medicaid BIN,
PCN, and group number identifiers for all Medicaid managed

[[Page 34247]]

care beneficiary identification cards for pharmacy benefits.
b. Drug Cost Transparency in Medicaid Managed Care Contracts
Medicaid managed care plans often contract with a subcontractor PBM
to operate the pharmacy benefit provided to Medicaid beneficiaries. In
order for a Medicaid managed care plan to appropriately calculate and
report its Medical Loss Ratio (MLR) under Sec. 438.8, the plan must
know from the subcontractor certain information relating to how much of
the payments made to the Medicaid managed care plan by the State was
used to pay for health care services and other specific categories
outlined in Sec. 438.8. To correctly report the MLR, a Medicaid
managed care plan must distinguish between expenses that are for
covered benefits (such as healthcare services and drug costs) and
administrative expenses, such as fees paid to its PBM for PBM services
(for example, claims adjudication, processing prior authorization
requests, etc.).
Therefore, we are proposing that MCOs, PIHPs, and PAHPs that
provide coverage of CODs structure any contract with any subcontractor
to require the subcontractor report the amounts related to the incurred
claims described in Sec. 438.8(e)(2), such as reimbursement for the
covered outpatient drug, payments for other patient services, and the
fees paid to providers or pharmacies for dispensing or administer a
covered outpatient drug, separately from any administrative costs,
fees, and expenses of the subcontractor.
14. Proposal To Rescind Revisions Made by the December 31, 2020 Final
Rule to Determination of Best Price (Sec. 447.505) and Determination
of Average Manufacturer Price (AMP) (Sec. 447.504) Consistent With
Court Order
On May 17, 2022, the United States District Court for the District
of Columbia vacated and set aside the ``accumulator adjustment rule of
2020'' in response to a complaint filed against the Secretary regarding
the best-price accumulator provisions within the December 31, 2020
final rule ``Medicaid Program; Establishing Minimum Standards in
Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based
Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug
Rebate and Third Party Liability (TPL) Requirements.'' See Pharm. Rsch.
& Mfrs. of Am. v. Becerra, 1:21-cv-01395-CJN (D.D.C. May 17, 2022).
This final rule had revised the conditions for excluding patient
assistance from AMP at Sec. 447.504(c)(25) through (29) and (e)(13)
through (17), and best price at Sec. 447.505(c)(8) through (12), to
add language (effective January 1, 2023) that would require
manufacturers to ``ensure'' the full value of the assistance provided
by patient assistance programs is passed on to the consumer and that
the pharmacy, agent, or other AMP or best price eligible entity does
not receive any price concession. While the district court's order
focused on the changes to the patient-assistance program exclusions
from best-price determinations, to which it referred as the
``accumulator adjustment rule of 2020,'' for consistency, we propose to
withdraw the changes to both the AMP and best-price sections made by
the December 31, 2020 final rule.
As a result, the regulations would maintain the language that has
been in place since 2016.
15. Proposals Related to Amendments Made by the American Rescue Act of
2021--Removal of Manufacturer Rebate Cap (100 Percent AMP)
Section 9816 of the American Rescue Plan Act of 2021 (Pub. L. 117-
2, enacted March 11, 2021) sunsets the limit on maximum rebate amounts
for single source and innovator multiple source drugs by amending
section 1927(c)(2)(D) of Act by adding ``and before January 1, 2024,''
after ``December 31, 2009''. In accordance with section
1927(c)(3)(C)(i) of the Act and the special rules for application of
provision in section 1927(c)(3)(C)(ii)(IV) and (V) of the Act, this
sunset provision also applies to the limit on maximum rebate amounts
for CODs other than single source or innovator multiple source drugs.
Therefore, to conform Sec. 447.509 with section 1927(c)(2)(D) of Act,
as amended by the American Rescue Plan Act of 2021, and sections
1927(c)(3)(C)(i), (ii)(IV), and (ii)(V) of the Act, we are proposing to
make conforming changes to Sec. 447.509 to reflect the removal of the
maximum rebate amounts for rebate periods beginning on or after January
1, 2024.
16. Request for Information--Comments on Issues Relating to Requiring a
Diagnosis on Medicaid Prescriptions as a Condition for Claims Payment
Under the MDRP, a COD is generally defined as a prescribed drug
that is FDA approved and used for a medically accepted indication.
While the statute limits the definition of a COD to those products used
for ``medically accepted indications,'' without a diagnosis on a
prescription drug claims, it is difficult to determine whether a drug
is being used for a medically accepted indication, and if it therefore
satisfies the definition of a COD, and is rebate eligible. We are
soliciting comments on the possibility and potential impact of
proposing a requirement that a patient's diagnosis be included on a
prescription as a condition of receiving Medicaid FFP for that
prescription. We are soliciting comment on the patient care, clinical,
and operational impact of requiring that a patient's diagnosis be
included on a prescription as a condition of a State receiving FFP for
that prescription. We are particularly interested in understanding any
operational implications, privacy related concerns, the burden
associated, and how to negate any foreseeable impact on beneficiaries
and providers, including what steps would be needed by States to
successfully implement a Medicaid requirement for diagnosis on
prescriptions. This is a request for information only.
17. Background on Coordination of Benefits/Third Party Liability
Regulation Due to Bipartisan Budget Act of 2018 (BBA 2018)
Medicaid is generally the payer of last resort, which means that
other available resources--known as third party liability, or TPL--must
be used before Medicaid pays for services received by a Medicaid-
eligible individual. Title XIX of the Act requires State Medicaid
programs to identify and seek payment from liable third parties, before
billing Medicaid. Section 53102 of the Bipartisan Budget Act of 2018
(BBA 2018) (Pub. L. 115-123, enacted February 9, 2018) amended the TPL
provision at section 1902(a)(25) of the Act.
Specifically, section 1902(a)(25)(A) of the Act requires that
States take all reasonable measures to ascertain the legal liability of
third parties to pay for care and services available under the plan.
That provision further specifies that a third party is any individual,
entity, or program that is or may be liable to pay all or part of the
expenditures for medical assistance furnished under a State Plan.
Section 1902(a)(25)(A)(i) of the Act specifies that the State Plan must
provide for the collection of sufficient information to enable the
State to pursue claims against third parties. Examples of liable third
parties include: Private insurance companies through employment-related
or privately purchased health insurance; casualty coverage resulting
from an accidental injury; payment received directly from an individual
who has voluntarily accepted or been assigned legal responsibility for
the health care of one or more Medicaid recipients;

[[Page 34248]]

fraternal groups, unions, or State workers' compensation commissions;
and medical support provided by a parent under a court or
administrative order.
To update the regulation for the recent statutory changes, a final
rule was published on December 31, 2020, which went into effect on
March 1, 2021, to include changes as authorized under the BBA 2018. We
are submitting a correction due to an omission in the regulation text
to require a State to make payments without regard to TPL for pediatric
preventive services unless the State has made a determination related
to cost-effectiveness and access to care that warrants cost avoidance
for up to 90 days.

II. Provisions of the Proposed Regulations

A. Payment of Claims (42 CFR 433.139)

In 1980, under the authority in section 1902(a)(25)(A) of the Act,
we issued regulations at part 433, subpart D, establishing requirements
for State Medicaid agencies to support the coordination of benefits
(COB) effort by identifying third party liability.
Section 433.139(b)(3)(i) and (b)(3)(ii)(B) detail the exception to
standard COB cost avoidance by allowing pay and chase for certain types
of care, as well as the timeframe allowed prior to Medicaid paying
claims for certain types of care. Specifically, we proposed to revise
Sec. 433.139(b)(3)(i) by adding--``that requires a State to make
payments without regard to third party liability for pediatric
preventive services unless the State has made a determination related
to cost-effectiveness and access to care that warrants cost avoidance
for up to 90 days.'' We propose to revise Sec. 433.139(b)(3)(i) and
(b)(3)(ii)(B) by adding ``within'' prior to the waiting periods
Medicaid has to pay claims for preventive pediatric and medical child
support claims. We also propose to revise Sec. 433.139(b)(3)(ii)(B) by
removing ``from'' and replacing it with ``after;'' and by removing
``has not received payment from the liable third party'' and adding the
following language at the end of the sentence ``provider of such
services has initially submitted a claim to such third party for
payment for such services, except that the State may make such payment
within 30 days after such date if the State determines doing so is
cost-effective and necessary to ensure access to care.'' These
revisions in language would permit States to pay claims sooner than the
specified waiting periods, when appropriate.

B. Standard Medicaid Managed Care Contract Requirements (Sec.
438.3(s))

1. BIN/PCN on Medicaid Managed Care Cards
We propose to amend Sec. 438.3(s) to add a new paragraph (s)(7) to
require States that contract with MCOs, PIHPs, or PAHPs that provide
coverage of CODs, to require those managed care plans to assign and
exclusively use unique Medicaid-specific BIN, PCN, and group number
identifiers for all Medicaid managed care beneficiary identification
cards for pharmacy benefits. We propose that the managed care
contracts, and thus MCOs, PIHPs and PAHPs, must comply with this new
requirement no later than the next rating period for Medicaid managed
care contracts, following the effective date of the final rule adopting
this new regulatory provision. We believe that the delay between the
effective date of the final rule and the start of the next rating
period would provide both States and the affected Medicaid managed care
plans with adequate time to prepare both the necessary contract terms,
and finish the necessary administrative processes for creating and
issuing beneficiary identification cards with these newly required
Medicaid-specific BIN, PCN, and group number identifiers.
This proposal is under our authority in section 1902(a)(4) of the
Act to specify ``methods of administration'' that are ``found by the
Secretary to be necessary for . . . proper and efficient operation.''
Having States require their MCOs, PIHPs, or PAHPs that provide CODs to
Medicaid beneficiaries to add these types of unique identifiers to the
identification cards would make the Medicaid drug program run more
efficiently, and improve the level of pharmacy services provided to
Medicaid beneficiaries. With the inclusion of Medicaid-specific BIN/PCN
and group numbers on the pharmacy identification cards issued to the
enrollees of MCOs, PHIPs and PAHPs, pharmacies would be able to
identify patients as Medicaid beneficiaries, and better provide
pharmacy services. This would be helpful to all parties to ensure that
Medicaid benefits are provided correctly, including the confirmation of
accurate cost sharing amounts, along with assisting that claims are
billed and paid for appropriately.
This proposed change would also help to reduce the incidence of
340B duplicate discounts. Section 340B(a)(5)(A) of the PHS Act
prohibits duplicate discounts; that is, manufacturers are not required
to both provide a 340B discounted price and pay the State a rebate
under the Medicaid drug rebate program for the same drug. Section
1927(a)(5)(C) of the Act requires the establishment of a mechanism to
ensure against duplicate discounts or rebates, and section 1927(j)(1)
of the Act also provides that CODs are not subject to, among other
requirements of section 1927 of the Act, MDRP rebates if: (1) they are
dispensed by health maintenance organizations, including MCOs that
contract under section 1903(m) of the Act, and are subject to 340B
discounts and (2) the drugs are subject to 340B discounts. Therefore,
CODs covered by MCOs, PIHPs, and PAHPs are within the scope of this
provision designed to prevent duplicate discounts. The existing
regulation at Sec. 438.3(s)(3) already reflects the position that CODs
covered by MCOs, PIHPs, and PAHPs must be identified to prevent
duplicate discounts under both section 1927 of the Act and section 340B
of the PHS Act. The identification of a Medicaid beneficiary at the
point of dispensing can result in the pharmacy placing a code on the
prescription, such as the NCPDP ``20'' submission clarification code,
so that the claim will be excluded from the Medicaid rebate pool.
Medicare Part D has supported the inclusion of BIN/PCN numbers for
pharmacy cards. That is, 42 CFR 423.120(c)(4) requires that Part D
sponsors assign and exclusively use a unique Part D BIN or RxBIN and
Part D processor control number (RxPCN) combination in its Medicare
line of business. The use of the BIN/PCN ensures that a pharmacy claim
can be accurately billed by the pharmacy. Medicare made the BIN/PCN
unique to Part D so that a Part D sponsor clearly identifies the
Medicare enrollee as part of a particular Part D plan and the pharmacy
knows that Medicare statute and rules may apply, such as not allowing
certain manufacturer coupons, which plan benefits apply, appeals
rights, etc.
In the absence of Medicaid-specific BIN, PCN, and group numbers to
identify beneficiaries as being Medicaid participants, it is difficult
for pharmacies and other providers, such as physicians and hospitals
that administer drugs to Medicaid beneficiaries, to determine whether
the beneficiary is enrolled in a Medicaid managed care plan, since a
group number alone is not sufficient for Medicaid identification.
Adding unique identifiers would make the beneficiary's Medicaid managed
care status distinguishable from the other lines of business offered by
the same organization or entity that contracts with the State to offer
an

[[Page 34249]]

MCO, PIHP or PAHP for Medicaid beneficiaries.
Accordingly, we propose to amend the regulatory language in Sec.
438.3(s) to add paragraph (s)(7) to mandate that Medicaid managed care
contracts require that Medicaid MCO, PIHPs, or PAHPs that provide
coverage of CODs must assign and exclusively use unique Medicaid BIN,
PCN, and group number identifiers for all Medicaid managed care
beneficiary identification cards for pharmacy benefits. We propose that
Medicaid managed care contract must include this new requirement (which
would require compliance by MCOs, PIHPs, and PAHPs) no later than the
next rating period for Medicaid managed care contracts, following the
effective date of the final rule adopting this new provision. We are
soliciting comments on the implementation time frame and other possible
operational issues of requiring unique Medicaid BIN, PCN, and group
numbers to be on Medicaid managed care beneficiary identification
cards.
2. Drug Cost Transparency in Medicaid Managed Care Contracts
We propose that the contracts between States and MCOs, PIHPs, or
PAHPs that provide coverage of CODs require those plans to structure
contracts with any subcontractor for the delivery or administration of
CODs, in a manner that ensures drug cost spending transparency by
requiring the subcontractor to report separately certain expenses and
costs. These subcontractors may include PBMs.
Most Medicaid beneficiaries receive either all or part of their
health care benefits, including CODs, through Medicaid managed care
plans. Because of the specialized nature of the COD benefit, many
Medicaid managed care plans (that is, the MCOs, PIHPs, or PAHPs) may
contract with, or have their own PBMs to administer the COD benefit.
PBMs are the middlemen of the relationship between the managed care
plans and the health care (medical and pharmacy) providers that provide
CODs. That is, they have contracts with both the managed care plans to
administer the pharmacy benefit, as well as with the health care
providers that administer or provide the drugs to patients that are
enrolled in the managed care plan. Among other tasks in the
marketplace, a PBM may be responsible for developing a drug formulary,
collecting manufacturer rebates on behalf of the managed care plan,
performing drug utilization review (DUR), adjudicating claims, and
contracting with retail community pharmacies and other health care
providers to develop a network of pharmacy providers that can dispense
drugs to managed care enrolled patients.
The PBM also negotiates reimbursement rates on behalf of the
various health plans, including managed care plans with which it
contracts, and pays the pharmacy and other health care providers for
the drugs that are dispensed or administered. In most cases, the
pharmacy reimbursement rates are specified in the contract between the
PBM and the pharmacy providers, and these include reimbursement rates
for brand name and generic prescription drugs, as well as the
dispensing fees paid to dispense or administer the prescription drug to
the beneficiary. There are also administrative fees paid to the PBM by
the managed care plans for its administration and operation of the
pharmacy benefit.
PBMs' methods of reimbursing health care providers for prescription
drugs may differ from those used to determine the charges to managed
care plans for the dispensed prescription. That is, a PBM's set of
reimbursement benchmarks can be used in one relationship, and another
set of reimbursement benchmarks in another, making it difficult for
health plans or Medicaid managed care plans to know how much they are
paying for the actual cost of the drug compared to the fees for
administering the benefit. For this reason, under Part D, CMS requires
that the price the PBM pays to the pharmacy for the cost of the drug is
passed through to the plan, and any ``spread'' that the PBM keeps is an
administrative cost that must be reported to the plan.
Medicaid-contracted PBMs (that is, PBMs contracted with or on
behalf of Medicaid managed care plans) often reimburse health care
providers using methods similar to those used in the commercial and
Medicare Part D markets, which are heavily dependent on drug pricing
benchmarks provided by manufacturers, and published by commercial
publishers of drug pricing data (that is Average Wholesale Price (AWP)
or Wholesale Acquisition Cost (WAC)). The PBMs may also use a Maximum
Allowable Cost (MAC) benchmark for generic drugs, which is a PBM
proprietary benchmark that reimburses pharmacy providers for generics.
For PBMs' payment to contracted health care providers,
reimbursement might be based on a discount off AWP, a markup on WAC, or
the Maximum Allowable Cost (MAC) for generics, plus any contractually
defined professional dispensing fee (PDF), which determines the total
reimbursement for each COD. In contrast, the PBM might charge the
managed care plans for dispensing that same COD based upon a different
fixed percentage discount from AWP, or a higher percentage of WAC,
either on a per-claim or aggregate spend basis. That is, a PBM's
benchmarks, markups, or discount percentages may differ for the same
COD. The result is that there is little to no transparency to the
managed care plan as to how much the plan actually pays for the COD
administered or dispensed to the patient, and how much is paid to the
PBM for fees related to the administration of the COD benefit. The cost
charged to the managed care plan for the COD by the PBM often includes
both the amount that the PBM reimbursed the medical or pharmacy
provider for the COD as well as the PBM's administrative fees for
operating the benefit program.
The margin between the amount charged to a managed care plan for a
COD, and the amount paid by a PBM to a pharmacy provider is referred to
as the ``spread'' or ``spread pricing.'' This margin or ``spread'' may
only be known by the PBM, unless a State Medicaid program or managed
care plan (or other prime contractor in other contexts) specifically
requires disclosure of the charge and payment data that are used to
make these calculations. This information deficit results in a lack of
accountability and transparency to the Medicaid program, which we
believe is contrary to proper and efficient operation of the State
Medicaid program and potentially creates conflicts of interest in
connection with payment for CODs.
Section 1902(a)(4)(A) of the Act requires that the State Plan for
medical assistance comply with methods of administration that are found
by the Secretary to be necessary for the proper and efficient operation
of the State Plan. Greater transparency and accountability by Medicaid
managed care plans (and their subcontractors) to the States for how
Medicaid benefits are paid compared to how administrative fees or
services are paid are necessary for efficient and proper operation of
Medicaid programs. Moreover, this lack of transparency makes it more
difficult for Medicaid managed care plans to assure that the plan's MLR
calculation is limited to the true medical costs associated with the
provision of CODs.
Medicaid managed care regulations at Sec. 438.8 require States,
through their contracts with managed care plans, to require each
managed care plan to calculate and report an annual MLR starting on or
after July 2017, consistent with the requirements of the regulation

[[Page 34250]]

detailing the calculation, including which expenses are in the
numerator and the denominator. We issued a Center for Medicaid & CHIP
Services (CMCS) Informational Bulletin on May 15, 2019, for Medicaid
Managed Care plans, titled ``Medicaid Loss Ratio (MLR) Requirements
Related to Third Party Vendors'' (``2019 CIB'') (see https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib051519.pdf), regarding calculation of the MLR when a managed care
plan uses subcontractors for plan activities.
MLR calculations are used to develop capitation rates paid to
Medicaid managed care plans, thus their accuracy is critical in
assuring that Medicaid payments are reasonable, appropriate and
necessary for health care services when using a Medicaid managed care
plan. Managed care capitation rates must (1) be developed such that the
plan would reasonably achieve an 85 percent MLR (Sec. 438.4(b)(9)) and
(2) are developed using past MLR information for the plan (Sec.
438.5(b)(5)). In addition to other standards outlined in Sec. Sec.
438.4 through 438.7, these requirements for capitation rates related to
the MLR are key to ensuring that Medicaid managed care capitation rates
are actuarially sound. In addition, Medicaid managed care plans may
need to pay remittances (that is, refund part of the capitation
payments) to States should they not achieve the specific MLR target.
Thus, the accuracy of MLR calculation is important to conserving
Medicaid funds.
This 2019 CIB provided additional guidance regarding the
calculation of the MLR when third party vendors, such as PBMs, are
involved. The purpose was to assist States in ensuring that revenues,
expenditures and amounts are appropriately identified and classified
for the MLRs submitted by managed care plans, especially when a
subcontractor is used. The 2019 CIB uses PBM spread pricing as a
specific example. Several States have already implemented prohibitions
or other restrictions on the PBM practice of spread pricing. Although
there is not currently a Federal prohibition on using spread pricing in
Medicaid, as noted, we issued the 2019 CIB regarding the impact of the
lack of transparency between costs for administrative functions versus
actual Medicaid services on the managed care plan's MLR calculation.
The 2019 CIB is clear that when the subcontractor, in this case the
PBM, is performing administrative functions, such as eligibility and
coverage verification, claims processing, utilization review, or
network development, the expenditures and profits on these functions
are a non-claims administrative expense as described in Sec.
438.8(e)(2)(v)(A), and should not be counted as an incurred claim for
the purposes of MLR calculations.
In addition, the Medicaid managed care regulation at Sec.
438.230(c)(1) requires, through contractual requirements in the managed
care contract between the managed care plan and the State, certain
agreements to be in subcontracts, including that subcontractors agree
to perform the delegated activities and reporting responsibilities in
compliance with the managed care plan's contract obligations. Moreover,
the reporting standards at Sec. 438.8(k)(3) specify that managed care
plans must require any third-party vendor providing claims adjudication
activities to provide all underlying data associated with MLR
calculation and reporting. The 2019 CIB explains how these regulatory
obligations mean that all subcontractors that administer claims for the
managed care plan must report the incurred claims, expenditures for
activities that improve health care quality, and information about
mandatory deductions or exclusions from incurred claims (overpayment
recoveries, rebates, other non-claims costs, etc.) to the managed care
plan.
The requirements and definitions in Sec. 438.8 for these
categories of costs and expenditures must be applied to the required
reporting. The reporting from the subcontractor must have sufficient
detail to allow a managed care plan to accurately incorporate the
expenditures associated with the subcontractor's activities into the
managed care plan's overall MLR calculation. The level of detail must
meet the requirements in Sec. 438.8(k)(3) and the level of detail that
is required may vary based on what is necessary to accurately calculate
an overall MLR or to comply with any additional reporting requirements
imposed by the State in its contract with the managed care plan.
Medicaid managed care plans are generally paid by States using
single monthly capitation payments that for the plan's coverage of the
health care services covered under the Medicaid managed care contract,
including CODs. If the managed care plan contracts with a PBM, there
are different options for the managed care plan to pay the PBM for the
administrative services provided by the PBM. Payment for administrative
services is made in addition to the amount the managed care plan would
reimburse the PBM for the actual COD and dispensing fee costs. In
general, managed care plans have paid PBMs for administrative services
in one of two ways, or a mix of these approaches--either through a flat
administrative fee per prescription, or, as described above, by
including it in the overall COD payment (that is through ``spread
pricing'').
When payments to the PBM for the administration services are
included in the managed care plans' total COD payment without a clear
delineation of which amount is for administrative services, it obscures
how much of that total payment is actually paid to the provider for the
prescription and what is paid for administrative services furnished by
the PBM. In other words, it is difficult for the managed care plan to
determine the proportion of the payment to the PBM that is attributable
to the administrative service costs provided by the PBM.
Furthermore, incorrectly attributing administrative service costs
as medical expenditures, may increase the MLR numerator, and thus
increase the per-member-per-month (PMPM) revenue a managed care entity
can receive while appearing to meet MLR requirements. Given this lack
of transparency, the ``spread'', which has been the basis for
generating significant PBM profit, obscures from Medicaid and the
managed care plans the actual cost of the CODs dispensed to plan
enrollees. This makes it difficult for managed care plans and State
Medicaid agencies to determine whether the amount that the PBM is
charging to administer the benefit is a reasonable expense to be borne
by a Medicaid program. Moreover, it makes it difficult for plans to
ensure that their MLR calculations appropriately classify and account
for expenditures.
We provide a representative example of how spread pricing occurs in
the context of Medicaid prescription drug coverage provided by a
managed care plan. Specifically, in Table 2, we illustrate how a PBM
might leverage a 5 percent difference in the AWP value between the
amount charged to the plan and the amount paid to the pharmacy for a
commonly-dispensed generic drug product, to ultimately capture 30.76
percent of the dollars spent by the managed care plan for the
prescription.

[[Page 34251]]

Table 2--Example of Spread Pricing
------------------------------------------------------------------------

------------------------------------------------------------------------
Drug Product........................... NDC 1234567890, Drug 300 MG
CAPSULE, 60 capsules in
prescription.
Published AWP.......................... $1.33 per capsule.
PBM Reimbursement to pharmacy (MAC).... ((AWP-90%) * 60) + $1
dispensing fee = $8.98.
Amount PBM billed to Managed care plan. ((AWP-85%) * 60) + $1
dispensing fee = $12.97.
PBM spread =........................... ($12.97-$8.98) = $3.99.
PBM spread percentage =................ ($3.99/$12.97) = 30.76% of
total cost to managed care
plan.
------------------------------------------------------------------------

Table 2 shows that, while the pharmacy only received $8.98 in
reimbursement from the PBM for the prescription, PBM charged the
managed care plan $12.97, or about 31 percent more for the same
prescription. Depending on the specifics of the contract that the PBM
has with the managed care plan, some of this margin or spread might be
used to pay the PBM for managing or administering the pharmacy benefit
but in some cases, this spread may be in addition to administrative
fees paid by the plan to the PBM. For example, there may already be
included in the contract a specific fee that the Medicaid MCO is paying
for the administration of the COD benefit. These fees would be in
addition to the amounts being paid as part of the ``spread pricing.''
However, unless the managed care plan knows the amounts that the
pharmacy providers are being paid by the PBM, the managed care plan is
unable to assess the full scope of payments to the PBM for
administrative services furnished by the PBM. As a result, the plan may
not know whether the PBM is being appropriately compensated for
administering the COD benefit.
While the per-prescription dollar amounts above may not appear
substantial, the overall impact to a Medicaid managed care pharmacy
program may be significant given generic claims represent greater than
90 percent of total pharmacy claims. For example, an analysis of Ohio's
Medicaid managed care program by the Ohio Auditor of State revealed
$208.4 million of spread within their managed care plan's PBM
transactions for generic drug claims between April 1, 2017, and March
31, 2018.\6\ For the time period analyzed, this amount of PBM spread
represented 31.4 percent of total generic drug expenditures within the
State's Medicaid managed care program.
---------------------------------------------------------------------------

\6\ David Yost, Ohio's Medicaid Managed Care Pharmacy Services
Auditor of the State Report (2018), available at https://tinyurl.com/mbn75c.
---------------------------------------------------------------------------

CMS has determined that 11 States \7\ have enacted relevant
legislation related to the practice of spread pricing. Four of these
States (Arkansas, Delaware, Michigan, and Oklahoma) have complete
State-wide prohibitions on the practice of spread pricing for any PBM
operating within the State, regardless of the payer. Five States
(Kentucky, Louisiana, New York, Pennsylvania, and Virginia) prohibit
the practice of spread pricing by PBMs or MCOs in Medicaid, explicitly.
One State (Pennsylvania) further requires that all Medicaid MCOs
include a spread pricing prohibition clause in all contracts with PBMs.
Only 2 of the 11 States with spread pricing laws (Alabama and Montana)
merely require disclosure of certain spread pricing information (that
is, annual report of aggregate rebate information and whether the PBM
engages in spread pricing). Spread pricing can increase Medicaid
pharmacy program costs, reduce efficient operation of the Medicaid
program, and reduce the transparency of State Medicaid expenditures
within managed care programs. This makes it more difficult for managed
care plans and States to discern which participants of the pharmacy
supply chain retain the bulk of the COD reimbursement.
---------------------------------------------------------------------------

\7\ https://nashp.org/comparison-of-state-pharmacy-benefit-managers-laws/.
---------------------------------------------------------------------------

For these reasons, we are proposing to amend Sec. 438.3(s) to
require Medicaid MCOs, PIHPs, and PAHPs that provide coverage of CODs
to structure any contract with any subcontractor for the delivery or
administration of the COD benefit require the subcontractor to report
separately the amounts related to the incurred claims described in
Sec. 438.8(e)(2), such as reimbursement for the CODs, payments for
other patient services, and the dispensing or administering providers
fees, and subcontractor administrative fees. The proposal would ensure
that MLRs reported by MCOs, PIHPs, and PAHPs that use subcontractors in
the delivery of COD coverage would be more accurate and transparent.
The separate payment requirements would help States and managed care
plans better understand whether they are appropriately and efficiently
paying for the delivery of CODs, a significant part of which is funded
by the Federal Government. We note that this proposal does not change
the applicability of the 2019 CIB to PBM subcontractors or to other
subcontracting arrangements used by a Medicaid managed care plan; the
2019 CIB remains CMS' position on how Sec. Sec. 438.8 and 438.230
apply. This proposal would create additional requirements for MCOs,
PIHPs and PAHPs that help ensure that the objectives and
responsibilities outlined in the 2019 CIB are met.
The proposal requires MCOs, PIHPs, and PAHPs that cover CODs to
require their subcontractors to report their costs in a way that aligns
more fully with the specific categories specified in Sec. 438.8(e)(2)
regarding the MLR numerator. Fully aligning the subcontractor's reports
and billing (invoices) with how the MLR regulation categorizes and
treats specific costs and expenditures would make clearer for the MCOs,
PIHPs, and PAHPs how its payments to a subcontractor are used that
would be subject to proposed Sec. 438.3(s)(8), and allow those managed
care plans to incorporate the subcontractor's costs into the MLR
reporting and calculation. However, having the subcontractor's (in
particular a PBM's) expenditures and costs reported in the categories
that we are proposing might not be representative of how the industry
works, might require systems changes and impose burden that we have not
taken into account, or might result in unintended consequences.
Therefore, we are specifically soliciting comment on this point and on
other alternatives for how MCOs, PIHPs, and PAHPs should require
information from their subcontractors and how they should structure
payment or billing arrangements to achieve the policy goals we have
outlined.
We believe this new transparency requirement would assist States
and Medicaid managed care plans in complying with Sec. 438.8 and
related guidance because subcontractor PBMs would be required to
appropriately identify certain costs, so that the managed care plan can
appropriately calculate its MLR. In particular with COD spending, the
managed care plan would have to separately identify prescription drug
and dispensing or administration fee claim costs when calculating the
MLR, in contrast to

[[Page 34252]]

administrative costs. As a result, any payments for costs over and
above the cost of the prescription and dispensing fee would be
separately identifiable by the managed care plan and cannot be used to
inappropriately inflate the MLR which may result in managed care plan
capitation rates that are not actuarially sound.

C. MDRP Administrative and Program Integrity Changes

1. Proposed Definitions (Sec. 447.502)
a. Proposal To Modify the Definition of Covered Outpatient Drug (Sec.
447.502)
Sections 1927(k)(2) and (3) of the Act provide a definition of the
term ``covered outpatient drug'' (COD) and a limiting definition, which
excludes certain drugs, biological products, and insulin provided as
part of, or as incident to and in the same setting as, enumerated
services and settings from the definition of COD. This exclusion is
subject to a parenthetical, however, which limits the exclusion to when
payment may be made as part of payment for the enumerated service or
setting, and not as direct reimbursement for the drug.
In the COD final rule, we finalized a regulatory definition of COD
in Sec. 447.502 that substantially mirrors the statutory definition.
Consistent with section 1927(k)(3) of the Act, the regulatory
definition includes a limiting definition in paragraph (2) of the
definition of covered outpatient drug at Sec. 447.502 that excludes
from the definition of COD any drug, biological product, or insulin
provided as part of or incident to and in the same setting as any one
in a list of services, and for which payment may be made as part of
that service instead of as a direct reimbursement for the drug.
Over the years we have received questions about when a payment is
considered to be a direct reimbursement for a drug and whether
identifying a drug separately on a claim for payment may qualify as
direct reimbursement for a drug, rendering the drug eligible for
rebates under section 1927 of the Act as a COD, or in other words,
garnering the limiting definition exclusion inapplicable. If a drug and
its cost can be separately identified on a claim for payment it can be
considered subject to direct reimbursement. That is, if the payment to
the provider includes any reimbursement for the drug and the drug is
separately identified, then the reimbursement for the drug is a direct
reimbursement. Additionally, if the payment to the provider is solely
for the drug (and no other services), and the drug is separately
identified, it is also a direct reimbursement. Therefore, direct
reimbursement may be reimbursement for a drug alone, or reimbursement
for a drug plus the service, in one inclusive payment, if the drug plus
the itemized cost of the drug are separately identified on the claim.
In other words, the payment for the drug is not required to be a
separate payment in order for such payment to be considered direct
reimbursement.
To provide greater clarity on this point and the application of the
limiting definition, we propose to amend the regulatory definition of
the term covered outpatient drug at Sec. 447.502 to add that direct
reimbursement for the drug includes when a claim for payment identifies
the drug plus the itemized cost of the drug. Specifically, we propose
to add to the regulatory definition of covered outpatient drug at Sec.
447.502 that the direct reimbursement for a drug may include both
reimbursement for a drug alone, or reimbursement for a drug plus the
service, in one inclusive payment, if the drug and the itemized cost of
the drug are separately identified on the claim.
Additionally, the limiting definition in section 1927(k)(3) of the
Act includes the following parenthetical: ``. . . (and for which
payment may be made under this subchapter as part of payment for
[certain services] and not as direct reimbursement for the drug).'' The
term covered outpatient drug is defined in Sec. 447.502 and includes
this limiting definition parenthetical at paragraph (2): ``. . . (and
for which payment may be made as part of that service instead of as a
direct reimbursement for the drug).''
There is no meaningful distinction between the statutory and
regulatory language for purposes of the MDRP, and thus, we are
proposing to make a technical change by modifying the regulatory
language so that it more closely mirrors the statutory language. We
propose to add ``payment for'' after ``and for which payment may be
made as part of'' and to delete ``instead of as a'' in the limiting
definition of covered outpatient drug and replace it with ``and not
as''.
The proposed definition would then read, in significant part, as
``. . . (and for which payment may be made as part of payment for that
service and not as direct reimbursement for the drug).''
b. Proposal To Define Drug Product Information (Sec. 447.502)
Section 6(a)(1)(A)(iv) of MSIIA amended section 1927(b)(3) of the
Act by adding the words ``and drug product'' to the title of section
(b)(3), and adding section (b)(3)(A)(v), to require a manufacturer to
report drug product information that the Secretary shall require for
each of the manufacturer's CODs no later than 30 days after the last
day of each month of a rebate period. Section 1927(b)(3)(A) of the Act
describes the manufacturer drug product and pricing information that is
required to be reported to the agency by statute, and with respect to
the pricing information, specifically provides for the reporting of
such information, such as AMP and best price. To support the
implementation of this new statutory requirement to report drug product
information, we propose to define drug product information at Sec.
447.502.
We currently require manufacturers to submit drug product
information when the covered outpatient drug is entered into the MDP
system, although there is no regulatory definition of drug product
information. When initially reporting drug product data upon the
execution of an NDRA, manufacturers have 30 days after the date on
which they enter into an NDRA to report drug product data for their
existing CODs under section 1927(b)(3)(A) of the Act. After the
execution of an NDRA, manufacturers have 30 days from the end of each
rebate period to report drug product data for new CODs under section
1927(b)(3)(A)(v) of the Act.
We propose to define ``drug product information'' in Sec. 447.502
as information that includes, but is not limited to, NDC number, drug
name, units per package size (UPPS), drug category (``S'', ``I'',
``N''), unit type (for example, TAB, CAP, ML, EA), drug type
(prescription, over-the counter), base date AMP, therapeutic equivalent
code (TEC), line extension drug indicator, 5i indicator and route of
administration, if applicable, FDA approval date and application number
or OTC monograph citation if applicable, market date, COD status, and
any other information deemed necessary by the agency to perform
accurate URA calculations.
As previously discussed in this proposed rule, the drug category
for an NDC should be single source or innovator for the entire history
of the NDC if it was always produced, distributed, or marketed under an
NDA, unless a narrow exception applies, or single source if marketed
under a BLA. If a narrow exception has been granted by CMS, the drug
category for that NDC should historically be reported as single source
or innovator, and can be changed to noninnovator, effective April 1,
2016. We use the FDA ``applications.txt'' file to verify the type of
application associated with an application number. The file may be
accessed using the link to the [email protected] download file found

[[Page 34253]]

on the FDA web page at https://www.fda.gov/drugs/drug-approvals-and-databases/drugsfda-data-files.
The only situation in which a drug that is produced or marketed
under an NDA may be reported as a noninnovator drug is if a narrow
exception was granted by CMS in accordance with the process established
in the COD final rule. See 81 FR 5191. Definitions for these drug
categories can be found at section 1927(k)(7) of the Act and at Sec.
447.502.
Manufacturers should evaluate all of their NDCs for compliance with
drug product information reporting, and if they determine corrections
are required, they should contact the agency for assistance. In
Manufacturer Release No. 113, we address a manufacturer's
responsibility to ensure that all of their CODs are correctly
classified and reported in the Drug Data Reporting system (DDR) for the
history of the NDC, including such NDCs that may no longer be active:
https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf.
As part of a manufacturer's evaluation of their NDCs for compliance
with accurate drug product information reporting, they should ensure
that each NDC is reported with an accurate market date. In this
proposed rule, we are proposing to add a definition for ``market date''
for the purposes of the MDRP. Please see proposed Sec. 447.502 for
that proposed definition and elsewhere in this preamble for an
explanation of how market date is used to determine the quarter that
establishes each drug's base date AMP.
Generally, a manufacturer cannot make the drug product information
corrections in the CMS system without our intervention. To request
corrections, a manufacturer should contact CMS using instructions that
are available on Medicaid.gov (https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-program/medicaid-drug-rebate-program-change-request/) to correct drug product and pricing
information. If we identify a misclassified or misreported NDC as part
of the review of the information submitted by the manufacturer to
support these drug pricing or product information changes, and notify
the manufacturer, the link to the instructions for correcting the data
would generally be included as part of that notification.
For most drug product information changes, as outlined above, we
would make the requested changes on behalf of the manufacturer in the
CMS system, and those changes would subsequently be available for
manufacturer certification. However, in some situations where monthly
and/or quarterly pricing data must be updated as a result of the drug
product information change, if necessary, we would notify the
manufacturer that certain pricing data fields have been ``unlocked'' in
the CMS system to allow the manufacturer to enter or correct required
pricing information if applicable.
Regardless of whether we make a data change on behalf of a
manufacturer or whether the manufacturer enters required data directly
in the CMS system, manufacturers would be required to certify the
information in accordance with Sec. 447.510. If we make a data change
at the request of a manufacturer, the manufacturer is not relieved of
its responsibility to ensure the accuracy of such data, nor should it
be inferred that we have approved a variance from the requirements of
the statute.
Until certification is complete, the changes in the CMS system are
not considered final and would not be used in any quarterly rebate
calculations or transmitted to the States as part of the quarterly
rebate files; however, the manufacturer is still responsible for
correct URA calculations and rebate payments. If drug product
information changes are left uncertified, the previously certified
values would remain in effect; therefore, corrections made in the CMS
system that remain uncertified would result in the drug continuing to
be considered misclassified or misreported. We would consider this to
be late reporting of product data for which a manufacturer's rebate
agreement may be suspended from the MDRP under section 1927(b)(3)(C)(i)
of the Act, and eventually terminated as authorized under section
1927(b)(4)(B) of the Act.
c. Proposal To Define Internal Investigation for Purposes of Pricing
Metric Revisions (Sec. Sec. 447.502 and 447.510)
In accordance with section 1927(b)(3) of the Act, Sec. 447.510 of
the implementing regulations, and the terms of the NDRA, manufacturers
are required to report certain pricing and drug product information to
CMS on a timely basis or else they could incur penalties or be subject
to other compliance and enforcement measures. As explained in the final
time limitation rule, in an effort to improve the administration and
efficiency of the MDRP and assist States and manufacturers that would
otherwise be required to retain drug utilization pricing data records
indefinitely, we established the 12-quarter time frame for reporting
revisions to AMP or best price information. Notwithstanding the 12-
quarter time frame for reporting revisions, we continued to receive
requests outside of the 12-quarter period from manufacturers to revise
pricing data. These types of manufacturer requests, which could span
multiple years prior to the 12-quarter timeframe, and could sometimes
result in substantial recoupment of Medicaid rebates already paid to
States, impede the economic and efficient operation of the Medicaid
program.
Consequently, in the COD final rule (81 FR 5278) we finalized Sec.
447.510(b)(1), which provides that a manufacturer must report to CMS
any revision to AMP, best price, customary prompt pay discounts or
nominal prices (pricing data) for a period not to exceed 12 quarters
from the quarter in which the data were due unless one of a number of
enumerated exceptions applies. See Sec. 447.510(b)(1)(i) through (vi).
Of note, Sec. 447.510(b)(1)(v) provides an exception to the 12-quarter
price reporting rule if the change is to address specific rebate
adjustments to States by manufacturers, as required by CMS or court
order, or under an internal investigation, or an OIG or Department of
Justice (DOJ) investigation.
In a response to comment in the preamble of the COD final rule,
which added Sec. 447.510(b)(1)(v), we indicated that internal
investigation is intended to mean a manufacturer's internal
investigation, and we further explained that in the event that a
manufacturer discovers any discrepancy with its reported product and
pricing data to the MDRP that are outside of the applicable timeframes,
the manufacturer should determine if the change satisfies one of the
enumerated exceptions. (81 FR 5280)
However, we did not further define or give any greater explanation
for the applicability of the exception to the 12-quarter rule,
particularly in instances when manufacturers perform an internal
investigation of the prices (AMP and best price) reported and certified
in the Medicaid Drug Product systems by another manufacturer. Given the
absence of a definition of internal investigation or specificity as to
when this exception applies, some manufacturers have broadly
interpreted the internal investigation exception to the 12-quarter
rule.
Some manufacturers have requested revisions to AMP and best price
outside of the 12-quarter rule based upon an internal investigation
related to newly acquired products or lines of business

[[Page 34254]]

previously certified by the prior manufacturers without making findings
that the prior manufacturer violated any law. For example, some
requests from manufacturers to revise AMP or best price for drug
product and drug pricing information previously reported and certified
from another manufacturer were based on internal reviews that did not
result in proof that the prior manufacturer misapplied the laws or
regulations, or acted in a fraudulent or illegal manner.
In cases when a manufacturer requests an exception to the 12-
quarter rule due to an internal investigation, we propose to specify
that the manufacturer must make a finding that indicates a violation of
statute or regulation made by the prior manufacturer before we consider
such a request. For example, a request to restate or revise pricing
outside of the 12-quarter time frame by a manufacturer to previously
reported and certified data of a prior manufacturer based upon a mere
disagreement with the prior manufacturer's government pricing
calculations and assumptions would not be considered a valid reason to
revise a prior manufacturer's pricing outside of the 12-quarter time
frame. The manufacturer must make findings that include actual data as
evidence that the prior manufacturer violated statute or regulation.
Manufacturers should not use the internal investigation exception
to permit restatements to allow manufacturers to apply a different
methodology or reasonable assumption to determine AMP and best price to
its favor when the methodology originally applied was consistent with
statute and regulation, and drug product and pricing information was
properly reported and certified by the manufacturer at the time. To
ensure clarity on when the internal investigation exception may be
appropriately applied, we are proposing to define internal
investigation at Sec. 447.502 to mean a manufacturer's investigation
of its AMP, best price, customary prompt pay discounts or nominal
prices that have been previously certified in MDRP that results in a
finding made by the manufacturer of fraud, abuse or violation of law or
regulation. A manufacturer must make data available to CMS to support
its finding. We are also proposing to amend Sec. 447.510(b)(1)(v) to
reference the proposed definition of internal investigation at Sec.
447.502.
d. Proposal To Revise Definition of Manufacturer for NDRA Compliance
(Sec. 447.502)
When Congress passed the drug rebate provisions in 1990, they
established a framework for coverage and payment of covered outpatient
drugs under Medicaid, and prescribed drugs, generally. Often referenced
as the ``grand bargain'' between the States, the Federal Government,
and manufacturers, the MDRP made clear that if manufacturers paid
rebates for the covered outpatient drugs dispensed and paid for under
the State Plan, States would be required to cover their covered
outpatient drugs, subject to limited permissible restrictions and
exclusions. These policies would help increase Medicaid beneficiaries'
access to medications, while assisting States in striving to deliver an
economic and efficient Medicaid program. A key piece of the coverage
and payment framework the MDRP established is captured in section
1927(a)(1) of the Act, which provides that in order for payment to be
available under section 1903(a) or under part B of title XVIII for
covered outpatient drugs of a manufacturer, the manufacturer must have
entered into and have in effect a rebate agreement with the Secretary
as described in section 1927(b) of the Act.
With an effectuated rebate agreement in place, manufacturers
participating in the MDRP are required to provide periodic rebates for
CODs dispensed and paid for under the State Plan, and also provide
certain drug price and drug product information on a monthly and/or
quarterly basis to the agency. While entering into a rebate agreement
is voluntary, a manufacturer that does not enter into such an agreement
forgoes payment and coverage, for their covered outpatient drugs under
Medicaid. It also affects coverage under the 340B Drug Pricing Program
and may affect Medicare Part B reimbursement.
To implement the important requirement set forth at section
1927(a)(1) of the Act, and in an effort to prevent selective reporting
of NDCs, the agency has required manufacturers to ensure that all their
associated labeler codes with CODs enter into a rebate agreement to
comply with the terms of the NDRA. This requirement has been included
in the NDRA since the inception of the program. (See section II.,
Manufacturer's Responsibilities, subsection (a) of the previous NDRA,
and section II., Manufacturer's Responsibilities, subsection (b) of the
updated NDRA.) We also reiterated this point most recently in the
preamble to the updated NDRA, 83 FR 12770 (Mar. 23, 2018). In that
final notice, we explained that manufacturers are required to report
all CODs under their labeler code(s) to the MDRP, and may not be
selective in reporting their national drug codes (NDCs) to the program.
We continue to maintain that this requirement applies to all the
manufacturer's labeler codes, including newly acquired labeler codes,
newly formed subsidiaries, and labeler codes previously omitted from
the original rebate agreement. 83 FR 12771; see also Manufacturer
Releases #13 and #48. Thus, once we review a request for a rebate
agreement and the manufacturer confirms, among other things, that all
of a manufacturer's CODs are listed, a rebate agreement will be issued.
Manufacturers are then responsible for paying a rebate on those CODs
that were dispensed and/or paid for, as applicable, under the State
Plan. These rebates are paid by manufacturers on a quarterly basis to
States, and are shared between the States and the Federal Government to
partially offset the overall cost of prescription drugs under the
Medicaid program.
The term ``manufacturer'' was first defined in statute in 1990,
when section 1927 of the Act was established, and was interpreted in
regulation in 2007 at Sec. 447.502. Section 1927(k)(5) of the Act
defines the term ``manufacturer'' as any entity which is engaged in:
(1) the production, preparation, propagation, compounding, conversion,
or processing of prescription drug products, either directly or
indirectly by extraction from substances of natural origin, or
independently by means of chemical synthesis, or by a combination of
extraction and chemical synthesis; or (2) in the packaging,
repackaging, labeling, relabeling, or distribution of prescription drug
products.
The regulations at Sec. 447.502 define ``manufacturer'' to mean
any entity that holds the NDC for a covered outpatient drug or
biological product and meets the following criteria:
Is engaged in the production, preparation, propagation,
compounding, conversion, or processing of covered outpatient drug
products, either directly or indirectly by extraction from substances
of natural origin, or independently by means of chemical synthesis, or
by a combination of extraction and chemical synthesis; or
Is engaged in the packaging, repackaging, labeling,
relabeling, or distribution of covered outpatient drug products and is
not a wholesale distributor of drugs or a retail pharmacy licensed
under State law.

[[Page 34255]]

For authorized generic products, the term ``manufacturer''
will also include the original holder of the NDA.
For drugs subject to private labeling arrangements, the
term ``manufacturer'' will also include the entity under whose own
label or trade name the product will be distributed.
The labeler code is a unique 5-digit number within the NDC,\8\
assigned by the FDA, and one manufacturer may be assigned multiple
labeler codes by FDA. A manufacturer can obtain a different labeler
code for each manufacturing establishment or company under the same
ownership since the labeler code identifies a company marketing a drug
product.\9\ Some drug companies that have several divisions have more
than one labeler code, and a single manufacturer may be marketing its
drugs across or under multiple labeler codes. Furthermore, a
manufacturer may own, operate, or be associated or affiliated with
several labeler code subsidiaries, each of which makes CODs.
---------------------------------------------------------------------------

\8\ See 21 CFR 207.33.
\9\ Electronic Drug Registration and Listing Instructions
[verbar] FDA.
---------------------------------------------------------------------------

Consistent with the statute and regulation, our current policy is
that each of these associated labeler codes would have to have an
effectuated rebate agreement in order for the single manufacturer to be
considered to be in compliance with the requirement under section
1927(a)(1) of the Act that a manufacturer have a rebate agreement in
effect, and this has been noted in related guidance.\10\ We treat each
associated labeler code as part of the single manufacturer, and if any
of the labeler codes of a manufacturer do not have an NDRA in effect,
no FFP would be available for any of the CODs of the labeler codes of
the manufacturer, and all of the labelers would be subject to potential
termination from the MDRP.
---------------------------------------------------------------------------

\10\ Manufacturer Release 013 (October 6, 1994), Manufacturer
Release 048 (November 15, 2000) and 83 FR 12770, 12771 (Mar. 23,
2018).
---------------------------------------------------------------------------

We also explained in the final notice for the updated NDRA that
manufacturers that wish to terminate an NDRA that have active CODs must
request termination for all associated labeler codes, and provide a
reason for the request (for example, all CODs under the labeler code
are terminated), or if the request for termination is only for certain
labeler codes, provide justification for such request (83 FR 12770,
12771). In that same final notice, we indicated that for purposes of
ensuring beneficiary access to single source drugs and/or drugs that
are not otherwise available in the MDRP, we may choose to grant an
exception to issuing or reinstating an NDRA for certain labeler codes
of a manufacturer prior to issuing an NDRA for all of the labeler codes
of the manufacturer, or terminating certain labeler codes as mentioned
above (83 FR 12771).
The requirement that manufacturers that enter into a rebate
agreement cannot exclude any covered outpatient drug from their
listings applies to all CODs associated with any of the manufacturer's
labeler codes that market CODs, including newly-purchased labeler
codes, and newly-formed subsidiaries. This means a manufacturer has to
be ``all in'' for all its drugs, or ``all out''. Otherwise, there is a
possibility that a manufacturer would create separate labeler codes for
some of its drugs, and enter into a rebate agreement for some of its
labeler codes, and not others. Permitting a manufacturer to do so would
allow them the benefit of receiving FFP for some of their CODs, while
potentially avoiding the financial obligation to pay rebates for other
drugs that would otherwise qualify as CODs and be subject to rebates.
If a product meets the definition of a covered outpatient drug, but the
manufacturer of such drug does not have a rebate agreement in effect,
that drug is not eligible for FFP and may not be claimed on the CMS-64
form, even though the drug may meet the definition of a prescribed
drug. In these situations, while States would not be required to
provide mandatory coverage of such drugs, a State may still elect to
cover these products with State only funds.
While we believe that the overwhelming majority of manufacturers
are compliant with section 1927(a)(1) of the Act, and have had all
their associated labelers enter into and maintain drug rebate
agreements, this issue has been challenged by a few manufacturers. In
more recent times, manufacturers have suggested certain associated
labelers are exempt or not required to be included in the program under
the manufacturer's rebate agreement, stating that such associated
companies, parent entities and brother-sister entities are distinct
separate manufacturers. They have stated that the agency has not
required such a policy through final regulations, but rather has
articulated this policy only in program releases and preamble
statements, which are subregulatory guidance that do not carry the
force of law.
To codify the requirement at section 1927(a)(1) of the Act, that a
manufacturer have entered into and have in effect an agreement with the
Secretary to receive FFP for its CODs, we are now proposing to modify
the regulatory definition of manufacturer to specify how the term
``manufacturer'' is defined for purposes of complying with this
statutory requirement. To satisfy the requirement that a manufacturer
have entered into and have in effect an agreement with the Secretary,
we are specifying at proposed Sec. 447.510(h) that manufacturers must
provide CMS with all labeler codes for all the manufacturer's
applicable drugs. More specifically, we are proposing at Sec.
447.510(h)(2) that if any manufacturer with a signed rebate agreement
in effect, acquires or purchases another labeler, acquires or purchases
covered outpatient drugs from another labeler code, or forms a new
subsidiary, they must ensure that a signed rebate agreement is in
effect for these entities or covered outpatient drugs, consistent with
the definition of manufacturer at Sec. 447.502, within the first 30
days of the next full calendar quarter beginning at least 60 days after
the acquisition, purchase, asset transfer, or formation of the
subsidiary.
As first described in the ``Medicaid Program; Payment for Covered
Outpatient Drugs Under Drug Rebate Agreements With Manufacturers''
proposed rule (95 FR 48442; hereinafter referenced as the ``1995
proposed rule''), we have noted our intent that each associated
manufacturer's labeler codes would have to have an effectuated rebate
agreement in order for the single manufacturer to be considered to be
in compliance with the requirement under section 1927(a)(1) of the Act
that a manufacturer have a rebate agreement in effect. This 1995
proposed rule is informative and helpful to understanding and
describing the agency's initial proposed policy and intentions with the
Medicaid Drug Rebate Program.\11\ In this proposal, CMS proposed to
interpret the term ``manufacturer'' to specify that if a corporation
meets the statutory definition of manufacturer (that is, section
1927(k)(5) of the Act) and possesses legal title to the NDC, the agency
would consider the term to include associated companies, including
parent corporations, brother-sister corporations, and subsidiary
corporations. In addition, we further proposed to interpret the term to
specify that if a corporation meets the statutory definition of
manufacturer, and possesses legal title to the NDC number, we would
consider the term to include: (1) Any corporation that owns at least 80
percent of the total combined voting power of all classes of stock or
80 percent of the total value of shares in all

[[Page 34256]]

classes of stock in such entity (that is a parent corporation); (2) Any
other corporation in which a parent corporation of the entity owns at
least 80 percent of the total combined voting power of all classes of
stock or 80 percent of the total value of shares. (60 FR 48447-48448)
---------------------------------------------------------------------------

\11\ 60 FR 48447 through 48448.
---------------------------------------------------------------------------

This policy comports with Congress' desire to maximize recipient
access to medically necessary drugs, while at the same time providing a
more favorable drug purchasing arrangement for State Medicaid
programs.\12\ When Congress passed the drug rebate provisions in 1990,
they made it clear that States that elect to cover prescription drugs
must, except for certain restrictions or exclusions allowed under the
statute, cover the CODs of a manufacturer that enters into and complies
with a drug rebate agreement. In return for such coverage, a
manufacturer would be responsible for providing a rebate to the State
that would give the Medicaid program the benefit of those discounts
that other large public and private purchasers receive.\13\
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\12\ H.R. Conf. Rept. No. 964, 101st Cong., 2d Sess. 822, 832
(1990); H.R. Rept. No. 881, 101st Cong., 2d Sess. 996 (1990).
\13\ Id.
---------------------------------------------------------------------------

We believe it would be directly contrary to Congressional intent to
apply the definition of a manufacturer in a manner that would permit a
manufacturer (that is by forming a subsidiary corporation) to exclude
some of its drugs from the drug rebate program.\14\ Our proposal would
prevent manufacturers from manipulating the system as to select drugs
by assigning separate labeler codes, without consequence to all of
their CODs, and codify a longstanding policy that has faced scrutiny
more recently. As such, we continue to believe that when defining a
manufacturer, the term ``entity'' should be interpreted to include
parent, brother-sister, or subsidiary corporations, as well as,
labelers that are owned, acquired, subsidiaries, affiliates, parent
companies, franchises, business segments, part of holding companies, or
under common corporate ownership or control.
---------------------------------------------------------------------------

\14\ Id.
---------------------------------------------------------------------------

Therefore, to provide a clearer definition of the meaning of
manufacturer with respect to section 1927(a)(1) of the Act, we are
proposing to amend the regulatory definition of manufacturer at Sec.
447.502. Consistent with the statute and our understanding of
Congressional intent of the MDRP, which was increasing access to
medications while at the same time helping States manage pharmacy
program costs and maximizing Medicaid savings, we are proposing to
include a new paragraph (5) as part of the definition of a
manufacturer. This change explains that, for purposes of meeting the
requirements in section 1927(a)(1) of the Act of maintaining an
effectuated rebate agreement, that the term ``manufacturer'' means that
all associated labeler entities of the manufacturer that sell
prescription drugs, including, but not limited to, owned, acquired,
affiliates, brother or sister corporations, operating subsidiaries,
franchises, business segments, part of holding companies, divisions, or
entities under common corporate ownership or control, must each
maintain an effectuated rebate agreement in order for a manufacturer to
satisfy the requirement at section 1927(a)(1) of the Act to have
entered into and have in effect a rebate agreement with the Secretary.
Additionally, we are proposing a new paragraph (h), ``Participation
in the Medicaid Drug Rebate Program (MDRP),'' in Sec. 447.510 to
further specify the responsibilities of a manufacturer, specifying in
Sec. 447.510(h)(1) that manufacturers participating in the MDRP must
have a signed rebate agreement that complies with paragraph (5) in the
definition of the manufacturer in Sec. 447.502.
Furthermore, with respect to rebate agreements when a manufacturer
acquires or purchases another manufacturer, acquires or purchases
covered outpatient drugs from another manufacturer, or forms a new
subsidiary, we are proposing to add Sec. 447.510(h)(2), ``Newly
purchased labeler codes and covered outpatient drugs.'' We are
proposing that any manufacturer with a rebate agreement in effect that
acquires or purchases another labeler code, acquires or purchases
covered outpatient drugs from another labeler, or forms a new
subsidiary, must have in effect a rebate agreement for these entities
or covered outpatient drugs consistent with definition of manufacturer
at Sec. 447.502. The newly associated entity of the manufacturer must
also have a rebate agreement in effect within the first 30 days of the
next full calendar quarter beginning at least 60 days after the
acquisition, purchase, asset transfer, or creation of a subsidiary has
occurred. By including these provisions in regulation, we would better
specify that a manufacturer must, in part, assure that a NDRA is in
effect with the Secretary for all associated labeler codes and that
MDRP requirements apply to all CODs of a manufacturer, including newly
associated entities.
Finally, we are proposing to add a provision on termination in at
Sec. 447.510(h)(3) specifying that each associated labeler code of a
manufacturer is considered to be part of the single manufacturer, and
if any of the associated labeler codes as defined in paragraph (5) of
the definition of manufacturer at Sec. 447.502 do not have an NDRA in
effect, or are terminated, then all of the labeler codes will be
subject to termination.
e. Proposal To Define Market Date (Sec. 447.502)
Section 1927 of the Act governs the MDRP and payment for CODs which
are defined in section 1927(k)(2) of the Act. Manufacturers that
participate in the MDRP are required to pay rebates for CODs that are
dispensed and paid for under the State Medicaid plan. (See section
1927(b)(1)(A) of the Act.) Section 1927 of the Act provides specific
requirements for program implementation, including requirements for
rebate agreements, submission of drug pricing and product information,
confidentiality, the formulas for calculating rebate payments, and many
others related to State and manufacturer obligations under the program.
The rebates due by manufacturers are calculated based on statutory
formulas described in section 1927(c) of the Act and consist of a basic
rebate and, in some cases, an additional rebate that is applicable when
an increase in the AMP, with respect to each dosage form and strength
of a drug, exceeds the rate of inflation. This additional rebate
formula is set forth in sections 1927(c)(2) and 1927(c)(3)(C) of the
Act, and codified in regulation at Sec. 447.509(a)(2) and (7).\15\
---------------------------------------------------------------------------

\15\ Section 602 of the Bipartisan Budget Act (BBA) of 2015
amended section 1927(c)(3) of the Act, to require that manufacturers
pay additional rebates when their covered outpatient drugs other
than single source or innovator multiple source drugs' average
manufacturer prices increase at a rate that exceeds the rate of
inflation. In accordance with section 1927(c)(3) of the Act, as
revised by section 602 of the BBA of 2015, manufacturers must
calculate these additional rebates for these drugs beginning with
the January 1, 2017 quarter (that is, first quarter of 2017).
---------------------------------------------------------------------------

The additional rebate calculation requires a determination of the
AMP for the dosage form and strength of the drug for the current rebate
quarter, and a comparison of that AMP to the AMP for the dosage form
and strength of that drug for a certain calendar quarter, generally
referenced as the base date AMP quarter.\16\ For S or I drugs, that

[[Page 34257]]

base date AMP quarter is the third quarter of 1990, for drugs that were
first marketed prior to fourth quarter of 1990, or the first full
calendar quarter after the day on which the drug was first marketed for
drugs that were first marketed on or after October 1, 1990.\17\ See
sections 1927(c)(2)(A) and 1927(c)(2)(B) of the Act. For other drugs
(including N drugs and other drugs reported as N), that base date AMP
quarter is the third quarter of 2014 for drugs that were first marketed
prior to April 1, 2013, or the fifth full calendar quarter after the
day on which the drug was first marketed for drugs that were first
marketed on or after April 1, 2013. See section 1927(c)(3)(C) of the
Act. To determine the applicable base date AMP, and ultimately, to
calculate the additional rebate for a quarter, a critical data point is
the day on which the drug was first marketed. We reference this date as
a COD's ``market date.'' Manufacturers are required to report to CMS
the market date of each dosage form and strength of a COD for all of
its CODs.
---------------------------------------------------------------------------

\16\ Base Date AMP is defined in the National Drug Rebate
Agreement (NDRA) at I.(c) as follows: ``Base Date AMP'' will have
the meaning set forth in sections 1927(c)(2)(A)(ii)(II) and
1927(c)(2)(B) of the Act. See also I.(l) definition of ``marketed''.
Section VIII.a, provides that the agreement is subject to any
changes in the Medicaid statute or regulations that affect the
rebate agreement. Thus, any changes to regulations will be
incorporated into rebate agreements without further action. See also
Manufacturer Release 113--Misclassification of Drugs (medicaid.gov);
https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-009.pdf Manufacturer release No. 9; form 367c data definitions.
\17\ For a drug with a market date prior to October 1, 1990, the
MDRP reporting system defaults to a market date of September 30,
1990. The system assigns a base date AMP quarter of fourth quarter
of 1990 to such drugs as the statute defines (section
1927(c)(2)(A)(ii) of the Act).
---------------------------------------------------------------------------

Section 1927(c)(2)(A)(ii)(II) of the Act expressly provides that
the base date AMP quarter, with respect to a dosage form and strength
of a drug, is established ``without regard to whether or not the drug
has been sold or transferred to an entity, including a division or
subsidiary of the manufacturer. . .'' This means the market date of a
drug is the date that the drug was first marketed, regardless of the
entity that marketed the drug. Consistent with the statute, the market
date of a drug is not and cannot be based on the first date upon which
a subsequent manufacturer first markets the drug, but rather the
earliest date on which the drug was first marketed, by any
manufacturer, or under any NDC.
A new market date cannot be established for a drug that is marketed
under the same FDA-approved NDA number, ANDA number or BLA license
unless the drug is a new dosage form or strength because the rebate
statute requires an additional rebate amount based on the market date
for each dosage form and strength of a COD.\18\ Thus, if a drug is
purchased or otherwise acquired from another manufacturer, the market
date should not change, and should equal the market date of the drug
first marketed under the approved application.
---------------------------------------------------------------------------

\18\ The FDA approved application (for example the NDA itself)
includes all FDA approved supplements to the application.
---------------------------------------------------------------------------

Some manufacturers have attempted to set a new market date to
establish a new base date AMP for a drug by making changes to a drug
already approved under an FDA application that are something other than
changes to the dosage form or strength. If changes to the drug are
approved under the same FDA application and do not constitute changes
to the dosage form or strength, a new base date AMP is not appropriate.
Over the years, manufacturers have sporadically engaged in debate
regarding the determination of a COD's market date, base date AMP
quarter, and base date AMP under varied fact-driven scenarios. This
proposed definition seeks to clarify the term ``market date'' as used
in the MDRP and to end any further such debates.
AMP is defined in section 1927(k)(1) of the Act and the definition
includes that it is ``. . . the average price paid to the manufacturer
for the drug. . . .'' If there have not been any sales of the drug,
there is no data upon which to determine an average price paid to the
manufacturer to most accurately calculate the AMP value. Historically,
in such cases where no sales may have occurred in a base date AMP
quarter (because sometimes a new NDC may be available for sale during a
quarter, but no sales occurred during that quarter), we have advised
manufacturers to use reasonable assumptions, as appropriate, and
consistent with applicable law to establish an AMP.
To assist manufacturers in reporting a more accurately calculated
AMP, we are proposing to define market date based on the first sale of
the drug, rather than the date the drug was first available for sale.
Linking the market date determination to the date of the first sale,
rather than the date the drug was first available for sale, would
permit a manufacturer to establish and report a base date AMP without
reliance on reasonable assumptions, and based on actual data. As a
result, the URA would also be calculated more accurately because actual
sales would be available for reporting.
For purposes of determining the base date AMP quarter and base date
AMP, we propose that market date be based upon the earliest date on
which the drug was first sold, by any manufacturer, or under any NDC,
and define the term to mean the date on which the COD was first sold by
any manufacturer.
We propose that first sold means any sale of the COD. We understand
defining market date, for purposes of determining a COD's base date
AMP, based on when the COD was first sold, may not completely eliminate
a manufacturer's need to make reasonable assumptions because the first
sales may include only AMP ineligible sales. For example, if all the
sales during the first quarter of a drug's availability are made to
entities other than retail community pharmacies or wholesalers, and are
not eligible for a 5i AMP calculation, then there may not be any AMP
eligible sales to use for the calculation of AMP for that quarter. In
such cases, a manufacturer may still need to use reasonable assumptions
to report an AMP for that quarter.
We propose that ``sold'' means that the drug has been transferred
(including in transit) to a purchasing entity. We are requesting
comments on this topic to determine what qualifies as ``sold'' for the
purposes of determining the market date of a drug, as we have also
experienced manufacturers interpreting the term ``sold'' differently
across the industry.
Because the term market date has not been previously defined in
regulation and it is data used in the determination of base date AMP,
we are proposing a definition of market date for the purposes of the
MDRP. We are proposing at Sec. 447.502 that market date, for the
purpose of establishing the base date AMP quarter, means the date on
which the COD was first sold by any manufacturer.
f. Proposal To Modify the Definition of Noninnovator Multiple Source
Drug (Sec. 447.502)
As discussed previously in this proposed rule, section 6(c) of the
MSIAA included a number of amendments to statutory definitions in
section 1927 of the Act. Generally, those statutory amendments were
discussed in the December 31, 2020 final rule (85 FR 87000, 87032)
where the regulatory definitions of multiple source drug, innovator
multiple source drug, and single source drug were amended consistent
with the MSIAA.
Although we made conforming changes to the regulatory definition of
an I drug in the December 31, 2020 final rule, because the MSIAA did
not

[[Page 34258]]

expressly amend or clarify the statutory definition of an N drug we did
not consider whether any changes to the regulatory definition of an N
drug were necessary at that time. After further evaluation, we propose
to amend the regulatory definition of an N drug to conform the
regulatory definition of an N drug to the regulatory definition of an I
drug. When we established a regulatory definition of an N drug in the
July 17, 2007 final rule, we did so to distinguish between multiple
source drugs approved under an ANDA (generally referenced as N drugs)
and multiple source drugs approved under an NDA (that is, S or I
drugs). Both I drugs and N drugs are generally multiple source drugs.
The main difference between the definitions is the authority under
which the drug is marketed. Generally speaking, I drugs are marketed
under an NDA and N drugs are marketed under ANDA, or are unapproved.
Section 1927(k)(7)(A)(iii) of the Act, which was not expressly
amended or clarified by the MSIAA, defines a noninnovator multiple
source (N) drug as a multiple source drug that is not an I drug. As
noted, the MSIAA amended the statutory definition of an I drug by
removing ``was originally marketed'' and adding ``is marketed,'' and we
made conforming changes to the regulatory definition of an I drug in
the December 31, 2020 final rule. When we modified the regulatory
definition of an I drug to replace ``was originally marketed'' with
``is marketed'', we neglected to make a corresponding change to the
definition of an N drug to maintain the clear distinction between an I
drug, which is marketed under an NDA, and an N drug, which is not
marketed under an NDA. Paragraph (3) of the regulatory definition of an
N drug, codified at Sec. 447.502, continues to refer to a COD that
entered the market before 1962 that was not originally marketed under
an NDA.
To maintain the clear distinction between an I drug and an N drug,
we propose to amend paragraph (3) of the definition of an N drug at
Sec. 447.502 by removing ``was not originally marketed'' and inserting
in place ``is not marketed.'' As amended, the regulatory definition of
an N drug would, in relevant part, have the same structure as the
statutory and regulatory definitions of an I drug and distinguish
between a multiple source drug approved under an ANDA (that is, an N
drug) and a multiple source drug approved under an NDA (that is, an S
or I drug) based on the authority under which the drug is marketed, not
how the drug was originally marketed.
Accordingly, we propose to amend Sec. 447.502 by revising
paragraph (3) of the definition of an N drug to read, a COD that
entered the market before 1962 that is not marketed under an NDA. We
believe this to be a technical correction to the regulatory text.
g. Proposal To Define Vaccine for Purposes of the MDRP Only (Sec.
447.502)
States that opt to cover prescribed drugs under section 1905(a)(12)
of the Act in their State Plan are required to do so consistent with
section 1927 of the Act, as set forth at section 1902(a)(54) of the
Act. With limited exceptions, if a manufacturer wants payment to be
available under Medicaid for their CODs, the manufacturer must
participate (have entered into and have in effect a rebate agreement)
in the MDRP, and agree to pay rebates for CODs dispensed and paid for
under the State Plan. States are then required to cover the drugs of a
manufacturer participating in the MDRP, if the drug satisfies the
definition of COD, and then are required to invoice manufacturers for
rebates on those CODs that are dispensed and paid for under the State
Plan. If a particular drug or biological product of a participating
manufacturer is excluded from or does not satisfy the definition of
COD, then with limited exceptions, a State is not required to cover the
product under the prescribed drugs benefit nor would it be subject to
section 1927 of the Act. Moreover, those drugs or biological products
are not eligible for rebate invoicing, even though a State may cover
them and seek FFP.
Section 1927(k)(2)(B) of the Act specifically excludes vaccines
from the definition of COD for purposes of the MDRP. This exclusion is
codified in paragraph (1)(iv) of the regulatory definition of COD at
Sec. 447.502. Section 1927 of the Act, specifically, does not define
vaccine. Nor is there a definition of vaccine in Title XI, XVIII, XIX,
or XXI of the Act (applicable to Medicare, Medicaid, and CHIP), that
speaks to the specific kinds of biological products that qualify as
vaccines, in terms of their actions in the human body and how and when
they are used. Moreover, we are not aware that any authorizing statutes
for any other Department of Health and Human Services agencies include
such a statutory definition of the term ``vaccine.'' We have not
established a regulatory definition of vaccine for purposes of the
MDRP, and we are not aware of any other statutory or regulatory
definition of vaccine (that speaks to the actions of a product in the
human body and how and when it is used) that would be applicable for
purposes of the MDRP. However, for the reasons discussed in this
section, we believe that a regulatory definition of vaccine is
necessary for the purposes of the MDRP to specify which products are
considered vaccines and thus excluded from the definition of COD.\19\
---------------------------------------------------------------------------

\19\ Currently, for vaccines other than COVID-19 vaccines,
Medicaid coverage of vaccines and vaccine administration for adults
is generally optional for States. Coverage of certain vaccinations
recommended by the Advisory Committee on Immunization Practices
(ACIP) is required for children and youth under age 21 who are
eligible for the Early and Periodic Screening, Diagnostic, and
Treatment (EPSDT) benefit and for beneficiaries receiving Medicaid
coverage through an Alternative Benefit Plan. Additionally, to
receive a one percentage point increase in the Federal medical
assistance percentage for certain expenditures, States must cover
certain services, including approved adult vaccinations recommended
by the Advisory Committee on Immunization Practices (ACIP), without
cost-sharing. See https://www.medicaid.gov/state-resource-center/downloads/covid-19-vaccine-toolkit.pdf for more information.
Beginning October 1, 2023, under section 11405 of the Inflation
Reduction Act of 2022, States are required to cover approved adult
vaccines recommended by the ACIP, and their administration, for many
adults enrolled in Medicaid and the CHIP program, without cost
sharing.
---------------------------------------------------------------------------

Generally, drugs and biological products that are used to treat a
disease fall into one of the categories of CODs set forth at section
1927(k)(2) of the Act. Since Congress excluded vaccines from the
definition of COD in the original 1990 law, and vaccines that were
licensed at that time have a different intended use than therapeutics,
we believe that vaccines were excluded because of their unique
characteristics among medical products marketed at the time of
preventing disease by inducing an immune response.
When the MDRP statute was enacted as part of the Omnibus Budget
Reconciliation Act of 1990 (Pub. L. 101-508, enacted November 5, 1990),
the term ``vaccine'' referred to a product administered to provide
active immunity to a person to prevent an infectious disease.\20\ At
the time, it was generally understood that vaccines are administered
prophylactically, to prevent the development of an infectious disease,
not to treat an existing non-infectious disease (such as a cancer).
Although we have not found any legislative history specifically
indicating why Congress chose to exclude vaccines from the definition
of COD, it is likely Congress understood the term ``vaccine'' to refer
to preventive vaccines only (that is, we do not believe that Congress
understood the term to

[[Page 34259]]

include therapeutic vaccines) because all licensed vaccines at the time
the law was enacted shared those characteristics.
---------------------------------------------------------------------------

\20\ See https://purplebooksearch.fda.gov/. The database at this
link provides information about all FDA-licensed biological
products, including the date on which they were licensed. All the
vaccines listed in the ``Purple Book'' are licensed to prevent an
infectious disease.
---------------------------------------------------------------------------

As the science of immunology has become more advanced, drugs and
biological products have been, and continue to be, developed that treat
diseases using immunotherapy, such as immunotherapy used to treat
certain cancers. Some manufacturers refer to such products as
``therapeutic'' vaccines. While both preventive vaccines and
``therapeutic vaccines'' work by creating an immune response, each type
of product has a unique role in health care.
In general, a preventive vaccine provides active immunity to a
disease, that is, it causes the body's immune system to produce an
antigen-specific immune response (for example, antibodies and/or a
cellular immune response) to antigens of the disease-causing
organism.\21\ A preventive vaccine is generally administered to induce
immunity and a ``memory'' response to a particular infectious disease-
causing organism so that in the event an individual is later exposed to
that disease, the body will recognize the disease and respond before
the disease has a chance to manifest or to reduce the severity of
illness. There are also situations in which a preventive vaccine may be
administered to an individual who has already been exposed to a
disease-causing organism but the disease has not yet developed and may
be prevented by a timely and robust vaccine-induced immune response
(for example, rabies and anthrax vaccines).
---------------------------------------------------------------------------

\21\ CDC describes active immunity as a long-lasting immunity
that develops by triggering antibody production. Conversely, they
describe passive immunity as a short-term immunity provided by the
administration of antibody-containing products. See https://www.cdc.gov/vaccines/vac-gen/immunity-types.htm.
---------------------------------------------------------------------------

In contrast, ``therapeutic vaccines'' are generally biological
products that are intended to induce an antigen specific immune
response to treat an already established disease (for example,
treatment of cancer by inducing a specific immune response to the
tumor). This type of product is generally intended to be a treatment
modality similar to other forms of immunotherapy such as the checkpoint
inhibitors or strategies that are based on the transfer of a preformed
immune response (for example, transfer of antibodies or immune effector
cells.)
If ``therapeutic vaccines'' were considered vaccines that are
excluded from the definition of COD at section 1927(k)(2)(B) of the
Act, a Medicaid beneficiary's access to these products under the
prescribed drugs benefit could be limited because States would not be
required to cover them under that benefit. Moreover, coverage of such a
product under other benefits might only be available if the CDC's
Advisory Committee on Immunization Practices (ACIP) issued a
recommendation for such a product. This potential lack of access to
important therapies for Medicaid beneficiaries is a critical concern.
Clinical research into ``therapeutic vaccines'' has been increasing and
several have been licensed by FDA that offer treatments for diseases
that previously had limited or no effective treatment available.
Similarly, if products that provide passive immunity, such as immune
globulins, were excluded from the definition of a COD, because they
were identified as vaccines, such treatments may not be made available
to Medicaid beneficiaries.
Thus, with the increasing development and availability of products
that use immunology to treat diseases, and because sometimes these
products are referred to as ``therapeutic vaccines'', we believe that
adopting an MDRP regulatory definition of ``vaccine'' that reflects
Congress' likely intent at the time of the enactment of section 1927 of
the Act is imperative to ensure that only the appropriate products are
excluded from the definition of a COD. This would ensure manufacturers
are able to report their drug product and drug pricing data for all
CODs accurately, pay appropriate rebates to States, and most
critically, that Medicaid beneficiaries have access to these important
therapies under the prescribed drugs benefit.\22\
---------------------------------------------------------------------------

\22\ Even if a ``therapeutic vaccine'' product is required
coverage under other Medicaid benefits, this proposal would help to
ensure that manufacturers report product and pricing data accurately
and pay rebates to States, as applicable.
---------------------------------------------------------------------------

Therefore, we are proposing to define ``vaccine'' at Sec. 447.502
for the specific purposes of the MDRP, so that manufacturers understand
which products are considered vaccines under the MDRP and are excluded
from the definition of COD, and not subject to rebates. The definition
would be applicable only to the MDRP and would not be applicable to any
other agencies or agency program implementation, including FDA, CDC,
and HRSA. The proposed definition of vaccine would not apply under any
Title XIX statutory provisions other than section 1927(k)(2), or to
separate CHIPs operating pursuant to Sec. 457.70(a)(1) and (d), or for
purposes of the Vaccines for Children Program. The definition would
apply to the MDRP for purposes of Medicaid expansion CHIPs, pursuant to
Sec. 457.70(c)(2). This proposed policy would not alter any applicable
Federal or State requirements to cover immunizations for Medicaid
beneficiaries, as applicable. Specifically, we are proposing to define
``vaccine'' to mean a product that is administered prophylactically to
induce active, antigen-specific immunity for the prevention of one or
more specific infectious diseases and is included in a current or
previous FDA published list of vaccines licensed for use in the United
States.
We are including in the proposed definition that a vaccine must be
administered prophylactically--that is, to prevent a disease and not to
treat a disease--because we believe that States should generally not
exclude from coverage, under the prescribed drugs benefit, drugs or
biologicals that treat disease. We are also proposing that a vaccine
must be administered to induce active, antigen-specific immunity
because that is a characteristic of preventive vaccines.
Finally, we are proposing to limit the definition of vaccine to
those products that satisfy the conditions of being administered
prophylactically, to prevent a disease, and induce active antigen-
specific immunity, that also appear on a current or previous list
compiled by FDA. FDA publishes a list of vaccines licensed for use in
the United States.\23\ As FDA is the agency responsible for licensing
vaccines, we believe that if a product satisfying the previously
described conditions appears on this list, it should be treated as a
vaccine for the purposes of the MDRP. We seek comment on whether the
proposed definition of vaccine, for purposes of the MDRP only,
appropriately distinguishes between preventive vaccines (which would
satisfy the definition of vaccine and, therefore, not satisfy the
definition of a covered outpatient drug and would not be eligible for
statutory rebates), and therapeutic vaccines (which would not satisfy
the definition of vaccine and therefore could satisfy the definition of
a covered outpatient drug and could therefore be eligible for statutory
rebates).
---------------------------------------------------------------------------

\23\ Vaccines Licensed for Use in the United States.
---------------------------------------------------------------------------

Additionally, while we propose to cabin this definition to the
MDRP, we seek comment on whether this definition might result in
indirect consequences for Medicaid benefits other than the prescribed
drugs benefit. We are also requesting comment about the consequences
for Medicaid of ACIP recommending immunization with a

[[Page 34260]]

product that would not qualify as a vaccine under this definition.

D. Proposal To Account for Stacking When Determining Best Price--(Sec.
447.505)

Section 1927(c)(1)(C) of the Act defines the term ``best price'' to
mean with respect to a single source drug or innovator multiple source
drug of a manufacturer (including the lowest price available to any
entity for any such drug of a manufacturer that is sold under a new
drug application approved under section 505(c) of the Federal Food,
Drug, and Cosmetic Act), the lowest price available from the
manufacturer during the rebate period to any wholesaler, retailer,
provider, health maintenance organization, nonprofit entity, or
governmental entity within the United States, subject to certain
exceptions and special rules. The implementing regulations for the
determination of best price are at Sec. 447.505.
In the COD final rule, we addressed a comment to our proposal to
make revisions to the determination of best price, and specify which
prices are included in best price. The comment requested that CMS
further adopt a policy with regard to the practice of a manufacturer
stacking two different price concessions provided to two different
entities, such that under these circumstances, the best price for a
drug should reflect all rebates and payments associated with a
transaction of a covered outpatient drug to a particular customer. (See
81 FR 5252.) In response to the commenter's request, we indicated that
a manufacturer is responsible for including all price concessions that
adjust the price realized by the manufacturer for the drug in its
determination of best price. We also explained that if a manufacturer
offers multiple price concessions to two entities for the same drug
transaction, such as rebates to a PBM where the rebates are designed to
adjust prices at the retail or provider level, in addition to discounts
to a retail community pharmacy's final drug price, all discounts
related to that transaction which adjust the price available from the
manufacturer should be considered in the final price of that drug when
determining best price (81 FR 5252 through 5253).
In the COD final rule with comment, we made minor revisions to the
regulatory text at Sec. 447.505(b) by deleting the reference to
``associated'' rebate and discounts and inserting a reference to
``applicable discounts, rebates'' so that it presently reads that the
best price for CODs includes all prices, including applicable
discounts, rebates or other transactions that adjust prices either
directly or indirectly to the best price-eligible entities listed in
Sec. 447.505(a).
We addressed the question regarding stacking in the response to
comments in the COD final rule, specifying that if multiple price
concessions are provided to two entities for the same drug transaction,
all discounts related to that transaction which adjust the price
available from the manufacturer should be considered when determining
best price. However, we did not revise or propose to revise the
regulation text at Sec. 447.505(d)(3) to address stacking in such
detail. Section 447.505(d)(3) currently indicates that the manufacturer
must adjust the best price for a rebate period if cumulative discounts,
rebates or other arrangements subsequently adjust prices available, to
the extent that such cumulative discounts, rebates or other
arrangements are not excluded from the determination of best price by
statute or regulation.
However, in the case United States ex rel. Sheldon v. Allergan
Sales, LLC., a relator alleged that a drug manufacturer failed to
aggregate discounts provided to separate customers for purposes of
determining best price, and the manufacturer argued that the stacking
requirement was not sufficiently clear. The district court granted
Allergan's motion to dismiss, ruling that relator failed to plausibly
allege either falsity or knowledge because Allergan's interpretation
``is objectively reasonable'' and CMS' rule had not specifically warned
against it. On appeal, a panel of the United States Court of Appeals
for the Fourth Circuit stated that, in that case, the drug manufacturer
had not been ``warned . . . by the authoritative guidance from CMS''
and that CMS had ``failed to clarify'' the stacking issue.\24\ The
Government filed an amicus brief supporting the relator's petition for
rehearing en banc, which the Fourth Circuit granted. Following
argument, the Fourth Circuit issued its decision with no substantive
opinion that vacated the prior panel decision and affirmed the district
court by an equally divided court.
---------------------------------------------------------------------------

\24\ United States ex rel. Sheldon v. Allergan Sales, LLC, 24
F.4th 340, 351, 354 (4th Cir. 2022), reh'g en banc granted, No. 20-
2330, 2022 WL 1467710 (4th Cir. May 10, 2022).
---------------------------------------------------------------------------

As noted, section 1927(c)(1)(C) of the Act defines the term ``best
price'' to mean with respect to a single source drug or innovator
multiple source drug of a manufacturer (including the lowest price
available to any entity for any such drug of a manufacturer that is
sold under a new drug application approved under section 505(c) of the
Federal Food, Drug, and Cosmetic Act), the lowest price available from
the manufacturer during the rebate period to any wholesaler, retailer,
provider, health maintenance organization, nonprofit entity, or
governmental entity within the United States. We interpreted this
section expansively as the statute refers to a manufacturer's lowest
price ``available'' ``to any'' entity on this statutory list. That is,
if a manufacturer provides a discount to a wholesaler, then a rebate to
the provider who dispensed the drug unit, and then another rebate to
the insurer who covered that drug unit, CMS has concluded that ``best
price'' must include (or ``stack'') all the discounts and rebates
associated with the final price, even if the entity did not buy the
drug directly from the manufacturer. By stacking, best price reflects
the lowest realized price at which the manufacturer made that drug unit
available. We also note that manufacturers are required to take rebates
into account for multiple entities when calculating AMP, and for
logical reasons, best price should do so as well, since including them
in AMP and not accounting for them in best price could result in AMP
being lower than best price.
Therefore, to remove any potential doubt prospectively, we are
proposing to revise Sec. 447.505(d)(3) to add to the existing
regulatory statement that the manufacturer must adjust the best price
for a covered outpatient drug for a rebate period if cumulative
discounts, rebates or other arrangements to best price eligible
entities subsequently adjust the price available from the manufacturer
for the drug. We are adding the clarifying statement that cumulative
discounts, rebates or other arrangements must be stacked to generate a
final price realized by the manufacturer for a covered outpatient drug,
including discounts, rebates or other arrangements provided to
different best price eligible entities.

E. Proposal To Rescind Revisions Made by the December 31, 2020 Final
Rule to Determination of Best Price (Sec. 447.505) and Determination
of Average Manufacturer Price (AMP) (Sec. 447.504) Consistent With
Court Order

Pharmaceutical manufacturers have provided purported financial
assistance payments (for example, in the form of copay coupons) to
patients for purposes of paying the patient cost obligation of certain
drugs.

[[Page 34261]]

On June 19, 2020, CMS proposed regulations to address the effect of
PBM accumulator adjustment programs on best price calculations (85 FR
37286) in relation to these purported manufacturer financial assistance
payments by instructing manufacturers on how to consider the
implementation of such programs when determining best price and AMP for
purposes of the Medicaid Drug Rebate Program (MDRP). In particular, CMS
proposed revising its regulations to provide that the exclusions for
manufacturer's financial assistance payments ``apply only to the extent
the manufacturer ensures the full value of the assistance or benefit is
passed on to the consumer or patient'' (85 FR 37299). On December 31,
2020, CMS finalized its proposed revisions (85 FR 87000, 87048 through
87055, and 87102 through 87103). The final rule codified the proposed
language to require that ``the manufacturer ensures that the full
value'' of the assistance or benefit is passed on to the consumer or
patient to exclude that assistance or benefit to an insured patient
from the manufacturer's best price calculation and AMP. The final rule
also delayed the effective date of the change until January 1, 2023, to
``give manufacturers time to implement a system that will ensure the
full value of assistance under their manufacturer-sponsored assistance
program is passed on to the patient.''
In May 2021, the Pharmaceutical Research and Manufacturers of
America (PhRMA) filed a complaint against the Secretary asking the
court to vacate these amendments to Sec. 447.505(c)(8) through (11)
(85 FR 87102 and 87103), as set forth in the 2020 final rule (referred
to by the Court as ``the accumulator adjustment rule of 2020''). On May
17, 2022, the United States District Court for the District of Columbia
ruled in favor of the plaintiff and ordered that the accumulator
adjustment rule of 2020 be vacated and set aside.
In response to this court order, we propose to withdraw the changes
made to best price and to also withdraw the changes to AMP to apply
consistent rules for determining best price and AMP. Therefore, we
propose to remove the language added to these sections as part of the
2020 final rule: Sec. Sec. 447.504(c)(25) through (29) and (e)(13)
through (17) and 447.505(c)(8) through (12). See 85 FR 87102 and 87103.
Specifically, we would remove ``the manufacturer ensures'' from these
provisions. As a result, these regulations would maintain the language
that has been in place since 2016. To be clear, the changes to these
regulations made by the 2020 final rule on January 1, 2023, were not
effective as a result of the court's order.

F. Drug Classification; Oversight and Enforcement of Manufacturer's
Drug Product Data Reporting Requirements--Proposals Related to the
Calculation of Medicaid Drug Rebates and Requirements for Manufacturers
(Sec. Sec. 447.509 and 447.510)

1. Medicaid Drug Rebates (MDR) and Penalties (Sec. 447.509)
Section 6 of the MSIAA, titled ``Preventing the Misclassification
of Drugs Under the Medicaid Drug Rebate Program,'' amended sections
1903 and 1927 of the Act to clarify the definitions for multiple source
drug, single source drug and innovator multiple source drug, and to
provide the Secretary with additional compliance, oversight and
enforcement authorities to ensure compliance with program requirements
with respect to manufacturers' reporting of drug product and pricing
information, which includes the appropriate classification of a drug.
Drug classification refers to how a drug should be classified--as a
single source, innovator multiple source, or noninnovator multiple
source drug--for the purposes of determining the correct rebates that a
manufacturer owes the States.\25\ When manufacturers misclassify their
drugs in the rebate program, it can result in manufacturers paying
rebates to States that are different than those that are supported by
statute and regulation, and in some cases, can result in the
manufacturer paying a lower per-unit rebate amount to the States.
---------------------------------------------------------------------------

\25\ Note that section 1927(c)(3) of the Act describes rebates
for covered outpatient drugs other than single source and innovator
multiple source drugs in section 1927(c)(3) of the Act as ``rebates
for other drugs.'' The MDRP reporting system provides for all
``other drugs'' that are covered outpatient drugs to be classified
in the system as N drugs, regardless of whether they expressly meet
the statutory definition of noninnovator multiple source drug. This
reporting methodology has been in effect for the history of the
program and interested parties have understood that a covered
outpatient drug that was not an S or an I drug is reported in the
system as an N drug.
---------------------------------------------------------------------------

Specifically, section 1927(c)(4)(A) of the Act, ``Recovery of
Unpaid Rebate Amounts due to Misclassification of Drugs,'' was added to
the statute to provide new authorities to the agency to identify and
correct a manufacturer's misclassification of a drug, as well as impose
other penalties on manufacturers that fail to correct their
misclassifications. In general, a misclassification in the MDRP occurs
when a manufacturer reports and certifies its covered outpatient drug
under a drug category, or uses drug product information, that is not
supported by the statutory and regulatory definitions of S, I, or N.
We published guidance to manufacturers regarding compliance with
drug pricing and drug product information reporting under this new law
in Manufacturer Release #113 on June 5, 2020. See https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf.
Although much of this law is self-implementing, we are proposing a
series of regulatory amendments at Sec. Sec. 447.509 and 447.510 to
implement and codify the statutory changes in regulation. We propose
that a misclassification of a drug under the MDRP has occurred or is
occurring when a manufacturer reports its drug under a category that is
not supported by the statutory and regulatory definitions of S, I, or
N. A misclassification can also occur when a manufacturer's drug is
appropriately classified, but the manufacturer is paying rebates at a
different amount than required by the statute, or where the drug
manufacturer's certified drug product information for the COD is also
inconsistent with statute and regulation.
The MSIAA also amended the Act to expressly require a manufacturer
to report not later than 30 days after the last day of each month of a
rebate period under the agreement, such drug product information as the
Secretary shall require for each of the manufacturer's covered
outpatient drugs. In a separate section, we are proposing a definition
of ``drug product information'' for the purposes of the MDRP.
Similarly, the MSIAA amended the Act to clarify that the reporting
of false drug product information and data related to false drug
product information would also be subject to possible CMPs by the HHS
Office of the Inspector General (OIG), and to provide specific new
authority to the Secretary to issue civil monetary penalties related to
knowing misclassifications of drug product or misreported information.
These new OIG authorities will not be the subject of this rulemaking.
Under the MSIAA, if a manufacturer fails to correct the
misclassification of a drug in a timely manner after receiving
notification from the agency that the drug is misclassified, in
addition to the manufacturer having to pay past unpaid rebates to the
States for the misclassified drug if applicable, the Secretary can take
any or all of the following actions: (1) correct the misclassification,
using drug product information provided by the manufacturer on behalf
of the manufacturer; (2) suspend the misclassified drug, and the drug's
status as a covered outpatient drug under the

[[Page 34262]]

manufacturer's national rebate agreement, and exclude the misclassified
drug from FFP (correlating amendments to section 1903 of the Act); and,
(3) impose civil monetary penalties (CMP) for each rebate period during
which the drug is misclassified subject to certain limitations. The Act
expressly provides that the imposition of such penalties may be in
addition to other remedies, such as termination from the MDRP, or CMPs
under Title XI.
In Sec. 447.509, we propose to include a new paragraph (d),
``Manufacturer misclassification of a covered outpatient drug and
recovery of unpaid rebate amounts due to misclassification and other
penalties,'' to implement additional penalty and compliance authorities
outlined in section 6 of the MSIAA, which amended sections 1903 and
1927 of the Act. As some manufacturers may continue to misclassify drug
products, we believe these proposed penalties are necessary so that
manufacturers do not neglect to correct and certify their information,
to assure that States receive the rebates that they deserve, to assure
that public MDRP data are accurate, to protect the integrity of the
MDRP, and to ensure the efficient and economic administration of the
Federal Medicaid program.
Under the MDRP, a drug should be classified as a single source,
innovator multiple source, or noninnovator multiple source drug for the
purposes of determining the correct rebates that a manufacturer owes
the States. We propose that a misclassification in the MDRP occurs when
a manufacturer reports and certifies its covered outpatient drug under
a drug category or other drug product data related to a COD that is not
supported by the statutory and regulatory definitions of S, I, or N. We
also propose to define as a misclassification a situation in which the
manufacturer accurately reports and certifies its COD under a drug
category or other related drug product data for a COD, but is paying a
different rebate amount than that required by the statute and
regulations. The statute expressly indicates at section 1927(d)(4) of
the Act that a misclassification can occur without regard to whether
the manufacturer knowingly made the misclassification or should have
known that the misclassification was being made.
It is the legal responsibility of the manufacturer to report and
certify the correct classification of its covered outpatient drugs to
the agency, and the drug product information related to a COD. The
agency does not as a routine matter review or verify the drug category
classifications and related drug product information reported and
certified by the manufacturer. However, in its oversight role, the
agency will review the classification and other drug product and
pricing information reported by the manufacturer for a drug to
determine its accuracy, as needed. For example, when questions arise,
the agency will generally review the drug product and pricing
information reported and certified by a manufacturer. To this end, we
generally rely upon various sources of information to determine if a
drug is misclassified in the MDRP. This includes information reported
by manufacturers to CMS in combination with publicly available
information in making determinations of whether a drug is misclassified
in the MDRP. The agency also uses manufacturer reported information,
such as the COD status code, in combination with information available
on the FDA's Comprehensive NDC SPL Data Elements file (NSDE) https://download.open.fda.gov/Comprehensive_NDC_SPL_Data_Elements_File.zip, and
information from FDA's [email protected] web page https://www.accessdata.fda.gov/scripts/cder/daf/ to verify that the national
drug codes (NDCs) reported to the MDRP by manufacturers are
appropriately classified and reported to MDRP.
Therefore, we propose in the new Sec. 447.509(d), the following
process to identify, notify and correct a manufacturer's drug category
misclassifications, and impose other penalties, while at the same time
notifying the HHS OIG and/or other governmental agencies about possible
violations of MDRP requirements.
a. Identification and Notification to Manufacturer To Correct
Misclassification (Sec. 447.509(d)(1) Through (4))
We are proposing in new paragraphs (d)(1) through (4) of Sec.
447.509, requirements relating to the process by which the agency would
identify when a misclassification of a drug has occurred in MDRP,
subsequently notify a manufacturer that we have determined that a drug
is misclassified in MDRP, indicate the penalties that may be imposed on
the manufacturer, as well that the manufacturer may owe past due
rebates.
We propose to define what constitutes a misclassification in
paragraph (d)(1). As proposed at Sec. 447.509(d)(1)(i),
misclassification in the MDRP occurs when a manufacturer reports and
certifies to the agency its drug category or drug product information
related to a covered outpatient drug that is not supported by
applicable statute or regulation. For example, a drug is misclassified
by the manufacturer if it is reported as a noninnovator multiple source
drug when the correct classification for the COD, as determined by the
agency, is a single source drug or an innovator multiple source drug,
based on application of relevant statutes and regulations. In such an
example, it is likely that the manufacturer has paid or is paying a
lower per unit rebate amount to a State as a result of the
misclassification, and the agency would notify the manufacturer as part
of the communication regarding the misclassification that rebates are
owed to the States.
However, there may be circumstances where a manufacturer is
reporting its drug as a S or I drug, when the appropriate category is a
N drug. For example, a manufacturer may be categorizing a non-
prescription drug as a brand drug, when it should be classified as a
noninnovator drug for the purposes of MDRP. These situations would be
considered misclassifications as well. These situations may result in
States needing to pay rebates back to the manufacturer, which creates
recordkeeping and fiscal issues for the States, as well as the need for
the States to request FFP from the Federal Government to pay its share
of the rebates that are due back to the manufacturer. There are two-
year timely claims filing deadlines under section 1132(A) of the Act,
which may prohibit States from claiming FFP in these situations.
A manufacturer may also have reported and certified an incorrect
base date AMP to calculate its inflation penalty rebates, thus paying
overall lower rebates to the States. This example would also be
considered a misclassification under paragraph (d)(1)(i), as the
incorrect drug product information related to a COD is being used by
the manufacturer.
We also propose in Sec. 447.509(d)(1)(ii) that a misclassification
includes a situation where a manufacturer has correctly reported and
certified its drug classification as well its drug product information
for a COD, but is paying rebates to States at a level other than that
supported by statute and regulation applicable to the reported and
certified data. For example, if a manufacturer is correctly reporting
and certifying a COD as an S or I drug, but paying rebates that would
be expected for that of an N drug, we would consider that to be a
misclassification as well. Note that while the statute and regulations
specify that rebates are paid to States based on classifications of
CODs as S, I, or ``other

[[Page 34263]]

drugs'', the MDP system only allows for the classification of CODs as
S, I, or N. The N category would include any drug that is not an S or
I, which may include non-prescription drugs. Manufacturers should
assure that those drugs that are classified as N in the MDP system are
drugs other than S or I drugs.\26\
---------------------------------------------------------------------------

\26\ Since the beginning of the MDRP, the term noninnovator
multiple source drug, and its abbreviation (N), has been used very
generally to identify a covered outpatient drug other than a single
source drug or an innovator multiple source drug. The rebate is
calculated using the same formula for all drugs other than a single
source drug or an innovator multiple source drug, including both
those that satisfy the definition of noninnovator multiple source
drug and those that do not. Therefore, manufacturers are to report
all of their drugs other than a single source drug or an innovator
multiple source drug and identify them with the drug category of N,
regardless if they satisfy the statutory definition of noninnovator
multiple source drug.
---------------------------------------------------------------------------

We propose at Sec. 447.509(d)(2) that if the agency makes a
determination of a misclassification, the agency would send a written
and electronic notification to the manufacturer that misclassified a
drug of such misclassification, and any past rebates due, and the
manufacturer would have 30 calendar days from date of the notification
to submit to the agency the drug product and pricing information
necessary to correct the misclassification or the incorrect product
information, and calculate rebate obligations. If the manufacturer
misclassified the drug as an N when it should have been an S or I, then
the data submitted to the agency must include the drug's ``best price''
data for the period or periods during which it was misclassified. Once
the information is changed in the MDP, the manufacturer must certify
the data.
Upon receipt from the manufacturer of the requested corrected
information as proposed in Sec. 447.509(d)(2), we propose in Sec.
447.509(d)(4) to review the information submitted by the manufacturer
in response to the notice sent under proposed Sec. 447.509(d)(2) to
ensure consistency with published drug product information, and if the
manufacturer fails to correct the misclassification, fails to certify
applicable pricing and product data, and/or fails to pay rebates due as
a result of misclassification in the timeframes proposed, we propose
the enforcement actions the agency may further take. Upon notification
by CMS that the manufacturer's information was updated in the system,
we propose that the manufacturer certify the applicable price and drug
product data. The proposed time period the manufacturer has to correct
the misclassification, and respond to the agency's request to certify
the information in the system, is 30 calendar days from the date of the
original notification to the manufacturer of the misclassification.
The determination made by CMS and notification provided by CMS to
the manufacturer as a result of the process proposed in Sec.
447.509(d) regarding misclassification is limited by the information
available to CMS and is specific to the facts and circumstances for
each scenario. It does not release the manufacturer from any additional
liabilities, or preclude actions against manufacturers by HHS, OIG,
DOJ, or otherwise.
b. Manufacturer Payment of Unpaid Rebates Due to Misclassification
(Sec. 447.509(d)(3))
As required in section 1927(c)(4)(A) of the Act, the manufacturer
is required to pay unpaid rebates to the State for a misclassified drug
in an amount equal to the product of the difference of the URA paid to
the State for the period, and the URA that the manufacturer would have
paid to the State for the period, as determined by the agency, if the
drug had been correctly classified or correctly reported by the
manufacturer, or the drug product information had been reported
correctly, and the total units of the drug paid for under the State
Plan in the rebate period(s).
Therefore, once we determine that a misclassification has occurred
in Sec. 447.509(d)(1) and notify the manufacturer of the
misclassification in accordance with the proposed process steps at
Sec. 447.509(d)(2), we are proposing in Sec. 447.509(d)(3) the
process by which manufacturers would pay unpaid rebates to the States
resulting from a misclassification of a drug in the MDRP.
Specifically, we propose at Sec. 447.509(d)(3) that when the
agency determines that a misclassification of COD occurs as proposed
under Sec. 447.509(d)(1), and notification has been provided to the
manufacturer as proposed under Sec. 447.509(d)(2), a manufacturer
shall pay to each State an amount equal to the sum of the products of
the difference between: the per URA paid by the manufacturer for the
COD to the State for each period during which the drug was
misclassified, and the per URA that the manufacturer would have paid to
the State for the COD for each period, as determined by the agency
based on the data provided by the manufacturer under proposed paragraph
(d)(2), if the drug had been correctly classified by the manufacturer,
multiplied by the total units of the drug paid for under the State Plan
in each period.
Consistent with section 1927(d)(4)(A) of the Act, we are proposing
regulatory text in Sec. 447.509(d)(3)(i) that requires manufacturers
to pay these unpaid rebates amounts. We are also proposing to codify at
Sec. 447.509(d)(3) the time frame by which the manufacturer shall pay
such unpaid rebates to the States for the period or periods of time
that such COD was misclassified, based upon the proposed URA provided
to the States by the agency for the unpaid rebate amounts. We are
proposing to include a regulatory provision that requires such rebates
be paid to the States by the manufacturer within 60 calendar days of
the date of the notice that is sent by the agency to the manufacturer
indicating that the drug is misclassified, and specifies that it is the
manufacturer's burden to contact the States and pay the rebates that
are due. We are also proposing that a manufacturer would be required to
provide documentation to the agency that all past due rebates have been
paid to the States within the 60 calendar day timeframe.
c. Agency Authority To Correct Misclassifications and Additional
Penalties for Drug Misclassification (Sec. 447.509(d)(4))
Consistent with section 1927(c)(4)(B) of the Act, which provides
the authority to the Secretary to correct drug misclassifications in
the system and impose other penalties, we propose to add Sec.
447.509(d)(4), allowing CMS to correct the drug's misclassification on
behalf of the manufacturer, as well as provide a plan of action for
enforcement against the manufacturer. Specifically, we propose at Sec.
447.509(d)(4) that the agency would review the information submitted by
the manufacturer based on the notice sent under proposed paragraph
(d)(2), and if a manufacturer fails to correct the misclassification
within 30 calendar days from the date of the notification of the
misclassification by the agency to the manufacturer, fails to certify
applicable pricing and drug product data, and/or fails to pay the
rebates that are due to the States as a result of the misclassification
within 60 calendar days of receiving such notification, the agency may
do any or all of the following:
Correct the misclassification of the drug in the system,
using any pricing and drug product information that may have been
provided by the manufacturer, on behalf of the manufacturer;
Suspend the misclassified drug, and the drug's status as a
COD under the manufacturer's rebate agreement from the MDRP, and
exclude the

[[Page 34264]]

misclassified drug from FFP in accordance with section 1903(i)(10)(E)
of the Act;
Impose a Civil Monetary Penalty (CMP) for each rebate
period during which the drug is misclassified, not to exceed an amount
equal to the product of:
++ The total number of units of each dosage form and strength of
such misclassified drug paid for under any State Plan during such a
rebate period; and
++ 23.1 percent of the AMP for the dosage form and strength of such
misclassified drug for that period.
Also, we propose at Sec. 447.509(d)(4)(iv) to indicate that, in
addition to the actions described previously in this proposed rule, we
may take other actions or seek additional penalties that are available
under section 1927 of the Act (or any other provision of law), against
manufacturers that misclassify their drugs including referral to the
HHS OIG and termination from the MDRP. Section 1927(b)(4)(B)(i) of the
Act provides that the Secretary may terminate a manufacturer from the
program for violation of the rebate agreement or other good cause.
Furthermore, section 1927(c)(4)(D) of the Act indicates that other
actions and penalties against a manufacturer for misclassification of a
drug include termination from the program.
Therefore, we propose that a manufacturer is subject to termination
from the program if it fails to meet agency's specifications for
participation in the MDRP program as proposed when it is in violation
of section 1927(b)(4)(B)(i) or 1927(c)(4)(D) of the Act, which includes
failing to correct misclassified drugs as identified to the
manufacturer by the agency, and continuing to have one or more drugs
suspended from MDRP because of the lack of certification of the correct
drug classification data in the system.
We note that as provided in section 1927(b)(4)(C) of the Act, a
manufacturer with a terminated NDRA is prohibited from entering into a
new NDRA for a period of not less than one calendar quarter from the
effective date of the termination until all of the above or any
subsequently discovered violations have been resolved, unless the
Secretary finds good cause for an earlier reinstatement. In accordance
with section 1927(b)(4)(B)(ii) of the Act, and section VII.(e) of the
NDRA, termination shall not affect the manufacturer's liability for the
payment of rebates due under the agreement before the termination
effective date. Consequently, invoicing by States may continue beyond
the manufacturer's termination from the program for any utilization
that occurred prior to the effective date of the termination.
In addition to affecting Medicaid coverage of a manufacturer's
drugs, the termination of the manufacturer's NDRA may impact the
coverage of the drugs under the Medicare Part B program as well as the
340B Drug Pricing Program. Alternatively, we propose that suspension of
a drug under this section as a COD would not affect its status as a
reimbursable drug under the 340B Drug Pricing Program or Medicare Part
B.
d. Transparency of Manufacturer Misclassification (Sec. 447.509(d)(5))
Section 1927(c)(4)(C)(i) and (ii) of the Act requires information
on CODs that have been identified as misclassified be reported to
Congress on an annual basis, and that the annual report be made
available to the public on a public website. Therefore, we propose to
add new paragraph (d)(5) to Sec. 447.509 to indicate that the agency
would make available on a public website an annual report as required
under section 1927(d)(4)(C)(ii) of the Act on the COD(s) that were
identified as misclassified during the previous year. This report would
include a description of any steps taken by the agency with respect to
the manufacturer to reclassify the drugs, ensure the payment by the
manufacturer of unpaid rebate amounts resulting from the
misclassifications, and disclose the use of the expenditures from the
fund created in section 1927(b)(3)(C)(iv) of the Act.
2. Proposed Requirements for Manufacturers Relating to Drug Category--
Requirements for Manufacturers (Sec. 447.510)
To implement section 1927(c)(4) of the Act, we propose to rename
Sec. 447.510 as ``Requirements and penalties for manufacturers''.
a. Suspension of Manufacturer NDRA for Late Reporting of Pricing and
Drug Product Information (Sec. 447.510(i))
In accordance with section 1927(b)(3)(C)(i) of the Act, we propose
to add paragraph (i) to Sec. 447.510 to describe the process by which
the suspension of a manufacturer's NDRA would occur when a manufacturer
fails to report timely information, which includes drug pricing and
drug product information, as described in section 1927(b)(3)(A) of the
Act, which also includes the reporting timeframes for such information.
This drug product and pricing information includes, but is not limited
to AMP, best price, and drug product information as described in the
proposed definition of drug product information included in this rule.
Specifically, the new paragraph Sec. 447.510(i)(1) proposes that
if a manufacturer fails to provide timely information required to be
reported to the agency under Sec. 447.510(a) and (d) of this section,
the agency would provide written notice to the manufacturer of the
failure to provide timely information. If such information is not
reported within 90 calendar days of a deadline determined by the
agency, and communicated to the manufacturer electronically and in
writing by the agency, it shall result in suspension of the
manufacturer's rebate agreement for all CODs furnished after the end of
the 90-calendar day period for purposes of Medicaid and the MDRP only,
and the rebate agreement shall remain suspended for Medicaid until such
information is reported in full and certified, but not for a period of
suspension of less than 30 calendar days. This section also proposes
that continued suspension of the rebate agreement could result in
termination for cause.
During the period of the suspension, the CODs of the manufacturer
are not eligible for Medicaid coverage or reimbursement and Medicaid
FFP. However, the manufacturer must continue to offer its CODs for
purchase by 340B eligible entities, and reimbursement availability for
such drugs under Medicare Part B would not change because, while
suspended for purposes of the MDRP, the Medicaid drug rebate agreement
with the manufacturer would remain in effect for purposes of Medicare
Part B reimbursement and the 340B Drug Pricing Program.
Under proposed Sec. 447.510(i)(2), the agency would notify the
States 30 calendar days before the effective date of the manufacturer's
suspension, which is 60 calendar days after the notice is sent to the
manufacturer that the data are late. If a manufacturer fails to report
and certify the complete information within this 30-calendar day period
before the suspension begins, they would continue to be suspended from
the program until such information is reported and certified, and would
be subject to termination of the manufacturer rebate agreement.
We understand that suspension of a manufacturer's agreement, and
loss of the availability of FFP for a period of time, would likely mean
that these manufacturers' drugs would not be available to Medicaid
beneficiaries during the period of the suspension. We would give States
sufficient time before

[[Page 34265]]

the suspension begins--30 calendar days--to work with beneficiaries and
their prescribers to transition to other covered outpatient drugs that
would meet the clinical needs of the beneficiaries during the
suspension period. We believe that the intermediate step of suspension
rather than termination should be sufficient incentive to manufacturers
to report pricing and product information within the statutory and
regulatory requirements, without initially resorting to termination,
which means that a manufacturer's drug could be unavailable to
beneficiaries for a possible longer period of time.
We believe this proposed process provides clearer implementation of
the statutory authority to suspend a manufacturer's rebate agreement in
the event of a failure to provide timely information, and would
hopefully incentivize manufacturers to ensure the timely reporting of
pricing and drug product information, which would further the efficient
and economic operation of the MDRP.
For example, every month it is common that several manufacturers
either do not report or only partially report their AMP data to the
agency, which are used to calculate the Federal Upper Limits (FULs) for
multiple source drugs, among other purposes. Such conduct reduces the
agency's ability to set FULs on Medicaid payment for certain drugs,
which means States may spend more money on multiple source drugs than
they otherwise should. As a standard practice, we already notify these
manufacturers that they are late in reporting or only have partially
reported their information, and we also provide information about late
reporting by manufacturers to OIG for possible imposition of CMPs. We
consider partial reporting of information to also be late reporting, as
the information that was not reported is late.
Consistent with the proposed clarification to the definition of
manufacturer, the proposed suspension of the manufacturer's NDRA would
be applied to all the associated labeler rebate agreements of the
manufacturer.

G. Proposals Related to Amendments Made by the American Rescue Act of
2021--Removal of Manufacturer Rebate Cap (100 Percent AMP)

Section 9816 of the American Rescue Plan Act of 2021 sunsets the
limit on maximum rebate amounts for single source and innovator
multiple source drugs by amending section 1927(c)(2)(D) of Act by
adding ``and before January 1, 2024,'' after ``December 31, 2009''. In
accordance with section 1927(c)(3)(C)(i) of the Act and the special
rules for application of provision in sections 1927(c)(3)(C)(ii)(IV)
and (V) of the Act, this sunset provision also applies to the limit on
maximum rebate amounts for CODs other than single source or innovator
multiple source drugs.
Section 2501(e) of the Affordable Care Act amended section
1927(c)(2) of the Act by adding a new subparagraph (D) and established
a maximum on the total rebate amount for each single source or
innovator multiple source drug at 100 percent of AMP, effective January
1, 2010. This limit on maximum rebate amounts was codified at Sec.
447.509(a)(5) for single source and innovator multiple source drugs,
effective January 1, 2010. This limit was later extended to apply to
drugs other than single source or innovator multiple source drugs by
section 602 of the Bipartisan Budget Act of 2015 (Pub. L. 114-74,
enacted November 2, 2015) (BBA 2015), which amended section 1927(c)(3)
of the Act to require that manufacturers pay additional rebates on such
drugs if the AMPs of the drug increase at a rate that exceeds the rate
of inflation. This provision of BBA 2015 was effective beginning with
the January 1, 2017 quarter, and the limit on maximum rebates for drugs
other than single source or innovator multiple source drugs was added
at Sec. 447.509(a)(9).
Therefore, to conform Sec. 447.509 with section 1927(c)(2)(D) of
the Act, as amended by the American Rescue Plan Act of 2021, and
sections 1927(c)(3)(C)(i), (ii)(IV), and (ii)(V) of the Act, we are
proposing to make conforming changes to Sec. 447.509 to reflect the
removal of the maximum rebate amounts for rebate periods beginning on
or after January 1, 2024. Specifically, we propose to amend Sec.
447.509(a)(5) and (9) to state that the limit on maximum rebate amounts
applies to certain time frames, which for all drugs, ends on December
31, 2023. That is, no maximum rebate amount would apply to rebate
periods beginning on or after January 1, 2024.

H. Proposal To Clarify Sec. 447.509(a)(6), (7), (8), and (9) and
(c)(4) With Respect to ``Other Drugs''

Section 1927(c) of the Act describes how the unit rebate amount
(URA) is determined for a covered outpatient drug. There is a defined
calculation of the applicable basic rebate and additional rebate for a
covered outpatient drug that is either a single source drug or
innovator multiple source drug at sections 1927(c)(1) and (2) of the
Act, and a different defined calculation for ``other drugs,'' that is,
a covered outpatient drug that is a drug other than a single source
drug or an innovator multiple source drug at section 1927(c)(3) of the
Act.
Section 1927(c)(3) of the Act, titled ``Rebate for other drugs,''
describes in subsections (c)(3)(A) and (B) the basic rebate calculation
for covered outpatient drugs other than single source drugs and
innovator multiple source drugs. Section 1927(c)(3)(C) of the Act
describes the additional rebate calculation for a covered outpatient
drug other than a single source drug or an innovator multiple source
drug. Thus, the statute makes it clear that rebates are applicable to
all covered outpatient drugs, whether they are single source drugs,
innovator multiple source drugs, or drugs other than such drugs.
Manufacturers are required to report all of their covered
outpatient drugs in our MDRP reporting system and must select the
appropriate drug category for each (that is, S, I, or N). Since the
beginning of the MDRP, the term noninnovator multiple source drug, and
its abbreviation (N), have been used very generally to identify a
covered outpatient drug other than a single source drug or an innovator
multiple source drug in our system for operational purposes. Choosing N
in our reporting system thus can result in capturing drugs that satisfy
the statutory definition of an N drug, but also other drugs that are
not single source or innovator multiple source drugs. Because
manufacturers are to report all of their covered outpatient drugs and
identify the applicable drug category, all covered outpatient drugs
other than a single source drug or an innovator multiple source drug
should be identified with the drug category of N, regardless if they
satisfy the definition of noninnovator multiple source drug.
In the July 17, 2007 final rule, we finalized a definition for
``noninnovator multiple source drug'' to clarify the distinction
between multiple source drugs approved under an abbreviated new drug
application (ANDA) and multiple source drugs approved under a new drug
application (NDA). We also finalized that the term includes a drug that
entered the market prior to 1962 that was not originally marketed under
an NDA (72 FR 39162).
Over the years, interested parties too have used the term
``noninnovator multiple source drug'' synonymously with ``a covered
outpatient drug that is a drug other than a single source drug or an
innovator multiple source drug.'' However, the statute specifically
defines ``noninnovator multiple source drug'' at section
1927(k)(7)(iii) of the Act as a multiple source drug that is not an

[[Page 34266]]

innovator multiple source drug. The regulatory definition of
noninnovator multiple source drug goes beyond this statutory definition
but does not capture every covered outpatient drug that is something
other than a single source drug or an innovator multiple source drug
because not every ``other drug'' is a multiple source drug. As a
result, ``other drugs'' and ``noninnovator multiple source drugs'' are
not synonymous. While the terms are not synonymous, they are treated so
for purposes of reporting the COD in the MDRP system, as ``other
drugs'' should be classified as N, if not an S or I drug.
As noted previously, the statute makes it clear that rebates apply
to all covered outpatient drugs, regardless if they are single source
drugs, innovator multiple source drugs or something other than a single
source drug or innovator multiple source drug. To align our
longstanding policy and practices of identifying ``other drugs
referenced in section 1927(c)(3) of the Act as N drugs, for purposes of
the MDRP, we are proposing to modify language in Sec. 447.509 by
replacing each appearance of ``noninnovator multiple source drug(s)''
with ``drug(s) other than a single source drug or an innovator multiple
source drug.'' \27\
---------------------------------------------------------------------------

\27\ Drugs other than single source drugs and innovator multiple
source drugs should continue to be reported in the MDRP system with
the drug category of ``N''.
---------------------------------------------------------------------------

We propose to delete each appearance of ``noninnovator multiple
source drug(s)'' in Sec. 447.509 and replace it with ``drug other than
a single source drug or innovator multiple source drug(s).'' The
clarification is proposed to be made in Sec. 447.509(a)(6), (7), (8),
and (9) and (c)(4), and the language would change as set out in the
proposed regulatory text at the end of the document.
In paragraph (a)(8), we would specify the ``total
rebate''. Specifically, the total rebate amount for a drug other than a
single source drug or innovator multiple source drug is equal to the
basic rebate amount plus the additional rebate amount, if any.
In paragraph (a)(9), we would specify the ``limit on
rebate''. Specifically, in no case would the total rebate amount exceed
100 percent of the AMP for a drug other than a single source drug or
innovator multiple source drug.
In paragraph (c)(4), we would specify that for a drug
other than a single source drug or innovator multiple source drug, the
offset amount is equal to 2.0 percent of the AMP (the difference
between 13.0 percent of AMP and 11.0 percent of AMP).

I. Proposal To Establish a 12-Quarter Rebate Audit Time Limitation
(Sec. 447.510)

In accordance with sections 1927(b)(1) and 1927(c) of the Act, and
section II. (b) of the NDRA, manufacturers are required to pay
quarterly rebates to States for the CODs dispensed and paid for under
the State Plan for the rebate period. Section 1927(b)(2)(B) of the Act
provides that a manufacturer may audit the rebate billing information
provided by the State as set forth under section 1927(b)(2)(A) of the
Act on the total number of units of each dosage form, strength and
package size of each COD dispensed and paid for under the State Plan
during a rebate period, and authorizes that adjustments to rebates
shall be made to the extent that the information provided by States
indicates that utilization was greater or less than the amount
previously specified. The statute does not impose a specific timeframe
on a manufacturer's audit authority or limit when adjustments to
rebates may occur.
For the purposes of this proposed regulation, audit authority is
intended to refer to any process a manufacturer is using to seek an
adjustment to utilization data under section 1927(b)(2)(B) of the Act.
That audit authority encompasses many processes for seeking adjustments
in utilization data, including disputes, assessments, reviews and
hearings, and may involve paper procedures, informal phone calls, and
emails or other mechanisms. This proposed provision is intended to
provide a 12-quarter timeline for any of those processes related to
initiation of audits.
Section V. of the NDRA describes how the agency operationalizes the
manufacturer audit authority; that is, it describes the procedures for
dispute resolution once an audit identifies a dispute with the
utilization data (that is, number of units for any given quarter) for
which States are requesting rebates using a rebate invoice. A
manufacturer can dispute State utilization on an original invoice or
initiate a dispute on utilization that was previously paid. See section
V, Dispute Resolution, ``Medicaid Program: Announcement of Medicaid
Drug Rebate Program National Rebate Agreement,'' Final Notice, 83 FR
12770 (Mar. 23, 2018). The audit/dispute resolution processes are
further discussed in a number of manufacturer releases (State Release
177,\28\ State Release 181,\29\ Manufacturer Release 95,\30\
Manufacturer Release 105,\31\ and Manufacturer Release 115 \32\).
---------------------------------------------------------------------------

\28\ https://www.law.cornell.edu/definitions/index.php.
\29\ https://www.cbo.gov/system/files/2020-03/PDPRA-SFC.pdf.
\30\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-095.pdf.
\31\ https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf.
\32\ https://www.accessdata.fda.gov/scripts/cder/daf/.
---------------------------------------------------------------------------

As provided at section 1927(b)(2)(A) of the Act, no later than 60
days of the end of each quarter, States invoice manufacturers for
rebates based on utilization of the manufacturer's drugs in that
quarter (Sec. 447.511(a)). Consistent with section 1927(b)(2)(B) of
the Act, manufacturers may audit State utilization data for their
covered outpatient drugs reported under section 1927(b)(2)(A) of the
Act to determine if the data are accurate and appropriate. If a
manufacturer's review of a quarterly State invoice determines that no
adjustments are necessary, and that the total quarterly rebate amount
can be paid as reflected on the invoice, the manufacturer pays the
total invoiced amount in full. The manufacturer will use identifying
documentation about payment from the State's records which may include,
for example, the labeler code, the labeler name, the quarter and
applicable Federal program(s) covered by the payment, or any other such
pertinent information that would help identify from whom the rebate
payment is being sent and for which quarter and Federal program the
payment applies.
In the event a potential discrepancy with State drug utilization
data on the rebate invoice is discovered for a current period, the
manufacturer will submit a Reconciliation of State Invoice (ROSI) form
to the State, or if such a discrepancy is discovered for a prior rebate
period's invoice after that rebate period has already been invoiced and
paid, the manufacturer will submit a Prior Quarter Adjustment Statement
(PQAS) to the State. When completing the ROSI or the PQAS,
manufacturers must enter the appropriate code(s) to explain the bases
or reasons for any adjustments. Both forms assist in standardizing data
exchange elements and improving communication between manufacturers and
States. Consistent with section 1927(b)(2)(B) of the Act, adjustments
to rebates are made to the extent that the audit results in information
indicating that utilization was greater or less than the amount
previously specified by the State in its rebate invoice, and can result
in manufacturers owing additional rebate

[[Page 34267]]

amounts to the States, or the States owing credits to manufacturers.
In State Release 56 and Manufacturer Release 20, we explained an
adjustment is a correction in the number of units for any given NDC, or
a correction to the unit rebate amount (URA) by the labeler for any
given NDC. We clarified a dispute to mean ``a disagreement between the
labeler and the State regarding the number of units the State invoiced
for any given quarter.'' Consistent with section 1927(b)(2)(B) of the
Act, all disputes must be resolved on a unit basis only, and not on any
other factor (for example, monetary amounts, percentages, etc.) (State
Release 181).
State Release Number 45 sets forth the Dispute Resolution Process
for manufacturers and States to follow when engaged in a dispute. In
that release, we specified that the manufacturer should notify a State
of the disputed data no later than 38 days after the State utilization
data is sent. However, we have been made aware that manufacturers
initiate disputes far past this suggested timeline. For example, States
have reported receiving new disputes on claims from more than 30 years
ago.
Previous OIG reports indicated that manufacturers have initiated
disputes dating back many years. Although the rebate agreement notes
that States and manufacturers should strive to resolve disputes within
a reasonable timeframe, there is no mention of how far back a dispute
can be initiated once a manufacturer receives an invoice.\33\ While
section V. of the NDRA, along with several CMS-issued program releases
address dispute resolution procedures for when a manufacturer
identifies State drug utilization data (SDUD) discrepancies based on
the audit authority at section 1927(b)(2)(B) of the Act, no law or
regulation, provides a specific time limitation for initiating a
dispute over drug utilization data.\34\
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\33\ United States, Congress, Office of Inspector General.
Medicaid Drug Rebate Dispute Resolution Could Be Improved, OEI-05-
11-00580. Available at https://oig.hhs.gov/oei/reports/oei-05-11-00580.pdf.
\34\ https://www.ncpdp.org/NCPDP/media/pdf/WhitePaper/Medicaid-Drug-Rebate-Program-Challenges-Across-the-Industry.pdf?ext=.pdf.
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Section V of the NDRA describes the dispute resolution processes
available to manufacturers and States when a manufacturer discovers a
potential discrepancy with State drug utilization data on the rebate
invoice, when the manufacturer and State in good faith are unable to
resolve prior to the payment due date. As noted above, manufacturers
use the ROSI or PQAS process, and shall use their best efforts to
resolve a dispute within a reasonable timeframe, and if they are not
able to resolve the dispute within a reasonable time frame, CMS will
employ best efforts to ensure the State makes available to
manufacturers (in accordance with Sec. 447.253(e)) and as explained in
State Release 181, the same State hearing mechanism available to
providers for Medicaid payment disputes. The State hearing option is
available to both States and manufacturers when they have reached an
impasse through the normal dispute resolution process, or when one of
the parties is not being responsive to another's efforts to engage in
dispute resolution. Once a hearing has taken place and a finding is
issued, States and manufacturers are expected to act in accordance with
the finding. We believe having an unlimited timeframe to initiate such
disputes on rebates can result in manufacturer, State and Federal
resources being spent to adjudicate excessively old disputes and is not
an efficient use of resources.
Given the lack of timeframe for dispute resolution, both States and
manufacturers have requested greater CMS involvement in resolving
disputes.\35\ More specifically, States have requested we establish a
time limit for when a manufacturer may initiate a dispute. Establishing
a time limit for manufacturers to initiate a dispute concerning State
utilization data on the rebate invoice would promote the timely
identification of outstanding disputes. Having an unlimited period to
initiate disputes is not consistent with the proper and efficient
operation of the rebate program. Due to recalculations involving
hundreds of millions of State and Federal Medicaid dollars involving
years of paperwork, we believe it is essential that a standard
timeframe be established within which disputes are permitted.
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\35\ United States, Congress, Office of Inspector General.
Medicaid Drug Rebate Dispute Resolution Could Be Improved, OEI-05-
11-00580. Available at https://oig.hhs.gov/oei/reports/oei-05-11-00580.pdf.
---------------------------------------------------------------------------

We propose to use our authority under sections 1102 and 1902(a)(4)
of the Act to require efficient handling of disputes by limiting the
period for manufacturers to initiate disputes, hearing requests and
audits concerning State-specified COD utilization data to 12 quarters
from the last day of the quarter from the date of the State invoice.
Section 1102 of the Act requires the Secretary to ``make and publish
such rules and regulations, not inconsistent with this Act, as may be
necessary to the efficient administration of the functions with which
[he or she] is charged'' under the Act.
Consistent with this authority, and with the authority found in
section 1902(a)(4) of the Act, which allows the Secretary to specify
such methods necessary for the proper and efficient operation of the
plan, we are proposing to establish a 12-quarter time limit for
manufacturers to initiate disputes, hearing requests, and audits for
State-invoiced units on current rebates as well as to initiate
disputes, hearing requests, and audits on rebates that have been paid
in full. We are proposing a time limitation to help ensure that
discrepancies are timely identified and resolved, thereby providing
increased financial certainty to manufacturers and States and promoting
the efficient operation of the MDRP. This limitation would only apply
to disputes regarding State drug utilization data on State rebate
invoices. We would continue to work with manufacturers to process
appropriate change requests (for example: COD Status change requests,
Market Date change requests, Base Date AMP change requests, and 5i Drug
Indicator change requests).
We understand this proposal implicates the authority at section
1927(b)(2)(B) of the Act, and would result in adding a time limitation
to a manufacturer's authority to audit information provided by States
under section 1927(b)(2)(A) of the Act. However, we believe that this
proposal and implications to the authority to audit comport with our
policy goals and the authority bestowed by Congress to ensure the
proper and efficient operation of the program.
In considering an approach that is fair for both States and
manufacturers, we believe that a regulation adopted in 2003 provides a
way forward. The ``Medicaid Program; Time Limitation on Price
Recalculations and Recordkeeping Requirements Under the Drug Rebate
Program'' final rule with comment period, 68 FR 51912 (August 29,
2003), set forth a 12-quarter time limitation during which
manufacturers must report changes to average manufacturer price and
best price for purposes of reporting data to CMS.\36\ Establishing a
12-quarter time limitation for manufacturers to initiate disputes
concerning State-invoiced utilization data would align with the
timelines for manufacturers to report changes to data elements relevant
to the calculation of

[[Page 34268]]

MDRP rebate amounts and for manufacturers to initiate disputes
concerning State-supplied utilization data also necessary to the rebate
calculation (Sec. 447.510(b)(1)), and would allow for more efficient
administration of State operated drug rebate programs. This 12-quarter
timeframe would also assist States that would otherwise be required to
retain their drug utilization data indefinitely to verify changes in
rebate amounts resulting from retroactive manufacturer recalculations.
We would also like to specify, whenever we refer to a 3-year timeframe
for disputes, we are interpreting it as 12 quarters from the last day
of the quarter from the date of the State invoice.
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\36\ As stated in current regulation in Sec. 447.510(b),
manufacturers must report to CMS any revision to AMP, best price,
customary prompt pay discounts, or nominal prices for a period not
to exceed 12 quarters from the quarter in which the data were due,
with limited exceptions.
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We recognize the potential burden for States and manufacturers to
comply with a 38-day dispute initiation timeframe as mentioned in State
Release Number 45; however, we believe that a 12-quarter timeframe is
reasonable because it comports with requirements for maintenance of
records on State Medicaid expenditures at Sec. 433.32. It also mirrors
the manufacturer's timeline for reporting revisions to monthly AMP at
Sec. 447.510(d)(3). We also understand that there are two-year timely
claims filing deadlines under section 1132(A) of the Act, and
regulations at 45 CFR 95.7, which may prohibit States from claiming FFP
in these situations, unless under a good cause waiver. Therefore,
consistent with our authority at sections 1102 and 1902(a)(4) of the
Act, we propose to ensure the efficient handling of rebate disputes, by
limiting the period for manufacturers to initiate disputes, hearing
requests or audits concerning State utilization data submitted pursuant
to section 1927(b)(2)(A) of the Act to 12 quarters from the last day of
the quarter from the date of the State invoice.
Accordingly, we are proposing a new paragraph (j), titled
``Manufacturer audits of State-provided information,'' at Sec.
447.510, specifying that a manufacturer may, within 12 quarters from
the last day of the quarter from the State invoice date, initiate a
dispute, request a hearing or seek an audit with a State for any
discrepancy with State drug utilization data reported under section
1927(b)(2)(A) of the Act on the State rebate invoices.

J. Proposal To Establish a Drug Price Verification Survey Process of
Certain Reported CODs (Sec. 447.510)

In this section of the proposed regulation, we describe the legal
basis, rationale, and process we propose to survey manufacturers and
wholesalers that directly distribute their CODs using our authority at
section 1927(b)(3)(B) of the Act to obtain information about the prices
they are reporting to us under section 1927(b)(3)(A) of the Act and in
accordance with Sec. 447.510. The purpose of this survey is to verify
prices reported under section 1927(b)(3)(A) of the Act to assure that
Medicaid payments and applicable rebates for CODs can be made, and that
Medicaid payments are economical and efficient, as well as sufficient,
to provide access to care.
Currently, there is no centralized collection of specific data from
manufacturers (or wholesalers) used by CMS to verify prices
manufacturers reported to us under section 1927(b)(3)(A) of the Act.
Our proposal to survey manufacturers for certain information on
specific CODs and our proposal to make certain manufacturer information
publicly available (unless it is proprietary), would allow States to
access this information and understand the derivation of a COD's price
so that States may establish and negotiate payment for Medicaid CODs
consistent with section 1902(a)(30)(A) of the Act. For example,
transparency into a manufacturer's costs and process for establishing a
drug price via the survey, along with other factors, would give States
the ability to better negotiate supplemental rebates, and better
understand the impact of the drug on its budget as supplemental rebates
are negotiated.
The proposed drug price verification survey is not intended to
limit or deny access to any of the CODs included on the survey list,
assess cost effectiveness of such drugs, or supplant findings from the
applicable FDA approval process. That is, we would not be using the
survey data to further assess either the clinical or cost effectiveness
of the COD. Furthermore, neither the selection of CODs subject to the
survey, nor the information collected in response to a survey under
this proposal, would impact coverage of a COD consistent with section
1927 of the Act, or supplant any of the Federal requirements
established under section 1927 of the Act and the implementing
regulations at 42 CFR part 447, subpart I. Section 1902(a)(30)(A) of
the Act (42 U.S.C. 1396a(a)(30)(A)) requires that States have a State
Plan that provides methods and procedures to ensure that payments are
consistent with efficiency, economy, and quality of care and are
sufficient to enlist enough providers so that care and services are
available at least to the extent that such care and services are
available to the general population in the geographic area. In turn,
the agency has an overarching obligation under section 1902(a)(30)(A)
of the Act to ensure that Medicaid payments are made in an economical
and efficient, as well as sufficient, manner to provide access to care.
Section 1927(b)(3)(B) of the Act authorizes the Secretary to survey
wholesalers and manufacturers that directly distribute their CODs, when
necessary, to verify manufacturer prices reported to us under section
1927(b)(3)(A) of the Act. We are proposing to interpret this language
broadly to provide authority to verify prices and charges from
wholesalers and manufacturers that distribute their own drugs,
including when the manufacturer distributes drugs directly to
pharmacies and other providers. In other words, we believe it is meant
to allow the Secretary to verify prices reported in both situations in
which a manufacturer sells to wholesalers and/or distributes them
directly on their own. The statute expressly provides at section
1927(b)(3)(B) of the Act the authority to verify ``manufacturer prices
and manufacturer's average sales prices (including wholesale
acquisition cost)'' and that requests for information may span
``charges or prices.'' We discuss later in this section which charges
and prices we may request to verify the reported manufacturer prices.
The meaning of the term ``verify,'' as set forth in the Oxford
English Dictionary means ``make sure or demonstrate that (something) is
true, accurate, or justified''. Viewing the authority provided under
section 1927(b)(3)(B) of the Act through the lens of section
1902(a)(30)(A) of the Act obligations, we are proposing the following:
(1) to describe the criteria by which we would develop a list of CODs
(identified by NDC) that may be subject to a survey, and the
manufacturers to whom the agency intends to send such a survey, to
obtain additional information from said manufacturers or wholesalers to
verify prices or charges of certain CODs that are reported to us under
section 1927(b)(3)(A) of the Act; and, (2) the information that
manufacturers and wholesalers would be required to report to satisfy
the verification survey request.
Under our proposal, a process would be established such that once
the agency determines that a manufacturer and its COD would be subject
to verification, the prices or charges that would be subject to
verification may include those that are described in section
1927(b)(3)(A) of the Act and reported by manufacturers, including a
manufacturer's AMP, best price, ASP, and WAC for a drug. We note that
WAC is generally available through public sources, while the
manufacturer reported AMP, best price, and ASP for

[[Page 34269]]

CODs are generally not available through public sources.
The CODs to which this verification survey would apply would be
limited to those for which manufacturers that have a National Drug
Rebate Agreement in place with the Secretary of HHS, as required under
section 1927(a)(1) of the Act. Only these manufacturers would report
applicable product and pricing data under section 1927(b)(3)(A) of the
Act and proposed Sec. 447.510. We note this rulemaking does not
address the separate authority to conduct surveys under section
1847A(f)(2) of the Act to verify prices reported under section
1847A(f)(2).
We note that participating manufacturers are required to report and
certify certain product and pricing data for each of their CODs on a
monthly and quarterly basis to CMS. The COD pricing and product
information is primarily used for the determination of the quarterly
Medicaid drug rebates paid by participating manufacturers, but also
serves as the basis for Medicaid payment for CODs. For example, the
AMPs that are reported to the agency are used in the calculation of the
Medicaid Federal Upper Limits (FULs) for payment of certain multiple
source CODs under section 1927(e)(5) of the Act. The 340B Drug Pricing
Program uses the AMP and the Unit Rebate Amount (which is the amount
calculated to determine the Medicaid rebate for each dosage form and
strength of a COD, and is based in part on AMP) to calculate the 340B
ceiling price. Many States require that 340B entities are paid no more
than the 340B ceiling price for CODs dispensed by 340B entities.
Additionally, many State Medicaid programs use the ASP (as defined in
section 1847A(b)(4)(A) of the Act) and the Wholesale Acquisition Cost
(as defined in section 1847A(b)(4)(B) of the Act) for Medicaid payment
for physician administered drugs, such as those administered in
hospital outpatient departments and physician offices.
Since the aforementioned pricing data that manufacturers report to
us under section 1927(b)(3)(A) of the Act (AMP, ASP, WAC) are often
used by States for reimbursement under Medicaid, serve as a basis for
payment to providers for CODs, including physician administered drugs,
and thus have a significant impact on how much the Federal Government
pays for CODs under Medicaid, CMS must ensure, in accordance with
section 1902(a)(30)(A) of the Act, that Medicaid payments for CODs
based on these reported prices, are made in an economical and
efficient, as well as sufficient manner, to provide access to care.
To provide additional background on the need for the agency to use
this survey authority, we note that Medicaid pays for CODs under both
FFS programs and through Medicaid managed care plans. State Medicaid
programs and their contracted managed care plans have been successful
in managing the costs of the pharmacy benefit programs through the
implementation of various drug cost containment strategies. The primary
mechanisms used by States and managed care plans to manage their
pharmacy program spending consist of manufacturer rebates that are
collected under the MDRP, the use of lower-cost generic or multiple
source drugs, prior authorization, and preferred drug lists, which
allow States to leverage crowded therapeutic classes to negotiate
supplemental rebates with manufacturers. Manufacturer rebates collected
by the States totaled $42.9 billion on a total drug spending of $77.6
billion for the four-quarter period Q1 2022 through Q4 2022 or 55.3
percent of total drug spending.
We also finalized regulations in the COD final rule that require
that reimbursement for drugs dispensed through retail pharmacies be
based on a two-part formula which consists of: (1) the ingredient cost
of the drug based on actual acquisition costs (AAC); and, (2) a
professional dispensing fee (PDF) for the drug based on the pharmacy's
cost of professional dispensing. See Sec. Sec. 447.502, 447.512, and
447.518. States establish reimbursement methodologies for these two
components based on actual acquisition cost data and costs associated
with dispensing. To further assist States to pay for CODs, the agency
publishes the National Average Drug Acquisition Cost (NADAC) file on a
monthly basis, which is based on community pharmacy invoice prices for
CODs. The NADAC is one source States can use to support their
ingredient cost AAC-based portion of pharmacy reimbursement. This
methodology provides greater transparency into Medicaid payment for
prescription drugs dispensed through community pharmacies, and most
States use this file to help assure that pharmacies are paid for the
cost of the drug that is dispensed and the professional dispensing
costs. No such survey process, however, exists for CODs paid for by
Medicaid that are not traditionally dispensed through retail
pharmacies, such as many physician-administered drugs and gene therapy
drugs, which are not required to follow the regulations noted above
with regard to pharmacy reimbursement and AAC and PDF requirements.
Thus, while Medicaid has implemented policies that generally
provide effective management of traditional retail community pharmacy
drug spending, while creating greater transparency around payment for
drugs dispensed by retail community pharmacies, there are fewer
effective policies in place for management of COD purchasing and
reimbursement to non-retail health care providers.
Substantial growth in non-retail community pharmacy drug spending
is expected to continue. In March 2022, we estimated that for CY 2022,
drugs that may require special handling or inpatient or outpatient
hospitals stays will account for about 50 percent of the drug supply
chain spending.\37\ Additionally, Medicaid expenditures for CODs
dispensed in non-retail community pharmacy settings continue to
experience similar growth. Based on an analysis of CMS State
utilization data from 2012 to 2019, total Medicaid non-retail community
pharmacy drug expenditures as a percentage of total Medicaid drug
expenditures grew from 28 percent to 47 percent, and total Medicaid
non-retail community pharmacy dispensed drug expenditures grew from
$10.58 billion to $30.70 billion.\38\
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\37\ Iqvia, National Sales Perspective, February 2022.
Presentation given by Doug Long at Asembia, May 2022.
\38\ Myers and Stauffer LC, Specialty Drugs Spend Trend 2012-
2019 (2020) (unpublished analysis) (on file with Agency) (this
analysis reviewed FFS and MCO combined spend for specialty drugs
included on the Myers and Stauffer LC specialty list, based upon
eight years of CMS National Utilization Data).
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Thus, it is evident that the evolution in the types of drugs paid
for by Medicaid, manufacturers' pricing structures for these drugs, as
well as the methods used by manufacturers to distribute these drugs,
have changed since the enactment of the MDRP, as well as the enactment
of the MMA. While the model of distribution from manufacturer to
wholesaler to provider still exists, and the predominant provider of
pharmacy services remains the community-based pharmacy, there are other
distribution and pricing arrangements for certain drugs, including
high-cost gene therapy drugs that were not necessarily in existence in
the market when the MDRP was enacted.
In some of these situations, there is a need for more information
or verification regarding how certain prices or charges reported to us
for these high-cost CODs are calculated in order to make payment under
Medicaid. For example, there is little or no public information
available about the factors

[[Page 34270]]

that influence the pricing of drugs dispensed in non-retail community
pharmacy settings in Medicaid, the prices that pharmacies or
wholesalers pay for these CODs, whether the prices or charges bear any
relationship to the cost components of the COD, or whether the costs of
distribution or preparation methods are included in the prices reported
to us.
States do not have access to invoice data of manufacturers or
purchasers, or information as to how manufacturers have arrived at the
prices they charge wholesalers or direct distributers. Therefore,
States may assume that manufacturer prices reflect the manufacturer's
cost inputs such as research, development, and production costs.
However, States do not know how those costs relate to the prices
available from the manufacturer. Manufacturers may also consider the
relative value of that drug to the patient/payer versus other
treatments for similar conditions when developing their prices. As
such, States may assume that the manufacturer prices its drug(s) at a
certain value because it either has the potential to cure the patient
or substantially reduce other medical costs (for example, reduces a
patient's need for higher cost inpatient hospital care). However, these
assumptions may not be accurate since how the manufacturer arrives at
its price is generally opaque.
We believe our proposed drug price verification survey process,
along with the NADAC that we publish for retail community pharmacy
costs, should provide CMS and the States a clearer understanding into a
manufacturer's pricing for its covered outpatient drug to verify those
prices and charges, and ensure that Medicaid payments are made in an
economical and efficient, as well as sufficient manner, to provide
access to care. A lack of current understanding of manufacturer pricing
bears directly on whether payments can be made consistent with section
1902(a)(30)(A) of the Act. Moreover, Medicaid managed care plans may be
able to use such public information about the prices or charges that
are collected under this process to determine the appropriateness of
their payments to PBMs, or for States and managed care plans to
determine the appropriateness of the drug spending component of the
overall Medicaid managed care capitation rate attributable to pharmacy
services.
For the foregoing reasons, and as described below, we propose to
use the statutory authority in section 1927(b)(3)(B) of the Act,
coupled with that in section 1902(a)(30)(A) of the Act, and this
proposed regulatory process, to collect additional charges and pricing
information from manufacturers to verify the prices reported to us for
CODs. We believe this verification is extremely important given the
significant number of high cost drugs and biologics, including cell and
gene therapy drugs entering the market; the prices associated with new
and different distribution channels; and the continued use of WAC as a
pricing metric in instances when actual acquisition cost data are not
available. Gene and cell therapy drugs especially, while transformative
in terms of therapeutic benefits, are being priced in the millions of
dollars. States, with their limited budgets, are concerned about how
they would be able to afford these medications as they are generally
required to pay for these drugs that are CODs as part of the prescribed
drugs benefit in accordance with the requirements of section 1927 of
the Act and the Medicaid drug rebate program. As stated earlier in this
rule, our proposal to survey manufacturers to verify price(s) and
charge(s) involves collecting certain information on specific CODs, and
our proposal to make certain manufacturer information publicly
available (unless it is proprietary), would give States an additional
tool to negotiate payment for Medicaid CODs consistent with section
1902(a)(30)(A) of the Act. For instance, while the survey would be used
by CMS to verify prices, the access to certain non-proprietary data via
the survey, for example, patient outcomes of the covered outpatient
drug, could give States the ability to negotiate supplemental rebates
with a full understanding of the impact of the drug on its budget and
Medicaid patient population. This is important, particularly in light
of the limited ability of States to negotiate additional supplemental
rebates because of the few novel products in a particular drug class.
We have also seen pricing-related issues relating to the production
methods for these drugs, and query whether and how such methods should
factor into the prices that are reported to us under section
1927(b)(3)(A) of the Act. For example, there are new preparation
methods that modify or treat a patient's own cells, which are then
placed back into the body to treat the patient's condition. This type
of preparation method, while novel, raises issues of how such costs are
included in the prices that are reported to us. We have also observed
that certain manufacturers are using limited-distribution specialty
pharmacies to distribute their drugs to providers and patients. Certain
closed-door specialty pharmacies may have access to limited-
distribution specialty drugs due to specific arrangements with
pharmaceutical manufacturers or special monitoring provisions required
by FDA.\39\ Of the drugs approved by FDA in 2020 that were distributed
through specialty pharmacies, 96 percent were for limited-distribution
drugs.\40\
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\39\ Erin M. Turingan, et al., Financial Effect of a Drug
Distribution Model Change on a Health System. 52 Hosp. Pharm. 422
(2017).
\40\ Anton Health, 2020 Specialty Approvals--96% Via Limited
Distribution, Anton RX Report (Jan. 15, 2021), https://antonhealth.com/2020-specialty-pharmacy-approvals/.
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In addition to retail community and closed-door specialty
pharmacies, other provider types may dispense and/or administer drugs
dispensed in non-retail community pharmacy settings to Medicaid
beneficiaries. These providers include, but are not limited to,
physicians, home infusion pharmacies, hemophilia treatment centers, and
clinics. In these situations, there may be questions regarding how a
manufacturer calculates its AMP and best price that are reported to us
under section 1927(b)(3)(A) of the Act, and how those data points
compare to the actual invoice cost of the drug to the pharmacy. This
directly affects Medicaid payments and rebates.
Manufacturers are also using innovative versions of third-party
logistic arrangements to distribute their drugs, which include
specialty pharmacies, under which the title of the drug does not
transfer to the pharmacy. Questions have been raised by States as to
how such arrangements work with respect to the Medicaid program's
payment to the pharmacy, as well as the calculation of the covered
outpatient drug's AMP and best price that are reported to us under
section 1927(b)(3)(A) of the Act and used for purposes of calculating
Medicaid rebates.
And we note that many States and Medicaid programs continue to use
WAC as the basis for reimbursement of many drugs dispensed in a non-
retail community pharmacy setting--because of the lack of availability
of acquisition cost data. However, we have observed that there may be a
trend in Medicaid by some manufacturers with recently-marketed high
cost CODs to increase their WACs at a rate faster than their AMPs,
especially for specialty drugs. We have not identified this trend with
respect to long-marketed drugs covered by Medicaid and dispensed at
retail community pharmacies based upon a

[[Page 34271]]

May 2023 CMS comparison research of changes to invoice prices vs.
changes in WAC. This comparison showed consistent changes in invoice
pricing and WAC. We believe consistent changes in invoice pricing and
WAC also occur for drugs covered by Medicare Part D and dispensed at
retail community pharmacies. Generally, when manufacturers increase
their WACs at a rate faster than their AMPs, the higher the WAC for the
COD, the greater the spread between the Medicaid reimbursement and the
actual acquisition cost. This trend could affect whether Medicaid
payments are consistent with sections 1927 and 1902(a)(30)(A) of the
Act, as discussed previously in this proposed rule. That is, the use of
WAC by the State for reimbursement purposes for certain drugs, such as
high cost specialty drugs, may result in States overspending for a drug
and manufacturers underpaying in rebates because of the much lower
reported AMP for the drug.
For example, based on an agency analysis of the relationship
between WAC and AMP for a specific high-cost specialty drug, we found
in 2018 that there was an 8.5 percent difference between the WAC and
the AMP. Based on the latest data available, that difference is now 23
percent. Thus, States that use WAC that is reported to us under section
1927(b)(3)(A) of the Act to pay providers may significantly overspend
for specialty drugs, given that AMP has traditionally been considered a
closer proxy for the approximate revenues received by the manufacturer
from sales of the drugs in the non-retail community pharmacy setting.
Given these situations, we propose that significant enough changes
have occurred in the marketplace to warrant the use of the Secretary's
authority to survey manufacturers and wholesalers in certain situations
with respect to the prices and charges reported to us under section
1927(b)(3)(A) of the Act to make payment. Specifically, section
1927(b)(3)(B) of the Act gives the Secretary the authority to survey
wholesalers and manufacturers that directly distribute their CODs, when
necessary, to verify manufacturer prices and manufacturer's average
sales prices (including wholesale acquisition cost) if required to make
payment reported under section 1927(b)(3)(A) of the Act.
Therefore, we propose at Sec. 447.510(k)(1) to use the authority
granted to the Secretary under section 1927(b)(3)(B) of the Act to
survey manufacturers with rebate agreements in effect with the
Secretary to verify prices or charges for certain CODs for which drug
product and pricing information is submitted under section
1927(b)(3)(A) of the Act and Sec. 447.510, to make payment for the
COD.
We do not believe it is required or necessary that we survey every
manufacturer's price or charge submitted under section 1927(b)(3)(A) of
the Act, as the authority to verify via a survey of the prices under
section 1927(b)(3)(B) of the Act indicates that the Secretary ``may''
verify. Notably, we propose to exclude those CODs that are subject to
certain CMS drug pricing program(s) or initiatives under which
participating manufacturers negotiate the COD's price directly with
CMS. For example, under the Medicare Drug Price Negotiation program
established under sections 11001 and 11002 of the Inflation Reduction
Act of 2022, or potentially certain CMMI models that are developed in
response to the President's Executive Order 14087 (see HHS response at
https://innovation.cms.gov/data-and-reports/2023/eo-rx-drug-cost-response-report), participating manufacturers will negotiate and
collaborate with CMS on prices for certain CODs. This being the case,
we propose to exclude CODs subject to these programs and initiatives
from the survey verification, as CMS may have already successfully
negotiated lower prices for the Medicare and/or Medicaid programs with
these manufacturers. We intend to include a list of CMS drug pricing
programs and initiatives under which manufacturers directly negotiate
with CMS on a public website and would expect to update that list to
reflect any future CMS drug pricing programs and initiatives that
result in manufacturers' directly negotiating COD pricing with CMS.
We further note that under section 1927(c)(1)(C)(ii)(V) of the Act,
maximum fair prices (MFPs) that are negotiated for selected drugs under
the Medicare Drug Price Negotiation Program would be included in the
Medicaid best price; thus, State Medicaid programs will benefit from
the MFPs negotiated under Medicare Part B and Part D to the extent that
such drugs are CODs. In other words, the MFP negotiated for these drugs
could potentially lower the best price and potentially increase the
Federal Medicaid drug rebate. Furthermore, it is unlikely that CODs
with an MFP would be selected for the proposed drug price verification
survey under section 1927(b)(3)(B) of the Act because we expect that
our proposal would verify drug prices that are more recently marketed
high cost drugs not typically dispensed at non-retail community
pharmacies, while drugs for which an MFP has been negotiated must have
been approved for at least 7 years, in the case of drugs approved and
marketed under section 505(c) of the FFDCA, or licensed for at least 11
in the case of biological products that are licensed and marketed under
section 351 of the PHS Act. Moreover, as noted previously in this
proposed rule, we do not believe the trend of WACs increasing at a rate
faster than their AMPs is relevant for the types of drugs for which MFP
likely will be negotiated. Therefore, in this rule, we are proposing to
survey manufacturers to verify price (or prices) and/or charges
regarding specific CODs based on a three-step process.
The first step would use objective measures related to Medicaid
spending to identify CODs with the highest drug spending per claim,
highest total Medicaid drug spending, highest 1 year price increase, or
highest launch price, as determined and explained below. Specifically,
we propose at Sec. 447.510(k)(2) that CMS, on an annual basis, would
compile a list of single source CODs that may be subject to a survey
based on one or more of the criteria proposed at Sec. 447.510(k)(2)(i)
through (iv).
The proposed measures in Sec. 447.510(k)(2)(i) (highest drug
spending per claim) and (ii) (highest total Medicaid drug spending)
would use Medicaid drug spending data as reported from States to CMS in
accordance with the State drug utilization data (SDUD) reporting
(https://www.medicaid.gov/medicaid/prescription-drugs/state-drug-utilization-data/). We note that the per claim Medicaid
spending data used in Sec. 447.510(k)(2)(i) is not reduced by Federal
rebates since such rebates are not reported at the claim level.
Further, the supplemental rebate data are reported in the aggregate to
CMS from States on a quarterly basis, thus it is difficult to identify
individual State supplemental rebate data to net State supplemental
rebates from per claim Medicaid spending. However, we would review the
reported annual total Medicaid spending at Sec. 447.510(k)(2)(ii) as
reported by the States net of Federal rebates when determining if a COD
spend is greater than 0.5 percent of total annual Medicaid drug spend,
net of Federal rebates.
For proposed measure Sec. 447.510(k)(2)(iii), we would look at
published WACs to determine when a COD's price increase falls in the
top 1 percent of CODs with the highest median WAC increase over a 12-
month period.
In proposed measure Sec. 447.510(k)(2)(iv), we propose to look at
the highest launch price, which we

[[Page 34272]]

propose to do by estimating whether or not the covered outpatient
drug's cost would be in the top 5th percentile of Medicaid spending by
comparing a manufacturer's published launch price (available as a
published WAC or published by the manufacturer) to Medicaid per claim
spending or if treatment costs are greater than $500,000 (indexed for
inflation using the CPI-U).
We expect application of the measures proposed at Sec.
447.510(k)(2)(i) through (iv) would capture an initial set of high-cost
CODs that could significantly impact Medicaid covered outpatient drug
spending. From a process standpoint, in subregulatory guidance, we
would provide the applicable time periods that CMS would review the
data in order to determine the initial list of CODs, which we propose
to be finalized in April following publication of this final rule, and
each April thereafter. We expect that we would use data from the prior
calendar year or Federal fiscal year. The list of CODs as a result of
this analysis would not be made public.
We propose at Sec. 447.510(k)(3) to further refine this initial
survey list of CODs in the second step by considering additional
criteria such as a manufacturer's willingness to negotiate further
rebates either through a CMS-authorized supplemental rebate, or a
manufacturer's participation in a CMS drug pricing program or
initiative under which participating manufacturers negotiate directly
with CMS (see discussion above about proposal to exclude drugs under a
CMS drug pricing program or initiative). At Sec. 447.510(k)(3)(i), CMS
proposes to exclude the CODs of manufacturers that participate in any
CMS pricing program or initiative under which participating
manufacturers negotiate a COD's price directly with CMS.
CMS believes that a manufacturer's willingness to negotiate also
may be demonstrated by the manufacturer's level of effort to work with
States to make the identified COD more affordable, especially
considering States' limited budgets. Therefore, by way of a State
survey to determine a manufacturer's level of effort, we propose at
Sec. 447.510(k)(3)(ii) to further exclude covered outpatient drugs of
manufacturers that have negotiated CMS-authorized supplemental rebates
with at least 50 percent of the States, that when in combination with
the Federal rebate results in a total (State and Federal) rebate for
the drug of interest to total Medicaid spend (State and Federal) for
the drug of interest, that is greater than the total Medicaid rebates
(State and Federal) to total Medicaid drug spend for States that cover
CODs only through fee-for-service, as reflected in the most recent
Medicaid Financial Management Report (FMR).\41\ The FMR reflects annual
State expenditures collected on the CMS-64 report.\42\ We propose to
use the Federal fiscal year Medicaid FMR and analyze the rebates for
those States that currently provide coverage of covered outpatient
drugs only through fee-for-service (fee-for-service States).
Specifically, we would determine total computable prescribed drugs
expenditures for the States that cover CODs only through fee-for-
service (currently 10 States) and determine the percentage of
prescribed drug expenditures that are offset by State and Federal drug
rebates. We propose to consider only States that cover CODs entirely
through fee-for-service because the prescribed drugs expenditures in
the FMR do not include COD expenditures made by managed care entities,
while the rebate lines do include the managed care rebate offset. In
other words, the denominator in the comparison of rebates to total
expenditures would be understated, resulting in a higher percentage, if
we included managed care COD expenditures and rebates in the
calculation. Based upon the Federal fiscal year 2021 Medicaid FMR, the
total Federal and State rebates range from 38 percent to 72 percent of
total prescribed drug expenditures based upon analysis of eight States
that pay for CODs entirely through fee-for-service (2 of the 10 such
States had insufficient data reported for Federal fiscal year (FFY)
2021). We request comment on this proposal to refine the list of
covered outpatient drugs to be surveyed, based upon a manufacturer's
level of effort at reducing the price for the identified high cost
drugs (that is, those drugs identified by applying measures proposed at
Sec. 447.510(k)(2)).
---------------------------------------------------------------------------

\41\ https://www.medicaid.gov/medicaid/financial-management/state-expenditure-reporting-for-medicaid-chip/expenditure-reports-mbescbes/.
\42\ https://www.medicaid.gov/medicaid/financial-management/state-expenditure-reporting-medicaid-chip/.
---------------------------------------------------------------------------

We also propose Sec. 447.510(k)(3)(iii)(A) that if after
application of Sec. 447.510(k)(3)(i) and (ii), more than 10 CODs still
remain, CMS would proceed to the third step and consider soliciting
State-specific Medicaid program information as to the manufacturer's
level of effort to lower drug price for the Medicaid program, such as a
manufacturer offering other programs to lower the cost of the drug to
the State such as subscription models, VBP arrangements under the
multiple best price approach, or other special arrangements. We do not
intend these examples of manufacturer effort to lower drug prices in
Sec. 447.510(k)(3)(iii)(A) to be exclusive or to encourage or
discourage specific pricing approached; CMS recognizes that the
pharmaceutical pricing market is fluid and States and manufacturers may
pursue or negotiate arrangements not specifically listed in regulation.
Additionally, we propose at Sec. 447.510(k)(3)(iii)(B) that we would
consider narrowing the list based on the highest cost CODs based on the
factors outlined under Sec. 447.510(k)(2) of this section, and before
application of Sec. 447.510(k)(3). We propose to collect the
information in Sec. 447.510(k)(3)(ii) and (k)(3)(iii)(A) using a State
survey tool that we would develop if the rule is finalized as proposed.
Once CMS determines a final list of CODs to be verified after the
application of 447.510(k)(3), we would send a letter to the
manufacturers of the identified drugs sometime in August, as discussed
further below.
While currently not proposed in regulation at Sec. 447.510(k)(2)
and (3), we also invite comments on whether CMS should consider
surveying manufacturers of certain CODs that are identified under the
proposed criteria at Sec. 447.510(k)(2)(i) through (iv) that are also
granted accelerated approval by FDA. The approval of a COD using the
accelerated approval pathway relies on demonstrating an effect on
surrogate or intermediate endpoint(s) that is reasonably likely to
predict clinical benefit. Drug sponsors have been required by the FDA
to conduct confirmatory trials after approval to verify and describe
the predicted clinical benefit. However, the HHS OIG \43\ found that
drug sponsors do not always complete trials promptly, which can result
in drugs staying on the market--often at high prices with limited
competition--and being administered for years with unverified clinical
benefit. Subjecting accelerated approval drugs to the drug price
verification survey process would not supplant any determination made
by the FDA. However, CMS surveying manufacturers for verification of
prices may be warranted by recent trends of high costs of some of these
therapies, particularly in view of some manufacturers' noncompliance
with FDA's requirement for further confirmatory trials. Accordingly, we
seek comments regarding whether CODs included on the list under the
proposed

[[Page 34273]]

Sec. 447.510(k)(2) that are approved under the FDA accelerated
approval pathway should be surveyed when a manufacturer has failed to
demonstrate the clinical benefits of the drug through further
confirmatory trials required by the FDA.
---------------------------------------------------------------------------

\43\ https://oig.hhs.gov/oei/reports/OEI-01-21-00401.asp.
---------------------------------------------------------------------------

We propose at Sec. 447.510(k)(4) that after a survey list of CODs
is compiled after the application of the criteria in Sec.
447.510(k)(2) and (3), the agency would post on a publicly accessible,
government website the letter sent to the manufacturer indicating the
name of the COD to be surveyed and the request for completion of the
drug price verification survey.
In proposed Sec. 447.510(k)(5), we propose that such survey to a
manufacturer or wholesaler would request in a standard reporting format
specific information that would include the information proposed at
Sec. 447.510(k)(5)(i) through (iv). The survey tool would be developed
after the publication of the final rule, if this proposal is finalized.
In Sec. 447.510(k)(5)(i), we propose to collect information on the
pricing, charges, distribution and utilization for the COD. We propose
to collect these utilization and pricing metrics from manufacturers to
verify that the prices reported at section 1927(b)(3)(A) of the Act do
not have the potential to negatively impact State budgets to the extent
States are not able to cover the drugs, thus impeding Medicaid
beneficiary access to treatment.
In Sec. 447.510(k)(5)(ii), we propose to collect product and
clinical information for the COD described in the proposed regulation
text at Sec. 447.511(k)(5)(ii)(A) through (E) to understand the
clinical benefits and risks of the covered outpatient drug to verify
that the price reported fairly represents the benefits and/or risks of
the COD.
In Sec. 447.510(k)(5)(iii), we propose to collect information on
the costs of production, research, and marketing of the COD. We believe
it is important to understand the costs to the manufacturer of
researching, producing, and marketing of the drug and how those costs
are accounted for in the prices and charges they report. We also note
in this proposed subparagraph that research and development costs of a
line extension drug shall not include the research and development
costs of the initial single source or innovator multiple source covered
outpatient drug.
In Sec. 447.510(k)(5)(iv), we propose to collect other information
as determined by the Secretary specific to the particular COD in
question that would help inform CMS and States with their verification
of drug prices. This additional information would likely be specific to
each individual covered outpatient drug and may include additional
requests associated with changes to the pharmaceutical marketplace. We
may consider issuing additional guidance on the nature and scope of the
other information we may request.
The agency understands that some of the data proposed to be
collected would be confidential and likely protected under section
1927(b)(3)(D) of the Act, in addition to other privacy and
confidentiality provisions, including the Trade Secrets Act.
Although the statute does not prescribe a method to verify prices
or charges, we propose in Sec. 447.510(k)(6) that CMS may post non-
proprietary information provided by the manufacturer and wholesaler in
response to the verification survey. By posting the non-proprietary
information on our website, the public, beneficiaries, State Medicaid
agencies, other Federal Government agencies and other affected
interested parties would be afforded the opportunity to comment on
public information as part of the verification process to ensure that
those Medicaid payments are economical and efficient, as well as
sufficient, to provide access to care and are sufficient to enlist
enough providers so that care and services are available at least to
the extent that such care and services are available to the general
population in the geographic area.
Finally, section 1927(b)(3)(B) of the Act allows the Secretary to
impose a civil monetary penalty in an amount not to exceed $100,000 on
a wholesaler, manufacturer, or direct seller, if the wholesaler,
manufacturer, or direct seller of a covered outpatient drug refuses a
request for information about charges or prices by the Secretary in
connection with a survey as proposed under Sec. 447.510(k) or
knowingly provides false information. The provisions of section 1128A
of the Act (other than subsections (a) (with respect to amounts of
penalties or additional assessments) and (b)) shall apply to a civil
money penalty (CMP) under this subparagraph in the same manner as such
provisions apply to a penalty or proceeding under section 1128A(a) of
the Act. The civil monetary penalty authority set forth in section
1927(b)(3)(B) of the Act has been delegated to OIG. We would provide
information obtained through, and in connection with, this survey to
OIG for the purposes of potential imposition of CMPs for failure to
report information in connection with a survey or for knowingly
providing false information. Therefore, we propose at Sec.
447.510(k)(7) that if a manufacturer or wholesaler refuses a request
for information pursuant to a drug price verification survey within 90
calendar days of CMS' request, or knowingly provides false information,
the manufacturer or wholesaler would be referred to OIG for possible
imposition of civil monetary penalties (CMPs) as set forth in section
1927(b)(3)(B) of the Act and section IV of the National Drug Rebate
Agreement.

K. Proposals Related to State Plan Requirements, Findings, and
Assurances (Sec. 447.518)

Section 1902(a)(30)(A) of the Act requires that States include in
their State Plan, methods and procedures to ensure that payments to
providers are consistent with efficiency, economy, and quality of care
and are sufficient to enlist enough providers so that care and services
are available to the general population in the geographic area. Under
that authority, the Secretary issued Federal regulations at Sec. Sec.
447.502, 447.512, and 447.518 that further elaborate that generally,
payments to pharmacies for drugs that they dispense, and are paid for
under the State Plan, are to be based on a two-part formula which
consists of: (1) the ingredient cost of the drug that is dispensed
based on the actual acquisition cost (AAC); and, (2) a professional
dispensing fee (PDF) for the drug based on the pharmacy's cost of
dispensing, that is, the cost of the pharmacist's professional services
for ensuring that the appropriate COD is dispensed or transferred to a
Medicaid beneficiary.
AAC is defined at Sec. 447.502 to mean the agency's determination
of the pharmacy providers' actual prices paid to acquire drug products
marketed or sold by specific manufacturers. As discussed in the COD
final rule implementing this definition of AAC, a State can implement
an AAC model of reimbursement based on various pricing methodologies
for the ingredient cost of the drug so long as the ingredient cost
represents the actual, current ingredient cost of the drug and is
calculated based on the amounts that pharmacies pay for the drug (Sec.
447.518).
We also discussed our view that the definition of AAC requires that
States establish payment rates based on pharmacies' actual prices paid
to acquire drug products, and explained that the expectation is that
those prices would reflect current prices (see 81 FR 5176). In
accordance with Sec. 447.502, the professional dispensing fee is
incurred at the point of sale or service and pays for pharmacy costs in
excess of the

[[Page 34274]]

ingredient cost of a COD each time a COD is dispensed. The fee
includes, but is not limited to, reasonable costs associated with
delivery, special packaging and overhead associated with maintaining
the facility and equipment necessary to operate the pharmacy. Costs
also include a pharmacist's time spent checking the computer for
information about an individual's coverage, performing drug utilization
review (DUR) and preferred drug list review activities, measuring or
mixing, filling the prescription, counseling a beneficiary; and
physically providing the completed prescription to the Medicaid
beneficiary.
Under Sec. 447.518, States are required to ensure that pharmacy
providers are reimbursed adequately for both their pharmacy ingredient
costs and professional dispensing services in accordance with the
requirements of section 1902(a)(30)(A) of the Act. The State Plan must
comprehensively describe the agency's payment methodology for
prescription drugs, including the agency's payment methodology for
drugs and the professional dispensing fee. As provided under Sec.
447.518(d)(1), when proposing changes to either AAC (ingredient cost
reimbursement) or PDF reimbursement, States are required to evaluate
their proposed changes consistent with section 1927 of the Act, and
must consider both parts of the reimbursement formula to ensure that
total reimbursement under the proposed changes are consistent with
section 1902(a)(30)(A) of the Act.
These reimbursement formulas and any proposals to change either or
both components of the reimbursement formula are subject to review and
approval by CMS through the State Plan Amendment (SPA) process. In
their SPA submission, States must provide adequate data such as a State
or national survey of retail pharmacy providers or other reliable data
(other than a survey) to support any proposed changes to either or both
of the components of the reimbursement methodology.
While States are afforded the flexibility to adjust their
professional dispensing fees through the SPA process in accordance with
the requirements of sections 1902(a)(30)(A) and 1927 of the Act, they
must substantiate how their reimbursement to pharmacy providers
reasonably reflects the actual cost of the ingredients used to dispense
the drug, and the actual costs of dispensing the drug, consistent with
the regulatory definitions of AAC and professional dispensing fee. We
review each State's proposed reimbursement methodology to assure it
meets Federal requirements under sections 1902(a)(30)(A) and 1927 of
the Act, and the implementing regulations, specifically at Sec. Sec.
447.502, 447.512, and 447.518.
More recently, we have seen States submit proposed changes to
either or both of the components of the reimbursement methodology
without adequate supporting data that reflects current drug acquisition
cost prices or actual costs to dispense. This is inconsistent with
applicable law because the data submitted should reflect the actual
cost of dispensing, consistent with Federal requirements under sections
1902(a)(30)(A) and 1927 of the Act and the implementing regulations,
specifically at Sec. Sec. 447.502, 447.512 and 447.518.
The professional dispensing fee should be based on pharmacy cost
data, and not be based on a market-based review, such as an assessment
or comparison of what other third-party payers may reimburse pharmacies
for dispensing prescriptions. A State's periodic review and examination
of market-based research for a comparison of what other payers
reimburse for dispensing costs is an insufficient basis for determining
or proposing changes to professional dispensing fees because it does
not reflect actual costs to pharmacies to dispense prescriptions. The
State must submit adequate cost data to CMS as part of its SPA process
to justify its professional dispensing fee amounts. We are proposing
that the data submitted cannot solely rely on the amounts that
pharmacies are accepting from other private third-party payers.
Similarly, with respect to reimbursement of drug ingredient costs,
which must be consistent with AAC, States must support determinations
or proposed changes for ingredient cost reimbursement with adequate
cost based data. With respect to the AAC, we discussed in the preamble
of the COD final rule our view that the definition of AAC requires that
States establish payment rates based on pharmacies' actual prices paid
to acquire drug products, and explained that the expectation is that
those prices would reflect current prices. (See 81 FR 5176.)
Pharmacy purchase prices for drugs are subject to many external
factors and market conditions which can cause purchase prices to go up
or down. Many of these factors are out of the control of the purchasing
pharmacy. We explained various ways States could establish pharmacy
reimbursement methodologies, noting that the pricing benchmarks CMS
provide to States, for example, the weekly NADAC files, and the weekly
and monthly AMP are updated regularly to reflect current prices.
After the COD final rule was issued, we issued further guidance to
States in the State Medicaid Directors Letter, SHO #16-001, dated
February 11, 2016, and Frequently Asked Questions (FAQs), dated July 6,
2016. In that SHO, CMS provided further detail on ways States can
implement an AAC model of reimbursement, including utilizing a
nationwide survey, like the NADAC files (which are published on a
monthly basis and updated weekly, and are designed to represent a
current national pricing methodology based upon a simple average of
voluntarily-submitted retail pharmacy acquisition costs for most
covered outpatient drugs), a State survey of retail community pharmacy
providers' pricing, published compendia prices, or average manufacturer
price-based pricing. In each of these instances, the ingredient cost
represents the actual, current ingredient cost of the drug and is
calculated based on the amounts that pharmacies pay for the drug.
Freezing AAC rates and establishing a static provider reimbursement
would not be consistent with applicable laws and regulations. Reduced
beneficiary access to medically necessary drugs can result if pharmacy
providers are unable to purchase drugs at a rate reflective of current
market conditions. Pharmacies are not likely to purchase and dispense a
covered outpatient drug to a Medicaid beneficiary if the reimbursement
for the drug is not sufficient. Certain pharmacies, such as small rural
pharmacies, rely primarily on revenue from prescriptions. When
reimbursement rates for drugs do not adapt to changing market
conditions, pharmacies may stop filling prescriptions for Medicaid
beneficiaries, or, depending on the number of Medicaid prescriptions
they fill, could have to permanently go out of business. This can
result in reduced access to medications and negatively impact health
equity, as Medicaid beneficiaries may have to go to multiple pharmacies
to obtain the medication, or may not be able to obtain it at all. This
can also result in the need for other costlier medical interventions,
such as hospitalization.
In this proposed rule, we are proposing to clarify the data
requirements that States must submit to establish the adequacy of both
the current ingredient cost and the professional dispensing fee
reimbursement. Furthermore, we are specifying professional dispensing
fees cannot simply be determined by a market-based review of what other

[[Page 34275]]

third-party payers may reimburse for dispensing prescriptions. That is,
we are proposing to clarify in regulatory text that in a State's
periodic review of the rates being paid to pharmacies, the examination
of market-based research data used to justify dispensing costs is an
inappropriate basis for determining professional dispensing fees. A
State cannot rely on the amounts that pharmacies are accepting from
other third-party payers as a means of determining professional
dispensing costs. The data that are acceptable could be a State's own
survey, a neighboring States' survey, or other credible survey data,
but it must be adequate and must reflect the current cost of dispensing
a prescription in the State (81 FR 5311).
To pay based on costs, States need to periodically assess whether
current rates being paid to pharmacies to reflect current costs. There
is no specific requirement as to how often and when States have to
review their current fees. However, any State currently reimbursing
pharmacy providers a professional dispensing fee that does not reflect
the pharmacy's actual acquisition cost and cost of dispensing must come
into compliance.
Therefore, in consideration of ensuring that payments to providers
are consistent with efficiency, economy, and quality of care and are
sufficient to enlist enough providers, we believe an update to the
regulatory text is necessary so that care and services continue to be
available to the general population. Accordingly, we are proposing to
update Sec. 447.518(d) heading as ``Data requirements'' and to include
paragraph (d)(1) as set out at in the regulatory text at the end of
this document.
Updating this language would assure that States provide adequate
data to establish pharmacy reimbursement for ingredient costs and
professional dispensing fees, and that such reimbursement is based on
current actual costs.

L. Federal Financial Participation (FFP): Conditions Relating to
Physician-Administered Drugs (Sec. 447.520)

Generally, physician-administered drugs (PADs) may satisfy the
definition of a covered outpatient drugs (COD) under section 1927(k)(2)
of the Act, subject to the limiting definition at section 1927(k)(3) of
the Act, and manufacturer rebates can be collected on these PADs.
Prior to section 6002 of the DRA of 2005, which added sections
1927(a)(7) and 1903(i)(10)(C) to the Act to require the States to
collect and submit certain utilization data on certain PADs in order
for FFP to be available for these drugs, and for States to secure
rebates, many States did not collect rebates on PADs when they were not
identified by a National Drug Code (NDC) number because the NDC number
is necessary for States to bill manufacturers for rebates. The NDC
identifies the specific manufacturer, product, and package size.
In the past, many PADs were classified by Healthcare Common
Procedure Coding System (HCPCS) \44\ codes (commonly referred to as J-
codes), which group together different manufacturers of the same drug
in the same code. These broad codes cannot be used to bill for rebates,
as they do not identify the specific manufacturer. Many providers were
submitting only these HCPCS codes to the States, rather than the NDC
code of the specific drug, making it difficult for the State to bill
for rebates.
---------------------------------------------------------------------------

\44\ HCPCS is a collection of standardized codes that represent
medical procedures, supplies, products and services. The codes are
used to facilitate the processing of health insurance claims by
Medicare and other insurers. HCPCS is divided into two subsystems,
Level I and Level II. Level I is comprised of Current Procedural
Terminology codes (HCPT). Level II HCPCS codes identify products,
supplies, and services not included in CPT.
---------------------------------------------------------------------------

In its report titled ``Medicaid Rebates for Physician Administered
Drugs'' (April 2004, OEI-03-02-00660),\45\ the OIG reported that, by
2003, 24 States either required providers to bill using NDC numbers or
identified NDC numbers using a HCPCS-to-NDC crosswalk for PADs to
collect rebates. Four of the 24 States were able to collect rebates for
all PADs, both single source and multiple source drugs (one State only
collected these rebates from targeted providers).
---------------------------------------------------------------------------

\45\ https://oig.hhs.gov/oei/reports/oei-03-02-00660.pdf.
---------------------------------------------------------------------------

To address this situation, and to increase the rebates being
invoiced by States for PADs, section 6002 of the DRA added sections
1927(a)(7) and 1903(i)(10)(C) to the Act to require the States to
collect and submit certain utilization data on certain PADs in order
for FFP to be available for these drugs, and for States to collect
manufacturer rebates. More specifically, these provisions required that
for payment to be available under section 1903(a) of the Act for a COD
that is a PAD, States had to provide for the collection and submission
of utilization data and coding (such as J-codes and NDC numbers) for a
PAD that is a single source (after January 1, 2006) or a multiple
source drug (after January 1, 2008) that is a top 20 high dollar volume
PAD on a published list (based on highest dollar volume dispensed under
Medicaid identified by the Secretary, after January 1, 2007) that the
Secretary may specify in order for payment to be available under
section 1903 of the Act and for States to secure applicable Medicaid
rebates.
This list of the top 20 multiple source drugs may be modified year
to year to reflect changes in such volume. (See section
1927(a)(7)(B)(i) of the Act.) The statute also required that only NDCs
be used after January 1, 2007 for billing for all PADs that are CODs,
unless the Secretary authorized that another alternative coding system
be used. If States are not collecting NDCs and submitting the
appropriate utilization data for these drugs, States should not receive
Federal matching payments. In addition, States would be foregoing
available rebates for these drugs.
Regulations at Sec. 447.520 were established to implement these
statutory provisions in the 2007 Medicaid Program; Prescription Drugs;
Final Rule, specifying the conditions for FFP for PADs (72 FR 39142).
Section 447.520(a) specifies that no FFP is available for PADs if the
State has not required the submission of codes from its providers that
allow it to appropriately bill manufacturers for rebates for PADs. For
single source PADs, the requirement to submit appropriate coding went
into effect as of January 1, 2006, and specifies under Sec.
447.520(a)(1) that States must require providers to submit claims for
single source PADs using HCPCS or NDC codes to secure rebates. Section
447.502(a)(2) further specifies that as of January 1, 2007, a State
must require providers to submit claims for single source and the top
20 multiple source PADs identified by the Secretary, using NDC codes.
Under Sec. 447.520(b), as of January 1, 2008, a State must require
providers to submit claims for the top 20 multiple source drugs
identified by the Secretary as having the highest dollar volume using
NDC numbers to secure rebates, and Sec. 447.520(c) provided the
opportunity for States that require additional time to comply with the
requirements of the applicable laws and regulations to apply for an
extension to comply with the requirements. We proposed to retain this
current regulatory language without modification in the 2012 COD
proposed rule (77 FR 5367) and since no comments were received on that
proposal, the current regulations were finalized without any
modifications in the 2016 COD final rule. See 81 FR 5322.
We propose to update the regulatory language at Sec. 447.520 to
more

[[Page 34276]]

specifically and accurately conform with the statutory requirements
captured at section 1927(a)(7) of the Act. In proposed Sec.
447.520(a)(1) through (3) we specify the conditions under which FFP is
available for States, as they relate to the codes they must require
providers to use in order for the State to secure rebates for PADs that
are CODs. The proposed language clarifies that rebates are only due for
PADs that are CODs, and provides the conditions that data must be
submitted by providers in the State in order for States to receive FFP
and secure applicable rebates. We are proposing at Sec. 447.520(b) a
State require providers to submit claims for all covered outpatient
drug single source and multisource physician-administered drugs using
NDC numbers to collect FFP and secure rebates.
States also need to ensure that their managed care plans report
required drug utilization data in order for States to invoice
manufacturers for rebates for CODs, consistent with Sec. 438.3(s)(2)
and (3), which were adopted in the 2016 Medicaid Managed Care final
rule.\46\ Per Sec. 438.3(s)(2) and (3), an MCO, PIHP or PAHP that
covers CODs under its Medicaid managed care contract must (1) report
drug utilization data to the State that is necessary for the State to
bill manufacturers for rebates under section 1927 of the Act using NDC
numbers for all CODs, including all single and multiple source PADs;
and, (2) establish procedures to exclude utilization data for covered
outpatient drugs that are subject to discounts under the 340B Drug
Pricing Program from those reports if the State does not require
submission of managed care drug claims data from covered entities
directly to the State.
---------------------------------------------------------------------------

\46\ 86 FR 27498, May 6, 2016 (https://www.govinfo.gov/content/pkg/FR-2016-05-06/pdf/2016-09581.pdf).
---------------------------------------------------------------------------

Additionally, we are proposing at Sec. 447.520(c) to continue to
publish the top 20 list of multiple source PADs on an annual basis, as
statutorily required, but it is our expectation that States would
invoice rebates for all multiple source physician-administered drugs
that are CODs. This section would make it clear that States are
required to invoice for rebates for multiple source PADs on this list
to receive Federal matching funds and to secure rebates. The proposed
regulation would specify to States that they should invoice for rebates
for all multiple source PADs that are CODs, and not limit such rebate
invoicing to the top 20 high dollar volume list. As technology and
systems are currently in place, this proposed regulation would reduce
the administrative burden of monitoring any revisions to the top 20
multiple source PADs and allow States to secure rebates for these PADs
that are CODs.

M. Request for Information on Requiring a Diagnosis on Medicaid
Prescriptions

Generally, a COD is a prescribed drug approved under section 505(c)
or 505(j) of the FFDCA or section 351 of the Public Health Service
(PHS) Act when used for a medically accepted indication. The term
``medically accepted indication'' is defined in statute at section
1927(k)(6) of the Act and means any use for a COD which is approved
under the FFDCA or the use of which is supported by one or more
citations included or approved for inclusion in compendia described in
section 1927(g)(1)(B)(i) of the Act, which is the American Hospital
Formulary Service-Drug Information (AHFS-DI), Drugdex, or United States
Pharmacopoeia-Drug Information (USP-DI). Medicaid COD claims do not
currently require a diagnosis code as a condition for payment. When
reviewing claims, without a diagnosis, it is difficult to determine
whether a drug is indeed being used for a medically accepted
indication, and appropriately satisfies the definition of a COD, and
therefore, is rebate eligible. Despite statutory language limiting
Medicaid payment for covered outpatient drugs to when used for a
``medically accepted indication,'' there are not systems in place for
States to determine whether a patient's outpatient prescription drug
use is in fact for a medically accepted indication, or in other words,
there is no mechanism to cross-reference a prescription drug use with a
Medicaid patient's medical diagnoses to ensure a drug is being used for
a medically accepted indication.
In 2011, the OIG discovered in a Medicare audit that without a
diagnosis, it is difficult for Part D sponsors to determine whether a
drug claim is medically appropriate.\47\ OIG stated that without access
to diagnosis information, Part D sponsors cannot determine the
indications for which drugs were used. Although this audit referenced
Medicare, the same issue is applicable to Medicaid prescriptions. If
States are not aware of the diagnosis for which the medication is being
used, they are unable to determine if the drug is being used for a
medically accepted indication and cannot determine if they should bill
for rebates or if coverage is mandatory. Additionally, an article
written by then Principal Deputy Inspector General (and now current
Inspector General) and Chief Medical Officer from OIG. recently
advocated for a new mandate that physicians include a diagnosis code
with prescriptions.\48\ In 2011, CMS did not concur with OIG's finding,
stating that diagnosis information is not a required data element of
pharmacy billing transactions, nor is it generally included on
prescriptions.
---------------------------------------------------------------------------

\47\ https://oig.hhs.gov/oei/reports/oei-07-08-00150.pdf.
\48\ STAT Op-Ed by Christi A. Grimm & Julie K. Taitsman [bond]
Office of Inspector General [bond] Government Oversight [bond] U.S.
Department of Health and Human Services (hhs.gov).
---------------------------------------------------------------------------

Since 2011, automation of prescribing has grown significantly, and
in 2020 an estimated 84 percent of all prescriptions were e-
prescriptions.\49\ Electronic prescribing has increased so much so that
in early 2021, most prescriptions for controlled substances under
Medicare Part D must be transmitted electronically.\50\
---------------------------------------------------------------------------

\49\ E-prescription rate U.S. 2020 [bond] Statista available at
https://www.statista.com/statistics/864380/share-of-us-e-prescriptions/?msclkid=a1c545e9b44d11ec81f5391e8e8d23cb.
\50\ E-Prescribing [bond] CMS available at https://www.cms.gov/Medicare/E-Health/Eprescribing?msclkid=27a13cf3b44e11ecb30d5dd85675d203.
---------------------------------------------------------------------------

There are several instances in which a diagnosis on a prescription
could help States implement certain Medicaid programs in which they are
eligible for enhanced Federal matching funds, or for which they must
implement a mandatory benefit. Federal funds support States in
responding to the increased need for services, such as testing and
treatment during the COVID-19 public health emergency, family planning,
or allows States to provide innovative treatment services. For certain
conditions, an increase in States' Federal medical assistance
percentage (FMAP) leverages Medicaid's existing financing structure and
allows enhanced Federal funds to treat that condition. For example, to
be eligible for enhanced Federal funds in certain instances, such as
when birth control drugs are used for family planning as opposed to
other indications such as acne, moderate to severe abnormal vasomotor
function, or postmenopausal osteoporosis the State needs to document
when expenditures are being used to treat that condition. Without
access to diagnosis information, States cannot accurately determine the
indications for which drugs were used, especially when drugs have
multiple indications, making identification of these costs very
difficult, if not impossible, and very resource intensive. For example,
if a family planning drug has multiple indications, and the family
planning indication is eligible for enhanced Federal matching, then the
State will only know when the drug is

[[Page 34277]]

being used for birth control if there is a related diagnosis on the
prescription. A requirement of diagnosis on prescriptions would allow
States to easily and accurately identify drug expenditures qualifying
for these enhanced Federal matching funds. State programs will be able
to better determine if prescriptions meet payment requirements and can
more accurately capture expenditures required for Federal matching.
There are additional benefits for adding diagnosis on prescriptions
for both providers and beneficiaries. For example, practitioners and
beneficiaries benefit from systematic authorizations that are diagnosis
based. Vulnerable groups, such as pregnant women, or specific diagnoses
(COVID-19) can be easily exempt from out-of-pocket costs and copayments
for certain services or conditions. Diagnosis information on
prescriptions can help pharmacists identify safety issues and helps
supplement prior DUR standards under section 1927(g) of the Act in
ensuring prescriptions are appropriate, medically necessary, and not
likely to result in adverse medical results. Adding diagnosis to
prescriptions can contribute to safer prescribing, improved patient
outcomes and medication use in multiple, synergistic ways. Including
diagnosis on prescriptions may be a way to ensure drugs are being only
used for FDA approved indications. State Medicaid programs may also be
able to better manage drug utilization by mandating diagnosis codes on
drug claims to ensure payments are limited to drugs with medically
accepted indications as required by statute.
Finally, we believe, if such a provision were implemented, that the
design and implementation of any adjudication specifications would be
left to the States' discretion to meet State-specific needs. Given this
flexibility, States can continue to monitor and fine-tune program
specifics as they determine what works best for their population's
health and well-being. For continuity of care among programs, if this
provision was implemented in the future, we envision all Medicaid
managed care programs would be included in this requirement, including
MCOs, PIHPs, or PAHPs.
There are many interested parties that would have views on this
requirement to include diagnosis on a prescription: patients,
prescribers, pharmacists, States, and drug manufacturers. We are
specifically soliciting comments on this topic, its impact on
beneficiaries, providers, States, Medicaid, and any operational
implications. We are particularly interested in understanding the
burden with such a proposal and seeking comments on how to negate any
foreseeable impact on beneficiaries and providers and steps which would
be needed by States to successfully implement a Medicaid requirement
for diagnosis on prescriptions as a condition of FFP. We are requesting
comments regarding the potential impact of supporting such a policy to
require Medicaid diagnoses on prescriptions on payment, health care
quality, stigma and access to care, and program integrity. We are also
requesting comments on what steps we should take to protect beneficiary
access to commonly used, medically accepted, compendia supported, off-
label prescriptions if we propose to implement such a policy. We are
seeking comments from all interested parties on potential approaches
and invite all comments on this topic.

III. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), we are required to provide 60-day notice in the Federal Register
and solicit public comment before a ``collection of information''
requirement is submitted to the Office of Management and Budget (OMB)
for review and approval. For the purposes of the PRA and this section
of the preamble, collection of information is defined under 5 CFR
1320.3(c) of the PRA's implementing regulations.
To fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the PRA requires that we
solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are soliciting public comment (see section III.D. of this
proposed rule) on each of these issues for the following sections of
this document that contain collection of information requirements.
Comments, if received, will be responded to within the subsequent final
rule.

A. Wage Estimates

To derive average costs, we used data from the U.S. Bureau of Labor
Statistics' (BLS') May 2021 National Occupational Employment and Wage
Estimates for all salary estimates (https://www.bls.gov/oes/current/oes_nat.htm). In this regard, Table 3 presents BLS' mean hourly wage,
our estimated cost of fringe benefits and other indirect costs
(calculated at 100 percent of salary), and our adjusted hourly wage.

Table 3--National Occupational Employment and Wages Estimates
----------------------------------------------------------------------------------------------------------------
Fringe benefits
Mean hourly and other Adjusted hourly
Occupation title Occupation code wage ($/hr) indirect costs wage ($/hr)
($/hr)
----------------------------------------------------------------------------------------------------------------
Operations Research Analyst................. 15-2031 46.07 46.07 92.14
----------------------------------------------------------------------------------------------------------------

As indicated, we are adjusting our hourly wage estimates by a
factor of 100 percent. This is necessarily a rough adjustment, both
because fringe benefits and other indirect costs vary significantly
from employer to employer, and because methods of estimating these
costs vary widely from study to study. Nonetheless, we believe that
doubling the hourly wage to estimate the total cost is a reasonably
accurate estimation method.

B. Proposed Information Collection Requirements (ICRs)

1. ICRs Regarding Identification and Notification to Manufacturer To
Correct Misclassification (Sec. 447.509(d)(1) Through (4))
As discussed in section II.F.1.a. of this proposed rule, we are
proposing to add

[[Page 34278]]

new paragraphs (d)(1) through (4) to Sec. 447.509 that would add new
requirements relating to the process by which CMS would identify when a
misclassification of a drug has occurred in MDRP and subsequently
notify the manufacturer of the misclassified drug. As such, a
manufacturer's efforts to address the misclassification is currently
approved by OMB under control number 0938-0578 (CMS-367). This package
currently takes into account the time and cost incurred by
manufacturers when compiling and reporting, or changing, Medicaid drug
product and price information on a monthly, quarterly, and on an as-
needed basis. The burden, however, is subject to a regulatory impact
analysis which can be found in section V. of this proposed rule.
2. ICRs Regarding Definitions (Sec. 447.502)
As discussed in section II.C.1.d. of this proposed rule, we are
proposing to modify the definition of manufacturer for NDRA purposes.
The modification would establish a regulatory definition of
manufacturer for purposes of satisfying the requirement that a
manufacturer maintain an effectuated rebate agreement with the
Secretary consistent with section 1927(a)(1) of the Act. Specifically,
we are proposing that the term ``manufacturer'' means that all
associated labeler entities of the manufacturer that sell CODs,
including, but not limited to, owned, acquired, affiliates, brother or
sister corporations, operating subsidiaries, franchises, business
segments, part of holding companies, divisions, or entities under
common corporate ownership or control, must each maintain an
effectuated rebate agreement. The preparation and maintenance of an
effectuated rebate agreement has been a long-standing requirement that
we propose to codify in this rule. The effectuated rebate agreement
requirement and burden are currently approved by OMB under control
number 0938-0578 (CMS-367). This rule's proposed actions have no impact
on our currently approved requirements and burden estimates and
assumptions, including the universe of manufacturers. Consequently, we
are not making any changes under that control number.
Additionally, we do not believe any of the following new terms and
definition modifications and clarifications would require any effort or
impose burden on any public or private entities: (1) proposal to modify
the definition of ``covered outpatient drug (Sec. 447.502), (2)
proposal to define ``drug product information'' (Sec. 447.502), (3)
proposal to define ``market date'' (Sec. 447.502), (4) proposal to
modify the definition of ``noninnovator multiple source drug'' (Sec.
447.502), (5) proposal to clarify Sec. 447.509(a)(6) through (9) and
(c)(4) with respect to ``other drugs'', and (6) proposal to define
``vaccine for purposes of the MDRP only'' (Sec. 447.502).
Consequently, none of the definition changes are subject to the
requirements of the PRA.
3. ICRs Regarding Proposals Related to State Plan Requirements,
Findings, and Assurances (Sec. 447.518)
As discussed in section II.K. of this proposed rule, we are
proposing to specify in Sec. 447.518(d)(1) that the professional
dispensing fee (PDF) must be based on pharmacy cost data, and that it
cannot be solely determined or supported by a market-based review or by
an assessment or comparison of what other payers may reimburse
pharmacies for dispensing prescriptions. The clarification also
specifies the type of supporting data that we would accept as adequate
to support a change to the PDF. The proposed clarification would not
add any new or revised requirements or burden. If a State chooses to
revise their State Plan for any updates to include a modification to
their PDF, a SPA can be submitted to CMS for review and approval. The
burden for such SPA submissions is currently approved by OMB under
control number 0938-0193 (CMS-10398 #179 under attachment 4.19-B
pertaining to the: methods and standards used for the payment of
certain services, and methods and standards used for establishing
payment rates for prescribed drugs). Since the proposed clarification
would not add any new or revised requirements or burden, we are not
making any changes under that control number.
4. ICRs Regarding Federal Financial Participation (FFP): Conditions
Relating to Physician-Administered Drugs (Sec. 447.520)
We propose to update Sec. 447.520 to make it consistent with
section 1927(a)(7) of the Act, and to codify the requirement that
States must collect NDC information on all single and multiple source
physician-administered drugs that are CODs for the purposes of
invoicing manufacturers for rebates, and ensuring that FFP is
available, as appropriate. We are proposing to require that States must
be invoicing for rebates for all physician-administered drugs that are
CODs. We propose to continue to publish the top 20 high dollar volume
list of multiple source physician-administered drugs, as statutorily
required, to provide a means of prohibiting Federal matching funds, as
necessary, if States are not requiring the use of NDC codes, and
invoicing for rebates on these drugs. This proposal would be applicable
to all 50 States and the District of Columbia; however, we believe that
this proposal would have no additional burden because States, based on
their State Drug Utilization Data (SDUD) reported to CMS, are currently
collecting NDC numbers for all CODs, including all single and multiple
source physician-administered drugs and invoicing manufacturers for
rebates as applicable under OMB control number 0938-1026 (CMS-10215).
Since the proposed provisions would not add any new or revised
requirements or burden, we are not making any changes under that
control number.
5. ICRs Regarding Verification Survey of Reported CODs Through Data
Collection (Sec. 447.510)
We are proposing at Sec. 447.510(k) a process to survey
wholesalers and manufacturers to verify prices and charges for certain
CODs by requesting and collecting certain information about such prices
and charges for a drug reported to us under section 1927(b)(3)(A) of
the Act. The proposed survey instruments will be submitted to OMB for
review after this proposed rule is finalized and our survey instruments
(one for requesting information from States as proposed under Sec.
447.510(k)(3)) and another for surveying manufacturers) have been
developed. The tools are not ready yet, but will be made available to
the public for its review under the standard non-rule PRA process which
includes the publication of 60- and 30-day Federal Register notices.
The CMS ID number for that package is CMS-10822 (OMB control number
0938-TBD 1). Since this would be a new collection of information
request, the OMB control number has yet to be determined. OMB would
issue that number upon its approval of the non-rule collection of
information request. We are however setting out our preliminary burden
figures (see below) as a means of scoring the impact of the proposed
provisions.
Since the beginning of the MDRP in 1991, the Secretary has had the
authority, under section 1927(b)(3)(B) of the Act, to survey
wholesalers and manufacturers that directly distribute their covered
outpatient drugs, when necessary, to verify manufacturer prices, such
as AMP and ASP, including wholesale acquisition cost (WAC), reported
under section 1927(b)(3)(A) of

[[Page 34279]]

the Act, if required to make payment. Furthermore, section
1902(a)(30)(A) of the Act (42 U.S.C. 1396a(a)(30)(A)) requires that
States have a State Plan that provides methods and procedures to ensure
that such payments are consistent with efficiency, economy, and quality
of care and are sufficient to enlist enough providers so that care and
services are available at least to the extent that such care and
services are available to the general population in the geographic
area. Therefore, the agency has an overarching obligation under section
1902(a)(30)(A) of the Act to ensure that Medicaid payments are made in
an efficient, economical, as well as sufficient manner to provide
access to care.
We have never used the section 1927(b)(3)(B) of the Act authority
to survey manufacturers or wholesalers, nor have we interpreted this
statutory section in regulation. Therefore, we are proposing at Sec.
447.510(k) to identify a process to survey wholesalers and
manufacturers to verify prices and charges for certain CODs by
requesting and collecting certain information about such prices and
charges for a drug reported to us under section 1927(b)(3)(A) of the
Act. As part of the drug price verification survey process, CMS
proposes to post the survey's non-proprietary information on its
website.
In addition to the manufacturer survey, CMS also proposes to
collect information from States to determine which drugs would be
surveyed under Sec. 447.510(k)(3). The simplified State survey would
ask States whether or not manufacturers meet any of the criteria for
excluding drugs from the list from application of Sec. 447.510(k)(2)
from such drug verification surveys, such as the level of
manufacturer's effort in accordance with proposed Sec.
447.510(k)(3)(ii). That is, the survey will ask a State if they were
able to negotiate with the manufacturer a CMS-authorized supplemental
rebate that when in combination with the Federal rebate results in a
total (State and Federal) rebate that is greater than the average
percentage of total national average Medicaid rebates (State and
Federal) to total Medicaid drug spend as reflected in the most recent
Medicaid Financial Management Report.
With regard to the State survey, we estimate that once a year, 52
respondents consisting of: the 50 States, the District of Columbia, and
one territory participating in the Medicaid drug rebate program (Puerto
Rico), would be surveyed to determine if manufacturers of high cost
drugs are participating in negotiating supplemental rebates and any
additional State Medicaid input under Sec. 447.510(k)(3)(iii)(A). At
this time, we estimate that the simplified State survey would take 15
minutes at $92.14/hr for an operations research analyst to complete. In
aggregate, we estimate an annual burden of 13 hours ((52 surveys x 0.25
hr/survey) at a cost of $1,198 (13 hr x $92.14/hr). While CMS may seek
additional information via non-standardized follow-up questions, the
burden associated with such a request is not subject to the
requirements of the PRA as described under 5 CFR 1320.3(h)(9).
With regard to the manufacturer survey, there are currently 792
labelers participating in the MDRP. While there is no way to know the
exact number of labeler codes used by these manufacturers, most
manufacturers have at least 2 labeler codes, so we are estimating
approximately selecting from a universe of 396 (792 labelers/2 labeler
codes) manufacturers could potentially be subject to completing a
verification survey. However, the proposed requirement to survey would
be limited to only when the Secretary determines it is necessary, such
as when the drug prices reported under section 1927(b)(3)(A) of the Act
exceed a proposed criteria. While we anticipate that there is the
potential that 396 manufacturers may be eligible to receive a survey,
we estimate that based upon the criteria proposed at Sec. 447.510(k)
for when a COD would be identified and selected and a manufacturer
would be surveyed with respect to that drug, we would likely to
undertake a minimum of three manufacturer surveys per year, with a
maximum of ten surveys per year, taking 5 hours at $92.14/hr for an
operations research analyst to complete the survey. So as to not under
estimate the impact of this rule's proposed provisions, we are using
the maximum of ten manufacturers surveyed per year. In aggregate, we
estimate an annual burden of 50 hours (10 surveys x 5 hr/survey) at a
cost of $4,607 (50 hr x $92.14/hr). While CMS may seek additional
information via non-standardized follow-up questions, the burden
associated with such a request is not subject to the requirements of
the PRA as described under 5 CFR 1320.3(h)(9).
Through this proposed rule we are soliciting comments to help us
develop the manufacturer survey and the State survey.
6. ICRs Regarding Standard Medicaid Managed Care Contract Requirements
(Sec. 438.3(s))
The following proposed changes regarding drug cost transparency in
Medicaid managed care contracts will be submitted to OMB for review
under control number 0938-TBD 2 (CMS-10855).
We are proposing to amend Sec. 438.3(s) to require MCOs, PIHPs,
and PAHPs that provide coverage of covered outpatient drugs to assign
and exclusively use unique Medicaid-specific BIN, PCN, and group number
identifiers on all issued Medicaid managed care beneficiary
identification cards for pharmacy benefits. It is a usual and customary
business practice for the MCOs, PIHPs, and PAHPs to routinely issue
identification cards for pharmacy benefits, as they do routinely for
all of their lines of business across the industry, to include
commercial/private and public sector programs, such as Medicare and
Medicaid. Since we believe that this is a usual and customary business
practice that is exempt from the PRA (see 5 CFR 1320.3(b)(2)), we are
not setting out such burden for managed care entities to program the
new codes onto the cards and to issue such cards under this section of
the preamble. The burden, however, is subject to a regulatory impact
analysis which can be found in section V. of this proposed rule.
Additional proposed amendments to Sec. 438.3(s) would require that
MCOs, PIHPs, and PAHPs that provide coverage of covered outpatient
drugs structure any contract with any subcontractor for the delivery or
administration of the covered outpatient drug benefit to require the
subcontractor to report separately the amounts related to:
(1) The incurred claims described in Sec. 438.8(e)(2) such as
reimbursement for the covered outpatient drug, payments for other
patient services, and the fees paid to providers or pharmacies for
dispensing or administering a covered outpatient drug; and
(2) Administrative costs, fees and expenses of the subcontractor.
We estimate that the proposed reporting requirements would affect
282 managed care plans in the country and 40 States. We further
estimate that it would take an operations research analyst at the State
level, 25 hours at $92.14/hr to restructure 282 managed care contracts
to require those plans to structure their subcontracts to require the
subcontractor to separately report incurred claims expenses described
in Sec. 438.8(e)(2) from fees paid for administrative activities. In
aggregate, we estimate a one-time burden of 1,000 hours (40 State
responses x 25 hr/response) at a cost of $92,140 (1,000 hr x $92.14/
hr).

[[Page 34280]]

For the same contract changes between the MCOs and the
subcontractors (mainly PBMs), we also estimate a one-time private
sector burden of 7,050 hours (282 managed care plans x 25 hr/response)
at a cost of $649,587 (7,050 hr x $92.14/hr).
With respect to the reporting burden, we estimate that 282 PBMs of
those 282 managed care plans to separately report incurred claims
expenses described in Sec. 438.8(e)(2) from fees paid for
administrative activities would take approximately 2 hours to identify
these costs separately and report separately to the managed care plans.
In aggregate we estimate an annual burden of 564 hours (282 PBMs x 2
hr/response) at a cost of $51,967 (564 hr x $92.14/hr).

C. Summary of Proposed Burden Estimates

In Table 4, we present a summary of this rule's proposed collection
of information requirements and associated burden estimates.

Table 4--Summary of Proposed Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Time per
Regulatory section(s) under title 42 OMB control No. (CMS ID Number of respondents number of response Total time Labor cost Total cost
of the CFR No.) responses (hr) (hr) ($/hr) ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 447.510....................... 0938-TBD 1 (CMS-10822). 52 States.............. 52 0.25 13 92.14 1,198
Sec. 447.510....................... 0938-TBD 1 (CMS-10822). 10 manufacturers....... 10 5 50 92.14 4,607
Sec. 438.8(e)(2)................... 0938-TBD 2 (CMS-10855). 40 States.............. 40 25 1,000 92.14 92,140
Sec. 438.8(e)(2)................... 0938-TBD 2 (CMS-10855). 282 managed care plans. 282 25 7,050 92.14 649,587
Sec. 438.8(e)(2)................... 0938-TBD 2 (CMS-10855). Subcontractor PBMs of 282 2 564 92.14 51,967
the 282 managed care
plans.
------------------------------------------------------------------------------------------------------------------
Total............................ 344.................... (52 States + 10 666 Varies 8,677 92.14 799,499
manufacturers + 282
managed care plans).
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Submission of PRA-Related Comments

We have submitted a copy of this proposed rule's information
collection requirements to OMB for their review. The requirements are
not effective until they have been approved by OMB.
To obtain copies of the supporting statement and any related forms
for the proposed collections discussed above, please visit the CMS
website at https://www.cms.gov/regulations-and-guidance/legislation/paperworkreductionactof1995/pra-listing, or call the Reports Clearance
Office at 410-786-1326.
We invite public comments on these potential information collection
requirements. If you wish to comment, please submit your comments
electronically as specified in the DATES and ADDRESSES sections of this
proposed rule and identify the rule (CMS-2434-P), the ICR's CFR
citation, and OMB control number.

IV. Response to Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Statement of Need

The intent of this proposed rule is to implement several new
legislative requirements relating to the operation of the MDRP and
other program integrity, and program administration proposals.
For example, section 6 of the MSIAA was signed into law on April
18, 2019. Section 6 of the MSIAA amended sections 1903 and 1927 of the
Act to grant the Secretary additional authorities needed to address
drug misclassification, drug pricing, and product data misreporting by
manufacturers for purposes of the MDRP. This proposed rule includes
policies to implement these new statutory authorities, as required.
This proposed regulation also aims to implement a provision in
section 9816 of the American Rescue Plan Act of 2021, which amended
section 1927(c)(2)(D) of the Act, by inserting a sunset date on the
limitation on the maximum rebate amount for single source and innovator
multiple source drugs, and other drugs.
We are also proposing several important MDRP program administration
and integrity policies, which include the following: clarifying the
definition of manufacturer for NDRA purposes; adopting a regulatory
definition of vaccine for MDRP purposes; and, implementing a time
limitation on manufacturer disputes and audits with States regarding
rebates. This proposed rule also proposes to specify a number of
existing policies, including: requirements for manufacturers for
determining their best price for a covered outpatient drug; the
requirements for State reimbursement for prescribed drugs, and the
conditions relating to payment of FFP for PADs that are CODs dispensed
and paid for under the State Plan.
We are proposing to include two new requirements for the contracts
between States and their Medicaid managed care plans, specifically
MCOs, PIHPs, and PHAPs. That is, States would be required to include in
their contracts with MCOs, PIHPs, and PHAPs a requirement that each
Medicaid enrollee's identification card used for pharmacy benefits
would include a unique Medicaid-specific BIN/PCN. This inclusion of
this unique Medicaid-specific BIN/PCN on these cards would have to be
effective no later than the next rating period for Medicaid managed
care contracts, following the effective date of the final rule adopting
this new regulatory requirement. This requirement would assist
providers in identifying patients as Medicaid beneficiaries.
In addition, we are proposing that Medicaid managed care plans that
subcontract with a pharmacy benefit administrator or pharmacy benefit
manager require the subcontractor to provide specific details to the
Medicaid managed care plans about the various pharmacy and non-pharmacy
(administrative) costs associated with providing the pharmacy benefit,
so the managed care plan can appropriately calculate its Medicaid
managed care MLR.
Moreover, we are also proposing additional program integrity and
administration policies including: amending the regulatory definition
of noninnovator multiple source drug; adding regulatory definitions of
a manufacturer's internal investigation; drug product information;
market date; and, modifying the definition of COD. There is also
included a proposal

[[Page 34281]]

unrelated to MDRP; that, is a proposed revision to third party
liability regulation resulting from statutory changes in the BBA 2018.
We are solicitating comments relating to the issues, benefits and
challenges of requiring a patient's diagnosis be included on Medicaid
prescriptions, and the patient care and operational aspects of such a
requirement. We are particularly interested in understanding the burden
with such a proposal and seeking comments on how to mitigate any
foreseeable impact on beneficiaries and providers, and steps which
would be needed by States to successfully implement a Medicaid
requirement for diagnosis on prescriptions.
On May 17, 2022, the United States District Court for the District
of Columbia vacated and set aside the ``accumulator adjustment rule of
2020'' in response to a complaint filed against the Secretary regarding
the accumulator provisions within the December 31, 2020 final rule.
The December 31, 2020 final rule had revised the various the
regulatory patient assistance program exclusions from AMP and best
price at Sec. Sec. 447.504(c)(25) through (29) and (e)(13) through
(17) and 447.505(c)(8) through (12), to add language (effective January
1, 2023), such that they would require manufacturers to ``ensure'' the
full value of the assistance provided by these patient assistance
programs is passed on to the consumer and that the pharmacy, agent, or
other AMP or best price eligible entity does not receive any price
concession, before excluding such amounts from the determination of
best price or AMP. In response to the district court's order, we
propose to withdraw the changes made to these sections by the December
31, 2020 final rule.

B. Overall Impact

We have examined the impacts of this proposed rule as required by
Executive Order 12866 on Regulatory Planning and Review (September 30,
1993), Executive Order 13563 on Improving Regulation and Regulatory
Review (January 18, 2011), the Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act,
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22,
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4,
1999), and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) having an
annual effect on the economy of $200 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local, or tribal governments or communities; (2)
creating a serious inconsistency or otherwise interfering with an
action taken or planned by another agency; (3) materially altering the
budgetary impacts of entitlement grants, user fees, or loan programs or
the rights and obligations of recipients thereof; or (4) raising legal
or policy issues or which centralized review would meaningfully further
the President's priorities or the principles set forth in the Executive
order.
Based on our estimates, OMB's Office of Information and Regulatory
Affairs has determined this rulemaking is significant per section
3(f)(1) as measured by $200 million or more in any 1 year. Therefore,
OMB has reviewed this proposed rule, and the Departments have provided
the following assessment of their impact.

C. Detailed Economic Analysis

There is a need for greater clarity regarding some of the
administrative policies of the MDRP, and this proposed rule aims to
establish regulations to provide guidance to States, manufacturers and
other related parties. This proposed rule addresses these policy issues
after considering the evolution of the pharmaceutical marketplace since
the development of the MDRP, and the economic, social and other factors
affecting Medicaid providers and beneficiaries. At the same time, this
proposed rule is mindful of the impact of changes in regulations on
affected interested parties, and the degree of compliance promulgated
by the agency. Therefore, for these reasons, we prepared the economic
impact estimates utilizing a baseline of ``no action,'' comparing the
effect of the proposals against not proposing the rule at all.
If the proposals in this rule are not implemented, there would be
no specific policies in place in the MDRP related to the new
legislative requirements in the MSIAA, and no clear policies to address
drug misclassification, drug pricing and product data misreporting by
manufacturers. Accordingly, this proposed rule would address other
situations in which manufacturers are paying fewer rebates to States
than are supported by the pricing and product data that they are
currently reporting to MDP. While we believe that most of the drugs in
MDP are appropriately classified, we do not know an exact number of
those which may be misclassified. For this reason, a robust analytical
framework, with baseline scenarios and benchmarks, cannot be conducted
at this time.
Additionally, if these proposals are not implemented, there would
be no regulatory policies for addressing the authority for the American
Rescue Plan Act to sunset the date on the limitation on the maximum
rebate amount paid by manufacturers for single source and innovator
multiple source drugs, in addition to noninnovator multiple source
drugs.
At this time, program integrity and program administration
provisions need to be proposed or specified to address the definitions
for: covered outpatient drug (COD); drug product information; internal
investigation; manufacturer; market date; noninnovator multiple source
drug; and vaccine. Moreover, at this time there is a need to: establish
a time limitation on manufacturer rebate disputes and audits with
States; refine State requirements for State reimbursement for
prescribed drugs; specify conditions relating to payment for PAD;
specify the process for manufacturer to accumulate price concessions
and discounts (``stacking'') when determining best price; establish a
drug price verification survey process through data collection. The
reasons and rationales for these provisions were detailed in the
preamble section of this proposed rule. The economic impacts of these
provisions are detailed below.
We are solicitating comments relating to the issues, benefits and
challenges of requiring a diagnosis be included on Medicaid
prescriptions, as well as any current data and estimates that could be
used to develop an analytical framework for the proposals in this rule.
1. Benefits
The provision requiring that PBAs and PBMs report specific
categories of drug expenditures to their contracted managed care entity
would benefit States and Medicaid managed care plans, since it can help
assure a more accurate calculation of their MLRs and managed care plan
capitation rates, resulting in more accurate Medicaid spending. Some
States have already eliminated ``spread pricing'' in their managed care
contracts, meaning that the State requires the PBM pays the

[[Page 34282]]

pharmacy the same price that the managed care plan is charged for the
prescription, such that there would be no ``spread'' or difference
between the two prices. That is, the PBM would not be allowed to charge
the managed care plan a higher price than the amount paid to the
pharmacy. This removes the ``spread'' or the difference of which is
traditionally kept by the PBM to pay for administrative and other fees.
Instead, such administrative fees would have to be separately
identified by the PBM for the managed care plan. While this shift in
policy has begun in many States, this benefit cannot be quantified at
the national level as we do not have data on which States do this now
versus States that would need to implement this because of the proposed
rule.
However, a March 2020 Congressional Budget Office (CBO) estimate of
the Federal proposal \51\ to require pass through pharmacy pricing
finds the spread pricing provision would produce Federal savings of
$929 million over 10 years, which translates to a less than 1 percent
drop in Federal Medicaid prescription drug spending. It is unclear what
analysis or assumptions went into these estimates, but they are highly
dependent on assumptions or understanding of the extent to which spread
pricing currently exists in Medicaid. We are soliciting comments
relating to this provision.
---------------------------------------------------------------------------

\51\ https://www.kff.org/medicaid/issue-brief/costs-and-savings-
under-federal-policy-approaches-to-address-medicaid-prescription-
drug-spending/
#:~:text=This%20estimate%20is%20based%20in,between%20states%20and%20t
he%20federal.
---------------------------------------------------------------------------

In regards to Medicaid Drug Rebates (MDR) and penalties with
respect to manufacturer misclassification of drugs, benefits also
include monetary and non-monetary penalties, which are not quantifiable
at this time. For example, these provisions would implement the
existing statute and would benefit States as they would be receiving
any past rebates that are due to them as a result of a manufacturer's
misclassification of drugs. That is, the manufacturers would be finally
paying the appropriate amount in past due rebates.
The overwhelming majority of drugs are appropriately classified in
the manufacturer discount program (MDP) at this time, but there may be
some manufacturers that continue to list their drug as a noninnovator
multiple-source drug in MDP, when the drug should be listed as a
single-source drug or an innovator multiple source drug. The provision
allows us to also pursue penalties against manufacturers that will not
change their classification as a result of the denial of their narrow
exception request, and would also allow us to impose penalties on
manufacturers that pay a different amount in rebates to States than is
supported by the product and pricing data that they are reporting to
MDP.
For example, manufacturers have the opportunity to request that
certain drugs be classified in the MDP as a noninnovator multiple
source drug instead of a single source or innovator multiple source
drug. If this request is denied, and the manufacturer will not change
the classification, CMS can use the authority under the
misclassification provisions of the statute to change the
classification. Moreover, we have had instances of manufacturers who
have decided to take it upon themselves to pay fewer rebates to States,
even though the product and pricing information they report to MDP
would support a different rebate amount, in most cases, a higher rebate
than they are paying to States. This provision would allow us to
consider both these situations to be misclassifications, subject to the
penalties that are identified in the statute, and that we further
describe in the proposed regulation.
Modifying the definition of covered outpatient drug would benefit
the manufacturers, States, and CMS. The provision would support the
States' ability to collect rebates on drugs administered in certain
settings when a drug and its reimbursement amount are separately
identified on a claim billed. It would benefit manufacturers by
providing clarity on drugs that would satisfy the definition of covered
outpatient drug and for which compliance with section 1927 of the Act
is required. This is currently not quantifiable because we do not know
how many drugs this would affect.
Defining internal investigation for purposes of pricing metric
revisions would benefit States and manufacturers. It would benefit
manufacturers because it would provide a clear definition of what CMS
views as an internal investigation for purposes of requesting CMS
consideration of recalculation of AMP, best price, and customary prompt
pay outside of the 12-quarter rule as permitted under Sec. 447.510.
Additionally, defining this term would benefit States because it would
deter manufacturers from submitting to CMS a request for restatement of
AMP, best price, and customary prompt pay discounts outside of the 12-
quarter timeframe, which could trigger manufacturers seeking to collect
overpaid rebates unexpectedly. This benefit is not quantifiable as it
is not known how many manufacturers would be deterred from submitting
the request to restate outside of the 12-quarter timeframe. However, we
do not get these requests frequently.
Revising the definition of manufacturer for greater NDRA compliance
would benefit CMS and States, as well as manufacturers, by providing
greater clarity, codifying existing policy, and specifying direction on
an area of statutory and regulatory compliance that some manufacturers
previously interpreted as ambiguous. Manufacturers would now know, with
certainty, that all of their associated labeler codes with CODs must
enter into a rebate agreement to comply with section 1927(a)(1) of the
Act and the terms of the NDRA. The benefit is not quantifiable as we do
not know how many manufacturers are not reporting all of their CODs
because they do not have rebate agreements in effect for all of their
associated labeler codes. However, we believe the majority of
manufacturers have entered into a rebate agreement for all of their
associated labeler codes.
The States also benefit as noncompliant manufacturers must now
enter into the rebate program and pay rebates on all their CODs. While
the clear majority of manufacturers are compliant with this provision,
any manufacturer that is noncompliant must ensure that every labeler
code that satisfies the definition of manufacturer has a rebate
agreement in effect and that the manufacturer pays rebates on all of
their CODs for all labeler codes. Rebates are paid by drug
manufacturers on a quarterly basis to States and are shared between the
States and the Federal Government. These outstanding manufacturers'
rebates would be paid to the States and shared with the Federal
Government to offset the overall cost of prescription drugs under the
Medicaid program. This requirement helps ensure program integrity and
prevents future underpayments of rebates by noncompliant manufacturers.
As previously stated, the benefit is not quantifiable as we do not know
how many manufacturers are not reporting all of their CODs because they
do not have rebate agreements for all of their associated labeler
codes. However, we believe the majority of manufacturers have entered
into a rebate agreement for all of their associated labeler codes.
The proposal to define market date using the date of first sale,
rather than the date first available for sale, would benefit some
manufacturers, CMS, and States. Manufacturers would not be required to
report AMP information until they have actual data to report. They will
appreciate not having to rely on reasonable assumptions to report AMP
without actual data on which to

[[Page 34283]]

base the AMP. CMS and States would also benefit because we would now
have regulatory support for the longstanding policy of determining the
baseline information for a drug based on the date the drug was first
sold by any manufacturer. Some manufacturers have been incorrectly
interpreting that the market date of their drug is the date on which
their NDC was first sold or marketed, regardless of any prior
manufacturer's marketing or sale of the same drug. That is, some
manufacturers believe that they can reset the baseline information for
a drug once they purchase the drug.
States are likely to benefit from the proposal to establish a 12-
quarter rebate manufacturer dispute, hearing, and audit time limitation
in Sec. 447.510(j). While the NDRA addresses rebate disputes, the lack
of policy on audit and dispute-initiation timeframes has been
interpreted as there being no timeline on initiation of disputes on
drug utilization data, unreasonably burdening State rebate programs. We
have heard from States that manufacturers are initiating rebate audits
and disputes on claims greater than 30 years old. Some States have even
stated that there have been repeated disputes on the same paper claim
over the years. With this provision, States would no longer have to
look back at and research paper claims dating back to as early as 1991
and the origin of the Medicaid Drug Rebate Program. We estimate this
proposal would reduce the amount of time it would take States to
research disputes on rebate claims since manufacturer disputes, hearing
requests, and audits initiated after 12-quarters from the last day of
the quarter from the date of State invoice would no longer be
considered.
In regards to the proposed regulatory revisions regarding Federal
Financial Participation for conditions relating to physician-
administered drugs, these provisions would benefit States and the
Federal Government. By revising the regulations to be consistent with
the statute, States would gain a better understanding of the
requirement that they must invoice for all covered outpatient single
and multiple source physician-administered drugs. This proposed rule
would assure Federal financial participation and provide additional
rebate collection to increase State and Federal revenue. This benefit
is not quantifiable because PAD utilization and costs vary among all
State programs, but we believe that most if not all States are already
billing for rebates for all PADs.
The proposal for inclusion of a BIN/PCN on Medicaid Managed Care
Cards would benefit States, the Federal Government, providers and
manufacturers. With the inclusion of Medicaid-specific BIN/PCN and
group numbers on the pharmacy identification cards issued to the
enrollees of MCOs, PHIPs and PAHPs, pharmacies would be able to
identify patients as Medicaid beneficiaries. This would be helpful to
all parties to ensure that Medicaid benefits are applied appropriately.
This would also help avoid duplicate discounts between Medicaid and the
340B Drug Pricing Program, which occurs when a State bills for a
Medicaid rebate on a discounted 340B drug, by providing notice to the
provider that the claim should be identified as being for a 340B drug.
This benefit is not quantifiable because it is currently unknown how
often patients are not identified as Medicaid beneficiaries. However,
we do believe that a significant number of duplicate discounts can be
avoided through better identification of a 340B eligible individual at
the time the prescription is being filled.
The provision for drug cost transparency in Medicaid Managed Care
Contracts would benefit States and the Federal Government. It would
assist Medicaid managed care plans in complying with Federal
regulations regarding MLRs and guidance by effectively requiring
subcontractors to appropriately identify and classify certain costs, so
that the managed care plan can appropriately calculate their MLR.
In particular, we propose that managed care plans that provide
coverage of covered outpatient drugs must structure any contract with
any subcontractor for the delivery or administration of the covered
outpatient drug benefit to require the subcontractor to report
separately the amounts related to the incurred claims described in
Sec. 438.8(e)(2) (such as reimbursement for the covered outpatient
drug, payments for other patient services, and the fees paid to
providers or pharmacies for dispensing or administering a covered
outpatient drug) from administrative costs, fees and expenses of the
subcontractor. By receiving reports that separately identify fees that
are outside of the prescription and dispensing fee costs of a drug, the
MCO, PIHP, or PAHP would be able to accurately calculate and report its
MLR.
MLR calculations are used to develop capitation rates paid to
Medicaid managed care plans, thus their accuracy is critical in
assuring that Medicaid payments are reasonable, appropriate and
necessary for health care services when using a Medicaid managed care
plan. Managed care capitation rates must (1) be developed such that the
plan would reasonably achieve an 85 percent MLR (Sec. 438.4(b)(9)) and
(2) are developed using past MLR information for the plan (Sec.
438.5(b)(5)). In addition to other standards outlined in Sec. Sec.
438.4 through 438.7, these requirements for capitation rates related to
the MLR are key to ensuring that Medicaid managed care capitation rates
are actuarially sound. In addition, Medicaid managed care plans may
need to pay remittances (that is, refund part of the capitation
payments) to States should they not achieve the specific MLR target.
Thus, the accuracy of MLR calculation is important to conserving
Medicaid funds.
The payment of claims provision would benefit States, the Federal
Government, providers, and beneficiaries. This provision would benefit
both the Federal Government and States as it corrects omissions in
regulatory language to align with statutory language, permitting
Medicaid to remain the payer of last resort. These revisions would also
benefit beneficiaries and providers as it permits States to pay claims
sooner than the specified waiting period, when doing so is cost-
effective and necessary to ensure access to care.
The proposal to account for manufacturer stacking of discounts when
determining best price would benefit the States and Federal Government.
It would remove any potential doubt prospectively that when determining
the best price for a COD, the manufacturer should aggregate discounts
such that cumulative discounts, rebates or other arrangements must be
stacked to generate a final price realized by the manufacturer for a
covered outpatient drug, including discounts, rebates or other
arrangements provided to different best price eligible entities.
The proposal regarding verification of manufacturer drug prices for
certain CODs through data collection would benefit the States, Federal
Government, consumers, and insurers. The impact is that it would allow
the Federal Government to verify prices by obtaining from the
manufacturer various related information used by the manufacturer to
determine a drug's list price and, when permissible, share the non-
proprietary information submitted by the manufacturer with the general
public. This would benefit States in that it could help them negotiate
further rebates with manufacturers for certain

[[Page 34284]]

high cost or high spending Medicaid CODs.
2. Costs
a. Medicaid Drug Rebates (MDR) and Penalties
In regards to the costs associated with this provision, if CMS
identifies a drug misclassification, or other situations that would
fall under the misclassification provisions, the manufacturer would be
responsible for paying back past rebates to the States as a result of
the misclassification. This would mean that the manufacturers would
have to determine which prices to use to calculate the past due
rebates, and for which units rebates are owed, and pay the States for
these rebates. They would also have to proactively determine that all
States that are due rebates are subsequently paid. In some cases, the
States may have to pay rebates back to the manufacturer if the
manufacturer's misclassification resulted in overpayment of rebates to
the States.
This provision will not impose new costs on States, rather it will
help assure that manufacturers are accurately paying rebates to States,
thus benefitting the States. However, the amount of rebates that would
be recovered because of these new misclassification provisions cannot
be estimated. While there are several validation checks, we cannot
predict how many, if any, drugs are or would be misclassified
especially since the amount would also include penalties for
misclassification of future drugs that have yet to be released to
market.
b. Suspension of Manufacturer NDRA for Late Reporting of Pricing
and Drug Product Information
This provision would implement existing statute and is being
implemented to encourage manufacturer adherence with program
requirements and enhance administrative efficiency. Manufacturers that
are not reporting their pricing or product information in a timely
manner per statutory and regulatory requirements would have their
rebate agreement (and those of their associated labelers) suspended for
purposes of Medicaid and the MDRP. This means that States would not
have to cover or pay for the drugs of the manufacturer during the
period of the suspension. Lack of timely reporting by manufacturers can
also reduce rebates that are owed to States by a manufacturer, and can
affect the number of multiple source drugs for which Federal Upper
Limits (FULs) can be established. Thus, this suspension authority would
serve as an incentive for manufacturers to report their product and
pricing information timely so that drugs of the manufacturer would
continue to be covered under Medicaid and the drug rebate program.
This provision would have minimal cost to the States as their only
responsibility would be to notify prescribers and patients that a drug
is not available under the MDRP for the period of the suspension.
Similar to Sec. Sec. 431.211 and 435.917, we are requiring that States
notify beneficiaries at least 30 days before a drug is no longer
available because of a suspension of a manufacturer's drug rebate
agreement. Since States may choose their preferred method of
notification of beneficiaries including through email, form letters,
list serves, or Medicaid portals, we are requesting comments on how to
develop a cost estimate.
c. Modify the Definition of Covered Outpatient Drug
This proposed provision may increase manufacturers' rebate
liability to the States because it would clarify those CODs that could
be billed for rebates. At this time, we cannot determine an estimate of
burden for manufacturers regarding this item because we do not have an
estimate of the number of drugs that could potentially be billed for
rebates as result of this clarification. States only have to report
utilization of drugs for which rebates are invoiced. If States were not
invoicing for rebates for certain types of claims previously, we do not
have quantifiable information about the additional rebates that may be
now collected. Additionally, States may need to educate their providers
on billing procedures. We believe this would be involve minimal burden,
as States could inform their providers as part of their regular
communications.
d. Define Internal Investigation for Purposes of Pricing Metric
Revisions
The cost of this new proposed definition would be the amount of
time that needs to be taken by manufacturers' personnel to determine
how to apply the definition of internal investigation when considering
submitting a request to CMS for a recalculation. Furthermore, this
legal analysis would not apply to every manufacturer or to every drug
of the manufacturer. It would only apply if the manufacturer wants to
submit a request for CMS to consider recalculation outside of 12-
quarters for one or more of its CODs. At this time, we have received
only a minimal number of such requests from manufacturers. We assume
the time to perform legal analysis is 5 hours. Using the May, 2021 mean
(average) wage information from the BLS for lawyers (Code 23-1011), we
estimate that the cost of reviewing this provision is $142.34 per hour,
including fringe benefits and other indirect costs (https://www.bls.gov/oes/current/oes231011.htm) with a total cost of ($142.34 x
5) is $711.70 for each manufacturer. We estimate that only one percent
of manufacturers would submit a request for a recalculation annually
outside of the 12-quarters. One percent of 792 manufacturers is
approximately 8 manufacturers, with a total one-time cost of $5,693.60
(8 x $711.70). We estimated one percent because currently only one
manufacturer has submitted such a request. This proposed provision will
not impose substantial costs on the State.
e. Revise Definition of Manufacturer for NDRA Compliance
To better assess current manufacturer compliance with the
requirement that all associated labeler codes of a manufacturer have a
rebate agreement in effect, several analyses and reviews were
performed. Our initial analysis identified 24 instances of related-
party manufacturers and labelers that appear to have included some, but
not all, of their product line within the MDRP representing 144
products, approximately 0.3 percent of all products in MDRP.
Additionally, if a manufacturer is noncompliant, the manufacturer
would be responsible for having associated entities sign a rebate
agreement and agree to participate in MDRP. That is, the manufacturers
would have to determine which labelers are not currently participating
in the program, submit rebate agreements, and pay the States for
rebates for CODs of those labelers. For this reason, we are estimating
a collection burden to allow manufacturers time to review and ensure
compliance with this requirement. Manufacturers would need to review
their respective labeler codes in the CMS-hosted online information
technology system and ensure the list is complete.
We estimate that the burden associated with the proposed
modification to the definition of manufacturer is a one-time cost of
$43,884.72, estimating it would take 792 manufacturers 0.5 hours at
$110.82 per hour, including fringe benefits and other indirect costs,
for an operations manager to log onto the CMS system and review
associated labeler codes. This provision will not impose substantial
costs on States. States would receive additional monetary rebates if a
noncompliant manufacturer comes into compliance.

[[Page 34285]]

While this policy has already been specified in guidance and
preambles, codifying the requirement is necessary to ensure compliance
and eliminate ambiguity.
f. Define Market Date
In regards to costs associated with defining market date, if
manufacturers have not provided CMS with accurate market dates, they
may need to develop a methodology to determine the accurate dates. In
addition, going forward, manufacturers will have to identify when their
first sales of the COD occur to accurately identify the market date of
the COD. At this time, we cannot determine cost estimates associated
for this provision. This provision will not impose substantial costs on
States.
g. Modify the Definition of Noninnovator Multiple Source Drug
This provision proposes a technical correction to the regulatory
text to conform the language in the definition of an N drug to the
language in the definition of an I drug. We do not anticipate any
impact on interested parties.
h. Define Vaccine for Purposes of the MDRP Only
In regards to costs associated with the provision, if a
manufacturer has not been reporting and paying rebates on a product
because it believed the product was a vaccine, and the proposed
definition would result in the product being a COD, not a vaccine, then
the manufacturer would have both reporting and rebate liability on that
product if the proposed definition is finalized. At this time, we
cannot determine an estimate for this item. This provision would not
impose substantial costs on the State.
i. Proposal To Establish a 12-Quarter Rebate Audit Time Limitation
We are estimating a decrease in burden associated with this
proposal. After contacting several States, we estimate that per State,
between 10 and 80 disputes are initiated routinely in a quarter on
rebate claims greater than 3 years old, and those disputes on average
take an Operations Research Analyst between 30 minutes to 4 months to
resolve, depending on the complexity of the dispute and how long ago
the claim was paid. For our best estimate of the quantifiable impact,
with all 50 States, the District of Columbia, and Puerto Rico being
affected, we estimate it would take 52 Operations Research Analysts (1
for each State) 7 hours to resolve a dispute at $92.14/hr (https://www.bls.gov/oes/current/oes152031.htm) $644.98 ($92.14 x 7) (for 45
outstanding disputes [(10 disputes + 80 disputes)/2] per State for
claims greater than 3 years old. We, therefore, estimate a one-time
decreased burden reduction of $6,037,012.80 (45 disputes x $644.98 hr/
dispute x 52 States x 4 quarters (1 year)). Once this rule is
finalized, manufacturers will only have the ability to dispute claims
for up to 12-quarters, from the last day of the quarter from the date
of State invoice.
j. Proposals Related to State Plan Requirements, Findings, and
Assurances
This proposed clarification is necessary so payments to pharmacy
providers are consistent with efficiency, economy, and quality of care,
and are sufficient to provide access to care equivalent to the general
population. Pharmacists must be accurately reimbursed by the State for
drug ingredient costs and professional dispensing services under Sec.
447.518.
All but one State, are currently in compliance with the PDF
requirements. We have not included time and cost burdens for individual
State dispensing fee surveys in this proposed rule because we cannot
accurately determine whether a State would choose to conduct a State-
specific cost of dispensing survey or use another State's survey. As
such, this is an unquantifiable cost to States and therefore, we have
not included an estimate. States have several options when reviewing
and adjusting their professional dispensing fee (including using a
neighboring State's survey results, conducting their own survey, or
using survey data from a prior survey).
In this proposed rule, we specify that the type of data that States
must submit to justify their professional dispensing fees must be based
on actual costs of dispensing.
k. Federal Financial Participation: Conditions Relating to Physician-
Administered Drugs
All States currently have an existing process in place to collect
and invoice for covered outpatient single source and the top 20 high
volume multiple source physician-administered drugs in accordance with
regulatory language in Sec. 447.520, which may limit the additional
burden associated with collecting and invoicing NDC information for all
covered outpatient single and multiple source physician-administered
drugs.
It is difficult to quantify a specific dollar value for the
expected revenue increase at this time. PAD utilization and costs vary
among all State programs; however, once implemented, and all States are
collecting rebates for all single and multiple source COD PADs, a
baseline can be established. All States currently have this process
well established pursuant to regulatory language in Sec. 447.520.
These provisions clarity the existing statute to ensure Federal
financial participation and rebate collection for all covered
outpatient single and multiple source physician-administered drugs.
l. BIN/PCN on Medicaid Managed Care Cards
The cost is limited to the time the Medicaid managed care entities
need to program the new codes onto the cards.
m. Drug Cost Transparency in Medicaid Managed Care Contracts
The costs associated with this change is the cost to managed care
plans and their subcontractors to negotiate and revise contracts to
ensure administrative fees are separately identifiable from
reimbursement for CODs, dispensing fee costs and other patient costs
that need to be captured as incurred claims under Sec. 483.8(e)(2). As
discussed in the section III. of this proposed rule, we estimate that
these requirements would affect 282 managed care plans and their
subcontractors (mainly PBMs) in the country and 40 States. We estimate
it would take an Operations Research Analyst (Code 15-2031) 25 hours at
$92.14 per hour, including fringe benefits and other indirect costs, to
renegotiate and restructure 282 Medicaid managed care contracts to
require the MCO, PIHP or PAHP to require its subcontractors to
separately report information on incurred costs (as described in Sec.
438.8(e)(2)) and fees paid to the subcontractor for administrative
services. We, therefore, estimate that the burden associated with the
proposed dispute timeline limitation would be a one-time cost for each
managed care plan of $2,303.50 or $649,587 for all managed care plans.
There are 40 States with Medicaid managed care plans, therefore, we
estimate the State's Operations Research Analyst (Code 15-2031) 25
hours at $92.14 per hour including fringe benefits and other indirect
costs to restructure State contracts for a one-time cost per State of
$2,303.50 or $92,140 for all 40 States.
Federal savings may be captured by an estimate associated with a
statutory change to eliminate PBM spread pricing

[[Page 34286]]

at $929 Million over 10 years.\52\ A March 2020 CBO estimate for the
Federal proposal to require pass through pricing finds the spread
pricing provision would produce Federal savings of $929 million over 10
years, which translates to a less than 1 percent drop in Federal
Medicaid prescription drug spending. It is unclear what analysis or
assumptions went into these estimates, but they are highly dependent on
assumptions or understanding of the extent to which spread pricing
currently exists in Medicaid.
---------------------------------------------------------------------------

\52\ https://www.kff.org/medicaid/issue-brief/costs-and-savings-
under-federal-policy-approaches-to-address-medicaid-prescription-
drug-spending/
#:~:text=This%20estimate%20is%20based%20in,between%20states%20and%20t
he%20federal.
---------------------------------------------------------------------------

There is not currently a Federal prohibition on using spread
pricing in Medicaid. As noted, we issued guidance in 2019 regarding the
impact of the lack of transparency between costs for administrative
functions versus actual costs for Medicaid-covered benefits on the
managed care plan's MLR calculation. The 2019 CIB is clear that when
the subcontractor, in this case the PBM, is performing administrative
functions such as eligibility and coverage verification, claims
processing, utilization review, or network development, the
expenditures and profits on these functions are a non-claims
administrative expense as described in Sec. 438.8(e)(2)(v)(A), and
should not be counted as an incurred claim for the purposes of MLR
calculations.
If a subcontractor incorrectly categorizes these administrative
fees as incurred claims under Sec. 438.8(e)(2), it increases the MLR
numerator, and thus increases the per-member-per-month (PMPM) revenue a
managed care entity can receive from the State while still appearing to
meet MLR requirements. By proposing to require that managed care plans
require subcontractors to separately report their administrative fees
(that is, separately identified from incurred claims such as
reimbursement for covered outpatient drugs, dispensing fees, and other
patient services), the managed care plan is better able to ensure the
accuracy of MLR, which sets the PMPM revenue for Medicaid managed care
plans, and accurately reflects only medical expenditures, thus
generating savings to the Medicaid program. For those States that may
not already have this requirement as part of its contract with the
managed care plan, this provision would be a cost to the State to
revise managed care plan contracts. It provides transparency to the
State and the managed care plan as to which subcontractor costs are
incurred claims under Sec. 438.8(e)(2) (costs of CODs and dispensing
fees) versus administrative fees.
n. Proposals Related to Amendments Made by the American Rescue Act of
2021--Removal of Manufacturer Rebate Cap (100 Percent AMP)
This provision is a direct result of a statutory change to remove
the cap on Medicaid drug rebates (the maximum rebate amount). Medicaid
savings would be generated by the increased rebates due to the removal
of the cap on rebates with an estimate of an average of $14.21 billion
over 10 years.^{53 54} By removing the cap on the amount
manufacturers would be required to pay for Medicaid drug rebates,
Medicaid rebate revenue would increase thus producing savings to the
Federal Government (Table 6 includes the savings which are CBO
estimates from when statute was amended). The costs associated with
this requirement are to manufacturers. Manufacturers would also need to
make minor changes to their systems to address the removal of the cap.
As stated previously in this proposed rule, States would realize some
savings because of the increase in rebates; however, it is not known if
manufacturer drug prices to Medicaid would decrease because of the
removal of the cap as manufacturers adjust pricing to reflect the
increase in Medicaid drug rebates.
---------------------------------------------------------------------------

\53\ https://www.kff.org/medicaid/issue-brief/costs-and-savings-
under-federal-policy-approaches-to-address-medicaid-prescription-
drug-spending/
#:~:text=This%20estimate%20is%20based%20in,between%20states%20and%20t
he%20federal.
\54\ https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.
---------------------------------------------------------------------------

o. Payment of Claims
At this time, there is no need to determine cost estimates for this
item. The December 31, 2020 final rule revised the regulations and
captured cost estimations and collection of information. This revision
would add omitted statutory language to the existing regulation. This
change would not produce new burden not already captured in final rule
CMS-2482-F.
p. Requests for Information on Requiring a Diagnosis on Medicaid
Prescriptions
This provision is a request for information only. We are seeking
comments on how to negate any foreseeable impact on beneficiaries and
providers and steps which would be needed by States to successfully
implement a Medicaid requirement for diagnosis on prescriptions.
q. Proposal To Account for Stacking When Determining Best Price
When calculating the lowest price realized by a manufacturer by
aggregating discounts and rebates across all best price eligible
entities, the Medicaid drug rebate to the State and Federal Government
increases. At this time, we cannot determine cost estimates for this
item.
r. Proposal Regarding Drug Price Verification Survey Through Data
Collection
The costs for States to determine which manufacturers would be
included in the State survey would be 0.25 hours per State for an
Operations Research Analyst (Code 15-2031) at $92.14 an hour, including
fringe benefits and other indirect costs, or $23.04 per State. We
estimate that the Federal Government would survey 52 States (including
the District of Columbia and Puerto Rico) annually for a cost of
$1,198.08 (52 States x $23.04 per State).
The costs for the manufacturer/wholesaler who are selected for
completing the survey would be 50 hours per manufacturer for an
Operations Research Analysts (Code 15-2031) at $92.14 an hour,
including fringe benefits and other indirect costs, or $4,607.00 per
manufacturer (50 hrs x $92.14/hr). Federal Government would survey a
minimum of three manufacturers per year, with a maximum of ten surveys
per year, for an annual cost of $46,070.00 ($4,607.00 x 10 surveys),
using the maximum of ten surveys per year. Savings is not quantifiable
because we do not know if manufacturers would revise pricing in the
event they are requested to verify their drug prices.
s. Proposal To Rescind Revisions Made by the December 31, 2020 Final
Rule to Determination of Best Price (Sec. 447.505) and Determination
of Average Manufacturer Price (AMP) (Sec. 447.504) Consistent With
Court Order
In the December 31, 2020 final rule, CMS revised the various
patient assistance program exclusions from AMP and best price at
Sec. Sec. 447.504(c)(25) through (29) and (e)(13) through (17) and
447.505(c)(8) through (12) to add language that would require
manufacturers ``to ensure'' the assistance provided by these patient
assistance programs is passed on to the consumer, to the pharmacy, to
the agent, or to other AMP or best price eligible

[[Page 34287]]

entity who does not receive any price concession.
As part of the December 31, 2020 final rule, the impact analysis
for the exclusions to ensure such patient assistance is passed on to
the patient is discussed at length (see 85 FR 87098 through 87100). We
concluded at that time that based upon the studies noted in the
analysis, the value of patient assistance programs are being eroded by
PBM copay accumulator programs because the patient assistance is
accumulating to the economic benefits of health plans, not to patients,
given that the health plans' spending on drugs for patient decreases.
We also believed even with the changes in the rule, that manufacturers
would continue to offer patient assistance because the infrastructure
was there to ensure, in accordance with the regulation, the patient
assistance accrued to the patient, rather than the plan. Therefore, we
believed that patients would not be significantly impacted by the
modifications that the manufacturers may have needed to do to ensure
the pass through of the patient assistance to the patient consistent
with section 1927 of the Act.
In May 2021, the Pharmaceutical Research and Manufacturers of
America (PhRMA) filed a complaint against the Secretary asking the
court to vacate these amendments to Sec. 447.505(c)(8) through (11)
(85 FR 87102 and 87103), as set forth in the 2020 final rule (referred
to by the Court as ``the accumulator adjustment rule of 2020''). On May
17, 2022, the United States District Court for the District of Columbia
ruled in favor of the plaintiff and ordered that the accumulator
adjustment rule of 2020 be vacated and set aside.
In response to the order made by the United States District Court
for the District of Columbia to vacate the ``accumulator adjustment
rule of 2020,'' we are proposing to withdraw the changes made to these
sections and, for consistency, withdraw revisions to regulations
addressing AMP made by the accumulator adjustment rule. At the time of
the December 31, 2020 final rule, we could not quantify to what degree
the changes would impact manufacturers or patients. Therefore, we
cannot quantify the impact on manufacturers and patients because of the
rescinding of this rule.

Table 5--Summary of the One-Time Quantitative Costs and Benefits
----------------------------------------------------------------------------------------------------------------
Line item Cost Entity Timeframe
----------------------------------------------------------------------------------------------------------------
Regulatory review...................... $851,977.32 Manufacturers, States, One-time cost.
Trade Association.
Define manufacturer internal 5,693.60 Manufacturers............ One-time cost.
investigation.
Modify definition of manufacturer/ 43,884.72 Manufacturers............ One-time cost.
labeler.
Establish a 12-Quarter Rebate Audit (6,037,012.80) States and Federal One-time cost savings.
Time Limitation. Government.
Restructure State Contracts............ 92,140.00 States................... One-time cost.
------------------------------------------------------------------------
Total.............................. (5,043,317.16)
----------------------------------------------------------------------------------------------------------------

Table 6--Summary of the Annual Quantitative Costs and Benefit
----------------------------------------------------------------------------------------------------------------
Line item Cost Entity Timeframe
----------------------------------------------------------------------------------------------------------------
Federal Government Survey for States. $1,198.08 Federal Government..... Annually over 10 years.
Federal Government Survey for 46,607.00 Federal Government..... Annually over 10 years.
Manufacturers.
Drug cost transparency in Medicaid (929,000,000.00) Federal Government..... Annually over 10 years.
managed care contracts.
Removal of manufacturer rebate cap (14,211,000,000.00) Federal and State Annually over 10 years.
(100% of AMP). Governments.
--------------------------------------------------------------------------
Total............................ (15,139,952,731.92)
----------------------------------------------------------------------------------------------------------------

3. Regulatory Review Cost Estimation
If regulations impose administrative costs on private entities,
such as the time needed to read and interpret this proposed rule, we
should estimate the cost associated with regulatory review. Due to the
uncertainty involved with accurately quantifying the number of entities
that will be directly impacted and will review this proposed rule, we
assume that the total number of unique commenters are based on the
current 792 manufacturers participating in the MDRP. While there is no
way for CMS to specify the exact number of how many labeler codes are
associated with each other, most manufacturers have at least 2 labeler
codes. Nevertheless, we are estimating that the current 792
manufacturers would need to review the proposed rule.
Furthermore, we anticipate one medical and health service manager
(Code 11-9111) from each of the 50 States, the District of Columbia,
and Puerto Rico that cover prescription drugs under the MDRP, will
review this proposed rule. Additionally, we estimate that 19 trade
organizations may review the proposed rule. This estimate of trade
organizations is based on a previous rule pertaining to the MDRP, in
which 19 formal comments were received from trade organizations. It is
possible that not all commenters or drug manufacturers will review this
proposed rule in detail, and it is also possible that some reviewers
will choose not to comment on the proposed rule. In addition, we assume
that some entities will read summaries from trade newsletters, trade
associations, and trade law firms within the normal course of keeping
up with current news, incurring no additional cost. Therefore, we
assume that approximately 863 (792 manufacturers + 52 States + 19 trade
associations) entities may review the proposed rule. For these reasons,
we thought that the number of commenters would be a fair estimate of
the number of reviewers who are directly impacted by this proposed
rule. We are soliciting comments on this assumption.
We also recognize that different types of entities are in many
cases affected by mutually exclusive sections of this proposed rule.
However, for the purposes of our estimate, we assume

[[Page 34288]]

that each reviewer reads 100 percent of this proposed rule.
Using the May 2021 mean (average) wage information from the BLS for
medical and health service managers (Code 11-9111), we estimate that
the cost of reviewing this proposed rule is $115.22 per hour, including
fringe benefits and other indirect costs (https://www.bls.gov/oes/current/oes119111). Assuming an average reading speed of 250 words per
minute, we estimate that it would take approximately 230 minutes (3.833
hours) for the staff to read this proposed rule, which is approximately
57,500 words. For each medical and health service manager (Code 11-
9111) that reviews the proposed rule, the estimated cost is (3.833 x
$115.22) or $441.64. In part, we estimate that the cost of reviewing
this proposed rule by medical and health service managers is
$381,133.82 ($441.64 x 863 reviewers). Additionally, there is also a
lawyer who will review this proposed rule. Using the May, 2021 mean
(average) wage information from the BLS for lawyers (Code 23-1011), we
estimate that the cost of reviewing this proposed rule is $142.34 per
hour, including fringe benefits and other indirect costs (https://www.bls.gov/oes/current/oes231011.htm). Assuming an average reading
speed of 250 words per minute, we estimate that it would take
approximately 230 minutes (3.833 hours) for the staff to review this
proposed rule, which is approximately 57,000 words. For each lawyer
(Code 23-1011) that reviews the proposed rule, the estimated cost is
(3.833 x $142.34) or $545.59. In part, we estimate that the cost of
reviewing this proposed rule by lawyers is $470,843.50 ($545.59 x 863
reviewers). In total, we estimate the one-time cost of reviewing this
proposed rule is $851,977.32 ($381,133.82 + $470,843.50).
We acknowledge that these assumptions may understate or overstate
the costs of reviewing this proposed rule.

D. Alternatives Considered

Some provisions are directly linked to statute and therefore
alternatives cannot be considered. Nevertheless, alternatives which we
have considered are detailed below.
We are proposing to modify the definition of manufacturer for
purposes of satisfying the requirement at section 1927(a)(1) of the Act
which requires a manufacturer to have entered into and have in effect a
NDRA. While this policy has already been specified in guidance and
preambles, codifying the requirement is necessary to ensure compliance
and eliminate ambiguity. We have reiterated this point several times in
subregulatory guidance; however, some manufacturers still challenge our
policy. We do not permit manufacturers to selectively report CODs which
would allow a manufacturer to benefit from the coverage of some of
their CODs, while avoiding their financial obligation to pay rebates.
Therefore, we considered an alternative to retain the current
definition of manufacturer for the NDRA, however, we believe the term
``manufacturer'' needs to be updated in regulation to ensure legal
compliance with this requirement.
In regards to proposing to define vaccine, we could have refrained
from defining the term and relied on manufacturers to make their own
determination. At this time, we are only aware of one manufacturer who
is making a claim that a product that would not be a vaccine under the
proposed definition should be treated as a vaccine for the purposes of
the Medicaid Drug Rebate Program. However, we are endeavoring to
prevent future disputes of this type given that there may be more
products coming to market for which this definition might help provide
clarity.
We are proposing to specify the time limitation on manufacturers
initiating disputes, hearings, or audits with States. While the NDRA
addresses dispute resolution, it provides no guidance on whether a
timeline applies to the initiation of such disputes, hearings or
audits. There have been reports of new disputes being initiated on
claims dating back several decades to paper claims, which is placing
unnecessary burden on many State rebate programs. Implementation of
this provision is necessary to ensure administrative efficiency. An
alternative considered was to not clarify this provision; however, then
disputes initiated on claims would continue to be disputed ongoing for
any defined time-period, causing undue strain, work hours and costs on
rebate programs, which directly counters the purpose of the program to
offset the Federal and State costs of most outpatient prescription
drugs dispensed to Medicaid patients.

E. Accounting Statement and Table

As required by OMB Circular A-4 (available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf), we have prepared an accounting statement in
Table 7 showing the classification of the impact associated with the
provisions of this proposed rule.

Table 7--Accounting Statement: Classification of Estimated Costs/Savings
----------------------------------------------------------------------------------------------------------------
Units
--------------------------------------
Category Estimates Discount Period
Year dollar rate (%) covered
----------------------------------------------------------------------------------------------------------------
Costs/Savings:
Annualized Monetized ($million/year)........................ ($0.67) 2021 7 2024-2034
(0.57) 2021 3 2024-2034
Costs/Savings............................................... -1,328.91 2021 7 2024-2034
Annualized Monetized ($million/year)........................ -1,433.49 2021 3 2024-2034
----------------------------------------------------------------------------------------------------------------

F. Regulatory Flexibility Act (RFA)

The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, we estimate that
almost all Pharmaceutical and Medicine manufacturers are small
entities, as that term is used in the RFA (including small businesses,
nonprofit organizations, and small governmental jurisdictions). The
great majority of hospitals and most other health care providers and
suppliers are small entities, either by being nonprofit organizations
or by meeting the Small Business Administration (SBA) definition of a
small business (having employees of less than 1,250 in any 1 year) for
businesses classified in the Pharmaceutical and Medicine

[[Page 34289]]

Manufacturing industries. Note, the SBA does not provide any revenue
data at this time as a measure of size for these industries.
According to the SBA's website at https://www.sba.gov/content/small-business-size-standards, the drug manufactures referred to in
this proposed rule fall into both NAICS 325412, Pharmaceutical
Preparation Manufacturing and NAICS 325414, Biologic Product (except
Diagnostic) Manufacturing. The SBA defines small businesses engaged in
Pharmaceutical and Medicine Manufacturing as businesses having less
than 1,250 employees annually each for Pharmaceutical Preparation
Manufacturing and Biologic Product (except Diagnostic) manufacturing
industries. Table 8 presents the total number of small businesses in
each of the two industries mentioned.

Table 8--NAICS 32541 Pharmaceutical and Medicine Manufacturing Size Standards
----------------------------------------------------------------------------------------------------------------
SBA size standard/small entity Total small
NAICS (6-digit) Industry subsector description threshold businesses
----------------------------------------------------------------------------------------------------------------
325412........................ Pharmaceutical Preparation 1,250 Employees.................... 2,722
Manufacturing.
325414........................ Biologic Product (except 1,250 Employees.................... 587
Diagnostic).
----------------------------------------------------------------------------------------------------------------
Source: 2019 Economic Census.

Table 9--Concentration Ratios (NAICS 325412) Pharmaceutical Preparation
----------------------------------------------------------------------------------------------------------------
Percentage of Employee per
Firm size (by number of employees) Firm count small firms Total firm to total
(%) employees employee (%)
----------------------------------------------------------------------------------------------------------------
Small Firms: 2,722 100 93,181 100
02: <5 employees.................................. 390 14 633 0.679
03: 5-9 employees................................. 159 6 1,058 1.135
04: 10-14 employees............................... 65 2 752 0.807
05: 15-19 employees............................... 48 2 766 0.822
06: <20 employees................................. 662 24 3,209 3.444
07: 20-24 employees............................... 25 1 535 0.574
08: 25-29 employees............................... 25 1 648 0.695
09: 30-34 employees............................... 19 1 587 0.630
10: 35-39 employees............................... 21 1 700 0.751
11: 40-49 employees............................... 30 1 1,329 1.426
12: 50-74 employees............................... 45 2 2,600 2.790
13: 75-99 employees............................... 31 1 2,439 2.617
14: 100-149 employees............................. 49 2 5,292 5.679
15: 150-199 employees............................. 27 1 3,793 4.071
16: 200-299 employees............................. 42 2 6,853 7.355
17: 300-399 employees............................. 22 1 6,204 6.658
18: 400-499 employees............................. 13 0 3,907 4.193
19: <500 employees................................ 1,011 37 38,096 40.884
20: 500-749 employees............................. 19 1 6,514 6.991
21: 750-999 employees............................. 10 0 3,635 3.901
22: 1,000-1,499 employees......................... 9 0 3,631 3.897
Large Firms:
Employees >1,499.................................. 68 NA 94,707 NA
----------------------------------------------------------------------------------------------------------------
Source: 2019 Economic Census.

Table 10--Concentration Ratios (NAICS 325414) Biologic Product (Except Diagnostic) Manufacturing
----------------------------------------------------------------------------------------------------------------
Percentage of Employee per
Firm size (by number of employees) Firm count small firms Total firm to total
(%) employees employee (%)
----------------------------------------------------------------------------------------------------------------
Small Firms: 587 100 21,789 100
02: <5 employees.................................. 71 12 141 0.65
03: 5-9 employees................................. 42 7 282 1.29
04: 10-14 employees............................... 13 2 145 0.67
05: 15-19 employees............................... 13 2 224 1.03
06: <20 employees................................. 139 24 792 3.63
07: 20-24 employees............................... 12 2 261 1.20
08: 25-29 employees............................... 7 1 167 0.77
09: 30-34 employees............................... 6 1 184 0.84
11: 40-49 employees............................... 6 1 247 1.13
12: 50-74 employees............................... 13 2 624 2.86
13: 75-99 employees............................... 5 1 384 1.76
14: 100-149 employees............................. 8 1 799 3.67
15: 150-199 employees............................. 6 1 720 3.30
16: 200-299 employees............................. 8 1 1,561 7.16

[[Page 34290]]

18: 400-499 employees............................. 5 1 1,758 8.07
19: <500 employees................................ 219 37 8,012 36.77
20: 500-749 employees............................. 4 1 1,293 5.93
21: 750-999 employees............................. 5 1 1,868 8.57
22: 1,000-1,499 employees......................... 5 1 2,327 10.68
Large Firms:
Employees >1,499.................................. 41 NA 42,822 NA
----------------------------------------------------------------------------------------------------------------
Source: 2019 Economic Census.
Note: data are not available for businesses with 1,500 to 2,500 employees.

As can be seen in Tables 9 and 10, the economic impacts are
disproportionate for small firms. Tables 9 and 10 show the employees
for each of the size categories and the employee impact per small
entity. For example, in Table 9, 390 of the smallest firms employ only
0.68 percent of the employees in its industry; while, in Table 10, 71
of the smallest firms employ only 0.65 percent of the employees in its
industry.
Therefore, as can be seen in Tables 9 and 10, almost all
Pharmaceutical and Medicine Manufactures are small entities as that
term is used in the RFA. Additionally, Tables 9 and 10 show the
disproportionate impacts among firms, and between small and large
firms. In Tables 9 and 10, each industry, Pharmaceutical Preparation
Manufacturing and Biologic Product (except Diagnostic) manufacturing
(by employment), firm count, percentage of small firms, total employee
and percentage of total employee per firm size to total employees of
the small firms were estimated separately to determine the
Pharmaceutical and Medicine manufacturer concentration ratios.
For purposes of the RFA, approximately 98 percent of Pharmaceutical
Preparation Manufacturing (2,722/2,790 firms) and approximately 93
percent of Biologic Product (except Diagnostic) (587/628) firms are
considered small businesses according to the SBA's size standards with
total employee of 1,250 in any one year.
At this time, revenue data are not currently available. However,
2012 revenue data from the U.S. Economic Census was used to obtain a
proxy for revenue earned in the Pharmaceutical Preparation
Manufacturing industry. Therefore, as of 2012, the total annual
receipts for small establishments in the Pharmaceutical Preparation
Manufacturing industry, earning less than $45 million accounted for
approximately 3.1 percent of the revenue. Similarly, according to the
2012 data, total annual receipts for small establishments in the
Biologic Product (except Diagnostic) accounted for approximately 3.5
percent of the revenue in its industry.
Individuals and States are not included in the definition of a
small entity. This proposed rule will not have a significant impact
measured change in revenue of 3 to 5 percent on a substantial number of
small businesses or other small entities. As its measure of significant
economic impact on a substantial number of small entities, HHS uses a
change in revenue of more than 3 to 5 percent. At this time, we do not
believe that this threshold will be reached by the requirements in this
proposed rule. Therefore, the Secretary has certified that this
proposed rule will not have a significant economic impact on a
substantial number of small entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. This proposed rule will
not have a significant impact on small rural hospitals. We are not
preparing an analysis for section 1102(b) of the Act because we have
determined, and the Secretary has certified, that this proposed rule
will not have a significant impact on the operations of a substantial
number of small rural hospitals.

G. Unfunded Mandates Reform Act (UMRA)

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2023, that
threshold is approximately $177 million.
This proposed rule imposes mandates that would result in
anticipated costs to State, local, and Tribal governments or private
sector, but the transfer costs will be less than the threshold. Some of
the costs that the States may incur for the requirements of
reimbursement for prescribed drugs is the cost of conducting an
individual State survey as an optional tool. This proposed rule would
result in multiple benefits to the States including assuring that
rebates would be paid accurately and timely to the States. States would
receive additional monetary rebates from manufacturers brought into
compliance with drug misclassification, would limit the timeframe
manufacturers have to dispute rebates, identify patients to the
pharmacist as Medicaid beneficiaries, provide transparency to the State
as to which PBM costs are true services costs (costs of prescriptions
and dispensing fees) versus administrative costs, and permit States to
pay claims sooner than the specified waiting period, when doing so is
cost-effective and necessary to ensure access to care.
As a result, this proposed rule would not impose a mandate that
would result in the expenditure by State, local, and Tribal
Governments, in the aggregate, or by the private sector, of more than
$165 million in any 1 year.

H. Federalism

Executive Order 13132 establishes certain requirements that an
agency

[[Page 34291]]

must meet when it promulgates a proposed rule that imposes substantial
direct requirement costs on State and local governments, preempts State
law, or otherwise has federalism implications. This proposed rule will
not have a substantial direct effect on State or local governments,
preempt States, or otherwise have a federalism implication, therefore
the requirements of Executive Order 13132 are not applicable.
Chiquita Brooks-LaSure, Administrator of the Centers for Medicare &
Medicaid Services, approved this document on May 2, 2023.

List of Subjects

42 CFR Part 433

Administrative practice and procedure, Child support, Claims, Grant
programs--health, Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 438

Citizenship and naturalization, Civil rights, Grant programs--
health, Individuals with disabilities, Medicaid, Reporting and
recordkeeping requirements, Sex discrimination.

42 CFR Part 447

Accounting, Administrative practice and procedure, Drugs, Grant
programs--health, Health facilities, Health professions, Medicaid,
Reporting and recordkeeping requirements, Rural areas.

For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth
below:

PART 433--STATE FISCAL ADMINISTRATION

0
1. The authority citation for part 433 continues to read as follows:

Authority: 42 U.S.C. 1302.

0
2. Amend Sec. 433.139 by revising paragraphs (b)(3)(i) and
(b)(3)(ii)(B) to read as follows:

Sec. 433.139 Payment of claims.

* * * * *
(b) * * *
(3) * * *
(i) The claim is for preventive pediatric services, including early
and periodic screening, diagnosis and treatment services provided for
under part 441, subpart B, of this chapter, that are covered under the
State Plan that requires a State to make payments without regard to
third party liability for pediatric preventive services except that the
State may, if the State determines doing so is cost-effective and will
not adversely affect access to care, only make such payment if a third
party so liable has not made payment within 90 days after the date the
provider of such services has initially submitted a claim to such third
party for payment for such services; or
(ii) * * *
(B) For child support enforcement services beginning February 9,
2018, the provider certifies that before billing Medicaid, if the
provider has billed a third party, the provider has waited up to 100
days after the date of the service and provider of such services has
initially submitted a claim to such third party for payment for such
services, except that the State may make such payment within 30 days
after such date if the State determines doing so is cost-effective and
necessary to ensure access to care.
* * * * *

PART 438--MANAGED CARE

0
3. The authority citation for part 438 continues to read as follows:

Authority: 42 U.S.C. 1302.
0
4. Amend Sec. 438.3 by adding paragraphs (s)(7) and (8) to read as
follows:

Sec. 438.3 Standard contract requirements.

* * * * *
(s) * * *

(7) Assign and exclusively use unique Medicaid-specific Beneficiary
Identification Number (BIN), Processor Control Number (PCN), and group
number identifiers for all Medicaid managed care beneficiary
identification cards for pharmacy benefits, beginning no later than the
State's next rating period for the applicable Medicaid managed care
contract, following [effective date of final rule].
(8) Structure any contract with any subcontractor for the delivery
or administration of the covered outpatient drug benefit to require the
subcontractor to report separately the amounts related to:
(i) The incurred claims described in Sec. 438.8(e)(2) such as
reimbursement for the covered outpatient drug, payments for other
patient services, and the fees paid to providers or pharmacies for
dispensing or administering a covered outpatient drug; and,
(ii) Administrative costs, fees and expenses of the subcontractor.
* * * * *

PART 447--PAYMENTS FOR SERVICES

0
5. The authority citation for part 447 continues to read as follows:

Authority: 42 U.S.C. 1302 and 1396r-8.

0
6. Amend Sec. 447.502 by--
0
a. In the definition of ``Covered outpatient drug'':
0
i. In the introductory text, adding ``(COD)'' immediately following
``Covered outpatient drug''; and
0
ii. Revising paragraph (2) introductory text;
0
b. Adding the definitions of ``Drug product information'' and
``Internal investigation'' in alphabetical order;
0
c. In the definition of ``Manufacturer,'' adding paragraph (5);
0
d. Adding the definition of ``Market date'' in alphabetical order;
0
e. In the definition of ``Noninnovator multiple source drug,'' revising
paragraph (3); and
0
f. Adding the definition of a ``Vaccine'' in alphabetical order.
The revisions and additions read as follows:

Sec. 447.502 Definitions.

* * * * *
Covered outpatient drug (COD) * * *
(2) A covered outpatient drug does not include any drug, biological
product, or insulin provided as part of or incident to and in the same
setting as any of the services in paragraphs (2)(i) through (viii) of
this definition (and for which payment may be made as part of payment
for that service and not as direct reimbursement for the drug). Direct
reimbursement for a drug may include both reimbursement for a drug
alone, or reimbursement for a drug plus the service, in one inclusive
payment if the drug and the itemized cost of the drug are separately
identified on the claim.
* * * * *
Drug product information includes but is not limited to National
Drug Code (NDC), drug name, units per package size (UPPS), drug
category (``S'', ``I'', ``N''), unit type (for example, TAB, CAP, ML,
EA), drug product type (prescription, over-the-counter), base date AMP,
therapeutic equivalent code (TEC), line extension indicator, 5i
indicator and route of administration, if applicable, FDA approval
date, FDA application number or OTC monograph citation as applicable,
market date, COD status, and any other information deemed necessary by
the agency to perform accurate unit rebate amount (URA) calculations.
* * * * *
Internal investigation means a manufacturer's investigation of its
AMP,

[[Page 34292]]

best price, customary prompt pay discounts or nominal prices that have
been previously certified in the Medicaid Drug Rebate Program (MDRP)
that results in a finding made by the manufacturer of fraud, abuse, or
violation of law or regulation. A manufacturer must make data available
to CMS to support its finding.
* * * * *
Manufacturer * * *
(5) For the purposes of maintaining an effectuated rebate agreement
consistent with section 1927(a)(1) of the Social Security Act, the term
``manufacturer'' means that all associated entities of the manufacturer
that sell prescription drugs, including, but not limited to, owned,
acquired, affiliates, brother or sister corporations, operating
subsidiaries, franchises, business segments, part of holding companies,
divisions, or entities under common corporate ownership or control,
must each maintain an effectuated rebate agreement.
Market date, for the purpose of establishing the base date AMP
quarter, means the date on which the covered outpatient drug was first
sold by any manufacturer.
* * * * *
Noninnovator multiple source drug * * *
(3) A covered outpatient drug that entered the market before 1962
that is not marketed under an NDA;
* * * * *
Vaccine means a product that is administered prophylactically to
induce active, antigen-specific immunity for the prevention of one or
more specific infectious diseases and is included in a current or
previous FDA published list of vaccines licensed for use in the United
States.
* * * * *
0
7. Amend Sec. 447.504 by revising paragraphs (c)(25) through (29) and
(e)(13) through (17) to read as follows:

Sec. 447.504 Determination of average manufacturer price.

* * * * *
(c) * * *
(25) Manufacturer coupons to a consumer redeemed by the
manufacturer, agent, pharmacy or another entity acting on behalf of the
manufacturer, but only to the extent that the full value of the coupon
is passed on to the consumer and the pharmacy, agent, or other AMP-
eligible entity does not receive any price concession.
(26) Manufacturer-sponsored programs that provide free goods,
including but not limited to vouchers and patient assistance programs,
but only to the extent that: The voucher or benefit of such a program
is not contingent on any other purchase requirement; the full value of
the voucher or benefit of such a program is passed on to the consumer;
and the pharmacy, agent, or other AMP eligible entity does not receive
any price concession.
(27) Manufacturer-sponsored drug discount card programs, but only
to the extent that the full value of the discount is passed on to the
consumer and the pharmacy, agent, or other AMP eligible entity does not
receive any price concession.
(28) Manufacturer-sponsored patient refund/rebate programs, to the
extent that the manufacturer provides a full or partial refund or
rebate to the patient for out-of-pocket costs and the pharmacy, agent,
or other AMP eligible entity does not receive any price concessions.
(29) Manufacturer copayment assistance programs, to the extent that
the program benefits are provided entirely to the patient and the
pharmacy, agent, or other AMP eligible entity does not receive any
price concession.
* * * * *
(e) * * *
(13) Manufacturer coupons to a consumer redeemed by the
manufacturer, agent, pharmacy or another entity acting on behalf of the
manufacturer, but only to the extent that the full value of the coupon
is passed on to the consumer and the pharmacy, agent, or other AMP
eligible entity does not receive any price concession.
(14) Manufacturer-sponsored programs that provide free goods,
including, but not limited to vouchers and patient assistance programs,
but only to the extent that the voucher or benefit of such a program is
not contingent on any other purchase requirement; the full value of the
voucher or benefit of such a program is passed on to the consumer; and
the pharmacy, agent, or other AMP eligible entity does not receive any
price concession.
(15) Manufacturer-sponsored drug discount card programs, but only
to the extent that the full value of the discount is passed on to the
consumer and the pharmacy, agent, or other AMP eligible entity does not
receive any price concession.
(16) Manufacturer-sponsored patient refund/rebate programs, to the
extent that the manufacturer provides a full or partial refund or
rebate to the patient for out-of-pocket costs and the pharmacy, agent,
or other AMP eligible entity does not receive any price concessions.
(17) Manufacturer copayment assistance programs, to the extent that
the program benefits are provided entirely to the patient and the
pharmacy, agent, or other AMP eligible entity does not receive any
price concession.
* * * * *
0
8. Amend Sec. 447.505 by revising paragraphs (c)(8) through (12) and
(d)(3) to read as follows:

Sec. 447.505 Determination of best price.

* * * * *
(c) * * *
(8) Manufacturer-sponsored drug discount card programs, but only to
the extent that the full value of the discount is passed on to the
consumer and the pharmacy, agent, or other entity does not receive any
price concession.
(9) Manufacturer coupons to a consumer redeemed by a consumer,
agent, pharmacy, or another entity acting on behalf of the
manufacturer; but only to the extent that the full value of the coupon
is passed on to the consumer, and the pharmacy, agent, or other entity
does not receive any price concession.
(10) Manufacturer copayment assistance programs, to the extent that
the program benefits are provided entirely to the patient and the
pharmacy, agent, or other entity does not receive any price concession.
(11) Manufacturer-sponsored patient refund or rebate programs, to
the extent that the manufacturer provides a full or partial refund or
rebate to the patient for out-of-pocket costs and the pharmacy, agent,
or other entity does not receive any price concession.
(12) Manufacturer-sponsored programs that provide free goods,
including but not limited to vouchers and patient assistance programs,
but only to the extent that the voucher or benefit of such a program is
not contingent on any other purchase requirement; the full value of the
voucher or benefit of such a program is passed on to the consumer; and
the pharmacy, agent, or other entity does not receive any price
concession.
* * * * *
(d) * * *
(3) The manufacturer must adjust the best price for a drug for a
rebate period if cumulative discounts, rebates, or other arrangements
to best price eligible entities subsequently adjust the price available
from the manufacturer. Cumulative discounts, rebates, or other
arrangements must be stacked to determine a final price realized by the
manufacturer for a covered outpatient drug, including discounts,
rebates, or

[[Page 34293]]

other arrangements provided to different best price eligible entities.
0
9. Amend Sec. 447.509 by--
0
a. Revising paragraphs (a)(5), (a)(6) introductory text, (a)(7)
introductory text, (a)(8) and (9), and (c)(4); and
0
b. Adding paragraph (d).
The revisions and addition read as follows:

Sec. 447.509 Medicaid drug rebates (MDR).

(a) * * *
(5) Limit on rebate. For a rebate period beginning after December
31, 2009, and before January 1, 2024, in no case will the total rebate
amount exceed 100 percent of the AMP of the single source or innovator
multiple source drug.
(6) Rebate for drugs other than a single source drug or innovator
multiple source drug. The amount of the basic rebate for each dosage
form and strength of a drug other than a single source drug or
innovator multiple source drug will be equal to the product of:
* * * * *
(7) Additional rebate for drugs other than a single source drug or
innovator multiple source drug. In addition to the basic rebate
described in paragraph (a)(6) of this section, for each dosage form and
strength of a drug other than a single source drug or innovator
multiple source drug, the rebate amount will be increased by an amount
equal to the product of the following:
* * * * *
(8) Total rebate. The total rebate amount for a drug other than a
single source drug or innovator multiple source drug is equal to the
basic rebate amount plus the additional rebate amount, if any.
(9) Limit on rebate. For a rebate period beginning after December
31, 2014, and before January 1, 2024, in no case will the total rebate
amount exceed 100 percent of the AMP for a drug other than a single
source drug or innovator multiple source drug.
* * * * *
(c) * * *
(4) For a drug other than a single source drug or innovator
multiple source drug, the offset amount is equal to 2.0 percent of the
AMP (the difference between 13.0 percent of AMP and 11.0 percent of
AMP).
(d) Manufacturer misclassification of a covered outpatient drug and
recovery of unpaid rebate amounts due to the misclassification and
other penalties--(1) Definition of misclassification. A
misclassification in the MDRP has occurred when a manufacturer has:
(i) Reported and certified to the agency its drug category or drug
product information related to a covered outpatient drug that is not
supported by the statute and applicable regulations; or,
(ii) Reported and certified to the agency its drug category or drug
product information that is supported by the statute and applicable
regulations, but pays rebates to States at a level other than that
associated with that classification.
(2) Manufacturer notification by the agency of drug
misclassification. If the agency determines that a misclassification
has occurred as described in paragraph (d)(1) of this section, the
agency will send written and electronic notification of this
misclassification to the manufacturer of the covered outpatient drug,
which may include a notification that past rebates are due. The
manufacturer has 30 calendar days from the date of notification to:
(i) Provide the agency such drug product and drug pricing
information needed to correct the misclassification of the covered
outpatient drug and calculate rebate obligations due, if any pursuant
to paragraph (d)(3) of this section. The required pricing data
submitted by the manufacturer to the agency shall include the best
price information for the covered outpatient drug, if applicable, for
the rebate periods for which the manufacturer misclassified the covered
outpatient drug; and,
(ii) Certify applicable price and drug product data after entered
into the system by the agency.
(3) Manufacturer payment of unpaid rebates due to misclassification
determined by agency. (i) When the agency has determined that a
manufacturer has misclassified a covered outpatient drug as described
in paragraph (d)(1) of this section, such that rebates are owed to the
States, and notification has been provided to the manufacturer as
provided under paragraph (d)(2) of this section, a manufacturer must
pay to each State an amount equal to the sum of the products of:
(A) The difference between:
(1) The per URA paid by the manufacturer for the covered outpatient
drug to the State for a period during which the drug was misclassified;
and
(2) The per URA that the manufacturer would have paid to the State
for the covered outpatient drug for each period, as determined by the
agency based on the data provided and certified by the manufacturer
under paragraph (d)(2) of this section, if the drug had been correctly
classified by the manufacturer; and,
(B) The total units of the drug paid for under the State Plan in
each period.
(ii) Manufacturers must pay such rebates to the States for the
period or periods of time that such covered outpatient drug was
misclassified, based on the formula described in this section, within
60 calendar days of notification by the agency to the manufacturer of
the misclassification, and provide documentation to the agency that the
States were contacted by the manufacturer, and that such payments were
made to the States within the 60 calendar days.
(4) Agency authority to correct misclassifications and additional
penalties for drug misclassification. The agency will review the
information submitted by the manufacturer based on the notice sent
under paragraph (d)(2) of this section. If a manufacturer fails to
comply with paragraph (d)(2) of this section within 30 calendar days
from the date of the notification by the agency of the
misclassification to the manufacturer under paragraph (d)(1) of this
section, fails to pay the rebates that are due to the States as a
result of the misclassification within 60 calendar days from the date
of the notification, if applicable, and/or fails to provide to the
agency such documentation that such rebates have been paid, as
described in paragraph (d)(3) of this section, the agency may do any or
all of the following:
(i) Correct the misclassification of the drug in the system on
behalf of the manufacturer, using any pricing and drug product
information that may have been provided by the manufacturer.
(ii) Suspend the misclassified drug and the drug's status as a
covered outpatient drug under the manufacturer's rebate agreement from
the MDRP, and exclude the misclassified drug from FFP in accordance
with section 1903(i)(10)(E) of the Act.
(iii) Impose a civil monetary penalty (CMP) for each rebate period
during which the drug is misclassified, not to exceed an amount equal
to the product of:
(A) The total number of units of each dosage form and strength of
such misclassified drug paid for under any State Plan during such a
rebate period; and
(B) 23.1 percent of the AMP for the dosage form and strength of
such misclassified drug for that period.
(iv) Other actions and penalties available under section 1927 of
the Act (or any other provision of law), including referral to the HHS
Office of the Inspector General and termination from the MDRP.

[[Page 34294]]

(5) Transparency of manufacturers' drug misclassifications. The
agency will make available on a public website an annual report as
required under section 1927(c)(4)(C)(ii) of the Act on the covered
outpatient drug(s) that were identified as misclassified during the
previous year, any steps taken by the agency with respect to the
manufacturer to reclassify the drugs and ensure the payment by the
manufacturer of unpaid rebate amounts resulting from the
misclassifications, and a disclosure of the expenditures from the fund
created in section 1927(b)(3)(C)(iv) of the Act.
0
10. Amend Sec. 447.510 by--
0
a. Revising the section heading and paragraph (b)(1)(v);
0
b. Adding paragraphs (h) through (k).
The additions and revision read as follows:

Sec. 447.510 Requirement and penalties for manufacturers.

* * * * *
(b) * * *
(1) * * *
(v) The change is to address specific rebate adjustments to States
by manufacturers, as required by CMS or court order, or under an
internal investigation as defined at Sec. 447.502 or an Office of
Inspector General (OIG) or Department of Justice investigation.
* * * * *
(h) Participation in the Medicaid Drug Rebate Program (MDRP).
Manufacturers that participate in MDRP must meet the following
requirements:
(1) Signed rebate agreement with the Secretary. Manufacturers
participating in the MDRP must have a signed rebate agreement in effect
that complies with paragraph (5) in the definition of manufacturer in
Sec. 447.502.
(2) Newly purchased labeler codes and covered outpatient drugs. Any
manufacturer with a signed rebate agreement in effect that acquires or
purchases another labeler, acquires or purchases covered outpatient
drugs from another labeler code, or forms a new subsidiary, must ensure
that a signed rebate agreement is in effect for these entities or
covered outpatient drugs, consistent with the definition of
manufacturer at Sec. 447.502, within the first 30 days of the next
full calendar quarter beginning at least 60 days after the acquisition,
purchase, asset transfer, or formation of the subsidiary.
(3) Termination. Each associated labeler code of a manufacturer is
considered to be part of the single manufacturer. If any of the
associated labeler codes as defined in paragraph (5) in the definition
of manufacturer at Sec. 447.502 do not have a National Drug Rebate
Agreement (NDRA) in effect, or are terminated, all of the labeler codes
will be subject to termination.
(i) Suspension of manufacturer's NDRA for late reporting of drug
pricing and drug product information. (1) If a manufacturer fails to
timely provide information required to be reported to the agency under
section 1927(b)(3)(A) of the Act, and paragraphs (a) and (d) of this
section, the agency will provide written notice to the manufacturer of
failure to provide timely information. If such information is not
reported within 90 calendar days of the date of the notice communicated
to the manufacturer electronically and in writing by the agency, such
failure by the manufacturer to report such information in a timely
manner shall result in suspension of the manufacturer's rebate
agreement for all covered outpatient drugs furnished after the end of
the 90-day calendar period. The rebate agreement will remain suspended
until the date the information is reported to the agency in full and
certified, and the agency reviews for completeness, but not for a
period of fewer than 30 calendar days. Continued suspension of the
rebate agreement could result in termination for cause. Suspension of a
manufacturer's rebate agreement under this section applies for Medicaid
purposes only, and does not affect manufacturer obligations and
responsibilities under the 340B Drug Pricing Program or reimbursement
under Medicare Part B during the period of the suspension.
(2) During the period of the suspension, the covered outpatient
drugs of the manufacturer are not eligible for FFP. The agency will
notify the States 30 calendar days before the beginning of the
suspension period for the manufacturer's rebate agreement and any
applicable associated labeler rebate agreements.
(j) Manufacturer audits of State-provided information. A
manufacturer may only initiate a dispute, request a hearing, or seek an
audit of a State regarding State drug utilization data, during a period
not to exceed 12 quarters from the last day of the quarter from the
date of the State invoice.
(k) Verification survey of reported covered outpatient drug
pricing--(1) Survey of manufacturers. CMS may survey a manufacturer
with a rebate agreement with the Secretary under this section, or a
wholesaler as defined in Sec. 447.502, to verify prices or charges for
a covered outpatient drug identified through paragraphs (k)(2) and (3)
of this section, reported to the agency under section 1927(b)(3)(A) of
the Act and this section, to make payment for the covered outpatient
drug.
(2) Identification of covered outpatient drugs potentially subject
to price verification. On an annual basis, CMS will compile a list of
single source covered outpatient drugs that may be subject to a survey
based on one or more of the following criteria (further refined based
upon criteria in paragraph (k)(3) of this section). This list will
identify drugs that have:
(i) The highest Medicaid drug spend per claim, which is when the
claim is in the top 5th percentile of Medicaid spending per claim;
(ii) The highest total Medicaid drug spend, which is when the
annual Medicaid drug spend, net of Federal Medicaid drug rebates, is
greater than 0.5 percent of total annual Medicaid drug spend, net of
Federal Medicaid drug rebates;
(iii) The highest 1-year price increase among single source covered
outpatient drugs, which is when the covered outpatient drug falls in
the top 1 percent of covered outpatient drugs with the highest median
Wholesale Acquisition Cost (WAC) increase over 12 months; or
(iv) The highest launch price, which is a launch price estimated to
be in the top 5th percentile of Medicaid spending per claim, or a
launch price that is estimated to result in a total annual treatment
price that is greater than $500,000 (indexed annually for inflation
using the Consumer Price Index for all Urban Consumers (CPI-U)).
(3) Selection of covered outpatient drugs for price verification.
The survey list compiled under paragraph (k)(2) of this section will be
further refined by excluding covered outpatient drugs of manufacturers
that have:
(i) Participated in any CMS drug pricing program or initiative
under which participating manufacturers negotiate a covered outpatient
drug's price directly with CMS; or,
(ii) Negotiated CMS-authorized supplemental rebate with at least 50
percent of States, that when in combination with the Federal rebate
results in a total (State and Federal) rebate for the drug of interest
to total Medicaid spend (State and Federal) for the drug of interest,
that is greater than the total Medicaid rebates (State and Federal) to
total Medicaid drug spend for States that cover CODs only through the
FFS delivery system, as reflected in the most recent Medicaid Financial
Management Report.
(iii) If after application of the criteria in paragraphs (k)(3)(i)
and (ii) of this section more than 10 covered outpatient drugs remain
on the survey list, CMS

[[Page 34295]]

will consider narrowing the list based on:
(A) State-specific Medicaid program input regarding manufacturer
effort to lower drug price (including through mechanisms such as
subscription models, value-based purchasing arrangements under the
multiple best price approach, or other purchasing arrangements
favorable to the Medicaid program); or,
(B) Highest cost covered outpatient drugs based on the factors
outlined under paragraph (k)(2) of this section, and before application
of paragraph (k)(3) of this section.
(4) Posting of survey request. After a survey list is compiled
based on the application of the criteria in paragraphs (k)(2) and (3)
of this section, the agency will post on a publicly accessible,
government website, the letter sent to the manufacturer indicating the
name of the covered outpatient drug to be surveyed and the request for
completion of the drug price verification survey.
(5) Covered outpatient drug price verification survey. Such survey
to a manufacturer or wholesaler will request in a standard reporting
format specific information that will include:
(i) Pricing, charges, distribution, and utilization. (A) WAC of the
covered outpatient drug, including the types of discounts available to
purchasers on the commercial market, or for a wholesaler or pharmacy
affiliated with a manufacturer or wholesaler, the invoice price for the
drug;
(B) Calculated average price of the drug from the manufacturer to
wholesalers and other direct purchasers for sales outside of the U.S.;
(C) Actual or expected utilization of the covered outpatient drug
in the United States, including among the Medicare and Medicaid
populations;
(D) Public prices for the drug to other Federal agencies, such as
the Department of Veterans Affairs; and,
(E) Information relating to the costs of distribution of the
covered outpatient drug.
(ii) Product and clinical information. (A) Characteristics of the
covered outpatient drug, including route and setting of administration,
dosing frequency, duration of therapy, side effects, interactions and
contraindications, and potential for misuse or abuse.
(B) Manufacturer information regarding the clinical efficacy,
effectiveness and outcomes of the drug.
(C) Therapeutic benefits to the patient including information such
as the:
(1) Seriousness and prevalence of the disease or condition that is
treated by the covered outpatient drug.
(2) The extent to which the covered outpatient drug addresses an
unmet medical need.
(3) The extent to which the use of the covered outpatient drug will
reduce or eliminate the need for other health care services.
(4) Whether there are therapeutic equivalents and the number of
such equivalents available for the covered outpatient drug.
(D) Whether there are other existing therapies (pharmacological and
non-pharmacological) available to a patient to address the indicated
medical condition and the estimated costs of such other therapies to
the patient compared to the price of the covered outpatient drug.
(E) If the drug is approved using FDA's accelerated approval
pathway in section 506(c) of the FFDCA, any additional post-market
studies required by FDA.
(iii) Costs of production, research, and marketing. (A)
Manufacturer expenditures on materials and manufacturing for such
covered outpatient drug, any costs of purchasing or acquiring the
covered outpatient drug, and other processes needed to obtain,
manufacture or license the covered outpatient drug.
(B) Research and development costs, including total public funds
used for such research and development. If the covered outpatient drug
is a line extension of a single source or innovator multiple source
drug, manufacturers shall not include the research and development
costs of the initial single source or innovator multiple source covered
outpatient drug.
(C) Total expenditures of the manufacturer associated with
marketing and advertising for the applicable covered outpatient drug.
(D) Total revenue and net profit generated from the covered
outpatient drug for each calendar year since drug approval, if
applicable.
(iv) Secretary information. Any other information as determined by
the Secretary to verify the price or charge of the covered outpatient
drug reported under section 1927(b)(3)(A) of the Act and this section.
(6) Posting of manufacturer/wholesaler information from survey for
further verification. To further verify the prices and charges
submitted by the manufacturer for a covered outpatient drug, CMS may
post publicly non-proprietary information provided by the manufacturer
and wholesaler in response to the verification survey. CMS may request
that a manufacturer address the non-proprietary information specified
in paragraph (k)(6) of this section in a public forum. CMS will seek
comments from the public, beneficiaries, State Medicaid agencies, other
governmental agencies, and other affected interested parties on the
information posted.
(7) Civil monetary penalties (CMPs). A manufacturer or wholesaler
that refuses a request for information pursuant to the drug price
verification survey within 90 calendar days of CMS' request for such
information, or knowingly provides false information, will be referred
to the OIG for possible imposition of CMPs as set forth in section
1927(b)(3)(B) of the Act and section IV of the National Drug Rebate
Agreement.
0
11. Amend Sec. 447.518 by adding a heading to paragraph (d) and
revising paragraph (d)(1) to read as follows:

Sec. 447.518 State plan requirements, findings, and assurances.

* * * * *
(d) Data requirements. (1) When proposing changes to either the
ingredient cost reimbursement or professional dispensing fee
reimbursement, States are required to evaluate their proposed changes
in accordance with the requirements of this subpart, and States must
consider both the ingredient cost reimbursement and the professional
dispensing fee reimbursement when proposing such changes to ensure that
total reimbursement to the pharmacy provider is in accordance with
requirements of section 1902(a)(30)(A) of the Act. States must provide
adequate cost-based data, such as a State or national survey of retail
pharmacy providers or other reliable cost-based data other than a
survey to support any proposed changes to either or both of the
components of the reimbursement methodology. States must submit to CMS
the proposed change in reimbursement and the supporting data through a
State Plan Amendment formal review process. Research and data must be
based on pharmacy costs and be sufficient to establish the adequacy of
both current ingredient cost reimbursement and professional dispensing
fee reimbursement. Submission by the State of data that are not based
on pharmacy costs, such as market-based research (for example, third
party payments accepted by pharmacies) to support the professional
dispensing fee would not qualify as supporting data.
* * * * *
0
12. Revise Sec. 447.520 to read as follows:

[[Page 34296]]

Sec. 447.520 Federal Financial Participation (FFP): Conditions
relating to physician-administered drugs.

(a) Availability of FFP. No FFP is available for physician-
administered drugs that are covered outpatient drugs for which a State
has not required the submission of claims using codes that identify the
drugs sufficiently for the State to invoice a manufacturer for rebates.
(1) Single source drugs. For a covered outpatient drug that is a
single source, physician-administered drug, administered on or after
January 1, 2006, a State must require providers to submit claims for
using National Drug Code (NDC) numbers to secure rebates and receive
FFP.
(2) Multiple source drugs. For a covered outpatient drug that is a
multiple source, physician-administered drug on the list published by
CMS described in paragraph (c) of this section, administered on or
after January 1, 2008, a State must require providers to submit claims
using NDC numbers to secure rebates and receive FFP. States are
required to invoice for rebates for all multiple source physician-
administered drugs that are CODs, and not limit such rebate invoicing
to the top 20 multiple source physician-administered drug list.
(b) Required coding. As of January 1, 2007, a State must require
providers to submit claims for a covered outpatient drug that is
described in paragraph (a)(1) or (2) of this section (any covered
outpatient drug that is a physician-administered drug) using NDC
numbers.
(c) Top 20 multiple source physician-administered drug list. The
top 20 multiple source physician-administered drug list, identified by
the Secretary as having the highest dollar volume of physician
administered drugs dispensed under the Medicaid program, will be
published and may be modified from year to year to reflect changes in
such volume.
(d) Hardship waiver. A State that requires additional time to
comply with the requirements of this section may apply to the Secretary
for an extension.

Dated: May 18, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-10934 Filed 5-23-23; 4:15 pm]
BILLING CODE 4120-01-P

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