Medicaid Program; Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program, 79020-79085 [2024-21254]
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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 433, 438, and 447
[CMS–2434–F]
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: Final rule.
AGENCY:
This final rule implements
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 address
drug misclassification, as well as drug
pricing and product data misreporting
by manufacturers. Additionally, we are
finalizing several other proposed
program integrity and program
administration provisions or
modifications in this final rule,
including revising and finalizing key
definitions used in the MDRP. This rule
also finalizes a provision not directly
related to MDRP that makes revisions to
the third-party liability regulation due
to amendments made by the Bipartisan
Budget Act (BBA) of 2018. We also are
finalizing our proposal 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’’ (‘‘the 2020 final rule’’) to
the Determination of Best Price and
Determination of Average Manufacturer
Price (AMP) sections.
DATES: These regulations are effective
on November 19, 2024.
Applicability Dates: In the
SUPPLEMENTARY INFORMATION section of
this final rule, we provide a table (Table
1), which lists key changes in this final
rule that have an applicability date
other than the effective date of this final
rule.
For information on viewing public
comments, see the beginning of the
SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Omar Alemi, 720–853–2724,
omar.alemi@cms.hhs.gov, for issues
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SUMMARY:
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related to the definition of covered
outpatient drug (COD) and removal of
manufacturer rebate cap.
Ruth Blatt, 410–786–1767, ruth.blatt@
cms.hhs.gov, for issues related to the
definitions of noninnovator multiplesource drug, market date, and COD.
Ginger Boscas, 410–786–3098,
ginger.boscas@cms.hhs.gov, for issues
related to third-party liability.
Michael Forman, 410–786–2666,
michael.forman@cms.hhs.gov, for issues
related to physician-administered drugs.
Charlotte Hammond, 410–786–1092,
charlotte.hammond@cms.hhs.gov, for
issues related to diagnosis on
prescriptions and professional
dispensing fees.
Mickey Morgan, 443–745–3950,
mickey.morgan1@cms.hhs.gov, for
issues related to drug cost transparency
in Medicaid managed care contracts and
accounting for accumulated price
concessions from ’stacking’ when
determining best price.
Lisa Shochet, 410–786–5445,
lisa.shochet@cms.hhs.gov, for issues
related to Bank Identification Number
and Processor Control Number (BIN/
PCN).
Terry Simananda, 410–786–8144,
terry.simananda@cms.hhs.gov, for
issues related to internal investigation,
Collection of Information, and
Regulatory Impact Analysis sections.
Whitney Swears, 410–786–6543,
whitney.swears@cms.hhs.gov, for issues
related to time limitation on audits and
the definition of manufacturer.
Cathy Traugott, 720–853–2785,
catherine.traugott@cms.hhs.gov, for
issues related to drug misclassifications,
definition of vaccine, and a drug price
verification process through data
collection survey.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
Under the Medicaid program, section
1902(a)(54) of the Social Security Act
(the Act) provides States with the option
of providing coverage of prescribed
drugs as described in section
1905(a)(12) of the Act, and to date, all
States have elected to do so. Section
1903(a) of the Act provides for Federal
Financial Participation (FFP) in State
expenditures for these covered
outpatient drugs (CODs). Coverage of
CODs under the option provided by
section 1902(a)(54) of the Act 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
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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 conditioning FFP in medical
assistance for drugs covered under
section 1902(a)(54) on the manufacturer
of the drug having an NDRA. 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 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. Generally,
pursuant to section 1927 of the Act,
drugs classified as single source drugs
or innovator multiple source drugs pay
higher rebates than those that are
classified as an ‘‘other drug,’’ such as
noninnovator multiple source drugs.
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
product and drug pricing information 30
days after the last day of each quarter of
a rebate period. If a manufacturer fails
to submit timely information, or
misreports information, we may be
unable to establish accurate Unit Rebate
Amounts (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 ensure
accurate rebates are paid to States for
their CODs.
Prior to the enactment of the
Medicaid Services Investment and
Accountability Act of 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 (NDA).
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 NDA. A noninnovator multiple
source drug was defined at section
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1927(k)(7)(A)(iii) of the Act as a
multiple source drug that is not an
innovator multiple source drug. MSIAA
made several revisions to these
definitions, including adding a
provision to ratify CMS’ existing policy
to permit certain exceptions from the
definitions if a narrow exception
applies, as described in § 447.502 or any
successor regulation.
This narrow exception process in
§ 447.502 was created in the 2016 final
rule entitled ‘‘Medicaid Program;
Covered Outpatient Drugs’’ 1 (2016 COD
final rule), under which drug
manufacturers could submit a request
for a narrow exception to allow
individual drugs approved under an
NDA to be treated as if they were
approved under an abbreviated new
drug application (ANDA) and classified
as noninnovator multiple source drugs
prospectively from the effective date of
the 2016 COD final rule. Instructions to
manufacturers regarding this process
were included in Manufacturer Release
#98, May 2, 2016.2 The 2016 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 2016 COD final
rule, which was April 1, 2016. This
narrow exception process was codified
into statute in MSIAA when the
Congress removed the word ‘‘original’’
from the definitions of single source
drug and innovator multiple source
drug, thereby confirming CMS’ pre 2016
interpretation.
We published the proposed rule (88
FR 34238–34296) on May 26, 2023, and
provided a 60-day comment period. A
total of 128 comments were received.
We are now publishing the final rule.
We are clarifying and emphasizing our
intent that if any provision of this final
rule is held to be invalid or
unenforceable by its terms, or as applied
to any person or circumstance, or stayed
pending further action, it shall be
severable from other parts of this final
rule, and from rules and regulations
currently in effect, and not affect the
remainder thereof or the application of
the provision to other persons not
similarly situated or to other, dissimilar
circumstances. Through this rule, we
adopt provisions that are intended to
and will operate independently of each
other, even if each serves the same
general purpose or policy goal. Where a
1 https://www.govinfo.gov/content/pkg/FR-201602-01/pdf/2016-01274.pdf.
2 https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/
downloads/rx-releases/mfr-releases/mfr-rel-098.pdf.
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provision is necessarily dependent on
another, the context generally makes
that clear.
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 MSIAA, titled
‘‘Preventing the Misclassification of
Drugs Under the Medicaid Drug Rebate
Program,’’ amended sections 1903 and
1927 of the Act to (1) specify the
definitions for single source drug,
innovator multiple source drug, and
noninnovator multiple source drug, and
(2) 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
drug, innovator multiple source drug, or
noninnovator multiple source drug—for
the purposes of determining the correct
rebates that each manufacturer owes the
States.
Although much of this law is selfimplementing, we proposed a series of
regulatory amendments at §§ 447.509
and 447.510 to implement and codify
the statutory changes in regulation. We
proposed that 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 drug.
We also defined 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.
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 proposed
a definition of ‘‘drug product
information’’ for the purposes of the
MDRP.
Similarly, MSIAA amended the Act to
specify that the reporting of false
information, including information
related to drug pricing, drug product
information, and data related to drug
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pricing or drug product information,
would also be subject to possible civil
monetary penalties (CMPs) by the
Department of Health and Human
Services (HHS) Office of the Inspector
General (OIG), and to provide specific
new authority to the Secretary to issue
CMPs related to knowing
misclassifications of drug product or
misreported information. These OIG
authorities are not the subject of this
rulemaking.
Under 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,
including correcting the
misclassification, suspending the
misclassified drug from the MDRP,
imposing CMPs, or ultimately
terminating the manufacturer’s
participation in the MDRP.
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 taxpayer monies.
C. MDRP Program Administration
Proposed Changes
In order to increase efficiency and
economy of directing overall MDRP
operations, resources, and activities to
better facilitate the needs of Medicaid
beneficiaries, we proposed a number of
new regulatory policies and
clarifications of existing policies.
Specifically, consistent with our
statutory authorities, we proposed to
define, specify, or amend the definitions
for COD, internal investigation (for
restatement purposes outside of a 3-year
time window), manufacturer (for
National Drug Rebate Agreement
(NDRA) purposes), market date,
noninnovator multiple source drug,
drug product information, and vaccine
for the purposes of the MDRP. We also
proposed 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 noninnovator multiple
source drug.
In addition, we proposed new
policies, including to add a time
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limitation on manufacturers’ 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 (NDCs) for single
and multiple source physicianadministered drugs to receive FFP and
secure manufacturer rebates.
We also proposed to revise Medicaid
managed care standard contract
requirements to adopt a requirement for
the inclusion of Bank Identification
Number and Processor Control Number
(BIN/PCN) numbers on Medicaid
enrollee identification cards for
pharmacy benefits, as well as enhance
drug cost transparency by adopting
specific requirements relating to the
third-party administration of the
pharmacy benefit. We provide
additional background later in this rule.
1. Proposal To Modify the Definition of
Covered Outpatient Drug
In the 2016 COD final rule (81 FR
5278), we finalized a regulatory
definition of covered outpatient drug in
§ 447.502 that substantially mirrors the
statutory definition and is consistent
with section 1927(k)(3) of the Act. The
definition includes a limiting definition
which exempts from the COD
definition, and thus from rebates, any
drug, biological product, or insulin
provided as part of, or as incident to and
in the same setting as, (and for which
payment may be made under this title
as part of payment for the following and
not as direct reimbursement for the
drug) certain health care setting or
situations described in section
1927(k)(3). However, we never clarified
what the term ‘‘direct reimbursement’’
means for the purposes of defining those
situations under which a State could
bill a manufacturer for a rebate for a
COD when the COD is part of an
inclusive payment for the COD and
related services. In regulation, we
proposed to define the term direct
reimbursement at § 447.502 so that
States know those situations in which
the limiting definition would not apply
such that a State could bill for a rebate.
CMS received several thoughtful
comments on this issue, and based on
these comments, we realized the
proposed language did not adequately
clarify the policy. Thus, we are further
refining the definition to more clearly
delineate the situations in which the
limiting definition would not apply.
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
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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 other
compliance and enforcement measures.
In the 2016 COD final rule, 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 enumerated exceptions apply.
See § 447.510(b)(1)(i) through (vi).
The existing regulation at
§ 447.510(b)(1)(v) provides an exception
to the 12-quarter price reporting rule if
the change is being made 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,
up to this point, we have not defined
the term internal investigation, which
has led to different interpretations of the
nature of an internal investigation.
Therefore, we proposed to add a
definition of internal investigation at
§ 447.502 and additional clarity around
the 12-quarter price reporting rule at
§ 447.510. Based on comments we
received, we are finalizing as proposed
except we are adding the term
‘‘possible’’ to ‘‘fraud, abuse or violation
of law or regulation’’.
3. Proposal To Modify the Definition of
Manufacturer for National Drug Rebate
Agreement (NDRA) Compliance
Purposes
We proposed to further refine the
definition of manufacturer to clarify that
a manufacturer includes all other
manufacturers that are associated or
affiliated with that manufacturer. This
was intended to clarify that once a
manufacturer has entered into a rebate
agreement with CMS, all entities (with
their applicable labeler 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.
We appreciate the thoughtful
comments received on this issue, and
we determined not to finalize the
proposed policy at this time. We are
continuing to review the input provided
by commenters, which may inform
future rulemaking on this topic.
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4. Proposal To Establish a Definition of
Market Date for a COD for the Purposes
of Determining a Base Date AMP for a
COD
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. A key factor in the
calculation of the additional rebate is
the base date AMP 3 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 their CODs. The term market
date has not been previously defined in
regulation for purposes of the MDRP,
and CMS has received numerous
questions regarding the determination of
market date. Accordingly, we proposed
to define the term market date at
§ 447.502 for the purpose of the MDRP
and are finalizing as proposed.
5. Proposal To Modify the Definition of
Noninnovator Multiple Source Drug
As discussed previously in the
proposed rule, section 6(c) of MSIAA
included a number of amendments to
statutory definitions in section 1927 of
the Act. One of the amendments to the
statutory definitions was to remove the
phrase ‘‘was originally marketed’’ from
the definition of an I drug and replace
it with ‘‘is marketed.’’ We also made
conforming changes to the regulatory
definition of an I drug in the 2020 final
rule.
These amendments should have
prompted a corresponding change to the
regulatory definition of noninnovator
multiple source (N) drug in the 2020
final rule to align with the statutory and
regulatory change to the definition of an
I drug, however we neglected to include
the change. Therefore, we proposed to
amend the definition of an N drug at
§ 447.502 to maintain the clear
distinction between an I drug and an N
drug and are finalizing as proposed.
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 does not define vaccine.
3 The terms ‘‘base date AMP,’’ ‘‘baseline AMP,’’
and ‘‘base AMP’’ are used interchangeably within
this document.
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We proposed 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
consistent with section 1927 of the Act
and applicable rebate liability under the
MDRP. We noted that the regulatory
definition of vaccine is intended to be
established solely for the purposes of
the MDRP and is intended to be
applicable only to that program and
Medicaid expansion CHIP programs
(that is, CHIP programs operating
pursuant to 42 CFR 457.70(a)(2) and (c)).
It is not intended to 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 (VFC)
Program. Nor is it intended to apply to
any other programs within CMS or any
other agencies within HHS (for example,
the Food and Drug Administration
(FDA), Centers for Disease Control and
Prevention (CDC), or Health Resources
and Services Administration (HRSA)).
Rather, we stated that the proposed
changes would only specify which
products are vaccines and are therefore
excluded from the definition of a COD
under the MDRP and thus are not
subject to section 1927, including to
MDRP rebate liability; the proposed
changes would not apply to any
applicable Federal or State requirements
to cover vaccines for Medicaid
beneficiaries, as applicable. We
appreciate the thoughtful comments we
received on this issue. At this time, we
are not finalizing the proposed
regulatory definition. We are continuing
to review the input provided by
commenters, which may inform future
rulemaking on this topic.
7. Proposal To Account for Stacking
When Determining Best Price
We proposed 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. CMS received a number of
thoughtful comments on this issue, and
we have determined not to finalize the
proposed regulation changes at this
time. We are continuing to review the
input provided by commenters. We
intend to collect information through a
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separate Paperwork Reduction Act
(PRA) request to collect additional
information related to manufacturers’
stacking methodologies, which may
inform future rulemaking on this topic.
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. We
proposed to limit the time period during
which manufacturers may initiate
disputes, hearing requests, and audits of
State-invoiced utilization units to 12
quarters from the last day of the quarter
from the date of State invoice to the
manufacturer. Upon reviewing
comments, we believe referencing the
invoice postmark date instead of the
date of the State invoice offers the same
clarity for both States and
Manufacturers on the timeline initiation
and would align with previous DP
policy. Therefore, we are finalizing as
proposed, with the exception of
referencing ‘‘postmark date’’ instead of
‘‘the date of the State invoice’’.
9. Proposal Regarding Drug Price
Verification Through Data Collection
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 under section
1927(b)(3)(A) of the Act. Under this
authority, we proposed rules to describe
those situations when it would be
considered ‘‘necessary’’ for such surveys
to be sent to manufacturers and
wholesalers, and the information that
would be requested to use in order to
verify the reported prices at issue.
We appreciate the thoughtful
comments we received on this issue,
and we determined not to finalize the
proposed policy at this time. We are
continuing to review the input provided
by commenters, which may inform
future rulemaking on this topic.
10. Proposal To Clarify and Establish
Requirements for FFS Pharmacy
Reimbursement
In the 2016 COD final rule, we
finalized at § 447.518 moving 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
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79023
dispensing fee (PDF) that reflected their
costs of dispensing. We proposed to
revise § 447.518, ‘‘State plan
requirements, findings, and
assurances,’’ in paragraph (d)(1) to
clarify State requirements regarding
pharmacy ingredient costs and
professional dispensing fees to be
consistent with the applicable statutory
and regulatory requirements, specifying
in particular that any dispensing fee
surveys must be based on actual
pharmacy dispensing costs data and not
market research data. We are finalizing
as proposed.
11. Proposals Relating to Section
1927(a)(7) of the Act and Federal
Financial Participation (FFP):
Conditions Relating to PhysicianAdministered Drugs (PADs)
In accordance with section 1927(a)(7)
of the Act, for payment to be available
under section 1903 of the Act, and for
States to secure applicable Medicaid
rebates, States are to provide for the
collection and submission of utilization
data and coding (such as J-codes 4 and
NDC numbers) for a COD that is a
physician-administered single source
drug as determined by the Secretary, or
that is a multiple source drug that is
determined by the Secretary to be a top
20 high dollar volume PAD dispensed
under Medicaid (as identified on a
published list).5 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 2007 final rule), specifying the
conditions for FFP for PADs.6
We proposed to amend § 447.520 to
require States to collect NDC
information on all covered outpatient
single and multiple source PADs and to
specify that States must invoice for
rebates for all covered outpatient PADs
to receive FFP and secure manufacturer
rebates. We are finalizing as proposed
but have added a discussion of our
statutory authority for extending this
requirement by regulation beyond the
top 20 multiple source drugs already
required by statute.
4 J codes are a subset of the Healthcare Common
Procedure Coding System (HCPCS) Level II code set
used to primarily identify injectable drugs.
5 https://www.medicaid.gov/medicaid/
prescription-drugs/state-prescription-drugresources/physician-administered-drugs-pad/
index.html.
6 https://www.govinfo.gov/content/pkg/CFR-2007title42-vol4/pdf/CFR-2007-title42-vol4-sec447520.pdf.
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12. Proposal Related to Suspension of a
Manufacturer’s Drug Rebate Agreement
We proposed 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,
when there is a continued failure to
report after a 90-calendar day deadline
is imposed by the agency. Specifically,
we proposed in § 447.510(i) that a
manufacturer must report information
required under § 447.510(a) and (d), and
the failure to report such information to
the agency after the end of an imposed
90-calendar day period would result in
suspension of the manufacturer’s rebate
agreement, and that such agreement
would not be reinstated until such
information was reported in full and
certified, but not for a period of
suspension of less than 30 calendar
days. We are finalizing as proposed.
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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 enrollee 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 identifier, can specify
that a patient is covered by a specific
insurance group, such as being a
Medicaid managed care enrollee.
Without the BIN, PCN, and group
number identifiers, it is often difficult to
determine from a Medicaid managed
care enrollee’s identification 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.
While the use of Medicaid-specific
BIN, PCN, and group number identifiers
does not assist in identifying claims for
drugs purchased under the 340B Drug
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Pricing Program (340B Program), it may
help States and their managed care
plans avoid invoicing for rebates on
340B drugs by identifying which plans
are covered under Medicaid. Section
340B(a)(5)(A) of the Public Health
Service Act (the PHS Act) prohibits
duplicate discounts for drugs purchased
under the MDRP. Identifying claims
where the dispensed drug has been
discounted under the 340B Program is
necessary to avoid duplicating that
discount in the MDRP.
Therefore, under the authority of
section 1902(a)(4) of the Act, to ensure
effective implementation of and
compliance with sections 1927(a)(5)(C)
and 1927(j)(1) of the Act, we proposed
to amend § 438.3(s) to require States to
require (via standard contract
requirements) 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 care enrollee
identification cards for pharmacy
benefits. Based on comments received,
we are changing the requirement to be
a unique BIN/PCN combination with a
group number identifier, as well as the
effective date.
b. Drug Cost Transparency in Medicaid
Managed Care Contracts
Medicaid managed care plans often
contract with a subcontractor Pharmacy
Benefit Manager (PBM) to operate the
pharmacy benefit provided to Medicaid
beneficiaries. 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 were 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 incurred claims for
health care services and drug costs) and
administrative expenses, such as fees
paid to its PBM for PBM services (for
example, claims adjudication and
processing prior authorization requests).
Therefore, we proposed that MCOs,
PIHPs, and PAHPs that provide
coverage of CODs require any
subcontractor to report the amounts
related to the incurred claims described
in § 438.8(e)(2) separately from any
administrative costs, fees, and expenses
of the subcontractor. Based on
comments received, we are finalizing as
proposed, with a few clarifying changes.
We are adding ‘‘MCO, PIHP or PAHP’’
in a few places to be consistent with
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other paragraphs in 42 CFR 438.3(s) and
are adding a subsection to include an
effective date, which will be the first
rating period for contracts beginning on
or after 1 year following the effective
date of the rule.
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 accumulator
provisions within the 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.’’ This final rule had
revised the conditions for excluding
patient assistance from AMP 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, for consistency, we
proposed to withdraw the changes
related to patient assistance to both the
AMP and best price sections made by
the 2020 final rule so that the
regulations would revert back to the
language that has been in place since
2016. We are finalizing this provision as
proposed.
15. Proposals Related to Amendments
Made by the American Rescue Plan Act
of 2021—Removal of the 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 the Act to add ‘‘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 the provision in section
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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 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 proposed to make
conforming changes to § 447.509 to
reflect the removal of the limit on
maximum rebate amounts for rebate
periods beginning on or after January 1,
2024. We are finalizing this provision as
proposed.
16. Request for Information—Comments
on Issues Relating To Requiring a
Diagnosis on Medicaid Prescriptions as
a Condition for Claims Payment
We solicited comments 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 were particularly
interested in understanding any
operational implications, privacy
related concerns, associated burden, and
approaches 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.
We appreciate the thoughtful
comments we received on this issue,
and we determined we are not moving
forward with any proposed regulations
regarding this topic at this time.
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 certain 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
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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.
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 submitted 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.
D. Applicability and Compliance
Timeframes
Generally, we are finalizing that this
rule, including the proposals being
finalized herein, will be effective 60
days after publication of this final rule,
with the exception of two provisions in
the Standard Medicaid Managed Care
Contract Requirements section. We are
including Table 1 with these provisions
and relevant timing information and
dates. We encourage all interested
parties to confirm the applicability dates
indicated in this final rule for any
changes from the proposed.
TABLE 1—APPLICABILITY DATES
Regulation text
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§ 438.3(s)(7) .........
§ 438.3(s)(8) .........
Applicability date
First rating period for contracts with MCOs, PIHPs, and PAHPs beginning on or after 1 year following November 19, 2024.
First rating period for contracts with MCOs, PIHPs, and PAHPs beginning on or after 1 year following November 19, 2024.
II. Summary of Proposed Provisions,
Analysis of and Responses to Public
Comments, and Provisions of the Final
Rule
The proposed rule to implement
regulatory 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 address drug misclassification, as
well as drug pricing and product data
misreporting by manufacturers, was
published on May 26, 2023 (88 FR
34238). As discussed in the proposed
rule, we also made proposals to enhance
program integrity and improve program
administration for the MDRP. The
proposals included a time limitation on
manufacturers initiating audits with
States, clarifications and requirements
for State fee-for-service (FFS) pharmacy
reimbursement, and the establishment
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of conditions relating to States claiming
Federal Financial Participation (FFP) for
physician-administered drugs (PADs).
Other proposals included two new
requirements for contracts between
States and their Medicaid managed care
plans in connection with coverage of
covered outpatient drugs (CODs). In
addition, the rule included a proposal
not directly related to the MDRP that
would modify the third-party liability
regulation based on the Bipartisan
Budget Act of 2018 (BBA of 2018).
Finally, the proposed rule solicited
comments related to the issues, benefits,
and challenges of requiring the
inclusion of diagnoses on Medicaid
prescriptions.
We received 128 comments from drug
manufacturers, membership
organizations, law firms, pharmacy
benefit managers (PBMs), State
Medicaid agencies, advocacy groups,
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not-for-profit organizations, consulting
firms, health care providers, employers,
health insurers, health care associations,
and individuals. The comments ranged
from general support or opposition to
the proposed provisions to very specific
questions or comments regarding the
proposed changes.
We also received public comments on
this regulation that were out of scope for
this rulemaking, and, therefore, are not
being addressed in this rule. The
following summarizes comments about
the proposed rule in general or about
specific issues that are not addressed in
this final rule.
Comment: Several commenters
submitted comments that were outside
of the scope of the proposed rule.
Examples of out-of-scope comments
include but are not limited to whether
Medicaid accepts JW/JZ modifiers when
billing radiopharmaceuticals at free-
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standing radiology offices, the amount
charged for a specific drug per month,
and comments on CMS’ ‘‘Medicare Part
D Drug Inflation Rebates Paid by
Manufacturers: Initial Memorandum,
Implementation of Section 1860D–14B
of Social Security Act, and Solicitation
of Comments,’’ that CMS issued on
February 9, 2023.
Response: We appreciate commenters’
interest in these topics. However,
because these comments are outside of
the scope of the proposed rule, we are
not addressing them in this final rule.
Comment: A commenter stated that
Federal agencies must align their rules
and proposals to ensure compatibility.
The commenter believes there are a
variety of currently proposed, pending,
or expected rules from CMS and the
Office of the National Coordinator for
Health Information Technology (ONC)
that are not completely independent
from each other; they noted, in some
cases, there may be components of
different rules that contradict each
other, and in other cases, they may be
written in ways that unnecessarily
increase the burden on one or more
parties subject to the rule. Specifically,
the commenter mentioned CMS
discusses requiring NDC codes for
medications in this rule, but the recent
ONC Health Data, Technology, and
Interoperability: Certification Program
Updates, Algorithm Transparency, and
Information Sharing (HTI–1) Proposed
Rule discusses the possibility of
deprecating support for NDC codes in
its certification programs in favor of
always requiring use of RxNorm for
medications. Concerns were raised that
the rules were not coordinated so that
their requirements are compatible and
executable without placing additional
burden on individuals or organizations
that need to implement more than one
rule.
Response: We appreciate the request
for Federal agencies to align their rules
to ensure compatibility. We are
addressing only those proposals that
were part of the proposed rule (88 FR
34238 through 34296). See also the
discussion in section II.L., Federal
Financial Participation (FFP):
Conditions Relating to Physician
Administered Drugs related to the HTI–
1 final policy and CMS and ONC
collaboration.
Comment: A commenter requested
CMS postpone finalizing the proposals
in the proposed rule. The commenter
encouraged CMS to actively seek
additional feedback from interested
parties, including individuals and
advocacy organizations who represent
those most affected by Medicaid
coverage challenges.
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Response: Through the rulemaking
process, the proposed rule was
published, and the public was provided
the opportunity to comment on the
proposed rule’s provisions. We have
reviewed and addressed public
comments and will proceed with
finalizing the rule as noted herein.
A. Payment of Claims (42 CFR 433.139)
In the proposed rule, we included
regulatory revisions that would make
technical changes to the process for
making payment of Medicaid claims. As
background, we noted that in 1980,
under the authority in section
1902(a)(25)(A) of the Act, we issued
regulations at part 433, subpart D, that
established requirements for State
Medicaid agencies to support the
coordination of benefits (COB) effort by
identifying third party liability. We
pointed out that § 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.
To better align our regulations with
statute, 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 cost-effectiveness and access to care
that warrants cost avoidance for up to
90 days.’’ We also proposed 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. Additionally, we
proposed 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 costeffective 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.
We received two public comments on
this proposal. The following is a
summary of the comments we received
and our response.
Comment: The commenters stated
that they were in support of our
proposed regulation changes.
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Response: We appreciate the support
on this section.
After consideration of public
comments on these provisions, we are
finalizing as proposed.
B. Standard Medicaid Managed Care
Contract Requirements (§ 438.3(s))
1. BIN/PCN on Medicaid Managed Care
Enrollee Identification Cards
In the proposed rule, we included a
provision 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 Medicaidspecific BIN, PCN, and group number
identifiers for all Medicaid managed
care enrollee identification cards for
pharmacy benefits. Although not
required to issue enrollee identification
cards, it is a standard business practice
for the MCOs, PIHPs, and PAHPs to
routinely issue such cards for pharmacy
benefits for Medicaid enrollees. We
proposed that the States’ managed care
contracts with MCOs, PIHPs, and
PAHPs must comply with this new
requirement no later than the beginning
of the State’s next rating period for
Medicaid managed care contracts
following the effective date of the final
rule adopting this new regulatory
provision. A rating period is defined in
§ 438.2 as a period of 12 months
selected by the State for which the
actuarially sound capitation rates are
developed and documented in the rate
certification submitted to CMS, and
typically begins with a calendar year or
a State’s fiscal year. We indicated 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
enrollee identification cards with these
newly required Medicaid-specific BIN,
PCN, and group number identifiers.
This proposal was made 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 enrollees to add these
types of unique identifiers to the
enrollee identification cards would
make the Medicaid drug program run
more efficiently and improve the level
of pharmacy services provided to
Medicaid enrollees. With the inclusion
of Medicaid-specific BIN, PCN, and
group number identifiers on the enrollee
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identification cards issued to the
enrollees of MCOs, PIHPs, and PAHPs,
pharmacies would be able to identify
patients as Medicaid enrollees, and
better provide pharmacy services. This
would be helpful to all parties to ensure
that Medicaid benefits are provided
correctly, including confirming any
accurate cost sharing amounts, along
with helping to ensure that claims are
billed and paid for appropriately.
This proposed change may help to
reduce the incidence of 340B Program
duplicate discounts by identifying
Medicaid managed care plans. 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.
Accordingly, we proposed to amend
the regulatory language in § 438.3(s) to
add paragraph (s)(7) to mandate that
Medicaid managed care contracts
require that Medicaid MCOs, PIHPs, and
PAHPs that provide coverage of CODs
assign and exclusively use unique
Medicaid BIN, PCN, and group number
identifiers for all Medicaid managed
care enrollee identification cards for
pharmacy benefits. We proposed that
Medicaid managed care contracts 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 received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Many commenters
supported the use of unique Medicaidspecific BIN, PCN, and group number
identifiers for managed care enrollees to
ensure proper enrollee identification,
application of benefits, and claims and
billing processes, which would aid in
reducing uncertainty and ambiguity
with Medicaid prescribed drug claims.
Commenters believe that this will help
pharmacies identify patients as
Medicaid managed care enrollees and
support administration of appropriate
Medicaid benefits. Some commenters
also noted that many States report that
they either already require unique BIN,
PCN, and group identifier numbers or
believe that this would be feasible to
implement.
Response: We appreciate the support
and agree that unique BIN, PCN, and
group number identifiers on Medicaid
managed care pharmacy identification
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cards will be helpful in supporting the
administration of the Medicaid program.
Comment: Several commenters
supported adding the requirement that
Medicaid managed care enrollee
identification cards contain BIN and
PCN numbers but suggested that the
requirement should be for a BIN and
PCN group combination, instead of
requiring unique identifiers separately.
These commenters recommended that
CMS clarify that the requirement would
be met by the inclusion of a unique
combination of BIN, PCN, and group
number identifiers on Medicaid enrollee
identification cards to identify a patient
as a Medicaid enrollee with coverage
through a specific Medicaid managed
care plan contract. Other commenters
suggested that requiring unique BIN and
PCN combinations for managed care
Medicaid enrollees would be more
effective.
Response: We agree that separate,
unique BIN and PCN numbers would
not be as effective as having a unique
Medicaid-specific BIN and PCN
combination, along with a group
number identifier, to be issued for
Medicaid managed care identification
purposes. We understand that without
having a unique BIN and PCN
combination requirement, there could
potentially be thousands of separate,
individual new BINs and PCNs.
Therefore, as we noted in the response
to the previous comment, we are
finalizing this requirement and are
adding the term ‘‘combination’’ in this
final rule so that a unique BIN and PCN
combination, along with a group
number identifier, will be assigned for
Medicaid managed care enrollees’
identification cards.
Comment: Several commenters
suggested that a list of unique Medicaidspecific BIN and PCNs with effective
dates be publicly published and
updated in a timely manner. One
commenter requested that CMS publish
the list by surveying States for unique
BIN and PCN numbers used for
Medicaid managed care enrollees and
publishing a list of all such BIN and
PCN numbers, similar to how HHS
publishes lists of BIN and PCN numbers
used to identify Medicare Part D
beneficiaries. Additionally, one
commenter suggested that Medicare and
Medicaid standardize the process by
which the BIN and PCN numbers are
published, along with the publication of
an up-to-date list of the unique BIN and
PCN numbers.
Other commenters suggested that the
States publish the lists on their
websites, since they currently cannot be
found in a centralized location. One of
these commenters believes that the
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creation of a publicly published list of
numbers would aid States’ monitoring
and oversight efforts for this plan
requirement. This commenter also
recommended CMS provide guidance
on pharmacy point of sale (POS)
operations to aid associated State
monitoring and oversight.
Another commenter recommended
that the BIN and PCN numbers be
published on a list in machine readable
form, mirroring how CMS publishes BIN
and PCN numbers for Medicare Part D
beneficiaries via various CMS web
pages, such as the page entitled ‘‘Part D
Information for Pharmaceutical
Manufacturers.’’ 7
Response: We appreciate the
recommendations from the commenters
concerning the publication of a list with
unique BIN and PCN identification
numbers; however, we decline to adopt
these suggestions. Because States have
the option of publishing a listing of their
MCOs, PIHPs, and PAHPs with the
related BIN and PCN combinations,
along with the group number identifiers
in any format on their websites, CMS
defers to States to determine if they
believe this would improve operations
to include this information in one
centralized location.
Comment: One commenter requested
clarification on whether this
requirement for unique BIN, PCN, and
group number identifies is applicable to
Title XXI CHIP, State-funded programs
in addition to Title XIX Medicaid.
Response: This regulation applies to
Medicaid and CHIP managed care
programs subject to the requirements in
42 CFR part 438 in Title XIX (Medicaid).
This regulation does not apply to the
separate CHIP programs operating
pursuant to 42 CFR 457 in Title XXI
(State Children’s Health Insurance
Program). States may also choose at
their option to consider a similar
standard for State-funded programs.
Comment: Several commenters
recommended changes to the
applicability date for the requirement to
include unique BIN, PCN, and group
number identifiers on Medicaid
managed care enrollee identification
cards for pharmacy benefits. These
commenters expressed concern with the
proposed applicability date as they did
not believe it was feasible to implement
this requirement by the next rating
period for Medicaid managed care
contracts following the effective date of
the final rule. Commenters indicated
additional time was needed for
necessary operational changes including
7 https://www.cms.gov/medicare/coverage/
prescription-drug-coverage/part-d-informationpharmaceutical-manufacturers.
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information system development,
configuration and testing as well as the
creation of new enrollee identification
cards and associated distribution to
enrollees. Commenters varied in the
recommended delay with timeframes
with recommendations ranging from 12
to 18 months.
One commenter recommended that
the applicability date be accelerated to
implement the inclusion of BIN, PCN,
and group number identifiers before the
next contract rating period for managed
care plans as the commenter believes
this could prevent 340B duplicate
discounts.
A few commenters were in support of
unique BIN, PCN, and group number
identifiers for each enrollee on
Medicaid managed care enrollee
identification cards but suggested that
this requirement apply prospectively
only to new Medicaid managed care
plan contracts entered into or renewed
after the effective date, as requiring midterm contractual amendments would be
disruptive and burdensome. They
requested additional time sufficient for
systems development, configuration,
testing, PBM support, and card
development. A commenter stated that
many State Medicaid programs enter
into multi-year contracts with managed
care plans that may still be in effect by
the time this rule is finalized.
Another commenter requested that as
CMS finalizes an applicability date for
this provision that it considers the need
to update industry specifications that go
through substantive, formal approval
processes prior to a formal adoption by
a standards-setting authority. The
commenter suggested using existing
standards and processes, when possible,
for consistency between Medicare
Advantage and Medicaid in the way
these numbers are presented, if possible.
Response: We appreciate the issues
raised concerning the timeframe for
including Medicaid-specific BIN and
PCN combinations, along with group
number identifiers on enrollee
identification cards for Medicaid
managed care enrollees. We agree that
additional time may be needed for all
MCOs, PIHPs, or PAHPs to implement
these requirements.
Therefore, we are finalizing the
applicability date for this provision to
be the first rating period for contracts
with managed care plans beginning on
or after 1 year following the effective
date of this final rule.
Comment: A few commenters stated
that the BIN definition, format, and field
used in pharmacy claims transactions
would be changing as of the next
version of the Telecommunication
Standards named under HIPAA. One
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commenter noted that CMS recently
proposed to update the NCPDP
Telecommunication Standard in a
proposed rule. The commenter stated
that the proposal has not yet been
finalized but is expected soon and will
most likely require health plans to
distribute new member enrollee
identification cards during the
implementation period. The commenter
recommended that CMS should
consider any unintended administrative
impacts that could occur due to the
timing of rule implementation and the
resulting need to reissue enrollee
identification cards.
Response: We appreciate the
information that was shared regarding
the upcoming changes to the
Telecommunication Standards. As
stated previously, we are extending the
applicability date in this final rule for
this provision to be the first rating
period for contracts with managed care
plans beginning on or after 1 year
following the effective date of this final
rule. We believe this additional time
will allow States and managed care
plans additional time to undertake the
operational activities associated with
this requirement, including any changes
to the Telecommunication standards.
Comment: Multiple commenters
supported the unique BIN, PCN, and
group number identifier requirements
and suggested additional policies to be
developed to eliminate 340B Program
duplicate discounts. Commenters
believe that this provision will not fully
address the risk of 340B duplicate
discounts in Medicaid managed care
and urged CMS to consider additional
policies designed to avoid Medicaid and
340B Program duplicate discounts,
including, but not limited to, a ‘‘carve
out’’ approach, wherein drugs
purchased under the 340B Program may
not be furnished to Medicaid enrollees,
a claim-level identification approach,
and requiring the usage of 340B Program
claims modifiers. Another commenter
believes that if 340B covered entities
disclosed to insurers when drugs
administered to their enrollees (or
prescriptions filled in contracted
pharmacies) were purchased via the
340B Program, this would assist with
the prohibition on duplicate discounts.
Other commenters suggested that CMS
should not allow providers to submit
Medicaid claims until after completing
a 340B eligibility screening and
requiring States to provide detailed
claim-level utilization data to
manufacturers. One commenter
recommended that comparable
identifiers be used for medical benefit
products.
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A few commenters suggested
requiring pharmacies to enter BIN, PCN,
and group number identifiers at the
point of sale, so that having the
identification of a Medicaid managed
care enrollee can signal to the pharmacy
to append the NCPDP ‘‘20’’ submission
clarification code so that the claim can
be excluded from States’ invoices to
manufacturers for Medicaid rebates.
Other commenters stated that there are
challenges with requiring a point-of-sale
modifier for contract pharmacies. Other
commenters noted that 340B
determination of a prescription drug
claim is not always known at the point
of sale. They stated that 340B
determination is often made
retrospectively based on several factors,
such as the replenishment model and
batch reporting to a clearinghouse.
Multiple commenters stated that they
oppose pharmacies being required to
identify 340B claims either
prospectively or retroactively, but
support an alternative solution where
third-party administrators provide 340B
data to CMS. They also stated that there
remains no requirement for pharmacies
to implement a system to flag a claim as
Medicaid.
Several commenters recommended
clarity on the dispute resolution process
to determine if the State or the covered
entity is responsible for remedying a
duplicate discount in a particular
situation. Commenters suggested that
CMS issue guidance to States to
establish a transparent and consistent
dispute resolution process to resolve
issues regarding duplicate Medicaid/
340B discounts between manufacturers
and State Medicaid agencies.
Commenters also stated that Medicaid
managed care plans contracting with
States, to help assure accountability on
duplicate discounts, should be required
to share data with manufacturers to
permit identification of claims for
which the drug was purchased under
the 340B Program.
Other commenters encouraged CMS
to work with the Health Resources and
Services Administration (HRSA) to
ensure that Medicaid managed care plan
utilization is added to the Medicaid
Exclusion File (MEF) as a way to
establish a mechanism to track and
avoid duplicate discounts on Medicaid
managed care plan utilization. A few
commenters suggested that it would be
more appropriate for HRSA to require
that ‘‘340B patients’’ receive enrollee
identification cards for their 340B
prescription drug benefits with this type
of plan identifier information through
their 340B covered entities.
Response: We believe that the new
requirement for the inclusion of a
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unique Medicaid-specific BIN and PCN
combination, along with a group
number identifier, may help States and
their managed care plans avoid
invoicing for rebates on 340B drugs by
identifying which plans are covered
under Medicaid. While we appreciate
the comments received for additional
ways to improve the operations of the
340B Program, these suggestions are
outside of the scope of this final rule.
Comment: A few commenters
expressed opposition to the exclusive
use of unique Medicaid-specific
identifiers on enrollee identification
cards. Reasonings include that the
addition of exclusive BIN and PCN
numbers is insufficient policy action to
reduce or eliminate 340B duplicate
discounts and that the action is unduly
burdensome and unlikely to have a
meaningful impact on 340B duplicate
discounts. One commenter requested
that CMS allow for continued use of the
existing identification numbers.
Another commenter stated that the
inclusion of identifiers on enrollee
identification cards could make it easier
to engage in discriminatory
reimbursement for 340B covered entity
providers. They stated that such
discriminatory reimbursement could
have a negative effect on certain 340B
covered entities. Other commenters
requested that CMS not implicate
pharmacies in the process of identifying
and reconciling 340B claims.
One commenter was opposed to this
BIN, PCN and group number identifier
requirement since they believe the main
purpose was to help States and managed
care plans identify claims for drugs paid
for under the 340B Program to help
avoid duplicating discounts or rebates
via the MDRP. For their managed care
delivery system in which Medicaid
managed care enrollees primarily access
care from plans and contracted
providers that do not participate in
340B, the commenter stated that there
would be a significant operational
burden to deploy new enrollee
identification cards with BIN, PCN, and
group number identifiers without a
corresponding benefit.
Another commenter also stated that
creating a unique BIN and PCN for each
managed care plan would be unduly
burdensome. They recommended
amending this proposal such that this
requirement would only apply to
unique group number identifiers, and
not BIN and PCN, on Medicaid managed
care enrollee identification cards for
pharmacy benefits. Other commenters
recommended that Medicaid be
consistent with the policy requiring
Medicare Part D plan to use unique BIN
and PCN combination identifiers, and
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not include group number identifiers, to
identify enrollees.
Response: We appreciate the concerns
raised by the commenters but believe
that mandating that States require their
MCOs, PIHPs, and PAHPs that provide
CODs to Medicaid enrollees to include
a unique Medicaid-specific BIN and
PCN combination, and group number
identifiers, on the enrollee identification
cards would make the Medicaid drug
program run more efficiently, help
avoid 340B duplicate discounts, and
improve the level of pharmacy services
provided to Medicaid beneficiaries.
Pharmacies’ identification of patients
as Medicaid enrollees based on the
inclusion of Medicaid-specific BIN,
PCN, and group number identifiers on
the enrollee identification cards must
not be used in any way to discriminate
in the provision of healthcare services,
and such alleged behavior may be
referred to HHS’ Office for Civil Rights
or other authorities.
After considering the comments
raised by the commenters, we are
finalizing § 438.3(s) with some changes
to the proposed regulatory text. We will
modify § 438.3(s)(7) by: adding
‘‘combination,’’ so that a unique BIN
and PCN combination, and group
number identifiers, will be assigned and
used on enrollee identification cards;
removing the comma after ‘‘(BIN)’’ and
replacing it with ‘‘and’’ for grammatical
correctness; and replacing ‘‘beneficiary’’
with ‘‘enrollee’’ to accurately
acknowledge that enrollee identification
cards are provided to a Medicaid
beneficiary enrolled in a managed care
plan in a given managed care program.
Furthermore, we are revising the
applicability date for this provision to
be the first rating period for contracts
with MCOs, PIHPs, and PAHPs
beginning on or after 1 year following
the effective date of the final rule. To
accomplish this, we are removing the
proposed applicability date from
§ 438.3(s)(7) and establishing § 438.3(w)
with this applicability date.
2. Drug Cost Transparency in Medicaid
Managed Care Contracts
In the proposed rule, we included a
provision that would require that the
contracts between States and MCOs,
PIHPs, and PAHPs that provide
coverage of CODs require these managed
care plans to structure contracts with
any subcontractor, which may include
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. As part of
our proposal, we noted that these
subcontractors may include PBMs.
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As stated in the preamble of the
proposed rule, PBMs are intermediaries
in the relationship between the
managed care plans and the health care
(medical and pharmacy) providers that
provide CODs. That is, PBMs have
contracts with both the managed care
plans to administer the pharmacy
benefit, as well as with the health care
providers that administer or dispense
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
providers that can dispense or
administer drugs to managed care
enrolled patients.
PBMs also may negotiate pharmacy
reimbursement rates on behalf of the
various health plans, including
Medicaid managed care plans with
which it contracts, to pay the pharmacy
and other health care providers for the
CODs 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 pharmacy reimbursement
rates for brand name and generic
prescription drugs, as well as the
dispensing fees paid to dispense or
administer the prescription drug. In
addition, there are also administrative
fees paid to the PBM by the managed
care plans for its administration and
operation of the pharmacy benefit.
The margin between the amount
charged by the PBM to a managed care
plan for a COD and the amount paid by
the PBM to a pharmacy provider is
referred to as the ‘‘spread,’’ and this
construct is referred to as ‘‘spread
pricing.’’ A detailed description and
example of how spread pricing works
and how it may affect Medicaid
spending for prescription drugs was
included in the proposed rule at 88 FR
34250 thru 34251. The amount of this
margin or ‘‘spread’’ may only be known
by the PBM, unless a State Medicaid
program or managed care plan
specifically requires the 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 managed care plans, and thus
the Medicaid program, which we
believe is contrary to proper and
efficient operation of the State Medicaid
program, and potentially creates
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conflicts of interest in connection with
payment for CODs. 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.
We further noted in the preamble to
the proposed rule that 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 are paid, are
both necessary for efficient and proper
operation of Medicaid programs.
Moreover, this lack of transparency
makes it more difficult for States and
Medicaid-managed care plans to ensure
that the plan’s Medical Loss Ratio
(MLR) calculation is limited to the true
medical costs associated with the
provision of CODs. We noted that MLR
calculations are used as part of
capitation rate development. Capitation
rates are paid to Medicaid managed care
plans; thus, their accuracy is critical in
assuring that Medicaid payments are
reasonable and appropriate. We further
noted that 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, requirements related to
accurate MLRs are key to ensuring that
Medicaid managed care capitation rates
are actuarially sound. In addition,
Medicaid managed care plans may need
to pay remittances to States should they
not achieve a specific MLR target when
a remittance is required by a State.
Thus, the accuracy of MLR calculation
is important to conserving Medicaid
funds.
We also pointed out that CMS issued
a Center for Medicaid & CHIP Services
(CMCS) Informational Bulletin on May
15, 2019, for States and 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), specifying
MLR data collection requirements when
a managed care plan uses subcontractors
for plan activities. The 2019 CIB
provided additional guidance, including
an example regarding the MLR data
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collection requirements when third
party vendors, such as PBMs, are
involved. However, while the 2019 CIB
uses PBM spread pricing as a specific
example, there was nothing currently in
Federal regulation that specifically
detailed contract requirements that
(non-claim) administrative costs, fees, or
expenses of a managed care plan’s
subcontractor should not be counted as
incurred claims for purposes of the
managed care plan’s MLR calculation.
In addition, the preamble to the
proposed rule discussed that the
Medicaid managed care regulation at
§ 438.230(c)(1) requires that certain
agreements are to be included in
subcontracts, including that
subcontractors agree to perform the
delegated activities and reporting
responsibilities in compliance with the
managed care plan’s contract
obligations, and that 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
explained how these regulatory
obligations require 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 and
that the requirements and definitions in
§ 438.8 for these categories of costs and
expenditures must be applied to the
required reporting.
For these reasons, we proposed to
amend § 438.3(s) to require 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 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 patients 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. We noted that this
proposal will 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
§§ 438.8 and 438.230 apply.
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We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Many commenters
supported the requirement that
managed care plans separately report
the amounts for incurred claims for
CODs and not include administrative
costs in the MLR numerator, and by
doing so, this new requirement would
provide transparency to help identify
PBM spread pricing practices that
potentially lead to pharmacies being
underpaid for their services. Other
commenters, while supporting the
proposal, questioned why spread
pricing is not entirely prohibited.
Response: We appreciate commenters’
support regarding the regulation as
proposed. We note that CMS does not
have the authority under Federal
Medicaid statute to prohibit a PBM’s
practice of spread pricing. However, we
believe this regulation, once final, will
provide greater transparency to State
Medicaid agencies and managed care
plans regarding how the PBMs are
spending the payments that are made to
them by the Medicaid managed care
plan to administer the Medicaid
prescription drug benefit. We believe
this information will help to inform the
State’s decision-making relating to the
administration of the prescription drug
benefit. It will also help the Medicaid
managed care plans have more accurate
data to calculate their MLRs, as well as
ensure that States can accurately
develop capitation rates. Finally, it will
help States and managed care plans
ensure that PBMs are being
appropriately compensated for their
services by requiring that the
subcontractors report separately
incurred claims for CODs and
administrative fees, costs, and expenses
in sufficient detail and the level of
detail must be no less than the reporting
requirements in 42 CFR 438.8(k).
Comment: With respect to CMS’
proposal to separate the amounts related
to incurred claims (for example, COD
reimbursement and dispensing fees)
from a PBM’s administrative fees,
commenters urged CMS to also consider
downstream impacts in the supply
chain. The commenters indicated that to
support robust pharmacy market
competition and lower health care costs
for beneficiaries, CMS must ensure that
pharmacies and other health care
providers’ proprietary information, such
as the pharmacy reimbursement (dollar
amount) is not disclosed and cannot be
traced back to an individual pharmacy.
The commenters also indicated that
they understand the difficulty in
balancing both promoting market
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competition and striving for greater
transparency in the marketplace;
however, these commenters noted this
balance could be achieved with
transparent accountability measures and
comprehensive PBM reform.
Response: We continue to believe this
requirement will not deter market
competition because it does not require
public disclosure of provider-specific
proprietary information. Instead,
§ 438.3(s)(8) will require that the
managed care plans contract with the
subcontractor will require the
subcontractor report separately incurred
claims and administrative costs, fees
and expenses of the subcontractor
necessary for the managed care plan’s
reporting of the MLR consistent with the
requirements at § 438.8(e)(2). The
reporting must be in 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. As provided in the 2019
CIB, the level of detail must be no less
than the reporting requirements in 42
CFR 438.8(k), but may need to be more
if 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. We note that
there is nothing in the regulation that
prevents the subcontractor from
negotiating terms limiting the
identification of provider-specific
expenditures in the contract with the
managed care plan, as long as those
terms are consistent with the
requirements of this final rule and other
Federal contract requirements in
regulation at 42 CFR part 438.
Comment: Many commenters
requested that CMS implement Federal
requirements on PBMs’ arrangements
with pharmacies rather than just focus
on contracting requirements between
the managed care plans and PBMs. The
commenters encouraged CMS to
consider issuing rulemaking that would
enhance pharmacy network adequacy,
ensure reasonable reimbursement for
pharmacies, require certain payment
models for managed care plans that
cover CODs, and promote payment
parity between PBM affiliated and nonaffiliated pharmacies in Medicaid
managed care. Other commenters
suggested including data quality
controls, alignment with other payer
models, and limitations of
reimbursements to non-PBM affiliates.
Specifically, commenters requested that
CMS revise § 438.3(s)(8) to:
• Require managed care plans
eliminate spread pricing, such as by
requiring the plans to utilize certain
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payment models with their PBM
subcontractors which dictate how much
the PBM is paid for their administrative
activities and require specific payment
models of how much providers and
pharmacies are paid. The commenter
also pointed to its support of current
proposed Federal legislation (S. 1038,
Drug Price Transparency in Medicaid
Act of 2023/HR 3561, the PATIENT Act)
that includes similar proposals that
would ban spread pricing in Medicaid.
• Require that managed care plans’
contracts with their subcontracted PBMs
require reimbursement for all innetwork pharmacies in the managed
care program based on a transparent
benchmark of National Average Drug
Acquisition Cost (NADAC), or WAC
when there is not a NADAC price, for
a Medicaid COD with a commensurate
dispensing fee comparable to the State’s
Medicaid survey-based fee-for-service
PDF as a final payment, absent written
proof of fraud. The commenter also
suggested that CMS should require that
the managed care plan only include
these claim cost payments paid by the
PBM to the pharmacy for the managed
care plan’s reported MLR to a State
Medicaid program.
• Prohibit managed care plans and
their subcontracted PBMs from
reimbursing non-PBM affiliated
pharmacies less than PBM-owned or
PBM-affiliated pharmacies.
The commenters expressed their
belief that by adding these provisions to
the proposed regulations, CMS would
take important steps to eliminate the
managed care PBM practices that the
commenter indicates have led to nearly
$1 billion in Medicaid fraud settlements
by 17 States against managed care plans
for overbilling Medicaid programs for
managed care prescription benefits.
Response: We are aware of the
settlements between PBMs and States,
and the potential that such spread
pricing arrangements will result in
overbilling Medicaid. We believe that
§ 438.3(s)(8), which will require the
subcontractor report to the managed
care plan separately incurred claims (for
example, covered outpatient drug
reimbursement) from administrative
costs, fees, and expenses for purposes of
calculating the managed care plan’s
MLR, will likely impact the practice of
PBM spread pricing. That is, greater
transparency to the States of how
prescription expenditures are being
allocated by the PBMs contracted with
the Medicaid managed care plans to
provide pharmacy benefits may reduce
the likelihood that the PBM will engage
in spread pricing.
Furthermore, we are aware of actions
taken by individual States at their
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79031
option to end or limit impact of PBM
spread pricing, including in Medicaid.
However, as noted in the preamble, we
do not believe we have Federal
authority to prohibit spread pricing.
Nonetheless, we believe that this final
rule will provide greater transparency to
State Medicaid agencies and Medicaid
managed care plans to help inform the
State’s decision-making relating to the
administration of the prescription drug
benefit and improving accuracy of
plans’ MLR calculations.
With regards to pharmacy
reimbursement, the adequacy of
reimbursement by managed care plans
or their subcontractors to their network
or non-network pharmacies or providers
is out of scope of this final rule.
Furthermore, CMS does not have
authority to impose on Medicaid
managed care plans the State plan
requirements at § 447.518, which
require State Medicaid FFS payment
methodologies for retail community
pharmacies be in accordance with the
definition of actual acquisition costs at
§ 447.502, including requiring the use of
an Actual Acquisition Cost (AAC)
benchmark in setting prescription drug
reimbursement at the retail level. These
regulations do not apply to Medicaid
managed care plan payments to
pharmacies or providers for CODs.
We note that if a State or CMS finds
that a Medicaid managed care plan does
not have a sufficient network of
pharmacies or providers to ensure
enrollee access to prescription drug
benefits, the States and CMS can engage
with the Medicaid managed care plans
on whether the reimbursement to
pharmacies and/or providers for
prescription drugs is adequate to attract
pharmacies/providers in their network
and ensure Medicaid beneficiaries have
access to the Medicaid prescription drug
benefit. We remind States of their
obligation to develop and enforce a
quantitative network adequacy standard
for pharmacies at § 438.68(b)(1)(vi).
Comment: One commenter suggested
that CMS urge PBMs to disclose and
document their profit usage and
accounting for when profit is used to
augment beneficiaries’ drug access. This
same commenter questioned CMS’
position on PBMs charging insurers
higher than what they pay pharmacies,
and recommended CMS investigate the
efficacy of using PBMs for negotiating
reduced drug prices.
Response: We may consider the
commenter’s concerns in future policy
development. Otherwise, the use of a
PBM’s profits and investigation of PBM
practices are not a subject of this final
rule.
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Comment: Several commenters
expressed their belief that increasing the
level and detail of reporting by PBMs is
a good first step in increasing
transparency; however, they noted more
could be done to protect the intent and
the efficacy of the 340B Program and its
eligible covered entities by not allowing
PBMs to use discriminatory practices,
such as PBM payment cuts, that harm
hospitals and community health centers
that are 340B covered entities and
possibly jeopardize patient access to
340B covered entities and contract
pharmacies. The commenters indicated
that this would allow the savings
generated through the 340B Program to
be passed along to the PBM to increase
their profits. The commenters supported
provisions addressing the contracting
between PBMs and managed care plans
but do not support any policies that will
impact a pharmacy’s reimbursement.
Response: The efficacy of the 340B
Program and any discriminatory
practices of PBMs is out of scope of this
final rule. Furthermore, as stated earlier,
the adequacy of reimbursement by a
plan (via its PBM) to a managed care
plan’s network or non-network
pharmacy, which could be a covered
entity, is also not a subject of this final
rule, nor is the effect of PBM practices
on 340B entities and use of 340B
savings.
Comment: Several commenters
supported the proposed changes,
including the information
subcontractors of managed care plans
need to separately identify (separately
identify incurred claims from
administrative costs, fees, or expenses)
and provide to managed care plans, but
requested that CMS develop detailed
guidance on the specific cost elements
to be reported and a reporting template
to ensure standardization and ease of
adoption. They indicated that it would
be helpful for CMS to indicate the
specific parameters that would be
included in this requirement to provide
greater transparency into PBM and
pharmacy services administrative
organizations (PSAOs) and any other
subcontractor that has incurred claims
on behalf of the managed care plan
associated with covered outpatient drug
coverage.
Response: We appreciate the
commenters’ request for more detailed
guidance. We will evaluate if additional
guidance is needed as part of
implementation efforts for this
requirement and will take these
suggestions into consideration as part of
that evaluation.
Comment: One commenter indicated
that its State currently requires its
managed care plans to produce reports
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with claim level data on the payment
made to the PBM by its managed care
plans and the amount of payment the
PBM has paid to the pharmacy. In
addition to claim level data, the
commenter indicated that this State
requires its managed care plans to report
on all payments, including
administrative fees, to and from the
PBM, managed care plan, and
pharmacies at an aggregate level. The
commenter believes additional Federal
requirements would strengthen States’
abilities to secure data around drug
costs. Another commenter further
pointed to the National Academy of
State Health Policy (NASHP) website, in
which NASHP analyzed PBM contracts
in a subset of States and developed
model contract language to address the
lack of transparency and promote costsaving incentives in typical PBM
contracts.
Response: We appreciate the
commenter’s support for finalizing
§ 438.3(s)(8). We do not intend to
further revise the Federal requirements
in § 438.3(s)(8) at this time. We
encourage States to assess if they wish
to impose additional reporting
requirements on plans or their
subcontractors to facilitate State
priorities such as those on transparency
and payment, or develop model contract
language for plans to utilize with their
subcontractors.
Comment: One commenter suggested
that CMS consider alignment with other
payer models for drug cost data
collection, such as the Prescription Drug
Data Collection (RxDC) required by the
Consolidated Appropriations Act of
2021. The commenter noted that
alignment would facilitate the ability of
managed care plans to provide cost
transparency, minimize burden, and
improve the ability of CMS to compare
drug costs across delivery systems.
Response: We appreciate the
commenter’s suggestion that we align
Medicaid data collection efforts from
payers with other data collection
programs, such as the RxDC, especially
for purposes of transparency. However,
the data collection required under this
provision is distinct from the RxDC
program and serves to ensure a
Medicaid managed care plan has the
data it needs from its subcontractors to
accurately calculate and report its MLR.
Comment: A few commenters
requested clarification regarding the
applicability date for § 438.3(s)(8) and
urged CMS to grant managed care plans
and their subcontractors sufficient time,
such as 6 months or more, to allow for
necessary operational, system, and
contracting changes.
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Response: The applicability date for
§ 438.3(s)(8) as finalized is no later than
the State’s first rating period for
contracts with MCOs, PIHPs, and
PAHPs beginning on or after 1 year from
the effective date of this final rule. As
part of this final rule, we have added
§ 438.3(w) to finalize this applicability
date.
Comment: One commenter requested
that spread pricing information be made
public where possible, stating it is vital
to the public’s interest to understand
what the cost of PBMs are to Medicaid
and enrollees.
Response: We assume that the
commenter is requesting that CMS and/
or States publicly publish the
information collected by the managed
care plans from PBMs that distinguish
the PBM’s payment for the drug and the
administration fee and how much the
managed care plan paid the PBM for
such services. This final rule does not
modify the elements States are required
to include in their MLR summary
reports to CMS under § 438.74;
therefore, CMS will not have routine
access to PBM payment information that
is provided by PBMs to managed care
plans and cannot release it to the public.
States may consider additional steps,
such as what level of data they wish to
compile from plans and their
subcontractors, in addition to those
required for reporting in accordance
with § 438.74 and associated
transparency on the State’s public
website.
Comment: A few commenters
acknowledged that, making PBMs break
out their costs would give State
Medicaid programs a better sense of
whether spread pricing is occurring, but
commenters suggested a more effective
approach would be to prohibit spread
pricing in Medicaid managed care. They
noted that the Congress is currently
considering numerous bills related to
PBM practices and could include a
prohibition of spread pricing in
Medicaid managed care as part of those
efforts.
Response: We appreciate the support
for this final rule. As noted previously,
we do not have the authority to
completely prohibit these PBM
practices.
Comment: One commenter requested
clarification on the separate
identification of a COD, if a COD is
deemed to be eligible for a MDRP rebate.
The commenter supported a
requirement that if a Medicaid managed
care plan contracts with any
subcontractor for the delivery or
administration of CODs, the managed
care plan must require the subcontractor
to separately identify CODs, even if the
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CODs are reimbursed as a bundled
payment.
Response: As specified in
§ 438.3(s)(8), we are finalizing a
requirement for Medicaid MCOs, PIHPs,
and PAHPs that provide coverage of
CODs to require any subcontractor for
the delivery or administration of the
COD benefit to report separately the
amounts related to the incurred claims
described in § 438.8(e)(2), such as
reimbursement for the CODs, from the
administrative costs, fees, and expenses
of the subcontractor. The separate
reporting requirement for the delivery or
administration of the covered outpatient
drug benefit under § 438.3(s)(8) is not
limited to those instances when the
COD benefit is paid separately as a
claim; the separate reporting
requirement applies regardless of the
COD benefit reimbursement
methodology (for example, bundled
payment for a specific service).
After consideration of public
comments on this provision, we are
finalizing § 438.3(s) with some changes
to the proposed regulatory text. While
we discussed in the preamble of the
proposed rule that this would apply to
MCOs, PIHPs, and PAHPs, we did not
include the phrase ‘‘MCO, PIHP, or
PAHP’’ in the regulatory text. Thus, we
will modify § 438.3(s)(8) by adding at
the beginning of the paragraph the
phrase ‘‘The MCO, PIHP, or PAHP’’ to
conform with the other paragraphs in
§ 438.3(s), inserting ‘‘must’’ to replace
‘‘to’’ for additional clarity, and inserting
‘‘to the MCO, PIHP, or PAHP’’ for clarity
on the entity that the subcontractor
reports the required information to. We
also are adding § 438.3(w) to include an
applicability date for the requirements
of paragraphs (s)(7) and (s)(8), which
will be the first rating period for
contracts with MCOs, PIHPs, or PAHPs
beginning on or after 1 year following
November 19, 2024.
C. MDRP Administrative and Program
Integrity Changes
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1. Definitions (§ 447.502)
a. Modification to the Definition of
Covered Outpatient Drug (§ 447.502)
In the proposed rule, we proposed to
modify the definition of a COD. We
noted as background that 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
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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
other words, a product that would
otherwise qualify as a COD, is excluded
from the definition if it is administered
in certain settings and not directly
reimbursed.
We also noted that in the 2016 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) 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
anyone 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.
We noted in the proposed rule that,
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. Such situations would render
the drug eligible for rebates under
section 1927 of the Act as a COD, or in
other words, the limiting definition
exclusion would be inapplicable in
certain circumstances. We had proposed
that, if a drug and its cost can be
separately identified on a bundled claim
for payment, and the identified amount
attributable to the drug is made solely
for the drug (and no other services), it
can be considered direct reimbursement
for the drug. Therefore, we indicated
that 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
is separately identified on the claim.
The payment for the drug is not
required to be a distinct, separate
payment for such payment to be
considered direct reimbursement.
Specifically, we proposed to amend
the regulatory definition of the term
covered outpatient drug at § 447.502 to
add that direct reimbursement for the
drug includes situations in which a
claim for an all-inclusive payment
identifies the drug plus the itemized
cost of the drug.
Additionally, to support our proposal,
we noted that 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
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reimbursement for the drug).’’ The
definition of the term covered
outpatient drug in § 447.502 includes
similar limiting language in a
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).’’ We
noted that there was no meaningful
distinction between the statutory and
regulatory parenthetical language for
purposes of the MDRP, and thus, we
proposed to make a technical change by
modifying the regulatory language so
that it more closely mirrors the statutory
language. We proposed 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).’’
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: We received several
comments supporting the proposed
definition of direct reimbursement with
respect to the COD’s limiting definition.
Some comments provided general
support for the proposed definition. One
commenter stated that the definition
will help ensure that Medicaid
beneficiaries with a rare disease
continue to have access to affordable
outpatient drugs. Another commenter
stated that the change will help ensure
that States receive the MDRP rebates to
which they are entitled, allowing
providers to make treatment decisions
based on the individual clinical
circumstances of a patient. One
commenter supported the definition and
noted that current claims processing
standards support the ability of a claim
to contain the required information so
that rebates may be billed. One
commenter supported the definition and
stated they believe that the modification
to the definition reflects our current
policy, and they requested clarification
to confirm that understanding.
Response: We appreciate the support
for the modification of the definition of
a direct reimbursement as it relates to
the definition of a COD. The
modification to the definition was not
intended to be a departure from current
practice or in conflict with the current
regulation or statute. Rather, the
modification was intended to address
the fact that States are now using newer
reimbursement methodologies where it
is not entirely clear whether drugs
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reimbursed through that new
methodology are CODs. As discussed
subsequently, we are also adding
clarifying language to ensure that our
intention is clear that the definition
does not inadvertently include drugs
that do in fact meet the statutory
limiting definition of COD.
Comment: We received several
comments that are outside the scope of
this rule. One commenter stated that the
modified definition of COD would affect
the covered entities that participate
under the HRSA 340B Program because
they use our definition of COD to
determine if a drug is subject to 340B
pricing. One commenter stated that
CMS fails to convey how medical
research and development will be
protected with the proposed revisions.
A few commenters noted that the
modified definition of COD would
increase the number of CODs subject to
rebates which may make it difficult for
manufacturers to continue to offer their
drugs in Medicaid.
Response: Because these 340B issues
are outside the scope of this rule, we are
not addressing them. We appreciate the
commenters’ concern regarding the
modification of the definition of COD
and the increased number of CODs
subject to rebates. While we do not
believe this clarification to the
definition will result in a significant
change in the number of CODs, it may
increase the number of instances where
a COD may qualify for rebates. With
respect to impact on research and
development, this proposal will clarify
for States when a drug is a COD and
thus subject to rebates in some
instances, and thus may result in States
collecting rebates in circumstances
where they are not currently collecting
any rebates. As a result, States may take
these clarifications into account when
determining coverage and
reimbursement policies for particular
drugs. The impact of these clarifications
may result in States having a net
reduction in cost for these drugs, which
may increase access to these drugs, and
in turn, support manufacturers’ research
and development efforts. CMS does not
believe that the clarification of the
definition of a COD in this rule
indicates that scientific drug
development is not valued or that the
definition will disincentivize the
scientific development. The United
States pharmaceutical market is the
largest in the world, with a strong
record of fostering innovation, and
Federal health care programs are large
payers for medications in the United
States, supporting incentives for
manufacturers to continue to develop
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innovative medicines and make drugs
available in the Medicaid program.
Comment: We received many
comments stating that our proposed
clarification of the term ‘‘direct
reimbursement’’ conflicts with the
language of the statute. Commenters
also stated that the proposed revision
would represent a significant and
impermissible change to the meaning of
the limiting language in the COD
definition and stated that it would
render language in the statute
unnecessary. Commenters pointed to
legislative history, assertions made by
HHS in litigation that ‘‘a drug is not a
covered outpatient drug if it is provided,
and paid for, as part of a bundled
service,’’ language in the 2016 COD final
rule, and responses in an FAQ
published under the 2016 COD final
rule to support their position that CMS
historically considered that a drug was
not a COD unless the drug was
separately reimbursed. One commenter
cited the following language from the
2016 COD final rule to support their
position: ‘‘a drug which is billed as part
of a bundled service with, and provided
as part of or incident to and in the same
setting as the services’’ [will only
qualify as] a COD if ‘‘the State
authorizes and provides a direct
payment for the drug, consistent with
the applicable State plan, separately
from the service.’’
Response: Upon review of these
comments, we are clarifying for States
the situations in which they will be able
to bill for a rebate for a COD that is
directly reimbursed as part of a bundled
or inclusive payment. Specifically, we
are clarifying the term ‘‘direct
reimbursement’’ as we agree that the
proposed regulatory definition may not
have clearly identified those situations
that will qualify as direct
reimbursement. In this final rule, we are
adding language to the regulatory
definition to indicate that direct
reimbursement includes reimbursement
for a drug that is part of an inclusive
payment when the inclusive payment
includes an amount attributable to the
drug, the number of units of the drug
that were dispensed or administered to
the patient, and the amount paid that is
attributable to the drug is based on a
reimbursement methodology that is
included in the applicable section of the
State plan.
Comment: Several commenters
disagreed with CMS’ assertion that the
proposed modification to the definition
of COD is a clarification of existing
policy on the application of the limiting
definition. They stated that rather than
a clarification, they view the
modification as a policy change with no
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presented rationale. Commenters also
stated that CMS’ proposal is a departure
from the agency’s longstanding policy
that no Medicaid rebate liability
attaches to units reimbursed via
bundled payments. Commenters also
stated that our definition marks a
significant and unacknowledged
departure from the agency’s
longstanding approach to manufacturer
rebate liability. A commenter mentioned
that a basic requirement of the
Administrative Procedure Act is that an
agency must acknowledge that ‘‘it is in
fact changing its position’’ and provide
good reasons for any change in policy.
They stated that CMS failed even to
acknowledge its changing position and
was, therefore, acting in an arbitrary and
capricious manner. A few other
commenters referenced language in the
preamble to the 2016 COD final rule,
when CMS previously stated, ‘‘if the
drug is provided as part of a bundled
service and not separately reimbursed,
then the drug does not qualify as a
[covered outpatient drug], in accordance
with section 1927(k)(3) of the Act and
is not subject to rebates.’’
Response: Our intent in the proposed
rule was to provide clarification
regarding when a payment represents
direct reimbursement for a drug.
Essentially, we were clarifying that, as
used in the quoted language, ‘‘not
separately reimbursed’’ in the context of
bundled rates means not separately
identified or itemized, with an amount
associated with payment for the drug.
Based on the comments, we agree that
our proposed modification to the
definition could be further clarified. In
the past we have stated that no rebate
liability attaches to drugs that are paid
for as part of bundled payments. As just
noted, this was intended to address
situations in which an amount paid for
a COD is not identified or itemized. As
noted in the preamble to the proposed
rule, interested parties have requested
that we define situations in which
rebates can be billed for drugs that are
part of inclusive payments if the
quantity of drug dispensed or
administered can be identified. As
noted in the response to previous
comments, we are modifying the
definition of direct reimbursement in
this final rule to make it clear that, for
rebates to be billed, the inclusive
payment must include an amount
directly attributable to the drug, and the
amount paid that is attributable to the
drug is based on a reimbursement
methodology that is included in the
applicable section of the State plan.
Comment: We received some
comments indicating that the proposed
change to the definition of COD would
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nullify the distinction between direct
reimbursement and reimbursement
made as part of a bundled payment.
Commenters stated that ‘‘direct
reimbursement’’ cannot be construed to
mean ‘‘separately identified’’ without
there being a distinct payment for the
drug. Commenters also indicated that
CMS failed to acknowledge that where
a drug has been paid for as part of an
indivisible payment for the drug and its
associated services, Medicaid, by
definition, has not directly reimbursed
for the drug, and there is no ‘‘direct’’
throughline between the reimbursement
amount and the payment associated
with any one of the bundled items or
services. Some commenters also stated
that the proposed change ignores what
they consider to be a reasonable
interpretation of direct reimbursement.
Response: We agree that the proposed
revision to the definition of COD
regarding direct reimbursement did not
adequately reflect that the amount of
reimbursement for the drug should be
tied to the State’s approved
reimbursement methodology for that
drug. We have therefore added language
to the definition in this final rule to
indicate that in order for the payment
for the drug to be treated as direct
reimbursement, the payment
methodology for the inclusive payment
must identify an amount directly
attributable to the drug, such that the
amount paid is based on a
reimbursement methodology that is
included in the applicable section of the
State plan.
Comment: We received a few
comments that because our modified
definition of COD provides that drugs
administered in an inpatient setting
could be included in the definition of
‘‘covered outpatient drug,’’ we give no
meaning to the word ‘‘outpatient’’
contained within the term.
Response: The term ‘‘covered
outpatient drug’’ is a statutory term of
art. The limiting definition in section
1927(k)(3) states that the term COD does
not include any drug provided as part
of, or as incident to and in the same
setting as ‘‘inpatient hospital services,’’
among others, and for which payment is
not made as direct reimbursement for
the drug. If the Congress had intended
for the statutory term of ‘‘COD’’ to be
limited to the outpatient setting only,
the limiting definition would be
superfluous as applied to being
included in inpatient hospital services.
Because statutory interpretation
principles hold that an agency should
not construe a statute in a manner that
renders a provision to have no effect, we
disagree that the term COD is limited to
drugs dispensed or administered in an
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outpatient setting. Based on the plain
text of 1927(k)(3), the term COD
excludes a drug provided in the
inpatient hospital setting only if the
drug is provided as part of or as incident
to and in the same setting as inpatient
hospital services and for which payment
is made as part of such services and not
as direct reimbursement for the drug.
We proposed to amend the regulatory
definition of COD in a manner
consistent with the statutory definition
of this term of art to provide greater
specificity as to when a drug provided
in the inpatient setting is subject to the
limiting definition and does not qualify
as a COD.
Comment: A commenter noted that
the statute focuses on the manner of
payment, not the manner in which the
provider’s costs are reflected on the
claim, and that our proposed definition
was only focusing on how the claim was
submitted.
Response: We agree that the definition
should include language about the
manner of payment, which we
understand to mean how the claim is
reimbursed, and not only based on the
information submitted on the claim. We
have therefore revised the proposed
definition to include language about the
manner of payment, including that the
payment methodology for the inclusive
payment must include an amount
directly attributable to the drug, such
that the amount paid is based on a
reimbursement methodology that is
included in the applicable section of the
State plan.
Comment: Several commenters noted
that when payments for new and
innovative therapies (cell and gene
therapies, for example) are reimbursed
in a payment that is bundled with a
service (for example, under the
Diagnosis-Related Group (DRG) system),
the reimbursement is often insufficient
for the drug and potentially results in
lack of patient access to these new
therapies. The commenters noted that
conversely, some States are reimbursing
the hospital separately for their
acquisition cost of certain new and
innovative drugs from their inpatient
services associated with administering
the drug, and such methods of direct
reimbursement are adequately
reimbursing providers/hospitals and
encouraging patient access.
Response: We note that section
1902(a)(30)(A) of the Act requires States
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 under the plan at least to the
extent that such care and services are
available to the general population in
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the geographic area.’’ The payment
methodology for a COD must be
identified in the State Plan and meet the
foregoing standard. Some States already
have approved methodologies outlined
in their State plan that results in the
ability for the State to collect rebates on
some inpatient drugs. If a State plan
does not address a distinct
reimbursement methodology for a drug
included in a bundled payment, then a
SPA would need to be submitted and
approved that includes such
methodology in the appropriate section
of the State plan.
Comment: One commenter stated that
manufacturers have launched certain
products assuming there would be
limited MDRP rebates given the
products are included in a bundled
payment arrangement and altering this
will lead to significant operational
challenges, unsustainable pricing
expectations, potential drug shortages,
and compromised utilization within
Medicaid.
Response: Again, we note that our
intent for this clarification is to help
manufacturers and States better
understand how the term direct
reimbursement for a drug will be
applied with respect to the limiting
language within the COD definition.
Our review of comments alerted us to
the fact that the proposed definition, as
originally written, may be open to
multiple interpretations. As a result, in
response to such comments, we have
modified the definition in this final rule
to be clearer about when a payment is
a direct reimbursement for a drug. Given
the revisions, we do not believe that the
challenges cited by the commenter will
occur. We also note that there are States
whose current Medicaid reimbursement
policies account for carved out inpatient
drugs for separate payment. These
payment models have been intact for
years and we do not have evidence that
these payment models lead to
significant operational challenges,
unstable pricing expectations, drug
shortages, or compromised Medicaid
utilization. We also intend to provide
additional guidance to States with
respect to how the interpretation of
direct reimbursement may be
operationalized so that States can
invoice for rebates for these CODs.
Comment: A few commenters
expressed their concerns regarding drug
manufacturers’ lack of access to claims
level data for purposes of validating
rebate invoices if CODs are merely
identified or itemized and not
separately reimbursed. One commenter
stated that neither CMS nor States nor
manufacturers have visibility into all
payer claims to be able to ascertain how
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bundled drugs and associated items and
services are itemized. Manufacturers
would have to obtain the billing
document to verify the validity of rebate
invoices. Another commenter stated that
it was unclear that States would have
the mechanism to collect such claims
data for bundled drugs and present to
manufacturers if requested.
Response: Manufacturers are always
able to work with States to verify a
claim for a Medicaid rebate. States will
need to determine how they instruct
their providers and managed care plans
to identify for rebate billing purposes
those inclusive payment claims where
direct reimbursement is being made for
a COD. This will allow States to include
the COD in the rebate billings, as well
as identify for Medicaid managed care
plans such claims that they will have to
report to the States for rebate billings.
For States that choose to reimburse
these drugs separately, the State will
have the information submitted on the
claim identifying the drug and the
number of dispensed or administered
units of the drug. For States that choose
to use a bundled reimbursement model
that separately identifies the drug and
takes the cost of the drug into account
in the reimbursement as outlined in the
methodology in the State plan, those
States will also have sufficient
information to identify the drug and the
number of dispensed or administered
units of the drug. This claim
information will allow the State to
provide utilization information to the
manufacturer in order for the
manufacturer to verify that utilization.
Collection of the data and how it may
be presented to manufacturers may vary
by State or manufacturer.
Comment: Several commenters stated
that finalizing the COD definition as
proposed would subject some drugs (for
example, cell and gene therapies to new
rebate requirements and would
undermine efforts to offer value-based
payment models and innovative
payment arrangements.
Response: All CODs, including cell
and gene therapy drugs that are CODs
for which the manufacturer has a rebate
agreement, are subject to basic
minimum Medicaid rebate
requirements, regardless of whether
they are provided as part of a valuebased purchasing arrangement. As noted
previously, some States have already
received approval for a State plan
amendment to carve out drugs, such as
cell and gene therapy drugs from
inpatient hospital payment rates, and
reimburse them separately, thus
allowing them to collect rebates.
Further, the Cell and Gene Therapy
Access Model being tested by the CMS
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Innovation Center will require
participating States to carve model cell
& gene therapy drugs out of an inpatient
payment bundle if the States want to
participate in the Model so that the
States may collect rebates on the drugs.
With the clarification to the definition
of direct reimbursement, as finalized in
this rule, States may also bill for rebates
for drugs that are provided as part of
inclusive payments if they are itemized
on the provider’s bill, the number of
units dispensed are identified, and the
drug is paid according to the State’s
approved plan methodology for the
drug. With these clarifications, we also
believe that manufacturers and States
may still pursue enhancements in
patient access, equity, and health
outcomes by executing VBP agreements
and supplemental rebates for any COD
per the State plan.
Comment: A few commenters stated
that the cost of a drug has not
necessarily been included in the
development of a bundled payment rate
for the underlying service. One
commenter stated that a DRG-based
payment for a hospital inpatient stay
does not provide reimbursement for any
one item or service involved in the
bundle. Instead, the commenter stated
that bundled payment rates are meant to
reimburse generally for the collection of
various items and services that may or
may not be necessary to the delivery of
care for a specific illness, procedure, or
condition. The commenter noted that,
typically, when DRG rates are used to
reimburse providers, the payment is a
predetermined amount that does not
change based on the cost or amount of
a specific drug that is administered or
dispensed to the patient.
Response: We recognize that DRG is a
commonly employed bundled payment
methodology for an inpatient stay for a
procedure or diagnosis. The modified
definition of COD that we are finalizing
will continue to exclude drugs from the
definition of COD that are provided as
part of, or as incident to and in the same
setting, as defined in
section1927(k)(3)(A) through (H) of the
Act, for which payment for the drug is
bundled and not distinguishable from
other costs associated with that service.
In addition, given that under a bundled
payment, the units of a drug that were
provided during the service are not
identified on the bill, the State would
not know how many units to bill for
rebates. We modified the proposed
regulatory definition in this final rule
such that in order for the definition of
direct reimbursement to be met, the
number of units administered to the
patient must be identified on the
invoice for the inclusive payment and
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reflected in a payment methodology in
the State plan.
Comment: Several commenters noted
that some States are reimbursing the
hospital for their acquisition cost of
certain new and innovative therapies
separately from their inpatient services
associated with administering the drug.
They believe this would qualify as
direct reimbursement, and result in
States adequately reimbursing
providers/hospitals and encouraging
patient access. One commenter
suggested that accounting for the drug
cost separately in the reimbursement
calculation is a win-win situation.
Response: We agree that payment for
drugs provided in this manner
consistent with the State plan
constitutes a direct reimbursement and
the drug meet the definition of a
covered outpatient drug.
Comment: A few commenters stated
that the proposed definition could make
drugs reimbursed under a DRG
reimbursement methodology or other
bundled payment subject to rebates
when they historically were not. These
commenters supported this result and
noted that these drugs are currently
carved out of DRGs to collect rebates.
They noted that this clarification would
ensure States have the authority to
collect rebates regardless of the State’s
COD reimbursement methodology.
These commenters stated this may be
particularly important for new high-cost
cell and gene therapies which are
typically administered in medical
facilities.
Response: We agree the proposed
definition could have been interpreted
to make drugs reimbursed under a DRG
reimbursement methodology or similar
bundled payment methodology subject
to rebates regardless of the State’s COD
reimbursement methodology. As
indicated in response to previous
comments, we did not intend for the
modification of the definition of COD to
change current policy, but our review of
comments alerted us to the fact that the
proposed definition could be open to
multiple interpretations. Based on such
comments, we have modified the
definition in this final rule to clarify
that direct reimbursement does not
occur unless the reimbursement for the
drug is based on a reimbursement
methodology that is included in the
applicable section of the State plan, and
that the inclusive payment includes an
amount directly attributable to the drug.
Thus, a drug that is reimbursed as part
of a bundled payment under a DRG or
similar bundled payment methodology
is not subject to rebates. However, if that
drug is carved out of the bundled
payment and reimbursed directly, then
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the drug is subject to rebates when
applicable.
Comment: One commenter stated
CMS should encourage State Medicaid
programs to implement reimbursement
methodologies for gene therapies that
adequately cover both the direct gene
therapy costs and the patient care costs
for services incident to that therapy.
Response: We note that
reimbursement for gene therapies, as
with all CODs, are subject to section
1902(a)(30)(A) of the Act’s requirements
ensuring that States’ ‘‘payments are
consistent with efficiency, economy,
and quality of care and are sufficient to
enlist enough providers so that care and
services are available under the plan at
least to the extent that such care and
services are available to the general
population in the geographic area.’’
Comment: One commenter stated that
separate payment creates greater equity
in reimbursement rates across settings of
care, such as inpatient hospital versus
outpatient hospital reimbursement.
Response: Our definition of COD is
not designed to address site of service
concerns such as those raised by this
commenter. Rather, it addresses when
drugs are considered CODs, and thus
the States can collect rebates, within
various reimbursement methodologies.
Comment: One commenter stated that
allowing States to seek rebates on
inpatient-administered drugs merely by
identifying the drug on the claim form
and without some form of separate
payment, would enable States to seek
rebates on drugs without establishing
the separate payment policies that make
hospitals whole and help ensure patient
access.
Response: We agree that this is a
potential outcome of defining direct
reimbursement without requiring a
separate reimbursement policy to
account for the cost of the drug via the
applicable State plan, and that was not
our intent. Our modified definition of
direct reimbursement as finalized
addresses this potential issue by
requiring that the methodology for
determining the reimbursement for a
COD as part of a bundled payment be
set forth in the State plan.
Comment: A few commenters stated
CMS does not explain what the
‘‘itemized cost’’ represents and how it is
to be determined and claimed it could
essentially be a ‘‘fictional amount.’’
Response: This term is being revised
in this final rule to ‘‘the charge for the
drug’’. Providers should rely on the
State’s billing instructions to determine
what to report to allow for appropriate
reimbursement.
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Comment: A commenter questioned
whether the bundled service must be
one in which the drug is always used.
Response: As noted in previous
responses to comments, the definition,
as finalized in this rule, makes it clear
that in order for the drug to satisfy the
COD definition, the drug used must be
identified, the charge for the drug must
be itemized on the claim form, and the
payment must be consistent with the
reimbursement methodology for CODs
in an approved State plan. These
requirements may apply to drugs that
are always used in the bundled services
and to drugs for which this is not the
case.
Comment: Commenters stated that
simple ‘‘itemization’’ on a claim form is
not equivalent to ‘‘direct
reimbursement.’’
Response: We agree, and therefore
modified the definition in the rule to
more clearly state that direct
reimbursement includes a distinct
methodology reflected in the State plan
that accounts for the reimbursement of
the drug and is used to determine the
inclusive payment.
Comment: A few commenters stated
that States would respond to this
modified definition of COD by requiring
providers to include NDCs and
ingredient costs on all PAD claims in
the future. One commenter
recommended that CMS consider the
impact that its new proposed definition
has on providers’ administrative
burdens by requiring collection of NDCs
and ingredient cost information,
suggesting that including such
information on Medicaid claims forms
is both time-consuming and laborintensive.
Response: We appreciate the
comments regarding the potential
burden to providers. Under their State
plans, States have the discretion to
choose which reimbursement
methodology to use for health care
services and what drugs, if any, they
will carve out from that methodology
and directly reimburse for them. As of
January 1, 2007, CMS regulations at
§ 447.520 have obligated States to
require that providers submit NDCs for
physician-administered single source
drugs and the 20 multiple source drugs
identified by the Secretary.
Additionally, we note that in section II.
L. of this rule, States are required to
provide for the collection of NDCs for
all physician-administered single source
drugs and multiple source drugs.
Comment: Some commenters stated
that if a drug satisfies the definition of
COD, all requirements of section 1927 of
the Act apply (for example, all drugs of
the manufacturer must be covered
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79037
regardless of hospital formularies, and
reimbursement methodology must be
described in the State plan).
Commenters acknowledged that States
could impose prior authorization
requirements and that coverage
decisions should rest with the State and
not the hospital. One commenter
suggested that States not be allowed to
skirt the coverage requirements of
section 1927 of the Act by allowing
hospitals to exclude from their inpatient
formulary drugs of a manufacturer that
has signed a NDRA. A few commenters
expressed their concerns with their
view that the proposed rule did not
address how a bundled drug would be
covered in the inpatient setting where
restrictive formularies may apply.
Response: If a drug typically
administered in the inpatient setting
qualifies as a COD, then we agree,
notwithstanding exclusions, that section
1927 of the Act applies to that drug. Our
revised definition of COD does not
change the State’s ability to decide the
reimbursement methodology for drugs
so long as it is approved in their State
plan.
Comment: One commenter stated that
all reimbursement limitations that apply
to CODs would need to apply to these
bundled hospital inpatient drugs,
specifically the Federal upper limit
requirements found in §§ 447.512 and
447.514. The commenter noted that this
issue is not addressed in the proposed
rule by the lack of new language at
§ 447.516 ‘‘Upper limits on drugs
furnished as part of service’’.
Response: We did not intend for the
modification to the definition of COD to
change current policy, including
Federal upper limit regulations, but our
review of comments alerted us to the
fact that the proposed definition as
originally written could be open to
multiple interpretations. A ‘‘bundled’’
hospital inpatient drug that the
commenter mentions, for which direct
reimbursement is not made, does not
qualify as a COD. Generally, the Federal
upper limit requirements only apply to
multiple source drugs dispensed by a
retail community pharmacy. The
regulatory language in § 447.516 applies
Federal upper limits to payment for
prescribed drugs furnished as part of a
service when provided as part of a
skilled nursing facility service,
intermediate care facility service and
under prepaid capitation arrangement.
This change to the COD definition does
not make any changes to the regulatory
language in § 447.516.
After considering the issues raised by
the commenters, we have decided to
finalize this provision with
modifications to our proposed
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definition. In order for a payment to be
considered direct reimbursement for a
drug, the claim must include the charge
for the drug, the number of units
utilized, and the payment made to the
provider must include an amount
directly attributable to the drug and is
based on a CMS approved
reimbursement methodology.
b. Proposal To Define Drug Product
Information (§ 447.502)
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.
Section 6(a)(1)(A)(iv) of MSIAA
amended section 1927(b)(3) of the Act
by adding section (b)(3)(A)(v), under
which a manufacturer must 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. To support the
implementation of this new statutory
requirement to report drug product
information, we proposed to define drug
product information in regulation at
§ 447.502.
In the proposed rule, we noted that
we currently require manufacturers to
submit drug product information when
the COD is entered into the Medicaid
Drug Programs (MDP) system, but that
there is no regulatory definition of drug
product information. We, therefore,
proposed 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 (single source drug (S),
innovator multiple source drug (I), and
noninnovator multiple source drug (N)),
unit type (for example, tablet, capsule,
milliliter, each, etc.), 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 discussed in the proposed rule, the
drug category for an NDC should be
single source drug or innovator multiple
source drug 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 drug or innovator multiple
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source drug, and can be changed to
noninnovator multiple source drug,
effective April 1, 2016. We noted that
we use the FDA ‘‘applications.txt’’ file
to verify the type of application
associated with an application number
and that the file may be accessed using
the link to the Drugs@FDA download
file found on the FDA website at https://
www.fda.gov/drugs/drug-approvalsand-databases/drugsfda-data-files.
We also noted in the proposed rule
that the only situation in which a drug
that is produced or marketed under an
NDA may be reported as a noninnovator
multiple source drug is if a narrow
exception was granted by CMS in
accordance with the process established
in the 2016 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.
We indicated that manufacturers
should evaluate all of their NDCs for
compliance with drug product
information reporting, and if they
determine corrections are required, they
should contact CMS for assistance. We
also referenced Manufacturer Release
No. 113, in which we addressed a
manufacturer’s responsibility to ensure
that all of their CODs are correctly
classified and reported in the Drug Data
Reporting system (DDR) (currently
known as the MDP system) 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). We also noted that 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 the proposed rule, we proposed 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.
For most drug product information
changes, we noted 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, we noted that in some
situations where monthly 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
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information if applicable. Additionally,
we noted that regardless of whether we
make a data change on behalf of a
manufacturer or whether the
manufacturer enters required data
directly in the MDP system,
manufacturers would be required to
certify the information in accordance
with § 447.510. Thus, we indicated that
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.
We also stated that 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 remain 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 noted
that 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.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: We received several
comments supporting our proposed
definition of drug product information.
Commenters indicated that the
proposed definition removes ambiguity
and closes potential loopholes.
Response: We appreciate the
commenters’ support for the proposed
definition of drug product information.
Comment: A few commenters stated
that the statute’s scope is limited to drug
product attributes found in the statute
and the regulation, and that several data
elements that we included in the
definition are not found in statute or
regulation.
Response: We disagree that drug
product information must be limited to
product attributes specifically
mentioned in the statute. The statute
provides direction for CMS to
administer the MDRP, which includes
how rebate amounts are calculated.
Some data fields that are utilized in
calculating the unit rebate amount are
not specifically set forth in statute but
are nonetheless required to perform the
calculations that are detailed in the
statute or to confirm the accuracy of
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those calculations. For example,
although ‘‘unit type’’ is not a data
element mentioned in statute, it is an
important data element that helps to
identify what the reported AMP
represents. If the unit type is reported
incorrectly, it is possible that the AMP
value may be misinterpreted. CMS has
determined to set forth by regulation the
data elements that must be reported as
part of drug product information.
Comment: One commenter suggested
CMS limit the items included in the
definition of drug product information
to those items related to drug category.
Response: We are not limiting the
items included in the definition of drug
product information to those items
related to drug category because we do
not believe that approach would be
consistent with the statute. MSIAA
inserted the words ‘‘and drug product’’
to the title of section (b)(3) of the Act,
as well as other references to drug
product information, when addressing
the information required to be reported
by manufacturers and the
misclassification of drugs. Therefore,
the definition must include not only
elements that are related to drug
category, but also other elements that
are required to perform the calculations
of the unit rebate amount and to be able
to help confirm the accuracy of the
calculations in accordance with the
statute. CMS believes the elements
chosen for inclusion in this definition
are essential to ensure that unit rebate
amount calculations are accurate, and
that CMS has accurate data to be able to
oversee the MDRP.
Comment: One commenter requested
clarification on the inclusion of base
date AMP as an element of drug product
information and questioned if the
current file format will be amended to
include base date AMP.
Response: The current file format will
not need to be amended for the reasons
explained later in this section. In order
to fully respond to this comment, we
need to delineate between different base
date AMP values. If a drug has a market
date of September 30, 1990, because it
was first available for sale on or before
that date, then the base AMP for the
drug is referred to as the OBRA ’90 base
date AMP. The OBRA ’90 base date
AMP value, as well as all of the different
base date AMP values, are considered to
be product data. A manufacturer reports
the OBRA ’90 base date AMP value into
MDP as part of the product data when
first reporting the drug to CMS. The
OBRA ’90 base date AMP value is a
value on the product data file (Form
CMS–367c), and no file format
amendments are required.
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In general, if a drug has a market date
after September 30, 1990, which is the
date it was first available for sale, the
base date AMP values are derived from
quarterly pricing information that is
reported by the manufacturer for the
base AMP quarter. For each base date
AMP value other that the OBRA ’90 base
date AMP value, the MDP system
automatically populates the base date
AMP value in the product data using the
quarterly pricing information submitted
by the manufacturer as pricing data for
the base AMP quarter. Although these
other base date AMP values are derived
from quarterly pricing information for
the base AMP quarter, the base date
AMP values are not considered to be
pricing data. Those base date AMP
values other than the OBRA ’90 base
date AMP values are not reported
directly into MDP as product data and
do not appear in the product data file.
Comment: A few commenters stated
that the changes that the Congress made
to the statute were to address
misclassifications, not drug pricing
issues, and therefore any drug pricing
references should be removed from
definition of drug product information.
Response: The changes to the statute
made by MSIAA are not solely to
address drug category, but also to
address incorrect reporting of additional
drug product information. The items
included in the definition of drug
product information are all considered
to be product information. As an
example, although the base date AMP
value is a pricing value, it is considered
product information. It generally does
not change once established and is tied
to the drug throughout the history of
that drug in the MDP system. Pricing
information is reported monthly and
quarterly and may change from one
reporting period to the next.
Additionally, elements such as unit type
or TEC code are not directly related to
drug category, however they are
included in the definition of drug
product information.
Comment: A few commenters stated
that the definition of drug product
information must be prospective only
and that CMS should clarify the
effective dates of definition changes.
Response: The definition of drug
product information becomes effective
on the effective date of this final rule.
With this definition of drug product
information, we are not adding or
changing any reporting requirements,
we are only defining which reporting
elements are included in the definition
of drug product information.
Comment: A few commenters were
concerned that the proposed rule would
treat a clerical error that has no impact
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79039
on the MDRP the same as a misreported
data element that has direct impact on
URA calculations, such as base date
AMP.
Response: The proposed definition of
drug product information lists the data
elements that are considered to be drug
product information. The definition
itself does not indicate how
misreporting of any element of drug
product information will be evaluated
for potential penalties; misclassification
of drug product information is
addressed in the misclassification
section of the rule. In that section, we
state that we believe misclassification
includes any incorrect drug product
information reported by the
manufacturer. Also in that section, we
proposed several penalty options in
accordance with the penalty options
contained in section 1927(c)(4)(B) of the
Act and note that CMS may utilize one
or more of them in each situation. One
of those options is for CMS to correct
the misclassification on behalf of the
manufacturer using drug product
information provided by the
manufacturer. As discussed in the
misclassification section, the
enforcement provisions in section
1927(c)(4)(B)(ii) provide options for
CMS to take action when a
manufacturer fails to correct a
misclassification. CMS’ current process
within the MDP system requires the
manufacturer to certify any change
made in the MDP system. However,
CMS may certify changes on behalf of
the manufacturer and would do so in
this specific situation. Outside of this
specific situation, as discussed in the
preamble of the proposed rule, any
change made in the MDP system by
CMS must be certified by the
manufacturer before it becomes
effective.
Comment: We received several
comments regarding the ‘‘open-ended’’
definition of drug product information.
Commenters were concerned that
although we listed specific data that
would be included in the definition, we
also specified that the definition was
not limited to those data elements.
Specifically, commenters disagreed with
the inclusion of ‘‘information that
includes but is not limited to’’ and ‘‘and
any other information deemed necessary
by the Agency to perform accurate Unit
Rebate Amount calculations.’’
Commenters stated that we lack the
authority to leave the definition openended, that issuing ‘‘catch-all’’ phrases
in definitions bypasses the notice and
comment requirements, and that we
must define terms with precision. Other
commenters were concerned that the
broad, open-ended provision in the
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definition gives CMS a vehicle for
arbitrary enforcement and leaves open
the opportunity for inconsistent
application year to year. One
commenter stated that we should either
strike the open-ended definition or
delete ‘‘drug product information’’ from
§ 447.509(d)(1).
Response: While we disagree that we
lack the authority to adopt provisions
such as the definition proposed, we
agree with the commenters that it would
be appropriate to remove the ‘‘openended’’ provisions in the proposed
definition of drug product information.
We are additionally making slight edits
to the construction of the proposed
definition to make it clear to which
elements the term ‘‘if applicable’’
applies. Therefore, drug product
information will now be defined as
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 type
(prescription, over-the-counter), base
date AMP, therapeutic equivalent code
(TEC), line extension drug indicator, 5i
indicator, 5i route of administration (if
applicable), FDA approval date, FDAapproved application number or OTC
monograph citation (if applicable),
market date, and COD status.
Comment: A few commenters stated
that the language proposes that
manufacturers would have to report
each element of drug product
information repeatedly and that would
be burdensome or unnecessary.
Response: Section 1927(b)(3)(A)(v) of
the Act states that manufacturers must
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. Currently, we
require that drug product information be
reported not later than 30 days after the
date of entering into a rebate agreement,
or, for newly introduced drugs, not later
than 30 days after the last day of the
month during which the new drug is
introduced. Such drug product
information is not required to be
reported on a monthly or quarterly basis
at this time, and we therefore disagree
with commenters’ concerns that the
definition requires unnecessary,
repetitive, or overly burdensome
reporting.
Based on the comments received, we
are finalizing the definition as proposed
with the previously described sentence
structure changes and the following
additional changes:
• Deleting ‘‘. . . includes but is not
limited to . . .’’ and replacing it with
‘‘means’’
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• Deleting ‘‘. . . COD status, and any
other information deemed necessary
by the agency to perform accurate unit
rebate amount (URA) calculations.’’
and replacing it with ‘‘and COD
status.’’
c. Proposal To Define Internal
Investigation for Purposes of Pricing
Metric Revisions (§§ 447.502 and
447.510)
In the proposed rule, we included a
provision that would define internal
investigation related to manufacturer
reporting of quarterly pricing metrics.
As background, we noted in the
preamble to the proposed rule, 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 for
the purposes of the MDRP, or else they
could incur penalties or be subject to
other compliance and enforcement
measures. We noted that 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 period
for reporting revisions to AMP or best
price information in final rule
(Medicaid Program; Time Limitation on
Price Recalculations and Recordkeeping
Requirements Under the Drug Rebate
Program) on August 29, 2003. However,
we have continued to receive requests
outside of the 12-quarter time period
from manufacturers to revise pricing
data. We stated that these types of
manufacturer requests, which could
span multiple years prior to the 12quarter time period, could sometimes
result in substantial recoupment of
Medicaid rebates already paid to States
and impede the economic and efficient
operation of the Medicaid program.
We noted that in the 2016 COD final
rule we offered exceptions to the 12quarter time period (81 FR 5278, See
§ 447.510(b)(1)(i) through (vi)).
Specifically, we discussed one
exception at § 447.510(b)(1)(v) (which
provides an exception to the 12-quarter
time period price reporting rule if the
change requested by the manufacturer 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) pertaining
to adjustments pursuant to an internal
investigation. We explained that our
policy has been that internal
investigation is intended to mean a
manufacturer’s internal investigation,
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and that if a manufacturer discovers any
discrepancy with its reported product
and pricing data to the MDRP that is
outside of the applicable timeframes,
the manufacturer should determine if
the change satisfies one of the
enumerated exceptions (81 FR 5280).
However, we acknowledged that we
have not further defined or given any
greater explanation for the applicability
of the exception to the 12-quarter time
period rule up to that point, particularly
in instances when manufacturers
perform an internal investigation of the
drug price information (AMP and best
price) reported and certified in MDP by
another manufacturer. Additionally, we
noted that, 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
time period rule. Consequently, in the
proposed rule, we proposed a definition
to provide greater clarity in this area.
Our requirement does not override or
otherwise diminish a manufacturer’s
obligation to make sure that it has paid
the statutorily required rebate amount.
The discussion herein only applies to
the paragraph of § 447.510(b)(1)(v)
‘‘internal investigation’’ and does not
obviate or negate any requirement
resulting from a CMS or court order, or
an OIG or DOJ investigation.
In cases when a manufacturer
requests an exception to the 12-quarter
time period rule due to an internal
investigation, we proposed to specify
that the manufacturer must make a
finding that indicates a violation of
statute or regulation before we consider
such a request. For example, a request
by a manufacturer to restate or revise
previously reported and certified
pricing data outside of the 12-quarter
time period based upon a mere
disagreement with a 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 period. In
this example, the manufacturer must
make findings that include actual data
from the prior manufacturer as evidence
that the prior manufacturer violated
statute or regulation.
We noted in the preamble to the
proposed rule that manufacturers
should not use the internal investigation
exception to allow for application of 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
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reported and certified by the
manufacturer at the time. Therefore, to
ensure clarity on when the internal
investigation exception may be
appropriately applied, we proposed 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. We
further indicated that a manufacturer
must make data available to CMS to
support its finding. We also proposed to
amend § 447.510(b)(1)(v) to reference
the definition of internal investigation at
§ 447.502.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: A few commenters
opposed the proposed definition of
internal investigation, with some stating
that this definition will lead
manufacturers to avoid internal audits
and fail to identify violations of fraud,
abuse, or violations of law or regulation,
such that it would reduce the accuracy
and reliability of price reporting
metrics. The commenters encouraged
CMS to develop a proposal that
maintains the viability of the internal
investigation exception to the 12-quarter
time period rule, instead of foreclosing
price revision requests following an
internal investigation.
Specifically, commenters indicated
that manufacturers would have to admit
legal fault in order to request a
restatement outside the 12-quarter time
period, which would have a chilling
effect on appropriate restatements when
there is no legal fault. For example,
commenters indicated that
manufacturers that are risk averse, or
maintain a more conservative approach
to price reporting than the previous
owner, would likely not pursue price
revision requests because of admission
of fault. The commenters further
indicated that there are many reasons
why a manufacturer’s reported AMP
and best price may require correction,
including resolution of price disputes
for certain providers/customers that
eventually impact best price and/or
AMP or discovery of good-faith
mathematical errors. They stated that
CMS should withdraw its proposal of
the definition of internal investigation
and recognize manufacturer requests
outside the 12-quarter time period for
what they are: good faith attempts to
comply with complex and
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consequential government reporting
obligations.
Response: CMS believes that most
manufacturers are making good faith
attempts to comply with MDRP price
reporting rules. CMS also maintains that
manufacturers have sufficient time to
address revisions in MDP to the
manufacturer’s AMP, best price,
customary prompt pay discounts, or
nominal prices within the 12-quarter
time period (3-year time period) in
accordance with the timeframe set in
§ 447.510. Through notice and comment
rulemaking, CMS published the final
rule (CMS–2175–FC) that set forth the
12-quarter (3-year) time period on
August 29, 2003. In the 2003 final rule,
CMS reiterated concerns expressed by
States regarding pricing changes and
recalculations that were occurring under
the MDRP back to 1991, and the
significant burden on States and
manufacturers to maintain pricing data
and supporting documentation for such
an extended time period. Based on these
considerations, a time limit was adopted
(68 FR 51913). As there were no
comments received regarding extending
this period beyond 12-quarters in
response to the 2003 proposed rule,
CMS adopted the 12-quarter time period
and communicated that we would not
choose a longer period than 3 years
because it would not sufficiently
alleviate States’ fiscal vulnerability with
regard to retroactive pricing changes (68
FR 51916).
While we have enacted exceptions to
allow for restatements in certain
circumstances beyond the 12-quarter
time period, we continue to believe that
we should minimize requests to restate
outside of that time period to improve
the administration and efficiency of the
MDRP and to assist States and
manufacturers that would otherwise be
required to retain drug utilization
pricing data records indefinitely (88 FR
34253). As a result, we are finalizing the
definition of internal investigation, but
we are amending the definition to add
the term ‘‘possible’’ so that such
restatements would not be construed as
an admission of legal fault. Therefore, as
finalized, we will 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 the MDRP
that results in a finding made by the
manufacturer of possible fraud, abuse,
or violation of law or regulation. A
manufacturer must make data available
to CMS to support its finding. CMS
notes that neither the general 12-quarter
time period for restatements nor the
exceptions allowing for restatements in
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79041
certain circumstances beyond the 12quarter time period, including pursuant
to an internal investigation, alleviate the
manufacturer of its obligation to
accurately report product and pricing
information for covered outpatient
drugs to CMS consistent with section
1927 of the Act and applicable
regulations and guidance.
Comment: A commenter indicated
that a manufacturer may conclude after
an internal investigation that it should
change a unit type for a drug (for
example, the unit type of a vial of
lyophilized powder for reconstitution
and injection from gram to each) based
on CMS guidance. The commenter also
indicated that although the use of the
initial unit type is not a violation of law
or regulation, let alone fraud or abuse,
restatement beyond the 3-year window
would be prohibited, and the
prospective use of the preferable unit
type would be precluded by the
inability to correct the base date AMP.
The commenter provided as another
example a manufacturer that, as a result
of an internal investigation, changes a
reasonable assumption about a customer
or its class of trade. The commenter
noted that an internal investigation may
uncover new information that a group
purchasing organization (GPO) passes
through administrative fees to its
members, or that a pharmacy dispenses
greater than 50 percent of its
prescriptions through the mail, which
the commenter indicated could lead to
a different treatment of the customer in
the AMP and best price calculations.
Response: Existing regulation at
447.510(b)(1)(v) provides that if ‘‘[t]he
change is to address specific rebate
adjustments to States by manufacturers,
as required by CMS . . .’’ and a
manufacturer requests a change to a
drug’s unit type in our system because
CMS has directed the manufacturer to
make the change, that reason may be
considered by CMS as an exception to
the 12-quarter time period rule.
Revisions to a manufacturer’s
determination of AMP and best price
because a manufacturer uncovers new
information about the calculation it
made 12 quarters in the past may meet
the exception only if the change is to
address rebate adjustments to States as
directed under 447.510(b)(1)(v). That is,
the change is required by CMS or court
order, or under an internal investigation
(as defined at 447.502) or an OIG or DOJ
investigation.
Comment: Several commenters noted
that they are concerned with CMS’
assertion in the proposed rule that a
manufacturer purchasing another
manufacturer or another manufacturer’s
products, are not valid reasons to restate
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pricing outside of the 12-quarter limit.
A commenter stated that revisions made
outside of the 12-quarter time period
conflict with a basic operating premise
of the MDRP, as codified in the NDRA.
That is, acknowledging the complexity
of the Medicaid rebate statute and price
reporting requirements, the commenter
stated that CMS has long encouraged
manufacturers to make ‘‘reasonable
assumptions’’ in calculating price
reporting metrics. As a result, the
commenter noted that a manufacturer
may revise the previously reported
pricing data of a prior manufacturer
using a different, reasonable
methodology to align a newly acquired
product with the reasonable
assumptions and price reporting
practices of existing company products.
Commenters also indicated that the
proposed definition would prevent a
manufacturer from requesting to restate
pricing metrics calculated using the
manufacturer’s preferred compliant
method upon acquiring a new COD
where the pricing metrics for the COD
were initially reported with a different
compliant method. They stated that this
policy would discourage merging
entities from harmonizing their
reporting methods and could require a
manufacturer to employ various
methods of calculating pricing metrics
to various different CODs, increasing the
administrative burdens of complying
with its reporting obligations and
increasing the risk of reporting
inaccuracies by introducing the
potential for misapplication of the
wrong calculation method for a given
COD.
Response: CMS reiterates that we will
not accept a change in pricing outside
the 12-quarter time period because of a
change in a manufacturer’s reasonable
assumptions or ownership. The
manufacturer may prospectively, or
within the 12-quarter time period, revise
reasonable assumptions associated with
the drug pricing, including correcting
any customer or class of trade
transactions associated with the revised
reasonable assumptions. Manufacturers
may also harmonize their preferred
compliant methodology for pricing
within the 12-quarter time period.
Permitting manufacturers to revise
prices retroactively that were previously
verified by another manufacturer and in
perpetuity because of changes to a
transfer of ownership would be contrary
to the established 12-quarter time period
CMS adopted in rulemaking in 2003
under CMS–2175–FC. As previously
noted, at that time, CMS decided not to
extend the 12-quarter time period and
communicated that we would not
choose a longer recordkeeping than 3
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years because it would not sufficiently
alleviate States’ fiscal vulnerability with
regard to retroactive pricing changes (68
FR 51916). Therefore, while we have
established exceptions to the 12-quarter
time period rule at § 447.510(b), we
believe we should minimize granting
requests outside of the 12-quarter time
period, including restatements of
pricing reported for a product
previously owned, reported, and
certified by another manufacturer.
Also, as noted in a prior response to
comments, CMS seeks to minimize
requests to restate drug pricing
information outside of the 3-year
timeframe 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 (88 FR
34253). In this regard, we continue to
believe the 12-quarter time period with
the existing exceptions, as clarified in
this final rule, allows manufacturers to
revise pricing without disrupting the
administration and efficiency of the
MDRP. We note that if a manufacturer
is concerned with liability associated
with the prices or pricing metrics used
by the selling manufacturer, CMS
believes that such concerns regarding
legal liability because of the incorrect
reported price information should be
addressed as part of contract negations
between the selling and buying
manufacturer.
Comment: One commenter supported
CMS’ request for data to support
compliance with laws and regulations
in 12-quarter time period rule exception
requests. The commenter agreed that it
sets a clearer and stricter standard for
the exception of the 12-quarter time
period by excluding subsequent internal
reviews to revise in the manufacturer’s
favor pricing data that was compliant
with laws and regulations.
Response: We agree with the
commenter that the use of data to
support revisions to prices outside of
the 3-year timeframe to reinforce a
manufacturer’s finding of potential noncompliance with laws and regulations
establishes a clear standard for when an
exception may apply. We believe the
definition of internal investigation, as
finalized in this rule, will address this
concern.
Comment: A commenter indicated
that the inability to restate a base date
AMP to harmonize different calculation
methods could distort the Medicaid
additional rebate calculation. Such
rebates are calculated by reference to the
difference between a COD’s current
AMP and its baseline AMP. The
commenter stated that if a manufacturer
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is prevented from restating baseline
AMP under its current AMP calculation
method, then the additional rebate
calculations for every future period will
be distorted by the methodology
difference.
Response: Manufacturers can restate
base date AMP within 3 years of the
initial price reported consistent with
§ 447.510(b). Furthermore, when CMS
issues final regulations to reflect
revisions made to the statute’s
calculation of AMP, CMS allows
manufacturers to restate their base date
AMP in accordance with those
regulatory and statutory changes so that
the baseline AMP is consistent with the
reported AMP. For example, in the 2016
COD final rule, CMS permitted
manufacturers to recalculate their base
date AMP in accordance with the
revisions made to the determination of
AMP under the Affordable Care Act (see
81 FR 5281). In accordance with the
§ 447.502 definition of internal
investigation, as finalized in this rule,
CMS will not permit a manufacturer to
revise the base date AMP outside of the
3-year timeframe unless the internal
investigation results in a finding made
by the manufacturer of possible fraud,
abuse, or violation of law or regulation.
Comment: Several commenters
pointed out that rebates under the
Medicare Part D Drug Inflation Rebate
Program for Part D rebateable drugs are
calculated by reference to the amount by
which the drug’s ‘‘annual manufacturer
price’’ (AnMP) exceeds the ‘‘inflationadjusted rebate amount.’’ AnMP is
calculated by using, in part, the AMP of
a drug over 4 calendar quarters. The
commenters indicated that any inflation
rebate calculated for Medicare Part D
purposes could also be distorted by
CMS’ proposal. They stated that if
manufacturers are prevented from
restating AMP under this proposal in
MDRP rulemaking, then future Part D
rebate calculations will be based on the
same distorted comparison as the
Medicaid rebates. They also noted that
as AnMP and the benchmark period
manufacturer price are calculated by
using multiple quarterly AMPs, any
adjustments to CMS’ proposed
redefinition intended to avoid these
distortions should allow manufacturers
to restate AMP for all quarters relevant
to these calculations for the particular
drug.
Response: As noted in the response to
the previous comment, manufacturers
can restate base date AMP within 3
years of the initial price reported
consistent with § 447.510(b), and CMS
will allow manufacturers to revise base
date AMP to reflect revisions made to
the statute’s calculation of AMP.
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However, in accordance with the
§ 447.502 definition of internal
investigation as finalized in this rule,
CMS will not permit a manufacturer to
revise the base date AMP outside of the
3-year timeframe unless the
manufacturer’s investigation results in
findings of possible fraud, abuse, or
violation of law or regulation. As
previously stated and in the proposed
rule, the definition will clarify for
manufacturers that they should not use
the internal investigation exception to
allow for the application of 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 previously. CMS has
published revised guidance with respect
to the operation of the Medicare Part D
Drug Inflation Rebate Program,
Medicare Part D Drug Inflation Rebates
Paid by Manufacturers: Revised
Guidance, Implementation of Section
1860D–14B of the Social Security Act,8
and is engaged in rulemaking for this
program.9 CMS refers commenters to
Medicare Part D Drug Inflation Rebate
Program materials for information on
how the Medicare Part D Drug Inflation
Rebate Program will use AMP data for
the purposes of calculating inflation
rebates.
Comment: Several commenters
believe that the proposed rule would
discourage manufacturers from taking
the required measures of correcting the
calculations beyond the 12-quarter time
period, which could result in
calculations that are inconsistent with
the manufacturer’s methodology and
may result in favor of the State. The
commenters suggested that CMS allow
manufacturers to submit policy changes
prior to the 12-quarter time period and
seek approval from CMS with
documentation and the reason for the
policy change, but not necessarily
details pertaining to pricing impact
either in States or manufacturer’s favor.
The commenters indicated that, if CMS
does not approve the manufacturer’s
policy changes prior to the 12-quarter
time period, then the manufacturer
should not proceed with restating the
price. The commenter also suggested
that manufacturers be allowed to get
approval from CMS to recalculate prices
8 https://www.cms.gov/files/document/medicarepart-d-inflation-rebate-program-revisedguidance.pdf.
9 https://www.federalregister.gov/documents/
2024/07/31/2024-14828/medicare-and-medicaidprograms-cy-2025-payment-policies-under-thephysician-fee-schedule-and-other.
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when the manufacturer has identified
new or changed information in the
underlying data which caused the
earlier calculation to be incorrect.
Response: We believe the commenter
is requesting that CMS approve a
manufacturer’s pricing methodology or
change in information prior to the
manufacturer submitting a restatement
beyond the 12-quarter time period and
not before the 12-quarter time period.
Current CMS policy allows the
manufacturer to change its pricing
information prior to the 12-quarter time
period without requesting CMS
approval. CMS has a long-held policy
that a manufacturer that needs to make
future recalculations regarding AMP or
best price methodology may do so
without prior review and approval by
CMS and that manufacturers must
report to CMS these revisions to AMP
and or best price for a period not to
exceed 12 quarters from the quarter
which the data were due.10 This final
rule does not impact this CMS policy.
However, if the manufacturer provides
findings to CMS that the manufacturer’s
pricing methodology may result in
possible fraud, abuse, or violation of law
or regulation, CMS may consider
permitting the manufacturer to restate
its pricing based on the revised
methodology outside of the 12-quarter
time period.
Therefore, as we noted in the
response to the previous comment, we
will finalize the definition of internal
investigation but amend the definition
to add the term ‘‘possible’’ so that a
manufacturer’s restatements would not
be construed as an admission of legal
fault. Instead, we will 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 the MDRP
that results in a finding made by the
manufacturer of possible fraud, abuse,
or violation of law or regulation. A
manufacturer must make data available
to CMS to support its finding.
d. Proposal To Revise the Definition of
Manufacturer for NDRA Compliance
(§ 447.502)
We proposed to further refine the
definition of 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
10 Manufacturer Release #80: (https://
www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/mfr-releases/mfr-rel080.pdf).
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for payment to be available for their
CODs under Medicaid. We also
proposed to codify in regulation that all
entities (with their applicable labeler
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.
CMS received a number of thoughtful
comments on this topic, and we
determined not to finalize the proposed
policy at this time. We are continuing to
review the input provided by
commenters, which may inform future
rulemaking on this topic.
e. Proposal To Define Market Date
(§ 447.502)
In the proposed rule, we included a
provision that would establish a
definition for market date in regulation.
This proposed definition would: (1)
modify one aspect of previous agency
guidance regarding the market date for
a drug by requiring in regulation that
the market date reflect the date of first
sale of the drug, rather than the date the
drug was first available for sale, by any
manufacturer; and, (2) codify CMS’
historical policy that the market date
does not change if a drug is purchased
or otherwise acquired from another
manufacturer.
Prior instructions and guidance to
assist manufacturers in determining the
market date for a drug to report to MDP
specified that the market date was the
date the drug was first available for sale
by any manufacturer. This prior
guidance is available in various sources,
including program notices, the MDP
User Guide located within MDP, user
manuals previously available in the
older Drug Data Reporting for Medicaid
(DDR) system, and in data definitions in
CMS form 367c.
As background in the preamble to the
proposed rule, we noted that section
1927 of the Act governs the MDRP and
payment for CODs, which are defined in
section 1927(k)(2) of the Act. Pursuant
to section 1927(b)(1)(A) 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.
Additionally, 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 owed by
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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).11
We also noted in the proposed rule
that 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.12 For S or I drugs, the 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, 1990.13 (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), we
noted that the 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, we noted
11 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).
12 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 are incorporated into rebate agreements
without further action. See also Manufacturer
Release 113—Misclassification of Drugs
(medicaid.gov); https://www.medicaid.gov/
prescription-drugs/downloads/mfr-rel-113.pdf.
13 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).
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that a critical data point is the day on
which the drug was first marketed. We
refer to 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.
We also noted that 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. As such,
we noted that 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, we noted that 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.
We also stated that 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 statute
requires an additional rebate amount
based on the market date for each
dosage form and strength of a COD.14
Thus, if a drug is purchased or
otherwise acquired from another
manufacturer, we noted that the market
date should not change, and should be
the same as the market date of the drug
first marketed under the FDA-approved
application.
Because over the years, manufacturers
have occasionally raised questions to
CMS regarding the determination of a
COD’s market date, base date AMP
quarter, and base date AMP under
various fact-driven scenarios, we
proposed to clarify the term market date
as used in the MDRP and to resolve
potential questions related to these
issues. Specifically, to assist
manufacturers in reporting a more
accurately calculated AMP, for the
purposes of determining the base date
AMP quarter and the base date AMP, we
proposed that the market date be based
on the first sale of the drug by any
manufacturer rather than the date the
drug was first available for sale by any
manufacturer. We indicated that linking
the market date determination to the
date of the first sale, rather than the date
the drug was first available for sale,
14 The FDA approved application (for example
the NDA itself) includes all FDA approved
supplements to the application.
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would permit a manufacturer to
establish and report a base date AMP
based on actual sales data. As a result,
the Unit Rebate Amount (URA) would
also be calculated more accurately
because actual sales would be available
for reporting the AMP and calculating
the URA.
In other words, under our proposal,
for purposes of determining the base
date AMP quarter and thus the base date
AMP, the market date is based upon the
earliest date on which the drug was first
sold, by any manufacturer. As noted
previously in this section, our proposal
also would codify the existing
requirement that the market date for a
COD is determined with respect to ‘‘any
manufacturer.’’
We also stated that we understand
that defining market date, for purposes
of determining a COD’s base date AMP,
based on the date the COD was first
sold, may not completely eliminate a
manufacturer’s need to make reasonable
assumptions because the first sale(s)
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 proposed that sold means that the
drug has been transferred (including in
transit) to a purchasing entity. We
requested 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.
We received public comments on the
proposed definition of market date for
the purposes of the MDRP. The
following is a summary of the comments
we received and our responses.
Comment: We received numerous
comments expressing support for the
proposed definition of market date and
one comment that noted no concerns
with the proposed definition.
Response: We appreciate the support
of the proposed definition of market
date.
Comment: We received a comment
about how our proposed definition of
market date might intersect with the
way Medicare proposes to determine the
market date for the purposes of certain
provisions under the Inflation
Reduction Act (IRA). Commenters
suggested that applying the same
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definition across CMS would provide
consistency across the agency.
Response: CMS’ interpretation of
terms and the applicability of those
terms for programs other than the MDRP
are outside the scope of this final rule.
Comment: A few commenters
suggested that we forgo setting forth a
definition for market date and allow
manufacturers to continue to make
reasonable assumptions.
Response: We disagree that we should
forgo finalizing a definition for market
date, because we believe a regulatory
definition will bring additional
consistency to the MDRP and will assist
manufacturers in identifying the
accurate market date. However, to the
extent the definition does not address a
specific situation, manufacturers may
still need to make reasonable
assumptions. As an example, we discuss
the potential need for reasonable
assumptions further in our response to
comments regarding the proposed
definition of ‘‘sold’’ within the
definition of market date.
Comment: One commenter questioned
if the market date should be the same
for all 11-digit NDCs within a 9-digit
NDC family, even if an individual 11digit NDC was introduced at a later
time.
Response: The market date is the
same for all 11-digit NDCs within a 9digit NDC family. The 9-digit NDC
identifies a drug, dosage form, and
strength. The Package Size Intro Date
(that is, the date of introduction of a
particular package size, identified by the
last segment of the 11-digit NDC), may
or may not coincide with the market
date of the drug, dosage form, and
strength, and therefore the date of
introduction of a package size is not a
factor in determining the market date of
the drug, dosage form, and strength for
the purposes of determining AMP and
URA. To reiterate, the market date for
the 9-digit NDC applies to every 11-digit
NDC in the family and is tied to the
drug, dosage form, and strength
marketed under an FDA-approved
application; it is not tied to the Package
Size Intro Date for a particular 11-digit
NDC.
Comment: Several commenters
discussed the effective date of the
definition of market date. The
commenters inquired whether the
definition will be applied retroactively
and suggested that retroactive
application is not permitted and would
be a burden on States and
manufacturers.
Response: The definition of market
date adopted under this final rule
applies as of the effective date of this
final rule. Specifically, if a manufacturer
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previously reported a market date based
on earlier program instructions that the
market date was the earliest date the
drug was available for sale by any
manufacturer, they will not be required
to change the market date to reflect the
earliest date the drug was sold by any
manufacturer. However, after the
effective date of this final rule,
manufacturers must use the earliest date
the drug was sold as the market date for
new drug products.
The finalized definition of market
date will change how manufacturers
determine what date to use to determine
the value to report; that is,
manufacturers must use the date of first
sale of the drug, rather than the date
first available for sale, as of the effective
date of this final rule. The finalized
definition does not make any changes to
the already existing requirement that the
market date is linked to the drug, dosage
form, and strength that was first
marketed under an FDA-approved
application. Consistent with the statute
and prior CMS guidance, the market
date of a specific drug, dosage form, and
strength does not change, even if the
specific drug, dosage form, and strength
might be subsequently marketed under
a different NDC or by a different
manufacturer. Specifically, prior
instructions and guidance given by CMS
to assist manufacturers in determining
the accurate market date to report to
MDP specifies that the market date is
the date the drug was first available for
sale under the FDA-approved
application number by any labeler. This
was first included in Manufacturer
Release #69 (May 13, 2005). It is also
included in CMS’ NDRA Reference
Guide, the MDP User Guide located
within MDP, user manuals previously
available in the older Drug Data
Reporting for Medicaid (DDR) system,
and in data definitions in CMS form
367c.
The finalized definition thus modifies
one aspect of the previous guidance
regarding market date by requiring that
the relevant date be the date of first sale,
while codifying CMS’ historical policy
that the market date does not change if
a drug is purchased or otherwise
acquired from another manufacturer.
We reiterate that this finalized
definition does not change the
requirement given in previous
instructions to report the market date as
the earliest date the drug was available
for sale by any manufacturer. For
example, if a manufacturer that acquires
a drug instead reports the date that they
first made the NDC available for sale,
then that manufacturer would be
expected to correct or request that the
market date be corrected in the MDP
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79045
system if they were not the earliest
manufacturer to sell the drug.
Manufacturer Release No. 113 (June 5,
2020), available at https://
www.medicaid.gov/sites/default/files/
2020-06/mfr-rel-113_0.pdf also
addresses the historic policy. That
release states:
‘‘As manufacturers evaluate their
NDCs for compliance, they should also
ensure they are accurately reporting the
drug’s market date. As stated in section
4.15 of the Medicaid Drug Rebate Data
Guide for Labelers June 2019 (available
within [MDP]), the market date for S, I,
and N drugs marketed under an FDAapproved application (for example,
BLA, NDA, ANDA) is the earliest date
the drug was first marketed under the
application number by any labeler. If a
drug was purchased or otherwise
acquired from another labeler, the
market date should equal the market
date of the original product. However, if
a market date entered into [MDP] falls
on a date that is earlier than 9/30/1990,
[MDP] automatically populates the
market date field with a value of 9/30/
1990 (because dates earlier than the start
of the MDRP are not applicable).
In addition to being a required
product data field under the MDRP, the
market date is also used to determine
the quarter that is used to establish each
drug’s Baseline Average Manufacturer
Price (AMP). Because the Baseline AMP
is used to calculate the additional rebate
portion of the Unit Rebate Amount
(URA) calculation, accurate market date
reporting is imperative in order to
ensure that correct Baseline AMP values
are established. Prior to the
implementation of the additional rebate
for N drugs, manufacturers may have
reported a market date that represented
the date they began marketing the drug,
rather than the earliest date that the
drug was marketed under the
application number by any labeler. If
this is the case, a manufacturer must
request a change from the incorrectly
reported market date to the correct one
to ensure that the correct Baseline AMP
is accurately reflected in [MDP]. CMS
addresses a manufacturer’s
responsibility with respect to correct
reporting of baseline data for a drug that
was purchased from another
manufacturer in Manufacturer Release
No. 90 and Manufacturer Release No.
101.’’
In order to request corrections to the
market date, manufacturers should
follow the instructions at https://
www.medicaid.gov/medicaid/
prescription-drugs/medicaid-drugrebate-program/medicaid-drug-rebateprogram-change-request/.
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We also note that MSIAA added civil
money penalties and provided
enforcement authority if a manufacturer
provides false information related to
drug product information, which, as
explained at section F of this final rule,
includes the market date. Penalties that
were added by MSIAA take effect as of
the effective date of MSIAA. However,
if correcting a misreported market date
leads to changes in a drug’s URA,
manufacturers may be required to
reconcile prior rebate payments with the
States.
Comment: In response to a request for
comments about how to determine what
qualifies as sold for the purposes of
determining the market date of a drug,
we received several suggestions. Several
commenters suggested CMS allow a
manufacturer to use reasonable
assumptions. Reasons provided for
using reasonable assumptions included
that manufacturers may identify their
sale date based on commercial
agreements, business practices, date of
payment, date of invoice, and other
determining factors. Other commenters
suggested that a drug should be
considered sold on the date it is
transferred to a purchasing entity, or
that it should be based on a customer
invoice date.
Another commenter suggested that a
sale only occurs if the purchaser is
AMP-eligible.
Response: We agree that different
manufacturers may record sale dates
differently, based on their business
practices. Therefore, although we
proposed a definition for the term sold
and requested comments regarding such
a definition, we will not define sold as
it applies to the definition of market
date and will permit manufacturers to
use reasonable assumptions as to the
date a sale has occurred. However, this
does not mean that a manufacturer
should report a market date as the date
they first sold the drug when another
manufacturer first sold the drug, dosage
form, and strength under the FDAapproved application number at an
earlier date, as doing so would be
inconsistent with our previous guidance
and the requirements of section 1927 of
the Act. Rather, the manufacturer needs
to report the market date as the earliest
date the drug was available for sale by
any manufacturer.
We disagree that only sales to
purchasers that are AMP-eligible should
be considered when determining the
date on which the drug was first sold.
The first date of sale, and therefore the
market date, does not depend on what
entity is making the purchase.
After consideration of public
comments on this provision, we are
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finalizing the definition of market date
as proposed. In the proposed, rule we
requested comments on what is meant
by sold and what qualifies as being sold,
and we incorporated the comments we
received into our review of the
definition of market date. We are not
creating nor finalizing a definition of
sold for the purposes of determining the
market date of a drug.
f. Proposal To Modify the Definition of
Noninnovator Multiple Source Drug
(§ 447.502)
As discussed previously in the
proposed rule, section 6(c) of MSIAA
included a number of amendments to
statutory definitions in section 1927 of
the Act. Generally, those statutory
amendments were discussed in the 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 MSIAA.
However, although we made conforming
changes to the regulatory definition of
an I drug in the 2020 final rule, because
MSIAA did not expressly amend 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.
In the proposed rule, after further
evaluation, we proposed to amend the
regulatory definition of an N drug to
conform it to the regulatory definition of
an I drug. We noted that when we
established a regulatory definition of an
N drug in the 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, 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 approved NDA, and
N drugs are marketed under an
approved ANDA or are unapproved.
We noted that section
1927(k)(7)(A)(iii) of the Act, which was
not expressly amended or clarified by
MSIAA, defines a noninnovator
multiple source (N) drug as a multiple
source drug that is not an I drug. As
noted, MSIAA amended the statutory
definition of an I drug by removing
‘‘was originally marketed’’ and adding
‘‘is marketed,’’ and we therefore made
conforming changes to the regulatory
definition of an I drug in the 2020 final
rule. However, as noted in the proposed
rule, when we modified the regulatory
definition of an I drug to replace ‘‘was
originally marketed’’ with ‘‘is
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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.
We noted that 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 and conform with the
statute’s clear distinction between an I
drug and an N drug, we therefore
proposed 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 I drug) based on the
authority under which the drug is
marketed, not how the drug was
originally marketed.
Accordingly, we proposed to amend
§ 447.502 by revising paragraph (3) of
the definition of an N drug to read, ‘‘A
covered outpatient drug 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.
We received public comments on this
proposal. The following is a summary of
the comments we received and our
response.
Comment: One commenter stated that
the group they represent did not report
concerns with the proposed change in
definition of noninnovator multiple
source drug. Another commenter
supported CMS’ efforts to further clarify
key program definitions, including the
definition of noninnovator multiple
source drug.
Response: We appreciate the support
of the proposed definition of
noninnovator multiple source drug.
After consideration of public
comments, we are finalizing the
definition of noninnovator multiple
source drug as proposed.
g. Proposal To Define Vaccine for
Purposes of the MDRP Only (§ 447.502)
In the proposed rule, we included a
provision that would define vaccine for
the purpose of operating the MDRP. As
background, we noted that States that
opt to cover prescribed drugs under
section 1905(a)(12) of the Act in their
State plan are required to do so
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consistent with section 1927 of the Act,
as set forth at section 1902(a)(54) of the
Act.
Section 1927(k)(2)(B) of the Act
specifically excludes vaccines from the
definition of COD for purposes of the
MDRP, and this provision is codified in
paragraph (1)(iv) of the regulatory
definition of COD at § 447.502. We
noted in the proposed rule that section
1927 of the Act does not define vaccine,
nor is there a relevant 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.15 Moreover, we
noted that 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.
Therefore, we proposed a regulatory
definition of vaccine for the purposes of
the MDRP to specify which products are
considered vaccines and thus excluded
from the definition of COD.16
Specifically, we proposed 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
MDRP rebate liability. We proposed that
the definition would be applicable only
to the MDRP and would not be
applicable to any other agencies or
agency program implementation,
including FDA and CDC. We stated that
the definition will only be applicable to
the HRSA 340B Program to the extent
the definition defines what drug
products are CODs but otherwise will
have no applicability. We also stated
that the definition of vaccine would not
apply under any title XIX statutory
15 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.
16 Beginning October 1, 2023, under section
11405 of the Inflation Reduction Act of 2022, States
were required to cover approved adult vaccines
recommended by the ACIP, and their
administration, for many adults enrolled in
Medicaid and all adults enrolled in CHIP, without
cost sharing. States are required to cover COVID–
19 vaccines and COVID–19 vaccine administration
through September 30, 2024, for all CHIP
beneficiaries and nearly all Medicaid beneficiaries.
For more information on Medicaid and CHIP
vaccination coverage, including on what types of
CDC/ACIP recommendations are relevant to that
coverage, see https://www.medicaid.gov/sites/
default/files/2023-06/sho23003.pdf.
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provisions other than section 1927(k)(2),
or to separate CHIPs operating under
§ 457.70(a)(1) and (d), or for purposes of
the VFC Program. However, we noted
that the definition will apply to the
MDRP for purposes of Medicaid
expansion CHIPs, under § 457.70(c)(2).
We stated that the proposed definition
would also not apply with respect to
any applicable Federal or State
requirements to cover immunizations
for Medicaid beneficiaries.
We proposed 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. To meet the definition of
a vaccine for the purposes of the MDRP,
we proposed that a product must be
administered prophylactically—that is,
to prevent a disease and not to treat a
disease—because we do not interpret
the statutory exclusion of vaccines from
the definition of COD to exclude drugs
or biologicals that treat a disease. We
also proposed that a vaccine must be
administered to induce active, antigenspecific immunity because that is a
characteristic of preventive vaccines.
Finally, we proposed 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, and that also
appear on a current or previous list of
vaccines compiled by FDA. FDA
publishes a list of vaccines licensed for
use in the United States.17 As FDA is
the agency responsible for licensing
vaccines, we stated our belief 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 sought 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
COD and would not be subject to the
requirements of section 1927 of the Act),
and therapeutic vaccines (which would
not satisfy the definition of vaccine and
therefore could satisfy the definition of
a COD and thus be subject to the
requirements of section 1927 of the Act).
Additionally, while we proposed to
limit this definition to the MDRP, we
sought comment on whether this
definition might result in indirect
consequences for Medicaid benefits
other than the prescribed drugs benefit.
We also requested comment about the
consequences for Medicaid of ACIP’s
recommending immunization with a
product that would not qualify as a
vaccine under this definition.
We appreciate the thoughtful
comments we received on this issue. At
this time, we are not finalizing the
proposed regulatory definition. We are
continuing to review the input provided
by commenters on the proposed
definition, which may inform future
rulemaking on this topic.
17 https://www.fda.gov/vaccines-blood-biologics/
vaccines/vaccines-licensed-use-united-states.
18 https://www.govinfo.gov/content/pkg/FR-202305-26/pdf/2023-10934.pdf.
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D. Proposal To Account for Stacking
When Determining Best Price—
(§ 447.505)
In the proposed rule, we proposed
revisions to the regulations for the
determination of best price at
§ 447.505(d)(3) 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.
We described that 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. Consistent with
this provision, in 2007, CMS
promulgated § 447.505(e)(3) (currently
§ 447.505(d)(3)) to make clear that in
order to reflect market transactions, the
best price for a rebate period should be
adjusted by the manufacturer if
cumulative discounts or other
arrangements subsequently adjust the
prices actually realized.18
In the 2016 COD final rule, in
response to a comment, CMS further
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clarified 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.
CMS’ response provided a specific
example in which two best price eligible
entities each receive a rebate or
discounts for the same drug transaction
as it moves through the supply chain,
such as a rebate paid by a manufacturer
to a PBM where such rebate is designed
to adjust prices at the retail or provider
level, and a discount to a retail
community pharmacy. Each transaction
adjusts the final price realized by the
manufacturer for the sale of that drug.
That is, all discounts, rebates, and price
concessions related to that transaction,
which adjust the ultimate price realized
by the manufacturer, should be
considered in the manufacturer’s final
price of that drug when determining the
best price to be reported.19
We indicated that we have considered
stacking, as stated in the preamble to the
2016 COD final rule, as consistent with
current § 447.505(d)(3), which requires
that if cumulative discounts
subsequently adjust the price available
from the manufacturer, they should be
included in the best price calculation.
We indicated that the proposed
revisions to the regulatory text at
§ 447.505(d)(3) would make clearer that
manufacturers must stack all applicable
price concessions 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.
We received comments both
supporting and opposing the proposed
revisions to § 447.505(d)(3). Based on
these comments, we are not finalizing
the proposal at this time. Instead, we are
going to pursue the collection of
additional information from
manufacturers related to best price
stacking methodologies to inform future
rulemaking. We will continue to
consider the comments regarding
stacking during this time.
While we believe that some
manufacturers are already using some
type of stacking methodology in
determining their best price, we believe
it important to further understand the
various ways that manufacturers are, in
fact, determining their best price and
the extent they are using a stacking
methodology in doing so. We
understand from a 2019 OIG report
(Reasonable Assumptions in
Manufacturer Reporting of AMPs and
Best Prices) 20 that about half of the
manufacturers responding to the survey
indicated that they did stack their price
concessions in determining best price,
but several indicated that they wanted
additional guidance from CMS.
We intend to undertake a separate
collection of information from
manufacturers to help us better
understand the areas in which
additional guidance might be useful
related to stacking methodologies. The
information collection would be
intended to ascertain whether a
manufacturer implements any form of
stacking and, if so, how that stacking is
performed.
We acknowledge that we may not
have all the information necessary to
assess how stacking impacts
manufacturers’ reporting of best prices.
Collecting this additional information
will assist the agency in its
consideration of the stacking issue and
the comments submitted and may
inform future rulemaking.
19 https://www.govinfo.gov/content/pkg/FR-201602-01/pdf/2016-01274.pdf.
20 https://oig.hhs.gov/documents/evaluation/
3188/OEI-12-17-00130-Complete%20Report.pdf.
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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
In the proposed rule, we included a
provision that would withdraw changes
to our regulations found at §§ 447.504
and 447.505, based on a court order. As
background, on June 19, 2020, CMS
proposed regulations to address the
effect of PBM accumulator adjustment
programs on best price and AMP
calculations (85 FR 37286) in relation to
purported manufacturer financial
assistance payments (that is, financial
assistance payments in the form of
copay coupons to patients for purposes
of paying the patient cost obligation of
certain drugs) by instructing
manufacturers on how to consider the
impact of such programs when
determining best price and AMP for
purposes of the MDRP. CMS proposed
that the exclusions for manufacturers’
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). The 2020
final rule finalized this proposed change
and 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 manufacturersponsored assistance program is passed
on to the patient’’ (85 FR 87053).
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In May 2021, the Pharmaceutical
Research and Manufacturers of America
(PhRMA) filed a complaint against the
Secretary, requesting that the court
vacate these revisions to § 447.505(c)(8)
through (11) (85 FR 87102 and 87103),
as set forth in the 2020 final rule. On
May 17, 2022, the United States District
Court for the District of Columbia ruled
in favor of the plaintiff and ordered that
the applicable provisions of the 2020
final rule be vacated and set aside.
In response to this court order, we
proposed in this rule to withdraw the
applicable changes made to the best
price regulation and to also withdraw
the corresponding changes to the AMP
regulation to apply consistent rules for
determining best price and AMP. Thus,
in making this proposal, we suggested
the removal of 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 proposed the
removal of the phrase ‘‘the manufacturer
ensures’’ from these provisions. As a
result, these regulations would revert
back to the language that has been in
place since 2016.
We received public comments on this
proposal. The following is a summary of
the comments we received and our
responses.
Comment: A few commenters
expressed support for the proposal to
rescind the revisions made by the 2020
final rule because they were supportive
of patient assistance programs and were
concerned that the requirement that
AMP and best price include such price
concessions would have been
detrimental to patient assistance
programs (for example, manufacturer
coupons) if adopted. Many commenters
also suggested CMS search for
alternative regulatory mechanisms to
reduce impacts caused by the transfer of
the value of patient assistance programs
to payers through accumulator programs
and consider ways to correctly account
for such programs in Medicaid AMP
and best price reporting for MDRP. They
also emphasized that CMS should
continue to explore ways to minimize
the harmful impact of manufacturer
coupons on beneficiaries and health
care costs, specifically researching the
effects of induced demand, unnecessary
spending, and the role they play in the
price manufacturers set for their drugs.
Response: We thank the commenters
for sharing their views. Per the court
decision, CMS is rescinding the
applicable revisions made by the 2020
final rule. We will continue to explore
other ways to protect consumers from
accumulator programs that leave
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vulnerable patient populations with a
significant cost-sharing burden once a
patient exhausts a manufacturer patient
benefit program.
Comment: A commenter requested
that CMS rescind the portion of the
2021 Notice of Benefit and Payment
Parameters (NBPP) final rule that
enables plans to not count manufacturer
cost-sharing assistance toward patients’
annual cost-sharing limits, thereby
effectively enabling the use of PBM
accumulator programs, which are
harmful to patients.
Response: We thank the commenter
but note that this request is outside of
the scope of this final rule.
Given the direction by the court’s
ruling to vacate and set aside the
changes made by the 2020 final rule, we
are finalizing as proposed 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).
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)
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1. Medicaid Drug Rebates (MDR) and
Penalties (§ 447.509)
In the proposed rule, we included a
new process to identify, notify and
correct a manufacturer’s drug category
misclassifications. As background, we
noted that section 6 of 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 regarding the
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 (S), innovator multiple
source (I), or noninnovator multiple
source drug (N)—for the purposes of
determining the correct rebates that a
manufacturer owes the States. We noted
that 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 perunit rebate amount to the States.
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We noted that 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. 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.
Although much of this law is selfimplementing, we proposed a series of
regulatory amendments at §§ 447.509
and 447.510 to implement and codify
the statutory changes in regulation. In
§ 447.509, we proposed 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
MSIAA, which amended sections 1903
and 1927 of the Act.
MSIAA also 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 civil
monetary penalties (CMPs) by the HHS
Office of the Inspector General (OIG),
and to provide specific new authority to
the Secretary to issue CMPs related to
knowing misclassifications by drug
manufacturers of drug product or
misreported information. We clarified in
the proposed rule that these new OIG
authorities were not a subject of this
rulemaking.
We also noted that, under 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
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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.
a. Summary of Misclassification and
General Comments Relating to Proposed
Regulation (§ 447.509(d)(1) Through (4))
We proposed 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, notify a manufacturer that we
have determined that a drug is
misclassified in MDRP, clarify the
manufacturer’s responsibility to pay
past rebates due to the misclassification,
and indicate the penalties that may be
imposed on the manufacturer.
We received several general public
comments on these proposals. The
following is a summary of the general
comments we received and our
responses.
Comment: Some commenters
provided overall support of the
misclassification sections of the
proposed rule in § 447.509(d), as they
believe it would lead to more accurate
and consistent manufacturer reporting
and transparency, allow CMS to be able
to correct drug misclassifications, and
penalize manufacturers in effective
ways if they continue to misclassify
their drugs and not correct their
misclassifications. Other commenters
expressed some level of support but
raised concerns about using suspension
of the drug from the MDRP as the tool
for compliance with the new
misclassification requirements, or about
the feasibility of the timelines.
Response: We thank the commenters
for their support and address the
specific concerns in more detail later in
this section.
Comment: Many commenters opposed
various components of the proposed
enforcement options under MSIAA for
those manufacturers that have
misclassified their drugs and continue
to misclassify their drugs. The
commenters stated that these proposed
enforcement regulations are overly
broad, and CMS lacks statutory
authority to propose them.
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Response: We appreciate the
comments and address the specific
concerns in more detail with the other
comments. However, we note that the
proposed regulations align with the
requirements in the applicable statutes,
which gives CMS statutory authority to
implement these regulations.
Comment: A few commenters urged
CMS to explicitly state in the final rule
that manufacturers who fail to provide
340B discounts during the suspension
of the drug due to the misclassification
of the COD will face civil monetary
penalties. The commenters also seek
clear guidance on coverage and payment
for 340B-eligible products in relation to
Medicaid during such suspensions of
the drug due to misclassification.
Response: CMPs for not providing
340B pricing are outside the scope of
the rule and will not be addressed.
However, regarding coverage and
payment for 340B-eligible products
during the period of the suspension of
the COD for misclassification,
manufacturers must still provide drugs
through the 340B Program pursuant to
42 U.S.C. 256b, and 340B covered
entities may dispense those medications
to eligible patients. To the extent the
patients who receive these drugs
acquired under the 340B Program are
Medicaid beneficiaries, FFP would not
be available for the claims for these
drugs as Medicaid FFP is not available
for the misclassified drug or drugs of
this manufacturer during the period of
the suspension. States could opt to
cover those claims through State-only
funds.
Comment: A few commenters
suggested that MSIAA can only be
applied prospectively and any efforts to
deem a product as misclassified or
impose any penalties retrospectively
cannot be done. Specifically, several
commenters suggested that no
misclassification can apply prior to
April 18, 2019, the effective date of
MSIAA.
Response: The provisions of 42 CFR
447.509(d) become effective on the
effective date of this final rule.
However, there is no provision in the
statute which would exempt
manufacturers from their responsibility
of correcting their misclassification from
before 2019. Manufacturers have always
been responsible for accurate reporting
of the classification of their drug and
must certify to the completeness and
accuracy of that reporting when
submitting data to CMS to comply with
statute and regulation, as well as the
terms of the NDRA. MSIAA provided
new authorities to CMS to enforce this
requirement with respect to drug
misclassification, including the ability
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to identify and correct a manufacturer’s
misclassification as well as impose
other penalties on manufacturers that
fail to correct their misclassifications.
CMS already provided guidance to
manufacturers regarding MSIAA in
Manufacturer Release #113 on June 5,
2020. This rule provides additional
regulatory support to that guidance.
Comment: A commenter expressed
concern that the proposed rule
inappropriately attempts to end-run a 6year statute of limitations. The
commenter stated that CMS is
attempting to apply penalties to
manufacturers for drug category
misclassifications that occurred for
periods prior to 2Q2016. As such, the
commenter stated that such claims
would likely be time-barred today. The
commenter also stated that what the
commenter alleged to be CMS’ failure to
act on narrow exception request appeals
in a timely manner should not result in
the application of the civil monetary
penalty process to drugs that may have
been misclassified during such time
periods.
The commenter suggested that CMS
consider drug classification
assumptions made by manufacturers in
periods prior to 2Q2016 to have been
made on their merits (to the extent not
already time-barred), without
summarily rejecting them because they
were made prior to the establishment of
the ‘‘narrow exception’’ process. In
particular, the commenter suggested
that products granted narrow exception
status should be assumed to be ‘‘N’’
drugs prior to 2Q2016, consistent with
reasonable assumptions made
contemporaneously by the
manufacturer.
Response: The development of a
narrow exception process in the 2016
COD final rule, 81 FR 5170 (February 1,
2016) did not change the MDRP
manufacturer drug classification
requirements prior to the development
of that process. In addition, CMS
provided guidance to manufacturers
regarding MSIAA in Manufacturer
Release #113 on June 5, 2020.
Comment: A couple of commenters
requested that CMS clarify that no
manufacturer will be penalized if the
manufacturer has an active and pending
narrow exception request and/or appeal.
Some suggested CMS should revise the
definition of misclassification to make
clear that the definition does not
include a COD for which a manufacturer
has submitted a narrow exception
request but has not received a written
response from CMS regarding the
disposition of that narrow exception
request.
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Response: We agree that no penalty
would apply until CMS completes the
narrow exception process. We do not
believe this needs to be addressed in the
regulation, and no change to the
definition of misclassification is needed.
b. Definition of Misclassification—
§ 447.509(d)(1)
We proposed to define what
constitutes a misclassification in
paragraph (d)(1). As proposed at
§ 447.509(d)(1)(i), a 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.
We also proposed 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 as 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.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Several commenters stated
that the definition of misclassification
should only apply to the drug product’s
classification under the MDRP and that
MSIAA does not authorize CMS to
include any other misreported or
inaccurate drug product information
that may have been reported by the
manufacturer in the definition of
misclassification.
These commenters also expressed
concern about the phrase ‘‘any other
information CMS deems necessary’’ in
the drug product information definition.
They stated that what they called this
‘‘open-ended’’ phrase may result in the
inclusion of drug product information
in the definition of misclassification to
exceed the authority granted in MSIAA.
They suggested ‘‘drug product
information’’ should be deleted from
447.509(d), but if not, the ‘‘open-ended’’
language in the definition of drug
product information should be removed.
Response: We believe that drug
product information can be included in
the definition of misclassification. The
statute does not define drug
misclassification, and we believe the
Congress intended the term
misclassification to include any
incorrect drug product information
reported by the manufacturer, including
but not limited to inaccurate drug
category. Section 1927(c)(4)(B)(ii)(I) of
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the Act provides the Secretary with the
authority to use drug product
information reported by a manufacturer
to correct a drug misclassification.
Moreover, section 1927(b)(3)(C)(iii) of
the Act subjects a manufacturer to CMPs
if it misclassifies a COD, such as by
knowingly submitting incorrect drug
product information, or if the
manufacturer pays rebates at a level
other than that associated with the
drug’s classification. This provision
clarifies that incorrect drug product
information constitutes a
misclassification under section
1927(b)(3) of the Act. Through statutory
construction, it implies that incorrect
drug product information in section
1927(c)(4) of the Act is considered a
misclassification as well. Thus, we are
including drug product information in
the definition of misclassification.
As addressed in the drug product
information section, we agree that the
phrase ‘‘any other information CMS
deems necessary’’ should be removed
from the drug product information
definition. Therefore, we have removed
this phrase in this final rule.
Comment: One commenter noted that
the proposed definition omits any
mention of the extent to which the
manufacturer had to have knowledge of
incorrect drug product information
reporting that is necessary to give rise to
the sanctions contemplated by the
statute. They suggested that the
regulation should clearly require that
the manufacturer knowingly
misclassified the drug.
Response: Section 1927(d)(4) of the
Act expressly states that a drug
misclassification can occur without
regard to whether the manufacturer
knowingly made the misclassification or
should have known that the
misclassification would be made. It is
the legal responsibility of the
manufacturer to report and certify the
correct classification of its covered
outpatient drugs as well as the drug
product information associated with
those covered outpatient drugs.
c. Manufacturer Notification by the
Agency of Drug Misclassification—
§ 447.509(d)(2)
We proposed at § 447.509(d)(2) that if
the agency makes a determination of a
misclassification, the agency would
send a written and electronic notice to
the manufacturer, which may include a
notification that past rebates are due.
The manufacturer would have 30
calendar days from date of the notice to
submit the corrected drug product
information as well as any additional
drug product and pricing information
necessary to calculate its rebate
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obligations to the States. For example, if
a manufacturer misclassified a drug as
an N when it should have been an S or
I, then the manufacturer must submit
the correct drug category as well as the
drug’s ‘‘best price’’ data for the period
or periods during which it was
misclassified because that data is
required to calculate rebate obligations
applicable to S or I drugs, but not N
drugs. Once the information is changed
in the MDP system, the manufacturer
must certify the data.
Upon notification by CMS that the
manufacturer’s information was
updated in the system, we proposed that
the manufacturer certify the applicable
price and drug product data. We
proposed that the manufacturer must
correct the misclassification and
respond to the agency’s request to
certify the information in the system
within that same timeline of 30 calendar
days from the date of the original
notification to the manufacturer of the
misclassification.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Several commenters raised
concerns that the proposal regarding the
30-day period for manufacturers to
correct misclassification is unreasonable
and exposes manufacturers to
enforcement action with potential
severe consequences and request that
CMS allow manufacturers more than 30
days post notification to provide and
certify data. One commenter suggested
that CMS should liberally provide for
reasonable extensions to accommodate
complex reclassification and payment
obligations.
Response: We believe that the 30-day
period is sufficient in most
circumstances for manufacturers to
correct and certify a data field.
Misclassification can affect the amount
of rebates owed by manufacturers to
States, so it is important that it be
addressed in a timely manner. In other
circumstances, manufacturers can
informally request extensions.
Accordingly, if there are extenuating
circumstances that result in the
manufacturer not being able to make the
change within 30 days, they may
request an informal extension of this
deadline as well.
Comment: Some commenters urged
CMS to adopt into the regulation a
dispute resolution process because they
believe it is unfair that CMS can solely
determine if a misclassification
occurred. Other commenters suggested a
collaborative process or a process by
which manufacturers are afforded the
opportunity to investigate and validate
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suspected misclassifications with the
Agency before the start of the corrective
action. They recommend that the 30-day
correction period start once the
manufacturer has validated with the
Agency that a correction is needed.
Response: This misclassification
process that was established in MSIAA
does not provide for a specific dispute
resolution process for misclassified
drugs. CMS is implementing what the
Congress set forth, which did not
propose a dispute resolution process.
However, we will take this suggestion
into consideration for future
rulemaking.
d. Manufacturer Payment of Unpaid
Rebates Due to Misclassification—
447.509(d)(3)
Once a determination that a
misclassification has occurred in
§ 447.509(d)(1) and the manufacturer
has been notified of the
misclassification in accordance with the
proposed process steps at
§ 447.509(d)(2), we proposed 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 proposed that a
manufacturer must pay to each State an
amount equal to the sum of the products
of the difference between: the per unit
rebate amount (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 proposed in
§ 447.509(d)(3)(i) a requirement for
manufacturers to pay these unpaid
rebate amounts and proposed to codify
at § 447.509(d)(3) the timeframe by
which the manufacturer must pay the
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. Specifically, we proposed that
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 also proposed
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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.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Several commenters
supported the idea that manufacturers
must pay unpaid rebates that result from
the correction to misclassifications. One
commenter recommended CMS clarify
that this is not limited to the previous
12 quarters.
Response: We appreciate the support
and agree that past due rebates from
manufacturers to States for misclassified
drugs are not limited to just the
previous 12 quarters. Manufacturers are
responsible for providing accurate
information to CMS for their CODs for
the entire amount of time that the COD
is reported in the system, and if the
inaccuracy of the reported drug product
information goes back more than 12
quarters, manufacturers should address
it back to the beginning of the reporting
of the incorrect drug product
information.
Comment: A couple of commenters
suggested that the payment of unpaid
rebates cannot go back further than 10
years since the manufacturer record
retention requirement is 10 years. They
noted that it might be difficult to meet
this requirement in circumstances
where the drug was determined to be
misclassified more than 10 years ago.
Response: There is no time limit in
section 1927 of the Act regarding
manufacturers paying unpaid rebates
back to States, whether for
misclassification of the drug or for other
reasons. In other words, there may be
several reasons why a manufacturer may
owe States past due rebates, and that is
not necessarily limited to drug
misclassifications. We note that 42 CFR
447.510(f) does include a 10-year record
keeping requirement for manufacturers
with respect to their price reporting.
However, there are also provisions in
that section that require record keeping
beyond the 10-year period in certain
circumstances, including situations in
which the records are subject to a
government investigation or audit
relating to pricing data of which the
manufacturer is aware (so long as that
investigation or audit began within the
10-year time period).
Comment: A few commenters
expressed concerns about a
manufacturer’s ability to meet the 60day requirement to pay owed rebates for
misclassified drugs due to the volume of
rebate invoices they already receive
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from States under the MDRP and would
further receive under this provision.
Commenters also stated that 60 days is
an insufficient amount of time to
confirm a drug has been misclassified,
collect and submit the information to
CMS, calculate any owed rebates to the
States, make the payment to the States,
and provide documentation to CMS that
it is completed.
The commenters suggested the
payment of any rebates due to
misclassification should be facilitated
through the same mechanism currently
used for Medicaid rebates so they would
be processed as prior quarter
adjustments. Another suggested that
180-day periods be allowed to pay
rebates due to misclassification (with
reasonable extensions to accommodate
complex reclassification and payment
obligations) since that timeframe would
be more reasonable. Another commenter
requested CMS provide manufacturers
with the opportunity to start the 60-day
timeframe when the URA is updated in
the MDP system.
Response: We disagree with the
commenters’ contentions and believe
that the assessment of a
misclassification of a COD, and any
resulting rebate payments, can be made
by the manufacturers within the 60-day
limit. Manufacturers must process
revised rebates, which includes
calculating any updated pricing
statistics, such as best price and AMP,
report those to CMS and certify them,
and then use those revised data to
calculate new URAs for the
misclassified drug. Manufacturers must
then use those data to adjust the rebates
that they have already paid to the State
for the misclassified drug and pay those
adjustments to the State. We believe that
a process separate from the normal
quarterly rebate cycle would help States
ensure that the payments were made for
these misclassified drugs and could be
tracked by States.
A separate process can ensure there is
a collection for rebates due for past
quarters resulting from the
misclassification. We also believe that
processing these requests for rebates for
misclassified drugs as the
misclassification occurs rather than
waiting for a quarterly rebate invoice
process ensures that the
misclassification is handled timely and
appropriately. Accordingly, we believe a
manufacturer can address a
misclassification and any subsequent
rebate payment within the 60-day
timeframe.
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e. Agency Authority To Correct
Misclassifications and Additional
Penalties for Drug Misclassification—
§ 447.509(d)(4)
We proposed § 447.509(d)(4),
consistent with section 1927(c)(4)(B) of
the Act, which would allow 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 proposed 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 and
to certify applicable pricing and drug
product information within 30 calendar
days after the agency notifies the
manufacturer of the misclassification,
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
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.
We also proposed at
§ 447.509(d)(4)(iv) to indicate that, in
addition to the actions described
previously in the 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. We noted that 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
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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 proposed that a
manufacturer may be subject to
termination from the program if it fails
to meet the agency’s specifications for
participation in the MDRP program as
proposed when it is in violation of
section 1927(b)(4)(B)(i) or (c)(4)(D) of
the Act. This 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 noted 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.
We also clarified that suspension of a
drug under this section as a COD due to
a misclassification would not affect its
status as a reimbursable drug under
Medicare Part B or a drug covered under
the 340B Program.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Some commenters
expressed support for CMS to be able to
reclassify a misclassified drug. Other
commenters raised concerns about CMS
being able to do this and suggested
having a collaborative process or a
dispute resolution process if the
manufacturer disagrees.
Response: We acknowledge the
commenter’s concern but note that
manufactures can collaborate with CMS
under the process set forth in the
proposed rule. As stated previously,
under § 447.509(d)(2), when a
manufacturer is notified of a
misclassification, it must provide the
information necessary to correct the
misclassification. Upon receipt, CMS
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will make the corrections, and then the
manufacturer must certify the
applicable price and/or drug product
information entered by CMS. This
process allows for manufacturers to
work with CMS to ensure the
information in the system is accurate.
It is only when the manufacturer takes
no action to correct the misclassification
that section 1927(C)(4)(B)(i) of the Act
now gives CMS authority to correct
misclassifications on behalf of the
manufacturer. Thus, the regulation gives
the manufacturer time to correct the
misclassification and work with CMS to
ensure the information is accurate, but
if they do not, in accordance with the
statute, CMS can use pricing and drug
product information provided by the
manufacturer to make the correction.
This is one of several actions CMS may
take if the manufacturer has not
corrected the misclassification in a
timely manner.
In the Medicaid Drug Rebate Program
Data Guide (July 2023), we clarified that
any change made in the MDP system,
including any change made by CMS,
must be certified by the manufacturer in
order for the changes to be effective in
the MDP system. This applies to any
changes made pursuant to CMS’
authority in § 447.509(d)(4). Given the
comments and concerns raised, we are
amending the regulatory text in
§ 447.509(d)(4)(i) in this final rule to be
consistent with this guidance and to
clarify that any changes made by CMS
must be certified by the manufacturer.
Manufacturers will be given 30 days to
certify those changes; if they do not,
then CMS may take other authorized
actions against the manufacturer.
Finally, we note that the process to
address misclassifications was
established in MSIAA, and no dispute
process was included in the statute.
That said, we will consider such a
process for future rulemaking.
Comment: Some commenters
mentioned that if CMS and the
manufacturer are in a disagreement
regarding a misclassification, CMS
should not revise the pricing data
points. They suggest this should be part
of future rulemaking.
Response: Pursuant to the statute,
CMS has authority to correct a
misclassification using the drug product
information provided by the
manufacturer on behalf of the
manufacturer. The enforcement
provisions in section 1927(c)(4)(B)(ii) of
the Act provide options for CMS to take
action when a manufacturer fails to
correct a misclassification. CMS’ current
process within the MDP system requires
the manufacturer to certify any change
made in the MDP system. However,
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CMS may certify changes on behalf of
the manufacturer and would do so in
this specific situation. We do not
believe any additional regulatory
changes are necessary based on these
comments.
Comment: Some commenters
expressed support of CMS being able to
impose the enumerated penalties in
§ 447.509(d)(4). Several raised concerns
specifically about the use of the
suspension penalty. Some provided
suggestions for other enforcement
actions, such as keeping the drug
available to Medicaid beneficiaries and
taking other actions such as the
manufacturer covering the entire cost of
the drug during the suspension period,
increasing the maximum civil monetary
penalty that may be imposed, or only
imposing the suspension after repeated
failure by the manufacturer to correct
the misclassification. One commenter
suggested the suspension should only
be imposed if the misclassification has
a material impact on rebates.
Response: We appreciate the
suggestions regarding enforcement
actions and the concerns that are raised
about suspensions specifically. The
statute sets forth several alternative
penalties, including CMS making the
correction on behalf of the
manufacturer, civil money penalties,
and suspension of the misclassified
drug. CMS has incorporated these
options into § 447.509(d)(4) and
provides for flexibility for which
penalties will be imposed on the
manufacturer. As noted previously,
misclassifications of CODs that occurred
prior to 2019 must be corrected and
must be done so in accordance with the
provisions in § 447.509(d). There is no
provision in the statute which would
exempt CODs from these provisions if
they were misclassified before 2019. If
the manufacturer does not take such
actions to correct misclassifications of
their CODs, the penalties contained in
§ 447.509(d)(4) will apply.
Comment: A commenter supported
the proposed enforcement actions and
penalties as long as those are limited to
data within the 10-year retention period.
Response: As noted in other responses
to comments, the reporting
requirements under section 1927 of the
Act are not limited to 10 years and, as
such, changes may be necessary to
correct misclassifications that were
reported more than 10 years ago. In the
absence of guidance and adequate
documentation to the contrary,
manufacturers may make reasonable
assumptions that are consistent with the
requirements and intent of section 1927
of the Act and Federal regulations for
reporting data for time periods prior to
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10 years if they did not retain
documents. However, if manufacturers
do not take the actions set forth in
§ 447.509(d)(2) and/or (3), the penalties
in § 447.509(d)(4) may be applied.
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f. Transparency of Manufacturers’ Drug
Misclassification—§ 447.509(d)(5)
We proposed § 447.509(d)(5) 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.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Several commenters
supported CMS’ proposal that to meet
the requirements of section
1927(c)(4)(C)(ii) of the Act, CMS will
provide public notice of
misclassification of drugs through
annual reporting on a public website.
One commenter questioned whether the
report will include drug pricing
information.
Response: We appreciate the support
of CMS’ proposal. For the question
about including drug pricing
information, we will not include such
information. The report will only
include items that were used in making
the determination that the drug was
misclassified, which will not include
any proprietary or confidential pricing
information. Instead, as included in the
proposed rule, the report will include
the CODs that were identified as
misclassified, any steps taken by CMS to
reclassify the drugs and ensure payment
of unpaid rebate amounts, and a
disclosure of the expenditures of the
funds created under section
1927(b)(3)(C)(iv) of the Act.
After consideration of public
comments on this provision, we are
finalizing § 447.509(d) as proposed with
the exception of making a modification
to proposed § 447.509(d)(4)(i), which
will be amended to add the following
language at the end of that section: ‘‘In
such case, the manufacturer must certify
the applicable correction within 30
calendar days.’’
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2. Requirements for Manufacturers
Relating to Drug Category—
Requirements for Manufacturers
(§ 447.510(h))
Section 447.510(h) describes the
process by which a manufacturer’s
NDRA would be suspended after a
manufacturer fails to report information,
which includes drug pricing and drug
product information, as described in
section 1927(b)(3)(A) of the Act, within
a specified timeframe. This drug
product and pricing information
includes 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
§ 447.510(h)(1) (originally § 447.510(i)
in the proposed rule), proposed that if
a manufacturer fails to provide the
information required to be reported to
the agency under § 447.510(a) and (d),
the agency will provide written notice
to the manufacturer of the failure to
provide timely information and provide
a deadline by which such information
must be reported. If the manufacturer
does not report the information within
90 calendar days after that deadline, the
manufacturer’s rebate agreement will be
suspended for all CODs furnished after
the end of the 90-calendar-day period.
Further, the rebate agreement will
remain suspended for Medicaid until
such information is reported in full and
certified, but not for a period of less
than 30 calendar days. This section also
proposed that continued suspension of
the rebate agreement could result in
termination for cause.
As noted in the proposed rule, 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 Program.
Under proposed § 447.510(i)(2), we
indicated that the agency would notify
the States 30 calendar days before the
effective date of the manufacturer’s
suspension. In the preamble to the
proposed rule, we noted that the
suspension of a manufacturer’s
agreement, and loss of the availability of
FFP for a period of time, would likely
mean that these manufacturer’s drugs
would not be available to Medicaid
beneficiaries during the period of the
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suspension. We indicated that the 30day notice would give States time 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 also
stated our belief that the intermediate
step of suspension rather than
termination should be sufficient
incentive for 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 also
stated that we believe the proposed
process provided clear 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.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Some commenters
provided overall support of the
proposed rule in § 447.510(i).
Response: We thank the commenters
for their support.
Comment: Several commenters
expressed opposition to the proposed
suspension regulations in general or to
specific provisions within the proposed
regulations.
Response: We appreciate the
comments and note that the proposed
regulations align with the requirements
in the applicable statutes.
Comment: Several commenters urged
CMS to explicitly state in the final rule
that manufacturers who fail to provide
340B discounts during the suspension
of the NDRA will face civil monetary
penalties. Commenters also seek clear
guidance on coverage and payment for
340B-eligible products in relation to
Medicaid during such suspensions.
Response: CMPs on manufacturers for
not providing 340B pricing is outside
the scope of the rule and will not be
addressed. However, regarding coverage
and payment for 340B-eligible products
during the period of the suspension of
the COD for misclassification,
manufacturers must still provide drugs
through the 340B Program pursuant to
42 U.S.C. 256b, and 340B covered
entities may dispense those
medications. To the extent the patients
who receive these drugs acquired under
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the 340B Program are Medicaid
beneficiaries, there would be no FFP
available for the claims for these drugs
as Medicaid FFP is not available for the
misclassified drugs of this manufacturer
during the period of the suspension.
States could opt to cover those claims
through State-only funds.
Comment: A commenter suggested
that while CMS’ ability to suspend
NDRAs might prompt quicker pricing
data disclosures, it does not guarantee
their accuracy; thus, CMS should audit
suspicious claims.
Response: We appreciate the concern.
Under section 1927(b)(3)(A) of the Act,
manufacturers have always been
required to accurately report their data
to CMS, and in a timely manner as
prescribed by statute. Upon submitting
their data, manufacturers certify their
completeness and accuracy. If a
manufacturer subsequently needs to
adjust their pricing or product data, it
may do so within specified periods of
time and under certain conditions, and
may also adjust rebates paid to States,
if applicable. If CMS suspects that the
manufacturer’s data is not complete or
inaccurate, CMS will contact the
manufacturer to inquire about the data’s
completeness or accuracy, or if there are
still questions about the completeness
or accuracy of the data, the
manufacturer can be referred to the OIG.
Comment: Some commenters
suggested CMS provide a weekly file or
use another system to provide the
updated suspended manufacturer
information on a more timely basis.
Response: For terminations of
manufacturers from the program, States
are given a 30-day notice through a
notification system, and such
terminations are noted at https://
www.medicaid.gov/medicaid/
prescription-drugs/medicaid-drugrebate-program/newreinstatedterminated-labeler-information/
index.html. CMS will use the same type
of process to notify affected parties of
suspensions of manufacturer rebate
agreements, and the status of such
suspensions.
Comment: Many commenters
suggested that providing a 30-day notice
to States regarding an upcoming
suspension is too short. They expressed
concern about the impact on patient
care. Others noted that it is unclear how
long the suspension will last, which
impacts a State’s decision on coverage
of a suspended manufacturer’s covered
outpatient drugs.
Response: We provide a 30-day notice
for terminations and believe that it
makes sense for this to be consistent for
suspensions. After the minimum 30-day
suspension, the suspension can end as
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soon as the late information is reported
to CMS, CMS has reviewed for
completeness, and the manufacturer
certifies the data. We also note that the
length of the suspension depends on
how soon the manufacturer reports the
data.
Comment: Some commenters
expressed concerns over CMS’ proposed
90-day window for manufacturers to
provide information that was not
received by the statutory deadline prior
to suspension. They expressed a need
for flexibility and requested additional
time for data review and validation.
Response: The statute does not allow
for flexibility in the timeline, and we
believe the timeline is reasonable. The
statute states that if the information is
not reported within 90 days of the
imposed deadline, the manufacturer’s
rebate agreement shall be suspended.
Manufacturers are expected to report on
a timely basis; this proposal provides an
additional 90 days after missing a
deadline to report prior to suspension.
Comment: Several commenters
expressed concern regarding the
requirement that CMS suspend a
manufacturer’s NDRA for a minimum of
30 days. Commenters also advocated for
alternative compliance measures such
as fines or extended deadlines.
Response: We appreciate the
comments but note that a suspension is
required by the statute. The statute
requires the suspension for no less than
30 days. We proposed that the
manufacturer is suspended until the
date the information is reported to the
agency and the agency reviews for
completeness but not for a period of
fewer than 30 days.
The Secretary is authorized to impose
penalties for late reporting. CMS notes
that the statute authorizes penalties for
each day in which the information has
not been provided, and if such
information is not reported within 90
days of the imposed deadline, the
agreement shall be suspended. Penalties
are assessed by the OIG and are outside
the scope of this rule; our rule addresses
the situation once the suspension phase
is reached.
Comment: Several commenters noted
that the loss of FFP could result in an
increased cost to the State if the
products are covered with State-only
funds, which may result in States not
covering the products and effectively
end coverage of these products. Some
suggested that the claims should not
lose eligibility for Federal funding or
should be eligible for an additional 60
days after notice of suspension.
Response: As noted in our preamble
in the proposed rule, during the period
of a suspension, the claims for the
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suspended drug are not eligible for FFP.
States may cover the product using
State-only funds if they choose or may
choose to not cover the products while
the product is suspended. This is
consistent with other coverage decisions
of products for which there is no FFP.
Our hope is that manufacturers will
choose to report their required
information in a timely manner and not
be subject to this suspension.
Comment: One commenter requested
CMS clarify if FFP would be available
for crossover Part B claims for these
drugs.
Response: FFP would not be available
for Part B crossover claims for dual
eligibles. As we noted in the proposed
rule, reimbursement availability under
Medicare Part B would not change.
Thus, our rule does not impact
Medicare coverage or reimbursement.
However, for crossover purposes, the
claim would not be eligible for FFP if
the Medicaid program made any
payment on the claim. In addition, the
claim would not be eligible for
manufacturer rebates.
After consideration of public
comments on this provision, we are
finalizing this provision as proposed.
G. Proposals Related to Amendments
Made by the American Rescue Plan Act
of 2021—Removal of the Manufacturer
Rebate Cap (100 Percent AMP)
In the proposed rule, we added
provisions that would make conforming
changes to our regulations based on
section 9816 of the American Rescue
Plan Act (ARP) of 2021, which
sunsetted the limit on maximum rebate
amounts for single source and innovator
multiple source drugs by amending
section 1927(c)(2)(D) of the 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 the 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.
We noted that section 2501(e) of the
Affordable Care Act had 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 dosage form and strength of a
single source or innovator multiple
source drug at 100 percent of AMP,
effective January 1, 2010. This limit or
‘‘rebate cap’’ 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
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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 each dosage form
and strength of such drugs if the AMPs
of such drugs increase at a rate that
exceeds the rate of inflation. This
provision of BBA 2015 was effective
beginning with the quarter starting on
January 1, 2017, and the limit on
maximum rebates for drugs other than
single source or innovator multiple
source drugs was added at
§ 447.509(a)(9).
To align § 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 proposed 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 proposed to amend
§ 447.509(a)(5) and (9) to state that the
limit on maximum rebate amounts
applies to certain timeframes, 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.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Commenters commended
CMS’ proactive steps in aligning the
regulations with the ARP provision to
remove the manufacturer rebate cap by
January 1, 2024. One commenter
indicated that while they support the
proposed change to regulation on the
manufacturer rebate cap, they also
believe the Secretary should be given
flexibility to reduce Medicaid inflation
rebate amounts owed under the MDRP
for drugs in shortage, consistent with a
separate policy enacted under the
Inflation Reduction Act for rebate
amounts owed under the Medicare
Prescription Drug Inflation Rebate
Programs.
Response: We appreciate the support
for the revisions made to the regulation
to remove the manufacturer rebate cap.
As for the comment regarding drug
shortages, there is no statutory authority
for the Secretary to reduce rebate
amounts or ‘‘cap’’ rebates with respect
to the MDRP in cases when a drug is in
shortage.
Comment: A commenter raised
concerns that the proposed rule prompts
questions about the 340B Program’s
‘‘penny pricing policy,’’ potentially
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leading to negative ceiling prices, and
how that aligns with the intention to
penalize manufacturers for rapid price
hikes. Specifically, the commenter
requested that CMS work with HRSA to
clarify the impact of this provision on
HRSA’s ‘‘penny pricing policy,’’ which
requires that when the ceiling price
calculation at 42 CFR 10.10(b) results in
an amount less than $0.01, the 340B
ceiling price will be $0.01. The
commenter stated that the current
policy needs to be addressed given that,
beginning January 1, 2024, the ceiling
price calculation for the 340B Program
could be a negative number
substantially lower than $0.01.
Response: This comment is outside of
the scope of this rule. HRSA administers
the 340B Program and developed the
policy referred to as ‘‘penny pricing’’
when the ceiling price (the maximum
price a manufacturer may charge a 340B
covered entity) is zero. We note that
while CMS does not administer the
340B Program, HRSA and CMS often
work together when statutory changes to
the MDRP may affect the 340B Program.
These comments have been shared with
HRSA.
Comment: A commenter requested
that CMS adopt what the commenter
considers to be a ‘‘standard’’ definition
of ‘‘rebate,’’ that would ensure that
rebates under the MDRP do not surpass
the State Medicaid program’s payment
for a drug, eliminating potential
constitutional concerns and ambiguities.
The commenter indicated that the
meaning of ‘‘rebate’’ is compelled not
only by the plain language of the statute,
but also by constitutional doctrines. The
commenter stated that the Takings
Clause of the Fifth Amendment to the
United States Constitution (Takings
Clause) supports this meaning because,
otherwise, manufacturers could be
deprived of the economic value of their
drugs and, in some cases, even forced to
pay States to dispense or administer
their drugs to Medicaid recipients.
Furthermore, the commenter indicated
that Federal courts have consistently
recognized that ‘‘completely depriv[ing]
an owner of ‘all economically beneficial
us[e]’ of her property,’’ or ‘‘reduc[ing] to
zero’’ the economic value of something,
such as a drug product, would
constitute a taking, which presupposes,
a fortiori, that making each sale cost the
company more than it earns would also
affect a taking. The commenter noted
that the interpretation of the statute to
which the commenter objects would
take drug manufacturers’ property based
on actions (such as price increases) that
took place long before the law was
enacted, raising significant retroactivity
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concerns that also implicate the Takings
Clause.
The commenter indicated that these
retroactivity concerns also implicate the
Due Process Clause, which ‘‘protects the
interests in fair notice and repose that
may be compromised by retroactive
legislation.’’ The commenter noted that
drug manufacturers made business
decisions years ago based on their
understanding that they would supply
drugs at a discount under the MDRP,
not pay States to dispense or administer
their products to Medicaid recipients.
The commenter stated that if the agency
were to stray from the ordinary meaning
of ‘‘rebate,’’ that would effectively
impose a potential penalty without
providing manufacturers with the
requisite ‘‘fair warning of the conduct
[the] regulation prohibits or requires.’’
The commenter recommended CMS
codify in § 447.509 that, irrespective of
the sunset of the statutory AMP rebate
cap, there is a separate and distinct
natural limit on MDRP rebates
stemming from the ordinary meaning of
the term ‘‘rebate’’ that does not permit
such rebates to exceed State purchase
prices. The commenter recommended
CMS address this directly and adopt
this ordinary meaning of the term
‘‘rebate’’ by regulation so that there is no
ambiguity on this point among the State
Medicaid programs.
Response: The ARP did not define
rebate for purposes of the MDRP, and
CMS is not defining the term rebate as
part of this final rule. Furthermore, the
amount of the rebate that is paid by the
manufacturer is not solely driven by the
statute’s removal of the cap, but also by
how much a manufacturer increases its
drug prices, as reflected by changes in
the AMP, compared to the rate of
inflation.
After consideration of public
comments on this provision, we are
finalizing as proposed.
H. Proposal To Clarify § 447.509(a)(6),
(7), (8), and (9) and (c)(4) With Respect
to ‘‘Other Drugs’’
In the proposed rule, we included a
provision that would replace each
appearance of the term ‘‘noninnovator
multiple source drug(s)’’ in § 447.509
with ‘‘drug(s) other than a single source
drug or an innovator multiple source
drug.’’ As background, we noted that
section 1927(c) of the Act describes how
the unit rebate amount (URA) is
determined for a COD. We also noted
that there is a defined calculation of the
applicable basic rebate and additional
rebate for a COD 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
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calculation for ‘‘other drugs,’’ that is, a
COD that is a drug other than a single
source drug or an innovator multiple
source drug at section 1927(c)(3) of the
Act.
We provided background in the
proposed rule explaining that 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 CODs other than single
source drugs and innovator multiple
source drugs. We noted that section
1927(c)(3)(C) of the Act describes the
additional rebate calculation for CODs
other than single source drugs or
innovator multiple source drugs,
explaining that the statute makes it clear
that rebates are applicable to all CODs,
whether they are single source drugs,
innovator multiple source drugs, or
drugs other than such drugs.
We also noted that manufacturers are
required to report all of their CODs in
the 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 COD other
than a single source drug or an
innovator multiple source drug in our
system for operational purposes.
Choosing N in the MDRP 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. We
noted that because manufacturers are to
report all of their CODs and identify the
applicable drug category, all CODs other
than a single source drug or an
innovator multiple source drug should
be identified with the drug category of
N, regardless of whether they satisfy the
definition of noninnovator multiple
source drug.
We noted that in the 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).
We stated that over the years, interested
parties 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
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‘‘noninnovator multiple source drug’’ at
section 1927(k)(7)(iii) of the Act as a
multiple source drug that is not an
innovator multiple source drug. We
therefore noted that we believe that the
regulatory definition of noninnovator
multiple source drug may not fully align
with the statutory definition because the
regulatory definition does not capture
every COD that is something other than
a single source drug or an innovator
multiple source drug; that is, not every
‘‘other drug’’ is a multiple source drug.
Practically, though, we noted that while
the terms ‘‘other drugs’’ and
‘‘noninnovator multiple source drugs’’
are not synonymous, they are treated so
for purposes of reporting the COD in the
MDRP system, because ‘‘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
CODs, regardless of whether 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 proposed 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.’’
We proposed 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 was proposed
to be made in § 447.509(a)(6), (7), (8),
and (9) and (c)(4).
We received a public comment on this
proposal. The following is a summary of
the comment we received and our
response.
Comment: One commenter stated that
CMS should clarify that the replacement
of ‘‘noninnovator multiple source drug’’
with ‘‘drug other than a single source
drug or innovator multiple source drug’’
is not intended to have any effect on the
narrow exceptions process.
Response: The replacement of the
term ‘‘noninnovator multiple source
drug(s)’’ in § 447.509 with ‘‘drug(s)
other than a single source drug or an
innovator multiple source drug’’ was
proposed to align the regulatory
language with the statute, which
requires rebates for CODs other than
single source drugs and innovator
multiple source drugs regardless of
whether they are multiple source drugs.
The proposed change was also intended
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79057
to clarify our longstanding policy and
practices of identifying ‘‘other drugs’’ as
N drugs for the purposes of the MDRP.
The proposed changes in § 447.509 are
not intended to change the narrow
exception process.
After consideration of public
comments, we are finalizing the
clarifications to the language in
§ 447.509 as proposed. This clarification
should not affect the drug category code
reported in the MDRP reporting system
for drugs other than single source drugs
or innovator multiple source drugs.
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’’.
I. Proposal To Establish a 12-Quarter
Rebate Audit Time Limitation
(§ 447.510)
In the proposed rule, we included
provisions to provide a 12-quarter time
limit for processes related to the
initiation of rebate audits by
manufacturers. As background, we
noted that 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. For the purposes of the
regulation, we noted that audit authority
is intended to refer to any process a
manufacturer is using to seek an
adjustment to State drug utilization data
under section 1927(b)(2)(B) of the Act.
We also noted that section V. of the
NDRA describes how the agency
operationalizes the manufacturer audit
authority; that is, it describes the
procedures for manufacturer dispute
resolutions 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.21 The audit/
21 See section V, Dispute Resolution, ‘‘Medicaid
Program: Announcement of Medicaid Drug Rebate
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dispute resolution processes are further
discussed in a number of manufacturer
releases.22 We explained that 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.23 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.’’ Finally, consistent with
section 1927(b)(2)(B) of the Act, we
noted that all disputes must be resolved
on a unit basis only, and not on any
other factor (for example, monetary
amounts, percentages, etc.).24 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’s utilization invoice is
sent.
We also pointed out that while
section V. of the NDRA, along with
several CMS-issued program releases,
addresses 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.25
Thus, we indicated that 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 data and is
not an efficient use of resources. We,
therefore, proposed to use our authority
under sections 1102 and 1902(a)(4) of
the Act, which authorizes the Secretary
to specify methods of administration
found to be necessary for proper and
efficient administration of the Medicaid
program, 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
Program National Rebate Agreement,’’ Final Notice,
83 FR 12770 (Mar. 23, 2018).
22 State Release 177, State Release 181, State
Release 56, Manufacturer Release 115,
Manufacturer Release 105, Manufacturer Release
95, and Manufacturer Release 20.
23 https://www.ncpdp.org/NCPDP/media/pdf/
WhitePaper/Medicaid-Drug-Rebate-ProgramChallenges-Across-the-Industry.pdf?ext=.pdf.
24 Please see State Release 181, https://
www.hhs.gov/guidance/sites/default/files/hhsguidance-documents/state-rel-181_42.pdf.
25 https://www.ncpdp.org/NCPDP/media/pdf/
WhitePaper/Medicaid-Drug-Rebate-ProgramChallenges-Across-the-Industry.pdf?ext=.pdf.
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12 quarters from the last day of the
quarter from the date of the State
invoice. Consistent with this authority,
we proposed 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
proposed a time limitation to help
ensure that discrepancies are identified
and resolved, thereby promoting the
efficient operation of the MDRP.
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; while we believe 38 days is
optimal, we stated in the proposed rule
that 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. We
reminded manufacturers it also mirrors
the timeline for reporting revisions to
monthly AMP at § 447.510(d)(3). We
also noted that there are 2-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, we proposed 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. This is
consistent with our authority at section
1902(a)(4) of the Act.26
Accordingly, we proposed at
§ 447.510(i) 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 SDUD reported under
section 1927(b)(2)(A) of the Act on the
State rebate invoices.
We received public comments on this
proposal. The following is a summary of
the comments received and our
responses.
Comment: We received numerous
comments supporting CMS’ proposal to
impose a 12-quarter limit on
manufacturers initiating disputes on
26 We had also referenced section 1102 of the Act
for our authority to implement this provision.
Section 1102 of the Act grants the Secretary
authority to promulgate regulations but not the
authority to impose specific requirements and thus
does not need to be cited as authority to implement
this provision.
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State drug utilization data, as it will
streamline administrative processes,
reduce burdens on States and providers,
and ensure that disputes are based on
recent, validated data. Additionally,
commenters noted that imposing time
limits on the initiation of disputes and
audits streamlines the States’
management of the drug rebate program.
Response: We appreciate commenters’
support. We are focused on increasing
efficiency and economy of overall
MDRP resources to better facilitate the
needs of Medicaid beneficiaries. We
believe the time limitation on rebate
disputes by manufacturers will help
ensure that discrepancies are timely
identified and efficiently resolved,
thereby providing increased financial
certainty to manufacturers and States,
while promoting the efficient operation
of the MDRP.
Comment: Multiple commenters
opposed CMS’ proposal for a 12-quarter
audit limit, citing a lack of statutory
authority, and questioned CMS’
authority to implement such a
requirement.
Response: We believe that a limitation
on the timeline of when a manufacturer
may audit comports with our policy
goals and is supported by CMS’ general
rulemaking authority in section 1102, as
well as 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 have
the responsibility of administering the
MDRP and ensuring the proper and
efficient operation of the Medicaid
program, and establishing a timeframe
limitation for manufacturer audits is
consistent with this goal. Additionally,
having this timeline limitation provides
more financial certainty for States and
Manufacturers for rebate purposes
because invoices, transactions, and
payments can be settled, therefore
increasing stability in program
operations.
Comment: Some commenters
suggested that if CMS imposes a 12quarter limit on manufacturers’ ability
to dispute rebates, they should ensure
the timeframe starts when
manufacturers receive the State invoice.
Specifically, commenters stated that the
timeframe should begin when
manufacturers receive the State invoice
that includes the disputed utilization or
when manufacturers receive detailed
claims data.
Response: We continue to encourage
States to respond to reasonable requests
from manufacturers for claims level
data, as the willingness to share data,
methodologies, and resolution strategies
generally leads to resolutions. However,
as these requests are on an as-needed
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basis, we do not believe the date for
which claims level details are received
by the manufacturer is an appropriate
date to start the dispute initiation
timeline limitation.
Upon further consideration, we
believe the invoice postmark date will
offer the same clarity for the interested
parties involved in the dispute process
and will better align with established
Medicaid policy. In accordance with
section 1927(b)(1)(A) of the Act and the
terms of the NDRA, manufacturers are
required to pay a rebate to each State for
all CODs of the manufacturer that were
paid for in a quarterly rebate period.
This section of the Act also states that
such rebate payments are to be paid
within 30 days of the manufacturer’s
receipt of the State invoice. For
purposes of calculating interest on late
rebate payments, previously issued
guidance has noted that manufacturers
have 37 calendar days as evidenced by
the postmark by the U.S. Postal Service
on the envelope to pay rebates before
interest begins to accrue.27 That is, upon
receipt of a quarterly invoice,
manufacturers have 37 calendar days’
time from the invoice postmark date to
pay rebates before interest begins to
accrue on the 38th day. Therefore, to
maintain consistency, we are amending
the proposed language in this final rule
to specify that upon receipt of a
quarterly invoice, the period for
manufacturers to initiate audits or
disputes concerning State drug
utilization data begins on the last day of
the quarter from the State invoice’s
postmark date.
As an example, if the invoice
postmark date is in the fourth quarter of
2024, then the time period to initiate a
dispute ends 12 quarters after the last
day of the fourth quarter of 2024, which
would be the last day of the fourth
quarter of 2027. If States use electronic
invoicing via email, we expect States to
include the invoice itself within the
body of the email to a manufacturer or,
at minimum, information on the number
of units paid by NDC. In this case, we
view the postmark date as the date on
which the email is sent. Similarly, if a
State sends an email with the invoice
attached, then the date when the
initiation time period ends is 12
quarters from the last day of the quarter
in which the email was sent. For
example, if the email was sent in the
fourth quarter of 2024, then the time
period to initiate a dispute ends 12
quarters after the last day of the fourth
quarter of 2024, which would be the last
day of 4Q2027.28
Comment: Some commenters
expressed concerns regarding fairness
and parity between manufacturers and
States. While advocating for equitable
treatment between manufacturers and
States, some suggested either
adjustments to the proposal or that CMS
set forth similar time limits for similar
types of requests by States or
manufacturers. Some stated that because
similar limitations were not placed on
States, the provision is biased against
manufacturers, possibly compromising
accuracy and fairness in the MDRP.
Additionally, a few commenters stated
that manufacturers have reported
receiving State rebate invoices related to
decades-old utilization, and that States
should have time limitations on
disputes and submitting invoices to
manufacturers, including limitations on
the initiation of corrections or
resubmissions of invoice data. These
commenters stated that if manufacturers
are to be time-limited in their ability to
audit invoices, State Medicaid programs
need to be held to a comparably limited
period in which to submit rebate
utilization.
Response: Section 1927(b)(2)(B) of the
Act provides that a manufacturer may
audit the rebate billing information
provided by the State under section
1927(b)(2)(A) of the Act. This includes
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.
Adjustments to rebates are based on unit
utilization and are authorized to the
extent that the information provided by
States indicates that utilization was
greater or less than the amount
previously specified.
States have similar equitable
timelines with which to comply when
27 Please reference Manufacturer Release 89
https://www.medicaid.gov/sites/default/files/
medicaid-chip-program-information/by-topics/
prescription-drugs/downloads/rx-releases/mfrreleases/mfr-rel-089.pdf, Manufacturer Release 7
https://www.medicaid.gov/sites/default/files/
medicaid-chip-program-information/by-topics/
prescription-drugs/downloads/rx-releases/mfrreleases/mfr-rel-007.pdf, and State Release 29
https://www.medicaid.gov/sites/default/files/
medicaid-chip-program-information/by-topics/
prescription-drugs/downloads/rx-releases/mfrreleases/mfr-rel-029.pdf, for our policy on postmark
dates.
28 Please see State Release 166 https://
www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/state-releases/staterel-166.pdf, State Release 154 https://
www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/state-releases/staterel-154.pdf, and Manufacturer Release 80 https://
www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/mfr-releases/mfr-rel080.pdf for our policy and guidance related to
postmark dates.
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79059
invoicing for rebates. States are required
to invoice manufacturers based on the
State’s utilization of the manufacturer’s
CODs each quarter and must provide
invoices no later than 60 days after the
end of each quarter. Additionally, States
have a 2-year timely claim filing
deadline under section 1132(A) of the
Act. This incentivizes States to manage
and resolve disputes within this
timeframe.
Disputes handled beyond this 2-year
deadline create recordkeeping and fiscal
issues for the States, hindering them in
claiming FFP from the Federal
government because the dispute exceeds
the timely filing window. Resolving
disputes requires the claim to be
reversed and resubmitted, with States
not receiving Federal match on these
resubmitted claims if the dates of
service fall outside the timely filing
window. Therefore, we believe this
timely filing deadline provides
necessary incentives for States to
resolve rebate disputes swiftly, as they
must absorb the full cost of a rebate
correction, including the portion that
would otherwise be paid for through
FFP.
Furthermore, the 12-quarter
timeframe provided to manufacturers
significantly extends the timeframe that
was specified in previous guidance.
State Release Number 45 and
Manufacturer Release Number 11
outline the Dispute Resolution Process
for manufacturers and States in rebate
disputes. In these releases, we specified
that manufacturers should notify a State
of disputed data no later than 38 days
after the State utilization data is sent.
We continue to believe that
manufacturers and States need to
communicate as soon as possible on
suspected drug unit issues to prevent
and resolve disputes, preferably even
before rebates are due. Establishing the
12-quarter time limitation for
manufacturers to initiate disputes also
aligns with the timelines permitted for
manufacturers to report changes to data
elements relevant to the calculation of
MDRP rebate amounts. For these
reasons, we continue to believe this is
a balanced solution that is equitable for
both manufacturers and States,
providing sufficient time for dispute
initiation.
Comment: One commenter expressed
concern that States do not always
engage effectively with manufacturers
and their representatives when disputes
arise. They stated that CMS should
require States to respond to
manufacturer-initiated disputes in a
timely and effective manner and
provide guidance when such disputes
reach an impasse.
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Response: As stated in the NDRA,
both the State and the manufacturer are
expected to use their best efforts to
resolve a dispute within a reasonable
timeframe after the State’s receipt of the
manufacturer’s Reconciliation of State
Invoice (ROSI) or Prior Quarter
Adjustment Statement (PQAS). CMS
expects manufacturers and States to
work in partnership to resolve
outstanding units in dispute. CMS has
issued guidance on dispute resolutions
and we encourage commenters to
reference https://www.medicaid.gov/
sites/default/files/medicaid-chipprogram-information/by-topics/
prescription-drugs/downloads/rxreleases/mfr-releases/mfr-rel-105.pdf,
https://www.medicaid.gov/sites/default/
files/medicaid-chip-programinformation/by-topics/prescriptiondrugs/downloads/rx-releases/mfrreleases/mfr-rel-095.pdf and https://
www.medicaid.gov/sites/default/files/
medicaid-chip-program-information/bytopics/prescription-drugs/downloads/
rx-releases/state-releases/state-rel181.pdf for dispute related issues. In
addition, as noted previously, we
believe the prompt notice of disputes
will encourage States to resolve these
issues in a timely manner.
Comment: Several commenters
emphasized that 340B Program-related
audits may require more time than the
proposed 12 quarters and suggest CMS
should clarify and potentially adjust the
rule’s applicability to ensure fairness in
dispute processes. Multiple commenters
opposed the proposed time limit,
especially concerning 340B duplicate
discounts, which take longer to identify
and resolve and suggest exemptions or
adjustments to the rule. Certain
commenters also suggested that a
manufacturer be allowed to toll the time
to request necessary data from the State
and during certain 340B disputes.
Response: We believe that
manufacturers should, within 12
quarters from the invoice postmark date,
initiate a dispute with or audit of a State
for any disputes they may have with
regard to 340B duplicate discounts. We
understand that covered entities and
their contract pharmacies work with
their own third-party administrators
(TPAs) that help to identify prescription
claims as 340B within a few days, or at
most a few weeks, well within the 12quarter timeline that was proposed.
Thus, the 12-quarter timeframe should
be sufficient for identification of 340B
claims and any disputes that may arise.
CMS issued guidance to States and
other interested parties in January 2020
on Best Practices for Avoiding 340B
Duplicate Discounts in Medicaid. We
have previously outlined a number of
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best practices that States are encouraged
to consider to avoid duplicate
discounts.29 Additionally, our 12quarter time audit initiation limitation
aligns with HRSA’s limitation of actions
provision in 85 FR 80632, which
specifies that a covered entity or
manufacturer must file a written claim
for administrative dispute resolution
with HRSA within 3 years of the date
of the alleged violation. Furthermore,
other proposals in this regulation will
help with that process, such as the
proposal to include BIN/PCN numbers
on Medicaid managed care enrollee
identification cards for pharmacy
benefits. Finally, we are finalizing that
all audits must be initiated within the
12-quarter time period, not that all
disputes are resolved within this
timeline. We, therefore, do not believe
a tolling provision is necessary.
Comment: A few commenters
recommended that if CMS’ proposed 12quarter rule is finalized, it should only
apply to future claims, ensuring
manufacturers have time to address
audits and disputes on past claims
without hindrance and that State
invoices received prior to the
finalization of the rule would not be
subject to the 12-quarter time limitation.
Several commenters requested that if
this policy is finalized, CMS should
provide technical assistance on how to
address outstanding disputes that were
previously submitted but are beyond the
proposed 12-quarter limit.
Response: The 12-quarter timeframe
was proposed, in part, to 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. Unlike
manufacturers that can make reasonable
assumptions regarding data and
reporting that occur beyond their record
keeping requirements, States must be
able to provide specific drug unit data
related to utilization. Ideally, as we have
stated, disputes should be raised and
resolved promptly before the invoice is
paid by the manufacturers. However,
manufacturers can, and do, raise
disputes after payment is made,
sometimes even years later. The current
lack of a clear time limit means
previously settled invoices,
transactions, and payments might not be
settled in actuality given potential new
or additional disputes. Having an
unlimited period to initiate disputes is
inconsistent with the proper and
29 For best practices for avoiding 340B duplicate
discounts in Medicaid, please see our January 8,
2020 Informational Bulletin https://
www.medicaid.gov/federal-policy-guidance/
downloads/cib010820.pdf.
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efficient operation of the rebate
program.
In addition, when a dispute
concerning a possible provider billing
error arises, the passage of time makes
investigation and correction by the State
more difficult. Claims data may not be
available after a number of years; States
have reported they have trouble
retrieving older claims data because
system upgrades have made accessing
old data and paper claims difficult or
impossible. The provider may not have
records for the claim anymore because
the record keeping requirements do not
require them to continue to retain the
records, making resolving disputes
unnecessarily complicated. Thus,
establishing a time limit for
manufacturers to initiate disputes will
increase the efficiency of dispute
resolutions as well as the administration
of MDRP. For this reason, this provision
should apply to all newly initiated
rebate disputes, regardless of when the
claim was processed; any claim
currently in the dispute resolution
process would not be affected. Rather,
under the 12-quarter time limit, 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 postmark date of
the State invoice.
Comment: Commenters stated that
CMS’ 12-quarter time limit proposal
lacks operational feasibility and raised
concerns the proposal may limit the
ability of manufacturers to ensure
accuracy of drug unit utilization data
received from the States.
Response: Currently, the lack of time
limit on rebate dispute initiation by
manufacturers is creating operational
challenges for both States and
manufacturers. We believe this creates
long-term operational feasibility
challenges for States, and burdens
resources that would be better used
towards patient care. During the dispute
resolution process, claims-level detail is
normally required from the States to
assist in resolving a dispute; however,
States often do not have such data
available to provide to manufacturers
beyond a limited timeframe. States need
this source data when manufacturers
request further proof to resolve disputes.
Such claim data may not still be
available after a fixed number of years,
and the lack of a definitive timeline for
initiation of disputes on drug utilization
data unreasonably burdens programs.
After considering the issues raised by
the commenters, we are finalizing this
provision as proposed except that we
are amending the language to clarify
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that the 12 quarters begin based on the
postmark date: 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 postmark date of the State
invoice. As noted in our previous
responses, we understand that in certain
instances the resolution of a dispute
may extend beyond this time period,
and we clarify that we are not requiring
that disputes are resolved within this
time period.
J. Proposal Regarding Drug Price
Verification Through Data Collection
(§ 447.510)
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’’ the prices that
manufacturers are reporting under
section 1927(b)(3)(A) of the Act, and in
accordance with § 447.510. Under this
authority, we proposed rules to describe
those situations when it would be
considered necessary for such surveys
to be sent to manufacturers and
wholesalers, and the information that
would be requested that we would use
in order to verify the reported prices at
issue. We stated our intent that the
proposed surveys would help assure
that Medicaid payments and applicable
rebate payments for CODs are accurate.
As we noted in the preamble to the
proposed rule, currently, there is no
centralized process to collect specific
data from manufacturers (or
wholesalers) to verify prices
manufacturers report to us under
section 1927(b)(3)(A) of the Act. We
proposed to interpret the language in
section 1927(b)(3)(B) of the Act 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
stated that we believe this provision 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 to purchasers.
We noted in the proposed rule that
participating manufacturers are required
to report and certify to CMS certain
product and pricing data for each of
their CODs on a monthly and quarterly
basis. 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
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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 Program uses the
AMP and the Unit Rebate Amount
(which is the amount calculated to
determine the quarterly 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,
plus specified professional dispensing
fees for CODs dispensed by 340B
entities. Additionally, many State
Medicaid programs use the ASP (as
defined in section 1847A(c) of the Act)
and the Wholesale Acquisition Cost (as
defined in section 1847A(c)(6)(B) of the
Act) for Medicaid payment for
physician administered drugs, such as
those administered in hospital
outpatient departments and physician
offices. Thus, we noted that it is
important, particularly in the case of
high cost drugs, that CMS have the
ability to verify, in certain situations,
the manufacturer’s submitted pricing
data to ensure its accuracy, given the
foregoing ramifications.
We also proposed to publish nonproprietary information that we receive
from the manufacturer through the drug
price verification survey. We noted our
belief that our proposed drug price
verification survey process and the
publication of non-proprietary
information, along with the NADAC that
we publish for retail community
pharmacy costs, should provide the
public with an understanding of how
CMS is implementing its authority to
understand how a manufacturer
determines and verifies its reported
pricing for its CODs. We also noted that
our proposal would also provide
information on the methods
manufacturers use to produce accurate
price information. We indicated that
Medicaid managed care plans may be
able to use such public information
about the accuracy of prices or charges
that are collected under this process in
providing drug benefits if covered under
their contracts.
For the foregoing reasons, we
proposed to use the statutory authority
in section 1927(b)(3)(B) of the Act to
collect additional information about
charges and prices from manufacturers
and wholesalers to verify the prices
reported to us for CODs. We stated our
belief that this verification is extremely
important, particularly in the case of the
significant number of new high-cost
drugs and biologics, including cell and
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79061
gene therapy drugs, entering the market,
as well as the costs and prices
associated with new and different
pharmaceutical preparation methods
and distribution channels. We indicated
that it is critical to ensure that pricing
information associated with these
products is accurate so that State
Medicaid programs receive the full
rebate amounts to which they are
entitled. Assuring States obtain accurate
rebates can make these products more
affordable and thus more accessible to
patients. In addition, we noted that the
increasingly complex pharmaceutical
distribution supply chain has made it
more challenging for manufacturers to
calculate, and for CMS and States to
monitor the accuracy of, pricing
information reported under section 1927
of the Act. Thus, we stated that the
verification survey is needed to help
ensure that such calculations are being
done correctly, given the significant
implications for MDRP rebate amounts
and Medicaid payments.
In the preamble to the proposed rule,
we underscored that 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. We noted that
we would not be using the survey data
to 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.
Therefore, we proposed 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
information is submitted under section
1927(b)(3)(A) of the Act and § 447.510,
to make payment for the COD.
We appreciate the thoughtful
comments we received on this issue,
and we determined not to finalize the
proposed policy at this time. We are
continuing to review the input provided
by commenters, which may inform
future rulemaking on this topic.
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K. Proposals Related to State Plan
Requirements, Findings, and
Assurances (§ 447.518)
In the proposed rule, we included
provisions 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 under Medicaid FFS. As
background, we noted in the preamble
to the proposed rule that section
1902(a)(30)(A) of the Act requires that
States include in their State plans,
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. We also reminded
States that, 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 that 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); 30 and, (2) a
professional dispensing fee (PDF) for the
drug based on the pharmacy’s cost of
dispensing.
As additional background to support
our proposal, we pointed to existing
policy requirements that the
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. We noted
that, in SPA submissions, 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. We also noted that while
States are afforded the flexibility to
adjust their reimbursement
methodology 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
30 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.
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definitions of AAC and professional
dispensing fee.
With this background, we explained
in the proposed rule that recently we
have seen States submit proposed
changes to either or both of the
components of the reimbursement
methodology without adequate
supporting data that reflect current drug
acquisition cost prices or actual costs to
dispense, which is inconsistent with
applicable law and regulations. We also
affirmed that the PDF 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. We stated that 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.
We noted that States must submit
adequate cost data to CMS as part of its
SPA process to justify its professional
dispensing fee amounts and that the
data submitted cannot 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, we
affirmed in the preamble to the
proposed rule that States must support
determinations or proposed changes for
ingredient cost reimbursement with
adequate cost-based data. We cited
previous rules and guidance, which
provide ways States could establish
pharmacy reimbursement
methodologies, noting that the pricing
benchmark that CMS makes available to
States, for example the weekly NADAC
files, reflect current prices. We also
noted that freezing NADAC or AAC
rates, and establishing a static provider
reimbursement, would not be consistent
with applicable laws and regulations
and that reduced beneficiary access to
medically necessary drugs could result
if pharmacy providers are unable to
purchase drugs at a rate reflective of
current market conditions.
For these reasons, we proposed 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. Specifically, a State
must submit adequate cost-based data to
support any proposed changes to either
or both of the components of the
reimbursement methodology and a State
cannot rely on the amounts that
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pharmacies are accepting from other
third-party payers as a means of
determining professional dispensing
costs. Rather, the data that are
acceptable could be a State’s own
survey, a neighboring States’ survey, or
other credible survey data that reflect
the current cost of dispensing a
prescription in the State (81 FR 5311).
Additionally, to pay based on costs, we
clarified that States need to periodically
assess whether current rates being paid
to pharmacies reflect current costs,
noting that there is no specific
requirement as to how often and when
States must review their current fees.
We therefore proposed to update the
heading of § 447.518(d) heading to be
‘‘Data requirements’’ and to revise
paragraph (d)(1) to specify these
requirements in the regulatory text.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Several commenters
provided general support statements for
the proposed updates to the data
reporting requirements in § 447.518
regarding State plan requirements,
findings, and assurances, which will
ensure patient access and appropriate
pharmacy reimbursements.
Response: We appreciate receiving the
comments in support of this proposal.
Comment: One commenter agreed
with the proposed rule and stated that
if pharmacies are unable to successfully
acquire drugs at a rate reflective of the
current market, there would be a ripple
effect, such as limited beneficiary access
due to pharmacy closures, and a
negative impact on health equity for
these vulnerable populations.
Response: We agree with the
commenter. To ensure beneficiaries can
access pharmacy services, CMS reviews
each State’s SPA to ensure that the
reimbursement methodologies are
established in accordance with
applicable Federal provisions so 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.
Comment: Several commenters
recommended that CMS consider
outlining how often States should assess
if the pharmacy reimbursement rates
accurately reflect current costs or other
mechanisms to collect reliable data to
ensure rates are current and adequate
for pharmacies. Another commenter
stated that an annual assessment is not
realistic or feasible, and recommended
that CMS consider requiring that States
conduct a periodic assessment at least
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every 2–3 years to reflect current costs,
but not less than 2 years.
Response: We appreciate the
commenters’ suggestions. CMS is not
requiring that a State conduct a cost of
dispensing study on an annual basis or
any defined period of time. If the State
proposes a change to the ingredient cost
reimbursement methodology, the State
must also review the adequacy of their
current professional dispensing fees.
While this final rule is not designed to
mandate the frequency at which States
should update their current professional
dispensing fees, we encourage States to
undertake a periodic assessment of
whether pharmacy dispensing costs
have changed, especially if there is a
change to the ingredient cost such that
the State should consider conducting a
cost of dispensing study to comply with
Federal regulations.
Comment: A commenter
recommended enhanced professional
dispensing fees for 340B prescriptions
to ensure adequate reimbursement. The
commenter specifically requested that
CMS encourage States to consider
enhanced professional dispensing fees
for 340B prescriptions to ensure the
adequacy of pharmacy reimbursement
for 340B covered entities and contract
pharmacies.
Response: We appreciate the
recommendation regarding enhanced
professional dispensing fees for 340B
drugs. States continue to have the
ability to propose different professional
dispensing fees for CODs, such as for
specialty drugs, hemophilia drugs,
generics, brand drugs, 340B drugs, etc.
CMS will review the proposed rates
through the SPA process to ensure that
each State’s proposed reimbursement
methodology meets 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.
Comment: Two commenters disagreed
with the proposal to require
professional dispensing fees to be based
on cost data, as opposed to marketbased research, and claimed that these
proposals are unnecessary and
redundant. One commenter was
concerned that CMS’ proposed
requirements divert the States’ limited
resources away from other more
pressing State Medicaid priorities and
that CMS’ prohibition on the use of
market-based reviews of professional
dispensing fees is not accompanied by
findings that the States’ approach is
contributing to unsustainable
dispensing fee reimbursement. Another
commenter stated that imposing stricter
standards for cost information in this
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case means that dispensing fees are
treated differently than traditional
Medicaid services. Conducting surveys
or other research on cost-based data will
be an added burden on States, and it
may be difficult to obtain this
information from providers as opposed
to market-based research.
Response: We understand the
concerns raised by commenters;
however, CMS has no reason to believe
that the provisions provided in this final
rule will divert the States’ limited
resources away from other more
pressing State Medicaid priorities.
States are not required to complete their
own cost of dispensing study. States can
propose their professional dispensing
fees based on a neighboring State’s
survey or other credible survey data, as
long as it is adequate and reflects the
current pharmacy costs of dispensing a
prescription in their State.
CMS is requiring that the professional
dispensing fee be based on pharmacy
cost data, and not be based on a marketbased review. We believe that marketbased research is insufficient because it
does not reflect actual costs to
pharmacies to dispense prescriptions.
Comment: Several commenters
provided support for data used to
determine professional dispensing fees
and ingredient costs and offered
suggestions on ways to better
understand these costs and
accommodate individual States’ needs.
One commenter agreed that to the extent
that a State is conducting a cost of
dispensing study, it should be a
transparent, comprehensive, and welldesigned tool that addresses a pharmacy
provider’s cost to dispense the drug
product to a Medicaid beneficiary.
Several commenters expressed support
for States to periodically assess if
pharmacy reimbursement rates
accurately reflect current costs, with
suggestions for this assessment to occur
every 2 to 3 years.
Response: We agree that a State’s cost
of dispensing survey should be
transparent, comprehensive, and
reflective of the pharmacy’s actual cost
of dispensing. As stated earlier, we are
currently not requiring that a State
conduct a cost of dispensing survey
based on any timeframe, but States must
review their current professional
dispensing fee whenever they propose
to change their reimbursement
methodologies to ensure it meets
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.
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79063
After consideration of public
comments on this provision, we are
finalizing as proposed.
L. Federal Financial Participation (FFP):
Conditions Relating to PhysicianAdministered Drugs (§ 447.520)
In the proposed rule, we included a
provision that would clarify when
States are required to invoice for rebates
for PADs that are CODs. As background,
we noted that, generally, PADs may
satisfy the definition of a COD set forth
under section 1927(k)(2) of the Act,
subject to the limiting definition at
section 1927(k)(3) of the Act, and that
manufacturer rebates should be
collected on these PADs. We noted that
in the past, many PADs were classified
by Healthcare Common Procedure
Coding System (HCPCS) 31 codes
(commonly referred to as J-codes),
which group together different
manufacturers of the same drug that
have different NDC codes within the
same J-code, making it impossible to
know which manufacturer supplied the
drug in question. We noted that these
broad J-codes cannot be used to bill for
rebates, as they do not identify the
specific PADs NDC. Many providers
were submitting only these HCPCS
codes to the States, rather than the NDC
of the specific PAD, making it difficult
if not impossible for the State to bill for
rebates.32
To help address this situation, and to
improve a State’s ability to identify
PADs that may be subject to rebates
being invoiced, the Congress enacted
section 6002 of the Deficit Reduction
Act of 2005 (DRA) adding sections
1927(a)(7) and 1903(i)(10)(C) to the Act
to require States to collect and submit
certain utilization data on certain PADs
as a condition for FFP to be available in
payments for these drugs, and to
facilitate State collection of
manufacturer rebates. More specifically,
the DRA provisions required that for
payment to be available under section
31 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.
32 In its report titled ‘‘Medicaid Rebates for
Physician Administered Drugs’’ (April 2004, OEI–
03–02–00660), the Office of Inspector General (OIG)
reported that of the 17 States that collected drug
manufacturer rebates for physician-administered
drugs in 2001, 3 collected rebates on all physicianadministered drugs. These three States used NDC
codes for billing and the remaining 14 States used
HCPC codes. These 14 States cross walked HCPC
codes to NDC codes for single-source drugs and
collected rebates on these drugs only.
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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
NDCs) for all single source PADs (after
January 1, 2006) and multiple source
drugs (after January 1, 2008) that are a
top 20 high dollar volume PAD that
appears on a published list (based on
highest dollar volume dispensed under
Medicaid identified by the Secretary,
after January 1, 2007) in order for FFP
to be available under section 1903 of the
Act in the case of these drugs, and to
assist the States in securing applicable
Medicaid rebates for these drugs.
We noted that the 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.) Also, the statute required that
only NDCs be used after January 1, 2007
for billing for all PADs that are single
source CODs or the 20 multiple source
CODs on the list published by the
Secretary, unless the Secretary specified
that another alternative coding system
be used, or the State obtains a ‘‘hardship
waiver’’ under section 1927(a)(7)(D) of
the Act. Further, if States are not
collecting NDCs and submitting the
appropriate utilization data for these
drugs consistent with the foregoing
requirements, FFP is not available in
payments for the CODs at issue. In
addition, States would be forgoing
available manufacturer rebates for these
drugs.
We also noted that the 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 complied with
the foregoing requirements pertaining to
submission of codes from its providers
that allow it to appropriately bill
manufacturers for rebates for PADs. For
single source PADs, we noted that the
requirement to submit appropriate
coding went into effect as of January 1,
2006, and specified 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. We also noted
that § 447.520(a)(2) further specified
that as of January 1, 2008, a State must
require providers to submit claims for
single source and the top 20 multiple
source PADs identified by the Secretary,
using NDCs. As such, under current
§ 447.520(b), as of January 1, 2007, a
State must require providers to submit
claims for the top 20 multiple source
drugs identified by the Secretary as
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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 noted that we
retained this regulatory language
without modification in the 2016 COD
final rule. See 81 FR 5322.
In the proposed rule, we included a
provision to update the regulatory
language at § 447.520 to more
specifically and accurately conform
with the statutory requirements
captured at section 1927(a)(7) of the Act.
Specifically, in proposed § 447.520(a)(1)
and (2), we outline the conditions under
which FFP would be available for
States, as related to the NDCs States
must require providers to use in order
for the State to secure rebates for PADs
that are CODs. The proposed language
clarified that rebates are only due for
PADs that are CODs and specified that
data must be submitted by providers in
the State in order for States to receive
FFP as stated under sections
1927(a)(7)(A) and 1927(a)(7)(B)(i) of the
Act and secure applicable rebates. In
proposed § 447.520(a)(2), we also
proposed that States be required to
collect rebates on all multiple source
PADs in the manner required under
section 1927(a)(7) of the Act, for those
20 identified under section 1927(b)(i) of
the Act. We also similarly proposed at
§ 447.520(b) that after January 1, 2007,
a State would have to require providers
to submit claims for all COD single
source and all multisource PADs using
NDC numbers to collect FFP and secure
rebates.
We also noted that States need to
ensure that their Medicaid 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.33
Additionally, we proposed at
§ 447.520(c) to continue to publish the
top 20 list of multiple source PADs on
an annual basis, as statutorily required,
but also stated our expectation that
States would invoice rebates for all
multiple source PADs that are CODs,
not just those identified on this list. In
summary, the proposed regulation
would require States to require
providers to submit NDCs for all
multiple source PADs that are CODs,
which would then be subject to
33 86 FR 27498, May 6, 2016 (https://
www.govinfo.gov/content/pkg/FR-2016-05-06/pdf/
2016-09581.pdf).
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manufacturer rebate invoicing, and not
limit such rebate invoicing to those on
the top 20 high dollar multiple source
drug list subject to the statutory
requirements in section 1927(a)(7) of the
Act. As technology and systems are
currently in place, we noted that this
proposed regulation would reduce the
administrative burden of monitoring
any revisions to the top 20 multiple
source PADs and allow States to invoice
rebates for these PADs that are CODs.
Since publication of the proposed
rule, we have determined that we need
to rely upon different statutory authority
other than section 1927(d)(7) of the Act
for our proposed requirements for
multiple source drugs that are not
among the 20 identified by CMS under
section 1927(a)(7)(b)(i) of the Act and
§ 447.520(c). This is because the
statutory language in section
1927(a)(7)(b)(ii) of the Act conditioning
FFP on meeting its requirements, and
the NDC code requirements in section
1927(c) of the Act, only apply to the 20
multiple source drugs identified under
section 1927(a)(7)(b)(i) of the Act, and
not to multiple source drugs not on that
list. We accordingly are relying on our
authority under section 1902(a)(4) of the
Act to specify ‘‘methods of
administration’’ that ‘‘are found by the
Secretary to be necessary for the proper
and efficient operation’’ of the State’s
Medicaid State plan as authority for our
proposal to extend the multiple source
PAD requirements under section
1927(a)(7)(B)(ii) and (C) of the Act that
only apply to multiple source PADs
identified under section 1927(b)(i) of the
Act and § 447.520(c) to other multiple
source PADs not so identified. Because
requirements under section 1902(a)(4) of
the Act are enforced under section 1904
of the Act and regulations at § 430.435,
we have revised the regulation text to
provide that compliance with
requirements in § 447.520 applicable to
multiple source PADs not on the list of
20 identified under section 1927(b)(i) of
the Act and § 447.520(c) will be
enforced under section 1904 of the Act
and § 430.435. Finally, because the new
requirements that apply to multiple
source drugs not identified under
section 1927(b)(i) of the Act and
§ 447.520(c) are not effective until the
effective date of this final rule, we have
distinguished in the regulation text
between these new requirements and
those that took effect for the 20
identified multiple source drugs in
2006, 2007 or 2008.
We received several public comments
on this proposal. The following is a
summary of the comments we received
and our responses.
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Comment: Several commenters
support the revisions to the existing
regulatory language regarding the use of
NDCs to identify PADs and expanding
rebate invoicing beyond the top 20 highdollar volume list for multiple source
drugs. Commenters agree this would
increase transparency and allow States
to obtain both manufacturer rebates and
receive FFP for these CODs. One
commenter stated that Medicaid
managed care plans are in a position to
require physicians to submit NDCs with
medical claims for drugs administered
in the provider office or an outpatient
facility, which is consistent with
Medicaid claims submission for medical
benefit drugs.
Response: We agree with the
commenters that the policies we are
adopting in this final rule will allow
States to obtain both manufacturer
rebates and FFP for reporting and
invoicing NDC numbers for all single
source and multisource PADs that are
CODs administered under both the
Medicaid FFS and Medicaid managed
care programs. Additionally, since most
State Medicaid programs currently
require their providers to submit NDC
numbers on PAD claims for all CODs
that are single source or multiple source
drugs, we anticipate the administrative
burden to be minimal. We expect that
Medicaid managed care plans will
continue to review and implement
policies that will ensure that prescribers
are required to include NDC numbers on
all PAD claims.
Comment: One commenter noted that
CMS and the Office of the National
Coordinator for Health Information
Technology (ONC) are moving in
opposing directions when it comes to
which drug codes to utilize when
submitting claims. This commenter
stated that the ONC HTI–1 proposed
rule discusses the possibility of what
they refer to as deprecating support for
NDC codes in its certification programs
in favor of always requiring the use of
RxNorm for medications. Additionally,
a commenter stated that if NDCs are
required for any drug, they need to be
supported by a certified health IT
system.
Response: We appreciate the
comments about ONC’s HTI–1 proposed
rule and use of RxNorm for exchanging
information on clinical drugs to ensure
there is no ambiguity when it comes to
identical medications that have different
names. We note that NDCs provide
package-level information about drugs
and are used by healthcare
organizations when submitting claims
for CODs and the vehicle used for State
utilization reporting for rebate purposes.
RxNorm does not separately capture
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drug manufacturer information and will
not meet the needs of the MDRP
involving direct manufacturer
attribution of CODs, as NDCs are
required for rebate purposes. The ONC
Health IT Certification program
establishes certification criteria for
health IT products, which are generally
used by health care providers in the
provision of care. In the HTI–1 final
rule, published on January 9, 2024, ONC
finalized adoption of NDCs in 45
CFR 170.207(d)(4) through a cross
reference to 45 CFR 162.1002(b)(2) as
referenced in 45 CFR 162.1002(c)(1) for
the period on and after October 1, 2015
(89 FR 1226). ONC also finalized
adoption of the United States Core Data
for Interoperability version 3 (USCDI
v3), a standardized set of health data
classes and constituent data elements,
in 45 CFR 170.213 (89 FR 1210). In
addition to requiring the use of RxNorm
for medications, USCDI v3 added
optional support for NDCs. As finalized
in the HTI–1 final rule, USCDI version
3 will be the only version of USCDI
referenced in certification criteria for
health IT under the ONC Health IT
Certification Program beginning on
January 1, 2026 (89 FR 1211), however,
health IT developers may update their
products to conform to USCDI version 3
in advance of this compliance date.
These actions will support the
availability of NDCs within certified
health IT products in alignment with
finalized policies.
Comment: Several commenters
opposed this proposed regulation as it
mandates submission of NDCs for all
CODs, stating it will considerably
intensify the administrative tasks for
Medicaid providers. It was stated that
this requirement that expands the
claims for which NDCs must be reported
could strain the already limited
resources of 340B covered entities.
Another commenter suggested requiring
NDCs only for medications that cost
above a certain dollar threshold to
reduce administrative burden.
Response: We appreciate the concerns
stated by the commenters referencing
the potential administrative burden to
Medicaid providers to submit NDCs for
all multiple source PADs that are CODs.
However, since most State Medicaid
programs currently require their
providers to submit NDC numbers on
their PAD claims for all CODs that are
single source or multiple source drugs,
we anticipate the administrative burden
caused by this rule to be minimal.
After consideration of public
comments on this provision, we are
finalizing with the revisions set forth
previously in this section.
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79065
M. Request for Information on Requiring
a Diagnosis on Medicaid Prescriptions
In the proposed rule, we noted that
Medicaid COD prescription claims do
not currently require a diagnosis as a
condition for payment. When reviewing
claims without a diagnosis, we noted
that it is difficult for the pharmacist or
the State 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. We also
noted that requiring a diagnosis on a
prescription may provide more
information to the dispensing
pharmacist to enable counseling with a
focus on drug-disease interaction, which
may improve the beneficiary’s overall
health.
The proposed rule also noted a 2011
OIG Medicare audit that discovered that
without a diagnosis code, it is difficult
for Part D sponsors to determine
whether a drug claim is medically
appropriate.34 OIG stated that without
access to diagnosis information, CMS
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 the
then Principal Deputy Inspector General
(and now current Inspector General) and
Chief Medical Officer from OIG
advocated for a new mandate that
physicians include a diagnosis code
with prescriptions.35 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.
We also noted in the proposed rule
that since many prescriptions are being
electronically prescribed, it may make it
easier for prescribers to include a
diagnosis. Further, we noted several
instances in which we believed a
diagnosis on a prescription could help
States, including implementation of
certain Medicaid programs and benefits
in which they are eligible for enhanced
34 https://oig.hhs.gov/reports/all/2011/medicareatypical-antipsychotic-drug-claims-for-elderlynursing-home-residents/.
35 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) https://www.statnews.com/2021/
03/01/why-drug-prescriptions-should-includediagnoses/ March,1 2021.
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Federal matching funds, assistance to
pharmacists to identify safety issues and
ensuring prescriptions are appropriate,
medically necessary, and not likely to
result in adverse medical results, and
assurance that Medicaid reimbursement
is limited to drugs with medically
accepted indications.
Given the various perspectives, we
assumed there would be many
interested parties that would have views
on a potential requirement to include a
diagnosis on a prescription, including
but not limited to patients, prescribers,
pharmacists, States, and drug
manufacturers. Thus, we specifically
solicited comments on this topic, its
impact on beneficiaries, providers,
States, and Medicaid, and any
operational implications. We were
particularly interested in understanding
the benefits and burdens of such a
proposal and sought comments on how
to mitigate the impact on beneficiaries
and providers, and steps which would
be needed by States to successfully
implement a Medicaid requirement for
diagnoses on prescriptions as a
condition of FFP. We also requested
comments regarding the potential
impact of a policy to require Medicaid
diagnoses on prescriptions on payment,
health care quality, access to care, and
program integrity. In addition, we
requested comments on the potential
impact of such a policy on beneficiary
access to commonly used, medically
accepted, compendia supported, offlabel uses of CODs.
We received many public comments
on this request for information on
requiring a diagnosis on Medicaid COD
prescription claims. The following is a
summary of the comments we received
and our response.
Comment: A few commenters
provided general support for the
requirement of diagnoses on
prescriptions; however, the majority of
commenters stated their strong
opposition to requiring diagnoses on
prescriptions. These arguments focused
mostly on administrative burden,
potential information technology (IT)
issues with delays in care, significant
system alterations, stigma, and other
complications. Several commenters
stated that because of the technical and
operational challenges of including a
diagnosis on a prescription, it could also
lead to manufacturers initiating
unnecessary disputes. Furthermore,
many commenters opposed the
requirement of diagnoses on
prescriptions due to possible impact on
equitable access to care, including
delays and denials in care, added
burden to patients, exacerbation of
already existing barriers to care, and
overall reduction in care access.
Response: We appreciate the
comments received in response to the
request for information on requiring a
diagnosis on Medicaid prescriptions.
After careful review and consideration
of the public comments received, and
due to the overwhelming number of
comments that were opposed to this
requirement, we are not pursuing this
requirement in rulemaking at this time.
We will continue to review the feedback
we receive from interested parties and
may address this issue in future
rulemaking if appropriate.
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.
Our May 26, 2023 (88 FR 34238)
proposed rule (CMS–2434–P; RIN 0938–
AU28) solicited public comment on
each of the aforementioned issues for
the following sections of the rule that
contained collection of information
requirements. Comments were received
and are summarized and responded to
later under sections III.B.1.
(Identification and Notification to
Manufacturer to Correct Drug
Misclassification), III.B.2. (Definitions),
III.B.3. (State Plan Requirements,
Findings, and Assurances), III.B.4.
(Federal Financial Participation (FFP):
Conditions Relating to PhysicianAdministered Drugs), and III.B.6.
(Standard Medicaid Managed Care
Contract Requirements) of this final
rule.
A. Wage Estimates
To derive average costs, we used data
from the U.S. Bureau of Labor Statistics’
(BLS’) May 2023 National Occupational
Employment and Wage Estimates for all
salary estimates (https://www.bls.gov/
oes/current/oes_nat.htm#23-0000). In
this regard, Table 2 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.
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TABLE 2—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
45.96
45.96
91.92
As indicated, we adjusted 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
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study to study. Nonetheless, we believe
that doubling the hourly wage to
estimate the total cost is a reasonably
accurate estimation method.
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B. Information Collection Requirements
(ICRs)
1. ICRs Regarding Identification and
Notification to Manufacturer To Correct
Drug Misclassification (§ 447.509(d)(1)
Through (4))
We added new paragraphs (d)(1)
through (4) to § 447.509 to add new
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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.
A manufacturer’s effort to address the
misclassification of its CODs is
currently approved by OMB under
control number 0938–0578 (CMS–367).
The active collection considers 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 may vary by manufacturer
based on the extent to which they
misclassify drugs and subsequently
need to correct those misclassifications.
The extent of the burden may also be
impacted based on when the
misclassification originally occurred.
Since the manufacturer requirements
and burden do not require any changes
as a result of this rule, we are not
making any changes under the
aforementioned OMB control number.
The manufacturer burden is subject to a
regulatory impact analysis which can be
found in the Regulatory Impact Analysis
section in section IV. of this final rule.
We received numerous public
comments on these proposals, but very
few, if any, addressed this burden. The
following is a summary of the comments
we received and our response.
Comment: We received three
comments that stated that requiring a
manufacturer to correct
misclassifications of CODs that occurred
more than 10 years ago will be more
difficult to address due to the 10-year
record retention requirement.
Response: Section 1927 of the Act
specifies that rebates can be collected
back to the effective date of that section
of the Act. Thus, manufacturers must
correct misclassifications back to the
date of the misclassification so that
correct rebates may be paid by the
manufacturers on these misclassified
drugs. As we note in other sections of
this final regulation, manufacturers can
make reasonable assumptions regarding
their data for any period that extends
beyond the 10-year record retention if
such records are not available.
After consideration of the public
comments, we are finalizing
§ 447.509(d)(1) through (4) as proposed,
with the exception of making a
modification to § 447.509(d)(4)(i), to add
the following language at the end of that
section: ‘‘In such case, the manufacturer
must certify the applicable correction
within 30 calendar days.’’
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2. ICRs Regarding Definitions
(§ 447.502)
To further consider commenters’
concerns, we are not finalizing at this
time our proposal to add a new
paragraph (5) to the definition of
manufacturer or § 447.510(h) or our
proposal to add a new paragraph to
§ 447.502 to define vaccine for purposes
of the MDRP only.
Consistent with our proposed rule, we
do not believe that any of the following
new terms or definition modifications
and clarifications that are being
finalized 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
information’’ (§ 447.502), (3) proposal to
define ‘‘market date’’ (§ 447.502), (4)
proposal to modify the definition of
‘‘noninnovator multiple source drug’’
(§ 447.502), and (5) proposal to clarify
§ 447.509(a)(6) through (9) and (c)(4)
with respect to ‘‘other drugs’’.
Consequently, none of the definition
changes are subject to the requirements
of the PRA.
We received extensive public
comments on these proposals; however,
only a few address estimates of effort
and burden. The following is a summary
of the comments we received and our
responses.
Comment: Regarding the modification
to the definition of COD, several
commenters expressed their concerns
regarding the lack of visibility that CMS,
manufacturers, and States have into
payer claims data to understand how
drugs and associated services are
itemized. One commenter suggested
manufacturers would have to hire
personnel to procure and assess claims
data in order to verify rebate invoices
from the State. A few commenters
questioned the States’ ability to capture
necessary data for bundled drugs on
payer claims. One commenter noted the
proposed definition of COD will serve to
generate even more good faith disputes,
given the greater challenge posed by
generating and providing such claimslevel detail in relation to bundled
payments, which will result in increases
in disputed rebate claims and delayed
payments to the States due to this longer
validation time.
Response: Manufacturers and States
should have current procedures and
practices in place regarding how they
validate invoices for the purpose of
paying claims, and thus billing
manufacturers for rebates. We
acknowledge that as a result of the
clarification to the definition of COD in
this rule, States may have to consider
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79067
how they instruct providers to bill for
certain drugs that are paid for under an
all-inclusive rate, such that the State or
the Medicaid managed care plan can
identify CODs that would be eligible for
rebates under inclusive payment
models.
Comment: One commenter stated that
the proposed changes to § 447.502
would result in a significant burden on
the manufacturer and thus are subject to
the requirements of the PRA.
Response: The commenter did not
describe the nature of the burden in any
detail, so we are unable to provide a
substantive response.
Comment: Regarding the modification
to the definition of COD, one
commenter stated collecting NDCs and
ingredient cost information and
applying such information on Medicaid
claims forms is both time-consuming
and labor-intensive. CMS should,
therefore, refrain from imposing more
administrative burdens on providers.
Response: We appreciate the
comments regarding the potential
burden to providers. Pursuant to their
State plans, States have the discretion to
choose which reimbursement
methodology to employ and what drugs,
if any, they will carve out from that
methodology and directly reimburse for
them. States also dictate the terms of
what information is necessary from the
provider in order for direct
reimbursement to be executed. As of
January 1, 2007, § 447.520 has obligated
States to require that providers submit
NDCs for physician-administered single
source drugs and the 20 multiple source
drugs identified by the Secretary.
Additionally, we note that in section
II.L of this rule, it is required that States
provide for the collection of NDCs for
all physician-administered single source
drugs and multiple source drugs.
However, since most State Medicaid
programs currently require their
providers to submit NDC numbers on
their PAD claims for all CODs that are
single source or multiple source drugs,
we anticipate the administrative burden
caused by this rule to be minimal.36
36 Physician-Administered Drug, Paperwork
Reduction Act (PRA)—Identifying Medicaid
Payment for Physician Administered Drugs (CMS–
10215) OMB CONTROL NUMBER: 0938–1026. At
the time the original PRA (November 5, 2007) was
approved, collecting and submitting PAD data was
a greater burden. At that time, patient records were
retained primarily in paper, and claim submissions
were made utilizing paper forms. Initial estimates
were all made based on the standard of practice in
2007. Since that time, subsequent PRA extensions
have been approved; however, these versions did
not address improved medical standards of practice
with respect to record retention and billing, rulemaking requirements relating to including the NDC
on the claim so States could bill for rebates (that
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Comment: We received a few
comments suggesting that the proposed
requirement to report drug product
information monthly would place an
unnecessary burden on both
manufacturers and the Agency.
Response: Section 1927(b)(3)(A)(v) of
the Act states that manufacturers must
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
CODs. Currently, approved by OMB
under control number 0938–0578
(CMS–367), we require that certain drug
product information be reported not
later than 30 days after the date of
entering into a rebate agreement, or, for
newly introduced drugs, not later than
30 days after the last day of month
during which the new drug is
introduced. Such drug product
information is not required on a
monthly or quarterly basis at this time.
Unless future changes are made to the
MDRP that require monthly or quarterly
reporting of certain drug product
information, we will not require
repeated reporting.
3. ICRs Related to State Plan
Requirements, Findings, and
Assurances (§ 447.518)
The burden for submissions relating
to § 447.518 is currently approved by
OMB under control number 0938–0193
(CMS–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
§ 447.518 of this rule clarifies the data
requirements that States must submit to
establish the adequacy of both the
current ingredient cost and the
professional dispensing fee
reimbursement, this will not add any
new or revised requirements or burden,
we are not making any changes under
that control number.
The proposed rule had inadvertently
identified the package as ‘‘CMS–10398
#179’’. The correct CMS identification
number is ‘‘CMS–179’’ as indicated
previously in this section. The control
number is correct in both instances.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: Several commenters
expressed support for the use of
pharmacy cost data to determine
professional dispensing fees and
is, CMS–2345–F, Medicaid Program; Covered
Outpatient Drugs).
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17:17 Sep 25, 2024
Jkt 262001
ingredient costs and offered suggestions
on ways to better understand these costs
and accommodate individual States’
needs. One commenter agreed that to
the extent that a State is conducting a
cost of dispensing study, it should be a
transparent, comprehensive, and welldesigned tool that addresses a pharmacy
provider’s cost to dispense the drug
product to a Medicaid beneficiary.
Several commenters expressed support
for States to periodically assess if
pharmacy reimbursement rates
accurately reflect current costs, with
suggestions for this assessment to occur
every 2 to 3 years.
Response: We appreciate the
commenters’ support. We agree that a
State’s cost of dispensing survey should
be transparent and comprehensive, and
the results should reflect the pharmacy’s
actual cost of dispensing a prescription
and the ingredient cost of the drug. The
survey must be based on actual
pharmacy cost of dispensing data, not
market-based data. As stated earlier, we
are currently not requiring that a State
conduct a cost of dispensing survey
based on any timeframe, but States must
review their current professional
dispensing fee whenever they propose
to change their reimbursement
methodologies to ensure it meets
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.
After consideration of the public
comments, we are finalizing the
proposed provisions without change.
4. ICRs Relating to Federal Financial
Participation (FFP): Conditions Relating
to Physician-Administered Drugs
(§ 447.520)
We are updating § 447.520 to make it
consistent with section 1927(a)(7) of the
Act, and codifying the requirement that
States must collect NDC information on
all single and multiple source PADs that
are CODs for the purposes of invoicing
manufacturers for rebates, and ensuring
that FFP is available, as appropriate. We
are requiring that States must invoice
for rebates for all PADs that are CODs.
We will continue to publish the top 20
high dollar volume list of multiple
source PADs, 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 thus not invoicing for rebates on
these drugs. This will be applicable to
all States; however, we believe this
would cause minimal administrative
burden because most States, based on
their State Drug Utilization Data (SDUD)
reported to CMS, are currently
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collecting NDC numbers for all CODs,
including all single and multiple source
PADs and invoicing manufacturers for
rebates as applicable under OMB
control number 0938–1026 (CMS–
10215). Since the provisions will not
add any new or revised requirements or
burden, we are not making any changes
under that control number.
We received public comments on
these proposals. The following is a
summary of the comments we received
and our response.
Comment: Several commenters
opposed this proposed regulation as it
mandates submission of NDCs for all
CODs, and they stated it considerably
intensifies the administrative tasks for
Medicaid providers. It was stated that
this requirement, previously limited to
single source PADs and the top 20
multiple source PADs, could strain the
already limited resources of 340B
covered entities. Another commenter
suggested requiring NDC numbers only
for medications that cost above a certain
dollar threshold to reduce
administrative burden to States.
Response: We appreciate the concerns
expressed by the commenters
referencing potential administrative
burden to State providers to submit
NDCs for all single source and multiple
source covered outpatient PADs.
However, since most State Medicaid
programs currently require their
providers to submit utilization data
through use of NDC numbers for all
CODs that are single source or multiple
source drugs, including PADs, we
anticipate the administrative burden to
be minimal.
After consideration of the public
comments, we are finalizing the
proposed provisions without change.
5. ICRs Regarding Verification Survey of
Reported CODs Through Data Collection
(§ 447.510)
We proposed at § 447.510(k) a process
to survey 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 would
have been submitted to OMB for review
if the proposed rule was finalized and
the corresponding survey instruments
(one for requesting information from
States as proposed under
§ 447.510(k)(3)(ii) and (iii)(A), and
another for surveying manufacturers).
Through the proposed rule, we
solicited comments to help us develop
the manufacturer survey and the State
survey and received some suggestions.
However, we determined not to finalize
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the proposed policy at this time. We are
continuing to review the input provided
by commenters, which may inform
future rulemaking on this topic. The
estimates included in the proposed rule
regarding these survey instruments have
been removed from the final rule.
6. ICRs Regarding Standard Medicaid
Managed Care Contract Requirements
(§ 438.3(s))
The following changes regarding drug
cost transparency in Medicaid managed
care contracts will be submitted to OMB
for approval under control number
0938–1445 (CMS–10855).
We are amending § 438.3(s) to require
MCOs, PIHPs, and PAHPs that provide
coverage of covered outpatient drugs to
assign and exclusively use a unique
Medicaid-specific BIN and PCN
combination, and group number
identifiers on all issued Medicaid
managed care enrollee identification
cards for pharmacy benefits. It is a
standard business practice for the
MCOs, PIHPs, and PAHPs to routinely
issue enrollee identification cards for
pharmacy benefits, even though there is
no Federal requirement to issue such
cards. The MCOs, PIHPs, and PAHPs
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 standard 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 plans 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
the Regulatory Impact Analysis section
in section IV. of this final rule.
Comment: A few commenters noted
the administrative burden of creating
potentially thousands of unique BIN,
PCN, and group number identifiers
instead of the requirement using a BIN
and PCN combination. Commenters also
expressed concern regarding the
administrative burden for assigning
each enrollee with a unique BIN, PCN,
and group number.
Response: CMS is finalizing the rule
to include this recommendation to
require a BIN and PCN combination,
along with a group number identifier,
rather than unique numbers for each
component. We agree that it would be
administratively burdensome to require
unique BINs and unique PCNs, along
with a group identifier. The
combination approach will achieve the
intended result, while minimizing any
potential administrative issues.
Comment: One commenter stated that
there would be a cost associated with
reprinting pharmacy identification cards
to meet with new requirement. Another
commenter expressed concern regarding
the potential operational burden for
needing to reissue member ID cards to
beneficiaries regarding the new BIN/
PCN requirement.
Response: This final rule does not
mandate reprinting or re-issuance of
enrollee identification cards solely
based on when a unique BIN and PCN
combination and group number
identifier is assigned, but rather reissuance of cards shall bear the unique
identifiers upon routine card issuance.
Plans are expected to fulfill these
requirements within their standard
business practices.
The applicability date for the BIN and
PCN combination, and group number
identifier provision will be the first
rating period for State contracts with
MCOs, PIHPs, and PAHPs beginning on
or after 1 year following the effective
date of the final rule.
Comment: One commenter stated that
pharmacies submitting a 340B identifier
on claims involves high administrative
burden and financial risk and should be
considered a last resort.
Response: Inclusion of accurate
submission clarification codes is a
standard NCPDP guided practice for
pharmacies to include additional
information to the processor when
submitting a claim. We do not believe
the submission of accurate submission
clarification codes is a burden outside of
the normal current business practices.
However, the inclusion of 340B
identifiers on claims is outside the
scope of this final rule.
Additionally, the provision outlined
in § 438.3(s)(8) requires that MCOs,
PIHPs, and PAHPs that provide
coverage of covered outpatient drugs
that contract with any subcontractor for
the delivery or administration of the
covered outpatient drug benefit must
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 reporting
requirements would affect 282 managed
care plans and 40 States. We further
estimate that it would take an
Operations Research Analyst at the State
level, 25 hours at $91.92/hr to revise
282 managed care contracts to require
those plans to comply with § 438.3(s)(8).
In aggregate, we estimated a one-time
burden of 1,000 hours (40 State
responses × 25 hr/response) at a cost of
$91,920 (1,000 hr × $91.92/hr).
For the same contract changes
between the managed care plans and the
subcontractors (mainly PBMs), we also
estimated a one-time private sector
burden of 7,050 hours (282 managed
care plans × 25 hr/response) at a cost of
$648,036 (7,050 hr × $91.92/hr).
With respect to the reporting burden,
we estimate that for 282 PBMs of those
282 managed care plans to separately
report incurred claims e×penses
described in § 438.8(e)(2) from fees paid
for administrative activities will take
appro×imately 2 hours annually 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 $51,842.88
(564 hr × $91.92/hr).
We did not receive any comments
regarding the proposed provisions and
burden estimates. We are finalizing
them in this rule without change.
C. Summary of Burden Estimates
In Table 3, we present a summary of
this rule’s collection of information
requirements and associated burden
estimates.
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TABLE 3—SUMMARY OF BURDEN ESTIMATES
Regulatory
section(s)
under Title
42 of the CFR
OMB Control No.
(CMS ID No.)
Number respondents
§ 438.3(s)(8) ..............
§ 438.3(s)(8) ..............
§ 438.8(s)(8) ..............
0938–1445 (CMS–10855) ..
0938–1445 (CMS–10855) ..
0938–1445 (CMS–10855) ..
40 States ............................
282 managed care plans ....
Subcontractor PBMs of the
282 managed care plans.
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PO 00000
Frm 00051
Fmt 4701
Total number of
responses
40
282
282
Sfmt 4700
Time per
response
(hr)
25
25
2
E:\FR\FM\26SER3.SGM
Total time
(hr)
1,000
7,050
564
26SER3
Labor cost
($/hr)
91.92
91.92
91.92
Total cost
($)
91,920
648,036
51,842.88
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TABLE 3—SUMMARY OF BURDEN ESTIMATES—Continued
Regulatory
section(s)
under Title
42 of the CFR
Total ...................
OMB Control No.
(CMS ID No.)
Number respondents
322 (40 States + 282 managed care plans).
.............................................
IV. Regulatory Impact Analysis
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A. Statement of Need
The intent of this final 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 MSIAA was
signed into law on April 18, 2019.
Section 6 of 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. The final rule includes policies
to implement these new statutory
authorities, as required.
The 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 finalizing several important
MDRP program administration and
integrity policies such as: implementing
a time limitation on manufacturer
disputes and audits with States
regarding rebates. The final rule also
specifies a number of existing policies
including: 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.
The final rule includes two new
requirements for the contracts between
States and their Medicaid managed care
plans, specifically MCOs, PIHPs, and
PAHPs. That is, States would be
required to include in their contracts
with MCOs, PIHPs, and PAHPs a
requirement that each Medicaid
enrollee’s identification card used for
pharmacy benefits would include a
unique Medicaid-specific BIN and PCN
combination, along with a group
number. The applicability date of these
unique Medicaid-specific BIN and PCN
combinations on the enrollee
identification cards will be the first
rating period for contracts with MCOs,
PIHPs, and PAHPs beginning on or after
1 year following the effective date of the
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Time per
response
(hr)
Total number of
responses
604
I
final rule. This requirement would
assist providers in identifying patients
as Medicaid beneficiaries.
In addition, we are finalizing that
Medicaid MCO, PIHP, or PAHP
(managed care plans) that contract with
any subcontractor for the delivery or
administration of the covered outpatient
drug benefit must require the
subcontractor to report separately to the
MCO, PIHP, or PAHP incurred claims
and administrative costs, fees, and
expenses of the subcontractor.
Moreover, we are also finalizing
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, and market
data; and modifying the definition of
COD. Included was also a provision not
directly related to MDRP, that is, a
proposed revision to third-party liability
regulation resulting from statutory
changes in the BBA 2018.
On May 17, 2022, the United States
District Court for the District of
Columbia vacated and set aside the
accumulator provisions within the 2020
final rule. The 2020 final rule required
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, before excluding such
amounts from the determination of best
price or AMP. In response to the district
court’s order, we are withdrawing the
changes made to these sections by the
2020 final rule.
We received public comments on
these provisions. The following is a
summary of the comments we received
and our responses.
Comment: One commenter stated the
regulatory burden of the rule will stifle
innovation.
Response: We do not believe the
regulatory burden of the rule will stifle
innovation. Rather, we believe our
policies as contained in this final rule
(including BIN/PCN on cards, drug cost
transparency in Medicaid managed care
contracts, etc.) will help promote
transparency, flexibility, and innovation
PO 00000
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Varies
Total time
(hr)
I
8,614
Labor cost
($/hr)
I
91.92
Total cost
($)
791,798.88
in the operation of the Medicaid Drug
Rebate Program.
B. Overall Impact
We have examined the impacts of this
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), Executive Order 14094 entitled
‘‘Modernizing Regulatory Review’’
(April 6, 2023), the Regulatory
Flexibility Act (RFA) (September 19,
1980, Pub. L. 96–354), section 1102(b) of
the Social Security 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). The Executive Order 14094
entitled ‘‘Modernizing Regulatory
Review’’ (hereinafter, the Modernizing
E.O.) amends section 3(f)(1) of Executive
Order 12866 (Regulatory Planning and
Review). The amended 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 (adjusted every 3 years by the
Administrator of OIRA for changes in
gross domestic product), or adversely
affect in a material way the economy, a
sector of the economy, productivity,
competition, jobs, the environment,
public health or safety, or State, local,
territorial, 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) raise legal or policy issues
for which centralized review would
meaningfully further the President’s
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priorities or the principles set forth in
this Executive order, as specifically
authorized in a timely manner by the
Administrator of OIRA in each case.
A regulatory impact analysis (RIA)
must be prepared for major rules with
significant regulatory action/s and/or
with significant effects as per section
3(f)(1) ($200 million or more in any 1
year).
Based on our estimates, OMB’s Office
of Information and Regulatory Affairs
has determined this rulemaking is
significant under section 3(f)(1). The
Office of Information and Regulatory
Affairs has also determined that this
final rule meets the criteria set forth in
5 U.S.C. 804(2) (Subtitle E of the Small
Business Regulatory Enforcement
Fairness Act of 1996, also known as the
Congressional Review Act).
C. Detailed Economic Analysis
There is a need for greater clarity
regarding some of the administrative
policies of the MDRP, and this final rule
aims to establish regulations to provide
guidance to States, manufacturers, and
other related parties. This final 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
final rule is mindful of the impact of
changes in regulations on affected
interested parties, and the degree of
compliance issued 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 provisions in the final rule are
not implemented, there would be no
specific policies in place in the MDRP
related to the new legislative
requirements in MSIAA, and no clear
policies to address drug
misclassification and drug product
information misreporting by
manufacturers. Accordingly, the final
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, could not be conducted.
Additionally, if the provisions are not
implemented, there would be no
regulatory policies for addressing the
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provision in 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 drugs other than single
source and innovator 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; market date; and
noninnovator multiple source drug.
Moreover, currently 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; and specify conditions relating to
payment for PADs. The reasons and
rationales for these provisions were
detailed in the preamble section of the
proposed rule. The economic impacts of
these provisions are detailed later in
this section of the final rule.
We solicited 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 final rule.
1. Benefits
The provision requiring that
subcontractors of Medicaid managed
care plans, such as PBMs or pharmacy
benefit administrators (PBAs), report
specific categories of drug expenditures
to their contracted managed care plan
will benefit States and Medicaid
managed care plans, as it assures a more
accurate calculation of plans’ MLRs and
aids States in development of managed
care plan capitation rates, resulting in
more accurate Medicaid spending. As
indicated in the proposed rule, the shift
in policy to eliminate spread pricing in
Medicaid managed care pharmacy
programs has begun in many States.
Therefore, the benefit associated with
this final regulation, as we noted in the
proposed rule, cannot be quantified at
the national level. We do not have data
on which States have done this already,
that is, eliminated spread pricing,
versus States that would need to
implement this because of this final
rule.
However, we believe that the majority
of States do not require their Medicaid
managed care plans to include such
PBM transparency language in their
managed care contracts. For that reason,
we do expect that implementation of
this provision will result in savings to
the Medicaid program, as States will
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79071
have a better understanding of their
pharmacy program spending and can
make any adjustments accordingly.
While this provision does not eliminate
spread pricing in Medicaid, a March
2020 Congressional Budget Office (CBO)
estimate of the Federal proposal 37 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 decrease in
Federal Medicaid prescription drug
spending.
In regard to Medicaid Drug Rebates
(MDR) and penalties for manufacturer
misclassification of drugs, these
provisions will implement MSIAA
provisions related to misclassification.
Finalization of the rule could result in
monetary and non-monetary penalties
against manufacturers, which are not
quantifiable at this time. It could also
benefit States if they receive any past
rebates that are due to them as a result
of a manufacturer’s misclassification of
drugs.
The majority of drugs are
appropriately classified in the Medicaid
Drug Programs (MDP) system 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 correct their misclassification
and will also allow us to impose
penalties on manufacturers that do not
pay the unpaid rebates owed to the
States as a result of the
misclassification.
Modifying the definition of covered
outpatient drug will benefit the
manufacturers, States, and CMS. The
provision will 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 and payment for
the drug is made as direct
reimbursement. This will make these
therapies more affordable to States and
increase beneficiary access to these
medications. It will 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 benefit is
currently not quantifiable because we
37 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.
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do not know how many drugs this
provision will affect.
Finalizing the definition of internal
investigation at § 447.502 for purposes
of manufacturers making pricing metric
revisions, as amended from the
proposed definition, will benefit States
and manufacturers. It will benefit
manufacturers because it will 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 12quarter rule as permitted under
§ 447.510. Additionally, defining this
term will benefit States because it will
deter manufacturers from submitting to
CMS a request for a 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. The
benefit of defining internal investigation
as part of this final rule is not
quantifiable as it is not known how
many manufacturers will be deterred
from submitting the request to restate
outside of the 12-quarter timeframe.
However, as noted in the proposed rule,
we do not get these requests frequently.
We did not receive any comments
regarding the impact of the definition of
internal investigation at § 447.502.
We proposed to update the definition
of manufacturer at § 447.502 and to add
a new paragraph (h) in § 447.510 to
further specify the responsibilities of a
manufacturer. After consideration of
public comments, we have opted not to
proceed with finalizing the proposed
definition of manufacturer at § 447.502
and related changes in § 447.510(h) to
further consider commenters’ concerns.
The provision to define market date
using the date of first sale, rather than
the date first available for sale, will
benefit some manufacturers, CMS, and
States. Manufacturers will not be
required to report AMP information
until they have actual pricing data based
on sales data to report. As a result, there
will be decreased reliance by
manufacturers to use reasonable
assumptions to calculate and report
AMP. CMS and States will also benefit
because we will 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 the market date of their
drug as 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
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reset the baseline information for a drug
once they purchase the drug, which is
not the case.
States are likely to benefit from the
provision to establish a 12-quarter
rebate manufacturer dispute, hearing,
and audit time limitation in § 447.510(i).
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. With
this provision, States will no longer
have to look back and research paper
claims dating back to as early as 1991,
which is the beginning of the MDRP. We
estimate the provision will reduce the
amount of time it will 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 will no longer be
considered.
Regarding the regulatory revisions
regarding FFP for conditions relating to
physician-administered drugs, these
provisions will benefit States and the
Federal Government. By revising the
regulations to be consistent with the
statute, States will gain a better
understanding of the requirement that
they must invoice for all covered
outpatient single and multiple source
physician-administered drugs. This
final rule will help ensure that States
will receive FFP for these PADs by
requiring the collection of NDC numbers
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 provision for inclusion of a BIN/
PCN combination, along with a group
number identifier, on Medicaid
managed care enrollee identification
cards will benefit States, the Federal
Government, providers, and
manufacturers. With the inclusion of
Medicaid-specific BIN/PCN
combinations and group number
identifiers on the pharmacy
identification cards issued to the
enrollees of MCOs, PIHPs, and PAHPs,
pharmacies will be able to identify
patients as Medicaid beneficiaries. This
will be helpful to all parties to ensure
that Medicaid benefits are applied
appropriately. This will also help avoid
duplicate discounts between Medicaid
and the 340B Program, which occurs
when a State bills for a Medicaid rebate
on a discounted 340B drug, because it
will provide notice to the provider that
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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.
The provision for drug cost
transparency in Medicaid managed care
contracts will benefit States and the
Federal Government. It will 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, managed care plans that
provide coverage of CODs must 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 will be able to
calculate and report its MLR more
accurately.
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 and
appropriate. Managed care capitation
rates must (1) be developed such that
the plan will 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
to States should they not achieve the
specific MLR target when a remittance
is required by a State. Thus, the
accuracy of MLR calculation is
important to conserving Medicaid
funds.
The payment of claims provision will
benefit States, the Federal Government,
providers, and beneficiaries. This
provision will 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 will also
benefit beneficiaries and providers as
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they permit 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 clarify our
longstanding policy to account for
manufacturer stacking of discounts
when determining best price is not
being finalized at this time. Therefore,
we will not be responding to any
comments submitted on the impact of
this specific proposal.
2. Costs
a. Manufacturer Misclassification of a
Covered Outpatient Drug and Recovery
of Unpaid Rebate Amounts Due to the
Misclassification and Other Penalties
In regard to the costs associated with
this provision, if CMS identifies that a
drug has been misclassified, the
manufacturer will be responsible for
paying any unpaid rebates to the States
as a result of the misclassification. This
will mean that the manufacturers will
have to determine which prices to use
to calculate the past due rebates and for
which unit rebates are owed, and then
pay the States the calculated rebate
amount. They will also have to report to
CMS that such rebates have been paid.
In this situation, the States will not
incur any new costs; rather it will help
ensure that manufacturers are accurately
paying rebates to States, thus benefitting
the States. 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. In
this situation, the States would incur
costs as they reimburse the
manufacturer for the overpayment. CMS
may be required to share in repayment
of some of these rebates.
The amount of rebates owed or
collected by the manufacturers under
these new regulatory misclassification
provisions cannot be estimated. We
cannot predict how many, if any, drugs
are or will be misclassified and require
payment of unpaid rebates.
We did not receive public comments
on this Regulatory Impact Analysis
provision, and therefore, we are
finalizing as proposed.
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b. Suspension of Manufacturer NDRA
for Late Reporting of Pricing and Drug
Product Information
This provision will implement
existing statute and is being
implemented to encourage manufacturer
adherence with program reporting
requirements and enhance
administrative efficiency. Manufacturers
that are not reporting their pricing or
product information in a timely manner
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per statutory and regulatory
requirements will have their rebate
agreement (and those of their associated
labelers) suspended for purposes of
Medicaid and the MDRP. This means
that States will not have to cover or pay
for the drugs of the manufacturer during
the period of the suspension unless they
are paid through their own State funds.
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 will serve as an incentive for
manufacturers to report their product
and pricing information timely so that
drugs of the manufacturer will continue
to be covered under Medicaid and the
MDRP.
This provision will have minimal cost
to the States as their only responsibility
will 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
required 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 solicited comments on how
to develop a cost estimate.
We did not receive public comments
on this Regulatory Impact Analysis
provision, and therefore, we are
finalizing as proposed.
c. Modified the Definition of Covered
Outpatient Drug
This provision may increase
manufacturers’ rebate liability to the
States because it will 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
a 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 will involve
minimal burden, as States could inform
their providers as part of their regular
communications.
We received public comments on
these Regulatory Impact Analysis
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provisions. The following is a summary
of the comments we received and our
responses.
Comment: One commenter stated that
CMS should undertake a formal
regulatory impact analysis regarding the
modification to the definition of covered
outpatient drug to properly assess
positive and negative effects.
Response: As we stated in the
proposed rule, we are unable to quantify
what impact the modification to the
definition of covered outpatient drug
will have. However, this will clarify for
States and manufacturers the
application of the ‘‘direct
reimbursement’’ part of the definition of
COD and may assist in identifying
utilization that qualifies for rebates in
situations where States have not
previously collected rebates. We
accounted for the administrative costs of
reviewing and interpreting this
definition in the Regulatory Review
section later in this rule.
Comment: One commenter pointed
out implementation challenges,
including substantial changes to billing
and claims systems to capture
information about the specific services
that are included in a bundled payment.
They stated it would be extremely
difficult to understand all of the
scenarios where the payment for a code
was inclusive of the drug
reimbursement.
Response: We intend for the
modification to the definition to provide
clarification regarding when a payment
represents direct reimbursement for a
drug. Based on the comments, though,
it is evident that our proposed
modification to the definition did not
make this clear. In the past we have
stated that no rebate liability attaches to
drugs that are paid for as part of
bundled payments. However, we have
received questions from interested
parties to define situations in which
rebates can be billed for drugs that are
part of inclusive payments in which the
quantity of drug dispensed or
administered can be identified. We are
therefore modifying the proposed
definition of direct reimbursement to
make it clear that, for such rebates to be
billed, the inclusive payment includes
an amount directly attributable to the
drug, where such amount is based on a
reimbursement methodology that is
included in the applicable section of the
State plan. We believe that the
modification to the proposed definition
resolves the implementation concerns.
After consideration of public
comments, we are finalizing the
provision with the amended language as
set out at the end of this document.
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d. Defined Internal Investigation for
Purposes of Pricing Metric Revisions
The cost of the final definition will be
the amount of time that needs to be
taken by manufacturer personnel to
determine how to apply the definition
of internal investigation when
considering submitting a request to CMS
for a recalculation. This legal analysis
will not apply to every manufacturer or
to every drug of the manufacturer. It
will 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. As
stated in the proposed rule, we have
received only a minimal number of such
requests from manufacturers. We
assumed the time to perform legal
analysis is 5 hours. Using the May 2023
mean (average) wage information from
the BLS for lawyers (Code 23–1011), we
estimated that the cost of reviewing this
provision is $169.68 per hour, including
fringe benefits and other indirect costs
(https://www.bls.gov/oes/current/
oes231011.htm) with a total cost of
($169.68 × 5), is $848.40 for each
manufacturer. We estimated that only
one percent of manufacturers will
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 $6,787.20 (8 ×
$848.40). We estimated one percent
because currently only one
manufacturer has submitted such a
request. This provision will not impose
substantial costs on the State.
We received no public comments on
these estimates associated with the
definition of internal investigation. We
are adopting a definition of internal
investigation at § 447.502, as amended
and discussed in section II.C.1.c. of this
final rule.
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e. Revised Definition of Manufacturer
for NDRA Compliance
Several analyses and reviews were
performed to better assess current
manufacturer compliance with the
requirement that a manufacturer have a
rebate agreement in effect that includes
all associated labeler codes. While this
policy has already been specified in
guidance and preambles, we are opting
not to finalize the proposed definition of
manufacturer and conforming changes
in § 447.510 at this time to further
consider commenters’ concerns.
f. Define Market Date
In regard to costs associated with
defining market date, if manufacturers
have not provided CMS with accurate
market dates, they may need to develop
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a methodology to determine the
accurate dates. That is because they may
have assumed that the market date of
the COD is the date that they purchased
it, rather than the date the COD was sold
by any manufacturer and may not have
access to relevant pricing records before
the date they purchased the drug. 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.
We did not receive public comments
on this Regulatory Impact Analysis
provision, and therefore, we are
finalizing as proposed.
g. Modify the Definition of
Noninnovator Multiple Source Drug
This provision proposed 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.
We did not receive public comments
on this Regulatory Impact Analysis
provision, and therefore, we are
finalizing as proposed.
h. Define Vaccine for Purposes of the
MDRP Only
We are opting not to finalize the
proposed definition of vaccine at this
time. We are continuing to review the
input provided by commenters on the
proposed definition, which may be used
in future rule making on this topic.
i. Proposal To Establish a 12-Quarter
Rebate Audit Time Limitation
We estimated a decrease in burden
associated with this proposal. After
contacting several States, we estimated
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 and 4 months to
resolve, depending on the complexity of
the dispute and how long ago the claim
was paid. That means at any given time,
the States, many of which have limited
staff resources in the pharmacy
program, are dealing with hundreds of
manufacturer disputes for rebate claims
that are more than 3 years old. For our
best estimate of the quantifiable impact,
with all 50 States, the District of
Columbia, and Puerto Rico being
affected, we estimated it would take 52
Operations Research Analysts, 15–2031
(1 for each State) 7 hours to resolve a
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dispute at $91.92/hr (https://
www.bls.gov/oes/current/
oes152031.htm) $643.44 ($91.92 × 7)
(for 45 outstanding disputes [(10
disputes + 80 disputes)/2] per State for
claims greater than 3 years old. We,
therefore, estimated a one-time
decreased burden reduction of
$6,022,598.40 (45 disputes × $643.44 hr/
dispute × 52 States × 4 quarters (1 year)).
Manufacturers will only have the ability
to initiate a dispute on claims for up to
12 quarters, from the last day of the
quarter from the date of State invoice
postmark.
We did not receive public comments
relating to regulatory impact on this
provision, and we are finalizing as
proposed.
j. Proposals Related to State Plan
Requirements, Findings, and
Assurances
The 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 and services at
least equivalent to the care and service
available to the general population.
Pharmacists must be accurately
reimbursed by the State for drug
ingredient costs and professional
dispensing services under § 447.518.
We have not included time and cost
burdens for individual State dispensing
fee surveys in this final rule because we
cannot accurately determine whether a
State would choose to conduct a Statespecific 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 the proposed rule, we specified
that the type of data that States must
submit to justify their professional
dispensing fees must be based on actual
costs of dispensing.
We received public comments on this
Regulatory Impact Analysis provision.
The following is a summary of the
comments we received and our
responses.
Comment: Two commenters disagreed
with the proposal to require
professional dispensing fees to be based
on cost data, as opposed to marketbased research, and claimed that these
proposals are unnecessary and
redundant. One commenter was
concerned that CMS’ proposed
requirements divert the States’ limited
resources away from other more
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pressing State Medicaid priorities and
that CMS’ prohibition on the use of
market-based reviews of PDFs is not
accompanied by findings that the States’
approach is contributing to
unsustainable dispensing fee
reimbursement. Another commenter
stated that imposing stricter standards
for cost information in this case means
that dispensing fees are treated
differently than traditional Medicaid
services. Conducting surveys or other
research on cost-based data will be an
added burden on States, and it may be
difficult to obtain this information from
providers as opposed to market-based
research.
Response: We understand the
concerns; however, CMS has no reason
to believe that the provisions provided
in this final rule will divert the States’
limited resources away from other more
pressing State Medicaid priorities.
States are not required to complete their
own cost of dispensing study. States can
propose their professional dispensing
fees based on a neighboring State’s
survey, or other credible survey data, as
long as it is adequate and reflects the
current pharmacy costs of dispensing a
prescription in their State.
CMS is also requiring that the
professional dispensing fee be based on
pharmacy cost data, and not be based on
a market-based review, since we believe
that market-based research is
insufficient because it does not reflect
actual costs to pharmacies to dispense
prescriptions.
After consideration of public
comments on this provision, we are
finalizing as proposed.
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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 PADs.
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 under regulatory language in
§ 447.520.
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These provisions clarify the existing
statute to ensure FFP and rebate
collection for all covered outpatient
single and multiple source physicianadministered drugs.
We received public comments on this
Regulatory Impact Analysis provision.
The following is a summary of the
comments we received and our
responses.
Comment: Several commenters
opposed this proposed regulation which
mandates submission of NDCs for all
covered outpatient drugs, as it
considerably intensifies the
administrative tasks for Medicaid
providers. It was stated that this
requirement, previously limited to
single source PADs and the top 20
multiple source PADs, could strain the
already limited resources of 340B
covered entities. Another commenter
suggested requiring NDC numbers only
for medications that cost above a certain
dollar threshold to reduce
administrative burden.
Response: We appreciate the concerns
expressed by the commenters
referencing potential administrative
burden to State providers to submit
NDC numbers for all single source and
multiple source drugs. However, since
most State Medicaid programs currently
require their providers to submit
utilization data through use of NDC
numbers for all CODs that are single
source or multiple source drugs, we
anticipate administrative burden to be
minimal. Additionally, 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.
After consideration of public
comments on this Regulatory Impact
Analysis provision, we are finalizing as
proposed.
l. BIN/PCN on Medicaid Managed Care
Cards
The cost is limited to the time the
Medicaid managed care plans need to
program the new codes onto the cards.
We did not receive public comments
on this Regulatory Impact Analysis
provision regarding the programming
time it would take for managed care
plans to assign the newly required BIN
and PCN combination, and group
number identifiers onto the enrollee
identification cards, and therefore, we
are finalizing as proposed.
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
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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 the proposed rule, we estimated
that these requirements would affect
282 managed care plans and their
subcontractors (mainly PBMs) in the
country and 40 States. We estimated it
would take an Operations Research
Analyst (Code 15–2031) 25 hours at
$91.92 per hour, including fringe
benefits and other indirect costs, to
renegotiate and revise 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, estimated that
the burden associated with this
provision will be a one-time cost for
each managed care plan of $2,298 or
$648,036 for all managed care plans.
There are 40 States with Medicaid
managed care plans; therefore, we
estimated the State’s Operations
Research Analyst (Code 15–2031) 25
hours at $91.92 per hour, including
fringe benefits and other indirect costs
to revise State contracts for a one-time
cost per State of $2,298 or $91,920 for
all 40 States.
Federal savings may be captured by
an estimate associated with a statutory
change to eliminate PBM spread pricing
at $929 Million over 10 years.38 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 currently no 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
38 https://www.kff.org/medicaid/issue-brief/costsand-savings-under-Federal-policy-approaches-toaddress-medicaid-prescription-drug-spending/
#:∼:text=This%20estimate%20is%20based%20
in,between%20states%20and%20the%20Federal.
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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. By
requiring managed care plans to 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 as well as the base data utilized
when developing capitation rates 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 § 438.8(e)(2) (costs of CODs and
dispensing fees) versus administrative
fees.
We received the following comment
regarding this Regulatory Impact
Analysis provision.
Comment: A commenter specified
that the proposed rule aiming to
enhance transparency in PBM reporting
may unintentionally raise costs for the
Medicaid program due to PBMs acting
as middlemen. Moreover, shifting away
from spread pricing contracts, often
without added fees, could lead to
higher-cost fee-based contracts despite
their increased transparency, ultimately
imposing a higher cost on payers.
Response: We do not agree that the
provision in § 438.3(s)(8) that requires
the managed care plan to specify in its
contract with subcontractors that the
subcontractor is required to report
separately the amounts related to
incurred claims and administrative
costs, fees and expenses of the
subcontractor will unintentionally raise
costs for the Medicaid program. We
believe this information will help to
inform the State’s decision-making
relating to the administration of the
prescription drug benefit. It will also
help the Medicaid managed care plans
have more accurate data to calculate
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their MLRs, as well as ensure that States
can accurately develop capitation rates.
Finally, it will help States and managed
care plans ensure that PBMs specifically
are being appropriately compensated for
their services by requiring that the
subcontractors report separately
incurred claims for CODs and
administrative fees, costs, and expenses
in sufficient detail and the level of
detail must be no less than the reporting
requirements in § 438.8(k).
After consideration of public
comments on this provision, we are
finalizing § 438.3(s) with some changes
to the proposed regulatory text. We will
modify § 438.3(s)(8) by: adding at the
beginning of paragraph (8) the phrase
‘‘The MCO, PIHP, or PAHP’’ to conform
with the other paragraphs in § 438.3(s),
inserting ‘‘must’’ to replace ‘‘to’’ for
additional clarity, and inserting ‘‘to the
MCO, PIHP, or PAHP’’ for clarity on the
entity that the subcontractor reports the
required information to. We also are
adding § 438.3(w) to include an
applicability date for the requirements
of paragraphs (s)(7) and (s)(8), which
will be the first rating period for
contracts with MCOs, PIHPs, or PAHPs
beginning on or after 1 year following
November 19, 2024.
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.39 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 5 includes
the savings which are CBO estimates
from when the 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 in the 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
39 https://www.macpac.gov/wp-content/uploads/
2019/06/Next-Steps-in-Improving-MedicaidPrescription-Drug-Policy.pdf.
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adjust pricing to reflect the increase in
Medicaid drug rebates.
We did not receive public comments
on the estimates related to this
Regulatory Impact Analysis provision
and are finalizing as proposed.
o. Payment of Claims
At this time, there is no need to
determine cost estimates for this item.
The 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 the 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.
We received 2 public comments on
these proposals. The following is a
summary of the comments we received
and our responses.
Comment: A couple of commenters
stated they were in support of our
proposal to correct omissions in
regulatory language to align with
statutory language, ensuring Medicaid
remains the payer of last resort while
also permitting States to pay claims
sooner than the specified waiting
periods when doing so is cost-effective
and necessary to ensure access to care.
Response: We appreciate the support
for this proposal.
After consideration of public
comments, we are finalizing this
provision as proposed.
p. Requests for Information on
Requiring a Diagnosis on Medicaid
Prescriptions
This provision was a request for
information only. We sought 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.
We received many public comments
on these proposals. The following is a
summary of the comments we received
and our response.
Comment: A few commenters
provided general support for the
requirement of diagnoses on
prescriptions; however, the majority of
commenters stated their opposition to
requiring diagnoses on prescriptions.
These arguments focused mostly on
administrative burden, potential
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information technology (IT) issues with
delays in care, significant system
alterations, stigma, and other
complications. Several commenters
stated that because of the technical and
operational challenges of including a
diagnosis on a prescription, it could also
lead to manufacturers initiating
unnecessary disputes. Furthermore,
many commenters opposed the
requirement of diagnoses on
prescriptions due to possible impact on
equitable access to care, including
delays and denials in care, added
burden to patients, exacerbation of
existing barriers to care, and overall
reduction in care access.
Response: We appreciate all the
comments received for the request for
information on requiring a diagnosis on
Medicaid prescriptions.
After careful review and
consideration of the public comments
received, and due to the overwhelming
number of comments that were opposed
to this requirement, we are not going to
pursue this requirement in rulemaking
at this time. We will continue to review
the feedback we receive from interested
parties and may address this provision
in future rulemaking if appropriate.
q. Proposal To Account for Stacking
When Determining Best Price
We are opting not to finalize the
proposed provision related to stacking
when determining the best price at this
time to further consider comments
received and pursue collection of
information through a separate
Paperwork Reduction Act (PRA) request
to collect additional information related
to manufacturers’ stacking
methodologies.
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r. Proposal Regarding Drug Price
Verification Through Data Collection
We are opting not to finalize the
proposed provision related to the drug
price verification survey at this time.
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 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, and the pharmacy, agent, or
other AMP or best price eligible entity
does not receive any part of the
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manufacturer patient assistance in the
form of additional price concessions.
As part of the 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 is
being eroded by PBM copay
accumulator programs because the
patient assistance is accumulating to the
economic benefit of health plans, not to
patients, given that the health plans’
spending on drugs for patients decreases
as a result of such programs. We also
believed that, 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
make 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 requesting that the court
vacate these amendments to
§ 447.505(c)(8) through (11) (85 FR
87102 and 87103), as set forth in the
2020 final rule. On May 17, 2022, the
United States District Court for the
District of Columbia ruled in favor of
the plaintiff and ordered that the
applicable provisions of the 2020 final
rule be vacated and set aside.
In response to the order issued by the
United States District Court for the
District of Columbia to vacate the
applicable provisions of the 2020 final
rule, we proposed to withdraw the
applicable changes made to § 447.505,
and, for consistency, withdraw the
corresponding revisions to regulations
addressing AMP made by the 2020 final
rule. At the time of the 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.
3. Regulatory Review Cost Estimation
If regulations impose administrative
costs on private entities, such as the
time needed to read and interpret the
proposed rule, we should estimate the
cost associated with regulatory review.
Due to the uncertainty involved with
accurately quantifying the number of
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79077
entities that will be directly impacted
and will review the proposed rule, we
assume that the total number of unique
commenters is based on the current 792
manufacturers participating in the
MDRP. Nevertheless, we estimated that
the current 792 manufacturers would
need to review the proposed rule.
Furthermore, we anticipated 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 the
proposed rule. Additionally, we
estimated that 19 trade organizations
may review the proposed rule. The
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 the
proposed rule in detail, and it is also
possible that some reviewers will
choose not to comment on the proposed
rule. In addition, we assumed 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 assumed that approximately 863
(792 manufacturers + 52 States + 19
trade associations) entities may review
the proposed rule. For these reasons, we
believed that the number of commenters
would be a fair estimate of the number
of reviewers who are directly impacted
by the proposed rule. We solicited
comments on this assumption.
We also recognized that different
types of entities are in many cases
affected by mutually exclusive sections
of the proposed rule. However, for the
purposes of our estimate, we assumed
that each reviewer reads 100 percent of
the proposed rule.
Using the May 2023 mean (average)
wage information from the BLS for
medical and health service managers
(Code 11–9111), we estimated that the
cost of reviewing the proposed rule is
$129.28 per hour, including fringe
benefits and other indirect costs
(https://www.bls.gov/oes/current/
oes119111.htm). Assuming an average
reading speed of 250 words per minute,
we estimated that it would take
approximately 288 minutes (4.8 hours)
for the staff to read the rule, which is
approximately 72,000 words. For each
medical and health service manager
(Code 11–9111) that reviews the
proposed rule, the estimated cost is (4.8
× $129.28) or $620.54. In part, we
estimated that the cost of reviewing this
final rule by medical and health service
managers is $535,526.02 ($620.54 × 863
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reviewers). Additionally, there is also a
lawyer who will review the final rule.
Using the May 2023 mean (average)
wage information from the BLS for
lawyers (Code 23–1011), we estimated
that the cost of reviewing the final rule
is $169.68 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 estimated that it would take
approximately 288 minutes (4.8 hours)
for the staff to review the final rule,
which is approximately 72,000 words.
For each lawyer (Code 23–1011) that
reviews the proposed rule, the estimated
cost is (4.8 × $169.68) or $814.46. In
part, we estimated that the cost of
reviewing the rule by lawyers is
$702,878.98 ($814.46 × 863 lawyers). In
total, we estimated the one-time cost of
reviewing the rule is $1,238,405.00
($535,526.02 + $702,878.98).
We acknowledged that these
assumptions may understate or
overstate the costs of reviewing the rule.
We did not receive public comments
on this Regulatory Impact Analysis
provision, and therefore, we are
finalizing as proposed.
TABLE 4—SUMMARY OF THE ONE-TIME QUANTITATIVE COSTS AND BENEFITS
Line item
Cost
Entity
Regulatory review ............................................................................................
$1,238,405.00
Define manufacturer internal investigation ......................................................
Establish a 12-Quarter Rebate Audit Time Limitation ....................................
Drug Cost Transparency in Medicaid Managed Care Contracts ....................
6,787.20
(6,022,598.40)
648,036.00
Drug Cost Transparency in Medicaid Managed Care Contracts ....................
91,920
Total .........................................................................................................
(4,037,450.20)
Timeframe
Manufacturers, States, Trade Association.
Manufacturers ....................................
States and Federal Government .......
Managed care plans and their subcontractors.
States .................................................
One-time cost.
One-time cost.
One-time cost savings.
One-time cost.
One-time cost.
TABLE 5—SUMMARY OF THE ANNUAL QUANTITATIVE COSTS AND BENEFIT
Line item
Cost
Entity
Drug cost transparency in Medicaid managed care contracts ..........................
Removal of manufacturer rebate cap (100% of AMP) ......................................
($929,000,000.00)
(14,211,000,000.00)
Total ............................................................................................................
(15,140,000,000.00)
D. Alternatives Considered
Some provisions are directly linked to
statute and therefore alternatives cannot
be considered. Nevertheless,
alternatives which we have considered
are detailed in this section.
We proposed 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. However, based
on public comment, we are not
finalizing this proposal at this time.
We proposed to define vaccine to
endeavor to prevent disputes with
manufacturers about what products are
and are not vaccines for purposes of the
MDRP, given that there may be products
coming to market for which this
definition might help provide clarity.
However, we are not finalizing this
proposal at this time. We are continuing
to review the input provided by
Timeframe
Federal Government ............................
Federal and State Governments .........
commenters on the proposed definition,
which may be used in future rule
making on this topic.
We proposed 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 from
States 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, this alternative
would have allowed disputes to be
initiated on claims for any time period,
causing undue strain, work hours, and
costs on rebate programs, which directly
counters the purpose of the program to
Over 10 years.
Over 10 years.
offset the Federal and State costs of
most outpatient prescription drugs
dispensed to Medicaid patients.
Additionally, we believe the more
recent the claim corresponding with the
dispute, the easier it will be to resolve
disputes, and this provision will
improve the accuracy and speed of
dispute resolutions.
We did not receive public comment
on this proposal, which relates to our
regulatory impact analysis, and we are
finalizing this provision.
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 6
showing the classification of the impact
associated with the provisions of this
final rule.
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TABLE 6—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS/SAVINGS
Units
Category
Estimates
Costs/Savings:
Annualized Monetized ($million/year) ......................................................................
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($0.54)
(0.46)
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Year
dollar
2021
2021
26SER3
Discount
rate
(%)
Period
covered
7
3
2024–2034
2024–2034
Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations
79079
TABLE 6—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS/SAVINGS—Continued
Units
Category
Estimates
Costs/Savings:
Annualized Monetized ($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
estimated 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
(1,328.96)
(1,433.53)
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
Manufacturing industries. Note that the
SBA does not provide any revenue data
at this time to measure the size of these
industries.
According to the SBA’s website at
https://www.sba.gov/document/supporttable-size-standards, the drug
manufacturers referred to in the
Discount
rate
(%)
Year
dollar
2021
2021
Period
covered
7
3
2024–2034
2024–2034
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 that have less than 1,250
employees annually for pharmaceutical
preparation manufacturing and biologic
product (except diagnostic)
manufacturing industries. Table 7
presents the total number of small
businesses in each of the two industries
mentioned.
TABLE 7—NAICS 32541 PHARMACEUTICAL AND MEDICINE MANUFACTURING SIZE STANDARDS
SBA size standard/
small entity threshold
(employees)
NAICS
(6-digit)
Industry subsector description
325412 ..................
325414 ..................
Pharmaceutical Preparation Manufacturing .......................................................
Biologic Product (except Diagnostic) .................................................................
1,250
1,250
Total small
businesses
2,722
587
Source: 2019 Economic Census.
TABLE 8—CONCENTRATION RATIOS (NAICS 325412) PHARMACEUTICAL PREPARATION
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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
(%)
2,722
390
159
65
48
662
25
25
19
21
30
45
31
49
27
42
22
13
1,011
19
10
9
68
Total
employees
100
14
6
2
2
24
1
1
1
1
1
2
1
2
1
2
1
0
37
1
0
0
NA
Source: 2019 Economic Census.
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26SER3
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
94,707
Employee per
firm to
total employee
(%)
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
NA
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TABLE 9—CONCENTRATION RATIOS (NAICS 325414) BIOLOGIC PRODUCT (EXCEPT DIAGNOSTIC) MANUFACTURING
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 ................................................................................
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
(%)
587
71
42
13
13
139
12
7
6
6
13
5
8
6
8
5
219
4
5
5
41
Total
employees
100
12
7
2
2
24
2
1
1
1
2
1
1
1
1
1
37
1
1
1
NA
Employee per
firm to
total employee
(%)
21,789
141
282
145
224
792
261
167
184
247
624
384
799
720
1,561
1,758
8,012
1,293
1,868
2,327
42,822
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
8.07
36.77
5.93
8.57
10.68
NA
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Source: 2019 Economic Census.
Note, data are not available for businesses with 1,500 to 2,500 employees.
As can be seen in Tables 8 and 9, the
economic impacts are disproportionate
for small firms. Tables 8 and 9 show the
employees for each of the size categories
and the employee impact per small
entity. For example, in Table 8, 390 of
the smallest firms employ only 0.68
percent of the employees in its industry;
while, in Table 9, 71 of the smallest
firms employ only 0.65 percent of the
employees in its industry.
Therefore, as can be seen in Tables 8
and 9, almost all Pharmaceutical and
Medicine Manufactures are small
entities as that term is used in the RFA.
Additionally, Tables 8 and 9 show the
disproportionate impacts among firms,
and between small and large firms. In
Tables 8 and 9, 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
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17:17 Sep 25, 2024
Jkt 262001
with 1,250 total employees in any 1
year.
At this time, revenue data are not
currently available. However, 2012
revenue data from the U.S. Economic
Census were 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 final rule will not have a
significant impact (that is, a 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
the proposed rule. Therefore, the
Secretary has certified that the proposed
rule will not have a significant
economic impact on a substantial
number of small entities.
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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 604 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 final rule will
not have a significant impact on small
rural hospitals. We did not prepare an
analysis for section 1102(b) of the Act
because we have determined, and the
Secretary has certified, that the final
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 2024, that
threshold is approximately $183
million.
This final rule imposes mandates that
will result in anticipated costs to State,
local, and Tribal governments or the
private sector, but the transfer costs will
be less than the threshold. States will
receive additional monetary rebates
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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations
from manufacturers brought into
compliance with drug misclassification.
This final rule will 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 final rule will 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 $183
million in any 1 year.
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.
Administrative practice and
procedure, Child support, Claims, Grant
programs—health, Medicaid, Reporting
and recordkeeping requirements.
*
*
*
*
(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 costeffective and necessary to ensure access
to care.
*
*
*
*
*
42 CFR Part 438
PART 438—MANAGED CARE
H. Federalism
Executive Order 13132 establishes
certain requirements that an agency
must meet when it issues a proposed
rule (and subsequent final rule) that
imposes substantial direct requirement
costs on State and local governments,
preempts State law, or otherwise has
Federalism implications. This final 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.
This final regulation is subject to the
Congressional Review Act provisions of
the Small Business Regulatory
Enforcement Fairness Act of 1996 (5
U.S.C. 801 et seq.) and has been
transmitted to the Congress and the
Comptroller General for review.
Chiquita Brooks-LaSure,
Administrator of the Centers for
Medicare & Medicaid Services,
approved this document on September
9, 2024.
List of Subjects
42 CFR Part 433
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recordkeeping requirements, Rural
areas.
For the reasons set forth in the
preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR
chapter IV as set forth below:
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 programshealth, Health facilities, Health
professions, Medicaid, Reporting and
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17:17 Sep 25, 2024
Jkt 262001
*
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) and (w) to read
as follows:
■
§ 438.3
*
Standard contract requirements.
*
*
(s) * * *
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*
Fmt 4701
*
Sfmt 4700
79081
(7) The MCO, PIHP, or PAHP must
assign and exclusively use unique
Medicaid-specific Bank Identification
Number (BIN) and Processor Control
Number (PCN) combination, and group
number identifiers for all Medicaid
managed care enrollee identification
cards for pharmacy benefits.
(8) The MCO, PIHP, or PAHP that
contracts with any subcontractor for the
delivery or administration of the
covered outpatient drug benefit must
require the subcontractor to report
separately to the MCO, PIHP, or PAHP
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.
*
*
*
*
*
(w) Applicability date. Paragraphs
(s)(7) and (8) of this section apply to the
first rating period for contracts with
MCOs, PIHPs, and PAHPs beginning on
or after 1 year following November 19,
2024.
*
*
*
*
*
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;
■ iii. Adding paragraph (4);
■ b. Adding the definitions of ‘‘Drug
product information’’, ‘‘Internal
investigation’’ and ‘‘Market date’’ in
alphabetical order; and;
■ c. In the definition of ‘‘Noninnovator
multiple source drug,’’ revising
paragraph (3).
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
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payment for that service and not as
direct reimbursement for the drug, as
described in paragraph (4) of this
definition).
*
*
*
*
*
(4) Direct reimbursement for a drug
may include both:
(i) Reimbursement for a drug alone, or
(ii) Reimbursement for a drug plus the
service, in a single inclusive payment if:
(A) The drug, charge for the drug, and
number of units of the drug are
separately identified on the claim, and;
(B) The inclusive payment includes
an amount directly attributable to the
drug, and,
(C) The amount paid that is
attributable to the drug is based on a
reimbursement methodology that is
included in the applicable section of the
State plan.
*
*
*
*
*
Drug product information means
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 type
(prescription, over-the-counter), base
date AMP, therapeutic equivalent code
(TEC), line extension indicator, 5i
indicator, 5i route of administration (if
applicable), FDA approval date, FDA
application number or OTC monograph
citation (if applicable), market date, and
COD status.
*
*
*
*
*
Internal investigation means a
manufacturer’s investigation of its AMP,
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 possible fraud, abuse,
or violation of law or regulation. A
manufacturer must make data available
to CMS to support its finding.
*
*
*
*
*
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;
*
*
*
*
*
■ 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.
*
*
*
(c) * * *
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*
*
17:17 Sep 25, 2024
Jkt 262001
(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
PO 00000
Frm 00064
Fmt 4701
Sfmt 4700
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.
*
*
*
*
*
■ 8. Amend § 447.505 by revising
paragraphs (c)(8) through (12) 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.
*
*
*
*
*
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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations
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:
■
■
khammond on DSKJM1Z7X2PROD with RULES3
§ 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,
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17:17 Sep 25, 2024
Jkt 262001
(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
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79083
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. In
such case, the manufacturer must certify
the applicable correction within 30
calendar days.
(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.
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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations
(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) and (i).
The revisions and additions read as
follows:
responsibilities under the 340B 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.
(i) 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 State invoice postmark date.
§ 447.510 Requirement and penalties for
manufacturers.
■
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*
*
*
*
*
(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) 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
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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.
*
*
*
*
*
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Frm 00066
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12. Section 447.520 is revised to read
as follows:
■
§ 447.520 Federal Financial Participation
(FFP): Conditions relating to physicianadministered drugs.
(a) Availability of FFP. No FFP is
available for physician-administered
single source drugs or the multiple
source drugs identified under paragraph
(c) of this section 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 in a manner
consistent with the requirements of this
section. In the case of multiple source
drugs not identified under paragraph
(c), a failure to comply with the
requirements of this section may result
in FFP being withheld as provided
under 42 CFR 430.35.40
(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 © 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.
(3) States are required to invoice for
rebates consistent with this section for
multiple source physician-administered
drugs that are CODs and that are not on
the top 20 multiple source physicianadministered drug list published under
paragraph (c) of this section, or may be
subject to a withhold of FFP as provided
under 42 CFR 430.35.41
(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 that is a
physician-administered drug using NDC
numbers. As of November 19, 2024, a
State must also comply with this
requirement for a covered outpatient
drug that is a physician-administered
drug described in paragraph (a)(3) of
this section.
(c) Top 20 multiple source physicianadministered drug list. The top 20
multiple source physician-administered
drug list, identified by the Secretary as
40 https://www.ecfr.gov/current/title-42/chapterIV/subchapter-C/part-430.
41 Ibid.
E:\FR\FM\26SER3.SGM
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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
79085
the requirements of this section may
apply to the Secretary for an extension.
Xavier Becerra,
Secretary, Department of Health and Human
Services.
[FR Doc. 2024–21254 Filed 9–20–24; 4:15 pm]
khammond on DSKJM1Z7X2PROD with RULES3
BILLING CODE 4120–01–P
VerDate Sep<11>2014
17:17 Sep 25, 2024
Jkt 262001
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26SER3
Agencies
[Federal Register Volume 89, Number 187 (Thursday, September 26, 2024)]
[Rules and Regulations]
[Pages 79020-79085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21254]
[[Page 79019]]
Vol. 89
Thursday,
No. 187
September 26, 2024
Part III
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;
Final Rule
Federal Register / Vol. 89 , No. 187 / Thursday, September 26, 2024 /
Rules and Regulations
[[Page 79020]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 433, 438, and 447
[CMS-2434-F]
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: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule implements 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 address drug misclassification, as well as drug pricing
and product data misreporting by manufacturers. Additionally, we are
finalizing several other proposed program integrity and program
administration provisions or modifications in this final rule,
including revising and finalizing key definitions used in the MDRP.
This rule also finalizes a provision not directly related to MDRP that
makes revisions to the third-party liability regulation due to
amendments made by the Bipartisan Budget Act (BBA) of 2018. We also are
finalizing our proposal 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'' (``the 2020 final
rule'') to the Determination of Best Price and Determination of Average
Manufacturer Price (AMP) sections.
DATES: These regulations are effective on November 19, 2024.
Applicability Dates: In the Supplementary Information section of
this final rule, we provide a table (Table 1), which lists key changes
in this final rule that have an applicability date other than the
effective date of this final rule.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Omar Alemi, 720-853-2724, [email protected], for issues
related to the definition of covered outpatient drug (COD) and removal
of manufacturer rebate cap.
Ruth Blatt, 410-786-1767, [email protected], for issues
related to the definitions of noninnovator multiple-source drug, market
date, and COD.
Ginger Boscas, 410-786-3098, [email protected], for issues
related to third-party liability.
Michael Forman, 410-786-2666, [email protected], for
issues related to physician-administered drugs.
Charlotte Hammond, 410-786-1092, [email protected], for
issues related to diagnosis on prescriptions and professional
dispensing fees.
Mickey Morgan, 443-745-3950, [email protected], for issues
related to drug cost transparency in Medicaid managed care contracts
and accounting for accumulated price concessions from 'stacking' when
determining best price.
Lisa Shochet, 410-786-5445, [email protected], for issues
related to Bank Identification Number and Processor Control Number
(BIN/PCN).
Terry Simananda, 410-786-8144, [email protected], for
issues related to internal investigation, Collection of Information,
and Regulatory Impact Analysis sections.
Whitney Swears, 410-786-6543, [email protected], for
issues related to time limitation on audits and the definition of
manufacturer.
Cathy Traugott, 720-853-2785, [email protected], for
issues related to drug misclassifications, definition of vaccine, and a
drug price verification process through data collection survey.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
Under the Medicaid program, section 1902(a)(54) of the Social
Security Act (the Act) provides States with the option of providing
coverage of prescribed drugs as described in section 1905(a)(12) of the
Act, and to date, all States have elected to do so. Section 1903(a) of
the Act provides for Federal Financial Participation (FFP) in State
expenditures for these covered outpatient drugs (CODs). Coverage of
CODs under the option provided by section 1902(a)(54) of the Act 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 conditioning FFP in medical
assistance for drugs covered under section 1902(a)(54) on the
manufacturer of the drug having an NDRA. 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 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. Generally,
pursuant to section 1927 of the Act, drugs classified as single source
drugs or innovator multiple source drugs pay higher rebates than those
that are classified as an ``other drug,'' such as noninnovator multiple
source drugs.
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 product and drug pricing information 30
days after the last day of each quarter of a rebate period. If a
manufacturer fails to submit timely information, or misreports
information, we may be unable to establish accurate Unit Rebate Amounts
(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 ensure
accurate rebates are paid to States for their CODs.
Prior to the enactment of the Medicaid Services Investment and
Accountability Act of 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 (NDA). 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
NDA. A noninnovator multiple source drug was defined at section
[[Page 79021]]
1927(k)(7)(A)(iii) of the Act as a multiple source drug that is not an
innovator multiple source drug. MSIAA made several revisions to these
definitions, including adding a provision to ratify CMS' existing
policy to permit certain exceptions from the definitions if a narrow
exception applies, as described in Sec. 447.502 or any successor
regulation.
This narrow exception process in Sec. 447.502 was created in the
2016 final rule entitled ``Medicaid Program; Covered Outpatient Drugs''
\1\ (2016 COD final rule), under which drug manufacturers could submit
a request for a narrow exception to allow individual drugs approved
under an NDA to be treated as if they were approved under an
abbreviated new drug application (ANDA) and classified as noninnovator
multiple source drugs prospectively from the effective date of the 2016
COD final rule. Instructions to manufacturers regarding this process
were included in Manufacturer Release #98, May 2, 2016.\2\ The 2016 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 2016 COD final rule, which was April 1, 2016. This narrow
exception process was codified into statute in MSIAA when the Congress
removed the word ``original'' from the definitions of single source
drug and innovator multiple source drug, thereby confirming CMS' pre
2016 interpretation.
---------------------------------------------------------------------------
\1\ https://www.govinfo.gov/content/pkg/FR-2016-02-01/pdf/2016-01274.pdf.
\2\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-098.pdf.
---------------------------------------------------------------------------
We published the proposed rule (88 FR 34238-34296) on May 26, 2023,
and provided a 60-day comment period. A total of 128 comments were
received. We are now publishing the final rule. We are clarifying and
emphasizing our intent that if any provision of this final rule is held
to be invalid or unenforceable by its terms, or as applied to any
person or circumstance, or stayed pending further action, it shall be
severable from other parts of this final rule, and from rules and
regulations currently in effect, and not affect the remainder thereof
or the application of the provision to other persons not similarly
situated or to other, dissimilar circumstances. Through this rule, we
adopt provisions that are intended to and will operate independently of
each other, even if each serves the same general purpose or policy
goal. Where a provision is necessarily dependent on another, the
context generally makes that clear.
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 MSIAA, titled ``Preventing the Misclassification of
Drugs Under the Medicaid Drug Rebate Program,'' amended sections 1903
and 1927 of the Act to (1) specify the definitions for single source
drug, innovator multiple source drug, and noninnovator multiple source
drug, and (2) 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 drug, innovator multiple source drug, or
noninnovator multiple source drug--for the purposes of determining the
correct rebates that each manufacturer owes the States.
Although much of this law is self-implementing, we proposed a
series of regulatory amendments at Sec. Sec. 447.509 and 447.510 to
implement and codify the statutory changes in regulation. We proposed
that 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
drug. We also defined 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.
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 proposed a definition of ``drug product
information'' for the purposes of the MDRP.
Similarly, MSIAA amended the Act to specify that the reporting of
false information, including information related to drug pricing, drug
product information, and data related to drug pricing or drug product
information, would also be subject to possible civil monetary penalties
(CMPs) by the Department of Health and Human Services (HHS) Office of
the Inspector General (OIG), and to provide specific new authority to
the Secretary to issue CMPs related to knowing misclassifications of
drug product or misreported information. These OIG authorities are not
the subject of this rulemaking.
Under 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, including correcting the
misclassification, suspending the misclassified drug from the MDRP,
imposing CMPs, or ultimately terminating the manufacturer's
participation in the MDRP.
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 taxpayer
monies.
C. MDRP Program Administration Proposed Changes
In order to increase efficiency and economy of directing overall
MDRP operations, resources, and activities to better facilitate the
needs of Medicaid beneficiaries, we proposed a number of new regulatory
policies and clarifications of existing policies. Specifically,
consistent with our statutory authorities, we proposed to define,
specify, or amend the definitions for COD, internal investigation (for
restatement purposes outside of a 3-year time window), manufacturer
(for National Drug Rebate Agreement (NDRA) purposes), market date,
noninnovator multiple source drug, drug product information, and
vaccine for the purposes of the MDRP. We also proposed 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 noninnovator multiple
source drug.
In addition, we proposed new policies, including to add a time
[[Page 79022]]
limitation on manufacturers' 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 (NDCs) for single and multiple source physician-administered
drugs to receive FFP and secure manufacturer rebates.
We also proposed to revise Medicaid managed care standard contract
requirements to adopt a requirement for the inclusion of Bank
Identification Number and Processor Control Number (BIN/PCN) numbers on
Medicaid enrollee identification cards for pharmacy benefits, as well
as enhance drug cost transparency by adopting specific requirements
relating to the third-party administration of the pharmacy benefit. We
provide additional background later in this rule.
1. Proposal To Modify the Definition of Covered Outpatient Drug
In the 2016 COD final rule (81 FR 5278), we finalized a regulatory
definition of covered outpatient drug in Sec. 447.502 that
substantially mirrors the statutory definition and is consistent with
section 1927(k)(3) of the Act. The definition includes a limiting
definition which exempts from the COD definition, and thus from
rebates, any drug, biological product, or insulin provided as part of,
or as incident to and in the same setting as, (and for which payment
may be made under this title as part of payment for the following and
not as direct reimbursement for the drug) certain health care setting
or situations described in section 1927(k)(3). However, we never
clarified what the term ``direct reimbursement'' means for the purposes
of defining those situations under which a State could bill a
manufacturer for a rebate for a COD when the COD is part of an
inclusive payment for the COD and related services. In regulation, we
proposed to define the term direct reimbursement at Sec. 447.502 so
that States know those situations in which the limiting definition
would not apply such that a State could bill for a rebate. CMS received
several thoughtful comments on this issue, and based on these comments,
we realized the proposed language did not adequately clarify the
policy. Thus, we are further refining the definition to more clearly
delineate the situations in which the limiting definition would not
apply.
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 else they could incur penalties or other
compliance and enforcement measures. In the 2016 COD final rule, 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
enumerated exceptions apply. See Sec. 447.510(b)(1)(i) through (vi).
The existing regulation at Sec. 447.510(b)(1)(v) provides an
exception to the 12-quarter price reporting rule if the change is being
made 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, up to
this point, we have not defined the term internal investigation, which
has led to different interpretations of the nature of an internal
investigation. Therefore, we proposed to add a definition of internal
investigation at Sec. 447.502 and additional clarity around the 12-
quarter price reporting rule at Sec. 447.510. Based on comments we
received, we are finalizing as proposed except we are adding the term
``possible'' to ``fraud, abuse or violation of law or regulation''.
3. Proposal To Modify the Definition of Manufacturer for National Drug
Rebate Agreement (NDRA) Compliance Purposes
We proposed to further refine the definition of manufacturer to
clarify that a manufacturer includes all other manufacturers that are
associated or affiliated with that manufacturer. This was intended to
clarify that once a manufacturer has entered into a rebate agreement
with CMS, all entities (with their applicable labeler 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.
We appreciate the thoughtful comments received on this issue, and
we determined not to finalize the proposed policy at this time. We are
continuing to review the input provided by commenters, which may inform
future rulemaking on this topic.
4. Proposal To Establish a Definition of Market Date for a COD for the
Purposes of Determining a Base Date AMP for a COD
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. A key factor in the
calculation of the additional rebate is the base date AMP \3\ 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 their CODs. The term market date
has not been previously defined in regulation for purposes of the MDRP,
and CMS has received numerous questions regarding the determination of
market date. Accordingly, we proposed to define the term market date at
Sec. 447.502 for the purpose of the MDRP and are finalizing as
proposed.
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\3\ The terms ``base date AMP,'' ``baseline AMP,'' and ``base
AMP'' are used interchangeably within this document.
---------------------------------------------------------------------------
5. Proposal To Modify the Definition of Noninnovator Multiple Source
Drug
As discussed previously in the proposed rule, section 6(c) of MSIAA
included a number of amendments to statutory definitions in section
1927 of the Act. One of the amendments to the statutory definitions was
to remove the phrase ``was originally marketed'' from the definition of
an I drug and replace it with ``is marketed.'' We also made conforming
changes to the regulatory definition of an I drug in the 2020 final
rule.
These amendments should have prompted a corresponding change to the
regulatory definition of noninnovator multiple source (N) drug in the
2020 final rule to align with the statutory and regulatory change to
the definition of an I drug, however we neglected to include the
change. Therefore, we proposed 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 and are finalizing as proposed.
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 does not define vaccine.
[[Page 79023]]
We proposed 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. We noted that the
regulatory definition of vaccine is intended to be established solely
for the purposes of the MDRP and is intended to be applicable only to
that program and Medicaid expansion CHIP programs (that is, CHIP
programs operating pursuant to 42 CFR 457.70(a)(2) and (c)). It is not
intended to 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
(VFC) Program. Nor is it intended to apply to any other programs within
CMS or any other agencies within HHS (for example, the Food and Drug
Administration (FDA), Centers for Disease Control and Prevention (CDC),
or Health Resources and Services Administration (HRSA)). Rather, we
stated that the proposed changes would only specify which products are
vaccines and are therefore excluded from the definition of a COD under
the MDRP and thus are not subject to section 1927, including to MDRP
rebate liability; the proposed changes would not apply to any
applicable Federal or State requirements to cover vaccines for Medicaid
beneficiaries, as applicable. We appreciate the thoughtful comments we
received on this issue. At this time, we are not finalizing the
proposed regulatory definition. We are continuing to review the input
provided by commenters, which may inform future rulemaking on this
topic.
7. Proposal To Account for Stacking When Determining Best Price
We proposed 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. CMS
received a number of thoughtful comments on this issue, and we have
determined not to finalize the proposed regulation changes at this
time. We are continuing to review the input provided by commenters. We
intend to collect information through a separate Paperwork Reduction
Act (PRA) request to collect additional information related to
manufacturers' stacking methodologies, which may inform future
rulemaking on this topic.
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. We proposed to
limit the time period during which manufacturers may initiate disputes,
hearing requests, and audits of State-invoiced utilization units to 12
quarters from the last day of the quarter from the date of State
invoice to the manufacturer. Upon reviewing comments, we believe
referencing the invoice postmark date instead of the date of the State
invoice offers the same clarity for both States and Manufacturers on
the timeline initiation and would align with previous DP policy.
Therefore, we are finalizing as proposed, with the exception of
referencing ``postmark date'' instead of ``the date of the State
invoice''.
9. Proposal Regarding Drug Price Verification Through Data Collection
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 under
section 1927(b)(3)(A) of the Act. Under this authority, we proposed
rules to describe those situations when it would be considered
``necessary'' for such surveys to be sent to manufacturers and
wholesalers, and the information that would be requested to use in
order to verify the reported prices at issue.
We appreciate the thoughtful comments we received on this issue,
and we determined not to finalize the proposed policy at this time. We
are continuing to review the input provided by commenters, which may
inform future rulemaking on this topic.
10. Proposal To Clarify and Establish Requirements for FFS Pharmacy
Reimbursement
In the 2016 COD final rule, we finalized at Sec. 447.518 moving
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. We proposed to revise
Sec. 447.518, ``State plan requirements, findings, and assurances,''
in paragraph (d)(1) to clarify State requirements regarding pharmacy
ingredient costs and professional dispensing fees to be consistent with
the applicable statutory and regulatory requirements, specifying in
particular that any dispensing fee surveys must be based on actual
pharmacy dispensing costs data and not market research data. We are
finalizing as proposed.
11. Proposals Relating to Section 1927(a)(7) of the Act and Federal
Financial Participation (FFP): Conditions Relating to Physician-
Administered Drugs (PADs)
In accordance with section 1927(a)(7) of the Act, for payment to be
available under section 1903 of the Act, and for States to secure
applicable Medicaid rebates, States are to provide for the collection
and submission of utilization data and coding (such as J-codes \4\ and
NDC numbers) for a COD that is a physician-administered single source
drug as determined by the Secretary, or that is a multiple source drug
that is determined by the Secretary to be a top 20 high dollar volume
PAD dispensed under Medicaid (as identified on a published list).\5\
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 2007 final rule), specifying the conditions for FFP for PADs.\6\
---------------------------------------------------------------------------
\4\ J codes are a subset of the Healthcare Common Procedure
Coding System (HCPCS) Level II code set used to primarily identify
injectable drugs.
\5\ https://www.medicaid.gov/medicaid/prescription-drugs/state-prescription-drug-resources/physician-administered-drugs-pad/.
\6\ https://www.govinfo.gov/content/pkg/CFR-2007-title42-vol4/pdf/CFR-2007-title42-vol4-sec447-520.pdf.
---------------------------------------------------------------------------
We proposed to amend Sec. 447.520 to require States to collect NDC
information on all covered outpatient single and multiple source PADs
and to specify that States must invoice for rebates for all covered
outpatient PADs to receive FFP and secure manufacturer rebates. We are
finalizing as proposed but have added a discussion of our statutory
authority for extending this requirement by regulation beyond the top
20 multiple source drugs already required by statute.
[[Page 79024]]
12. Proposal Related to Suspension of a Manufacturer's Drug Rebate
Agreement
We proposed 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, when there is a
continued failure to report after a 90-calendar day deadline is imposed
by the agency. Specifically, we proposed in Sec. 447.510(i) that a
manufacturer must report information required under Sec. 447.510(a)
and (d), and the failure to report such information to the agency after
the end of an imposed 90-calendar day period would result in suspension
of the manufacturer's rebate agreement, and that such agreement would
not be reinstated until such information was reported in full and
certified, but not for a period of suspension of less than 30 calendar
days. We are finalizing as proposed.
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 enrollee 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 identifier, can specify that a patient is covered by a specific
insurance group, such as being a Medicaid managed care enrollee.
Without the BIN, PCN, and group number identifiers, it is often
difficult to determine from a Medicaid managed care enrollee's
identification 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.
While the use of Medicaid-specific BIN, PCN, and group number
identifiers does not assist in identifying claims for drugs purchased
under the 340B Drug Pricing Program (340B Program), it may help States
and their managed care plans avoid invoicing for rebates on 340B drugs
by identifying which plans are covered under Medicaid. Section
340B(a)(5)(A) of the Public Health Service Act (the PHS Act) prohibits
duplicate discounts for drugs purchased under the MDRP. Identifying
claims where the dispensed drug has been discounted under the 340B
Program is necessary to avoid duplicating that discount in the MDRP.
Therefore, under the authority of section 1902(a)(4) of the Act, to
ensure effective implementation of and compliance with sections
1927(a)(5)(C) and 1927(j)(1) of the Act, we proposed to amend Sec.
438.3(s) to require States to require (via standard contract
requirements) 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 care enrollee identification cards
for pharmacy benefits. Based on comments received, we are changing the
requirement to be a unique BIN/PCN combination with a group number
identifier, as well as the effective date.
b. Drug Cost Transparency in Medicaid Managed Care Contracts
Medicaid managed care plans often contract with a subcontractor
Pharmacy Benefit Manager (PBM) to operate the pharmacy benefit provided
to Medicaid beneficiaries. 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 were 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 incurred claims
for health care services and drug costs) and administrative expenses,
such as fees paid to its PBM for PBM services (for example, claims
adjudication and processing prior authorization requests).
Therefore, we proposed that MCOs, PIHPs, and PAHPs that provide
coverage of CODs require any subcontractor to report the amounts
related to the incurred claims described in Sec. 438.8(e)(2)
separately from any administrative costs, fees, and expenses of the
subcontractor. Based on comments received, we are finalizing as
proposed, with a few clarifying changes. We are adding ``MCO, PIHP or
PAHP'' in a few places to be consistent with other paragraphs in 42 CFR
438.3(s) and are adding a subsection to include an effective date,
which will be the first rating period for contracts beginning on or
after 1 year following the effective date of the rule.
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 accumulator provisions within the 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.'' 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, for consistency, we
proposed to withdraw the changes related to patient assistance to both
the AMP and best price sections made by the 2020 final rule so that the
regulations would revert back to the language that has been in place
since 2016. We are finalizing this provision as proposed.
15. Proposals Related to Amendments Made by the American Rescue Plan
Act of 2021--Removal of the 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 the Act to add ``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
the provision in section
[[Page 79025]]
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 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 proposed to make conforming
changes to Sec. 447.509 to reflect the removal of the limit on maximum
rebate amounts for rebate periods beginning on or after January 1,
2024. We are finalizing this provision as proposed.
16. Request for Information--Comments on Issues Relating To Requiring a
Diagnosis on Medicaid Prescriptions as a Condition for Claims Payment
We solicited comments 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 were particularly interested in understanding any
operational implications, privacy related concerns, associated burden,
and approaches 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.
We appreciate the thoughtful comments we received on this issue,
and we determined we are not moving forward with any proposed
regulations regarding this topic at this time.
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
certain 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.
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
submitted 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.
D. Applicability and Compliance Timeframes
Generally, we are finalizing that this rule, including the
proposals being finalized herein, will be effective 60 days after
publication of this final rule, with the exception of two provisions in
the Standard Medicaid Managed Care Contract Requirements section. We
are including Table 1 with these provisions and relevant timing
information and dates. We encourage all interested parties to confirm
the applicability dates indicated in this final rule for any changes
from the proposed.
Table 1--Applicability Dates
------------------------------------------------------------------------
Regulation text Applicability date
------------------------------------------------------------------------
Sec. 438.3(s)(7)........ First rating period for contracts with MCOs,
PIHPs, and PAHPs beginning on or after 1
year following November 19, 2024.
Sec. 438.3(s)(8)........ First rating period for contracts with MCOs,
PIHPs, and PAHPs beginning on or after 1
year following November 19, 2024.
------------------------------------------------------------------------
II. Summary of Proposed Provisions, Analysis of and Responses to Public
Comments, and Provisions of the Final Rule
The proposed rule to implement regulatory 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 address drug misclassification, as well as drug pricing
and product data misreporting by manufacturers, was published on May
26, 2023 (88 FR 34238). As discussed in the proposed rule, we also made
proposals to enhance program integrity and improve program
administration for the MDRP. The proposals included a time limitation
on manufacturers initiating audits with States, clarifications and
requirements for State fee-for-service (FFS) pharmacy reimbursement,
and the establishment of conditions relating to States claiming Federal
Financial Participation (FFP) for physician-administered drugs (PADs).
Other proposals included two new requirements for contracts between
States and their Medicaid managed care plans in connection with
coverage of covered outpatient drugs (CODs). In addition, the rule
included a proposal not directly related to the MDRP that would modify
the third-party liability regulation based on the Bipartisan Budget Act
of 2018 (BBA of 2018). Finally, the proposed rule solicited comments
related to the issues, benefits, and challenges of requiring the
inclusion of diagnoses on Medicaid prescriptions.
We received 128 comments from drug manufacturers, membership
organizations, law firms, pharmacy benefit managers (PBMs), State
Medicaid agencies, advocacy groups, not-for-profit organizations,
consulting firms, health care providers, employers, health insurers,
health care associations, and individuals. The comments ranged from
general support or opposition to the proposed provisions to very
specific questions or comments regarding the proposed changes.
We also received public comments on this regulation that were out
of scope for this rulemaking, and, therefore, are not being addressed
in this rule. The following summarizes comments about the proposed rule
in general or about specific issues that are not addressed in this
final rule.
Comment: Several commenters submitted comments that were outside of
the scope of the proposed rule. Examples of out-of-scope comments
include but are not limited to whether Medicaid accepts JW/JZ modifiers
when billing radiopharmaceuticals at free-
[[Page 79026]]
standing radiology offices, the amount charged for a specific drug per
month, and comments on CMS' ``Medicare Part D Drug Inflation Rebates
Paid by Manufacturers: Initial Memorandum, Implementation of Section
1860D-14B of Social Security Act, and Solicitation of Comments,'' that
CMS issued on February 9, 2023.
Response: We appreciate commenters' interest in these topics.
However, because these comments are outside of the scope of the
proposed rule, we are not addressing them in this final rule.
Comment: A commenter stated that Federal agencies must align their
rules and proposals to ensure compatibility. The commenter believes
there are a variety of currently proposed, pending, or expected rules
from CMS and the Office of the National Coordinator for Health
Information Technology (ONC) that are not completely independent from
each other; they noted, in some cases, there may be components of
different rules that contradict each other, and in other cases, they
may be written in ways that unnecessarily increase the burden on one or
more parties subject to the rule. Specifically, the commenter mentioned
CMS discusses requiring NDC codes for medications in this rule, but the
recent ONC Health Data, Technology, and Interoperability: Certification
Program Updates, Algorithm Transparency, and Information Sharing (HTI-
1) Proposed Rule discusses the possibility of deprecating support for
NDC codes in its certification programs in favor of always requiring
use of RxNorm for medications. Concerns were raised that the rules were
not coordinated so that their requirements are compatible and
executable without placing additional burden on individuals or
organizations that need to implement more than one rule.
Response: We appreciate the request for Federal agencies to align
their rules to ensure compatibility. We are addressing only those
proposals that were part of the proposed rule (88 FR 34238 through
34296). See also the discussion in section II.L., Federal Financial
Participation (FFP): Conditions Relating to Physician Administered
Drugs related to the HTI-1 final policy and CMS and ONC collaboration.
Comment: A commenter requested CMS postpone finalizing the
proposals in the proposed rule. The commenter encouraged CMS to
actively seek additional feedback from interested parties, including
individuals and advocacy organizations who represent those most
affected by Medicaid coverage challenges.
Response: Through the rulemaking process, the proposed rule was
published, and the public was provided the opportunity to comment on
the proposed rule's provisions. We have reviewed and addressed public
comments and will proceed with finalizing the rule as noted herein.
A. Payment of Claims (42 CFR 433.139)
In the proposed rule, we included regulatory revisions that would
make technical changes to the process for making payment of Medicaid
claims. As background, we noted that in 1980, under the authority in
section 1902(a)(25)(A) of the Act, we issued regulations at part 433,
subpart D, that established requirements for State Medicaid agencies to
support the coordination of benefits (COB) effort by identifying third
party liability. We pointed out that Sec. 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.
To better align our regulations with statute, 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 also proposed 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. Additionally, we proposed 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.
We received two public comments on this proposal. The following is
a summary of the comments we received and our response.
Comment: The commenters stated that they were in support of our
proposed regulation changes.
Response: We appreciate the support on this section.
After consideration of public comments on these provisions, we are
finalizing as proposed.
B. Standard Medicaid Managed Care Contract Requirements (Sec.
438.3(s))
1. BIN/PCN on Medicaid Managed Care Enrollee Identification Cards
In the proposed rule, we included a provision 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 enrollee identification cards for pharmacy
benefits. Although not required to issue enrollee identification cards,
it is a standard business practice for the MCOs, PIHPs, and PAHPs to
routinely issue such cards for pharmacy benefits for Medicaid
enrollees. We proposed that the States' managed care contracts with
MCOs, PIHPs, and PAHPs must comply with this new requirement no later
than the beginning of the State's next rating period for Medicaid
managed care contracts following the effective date of the final rule
adopting this new regulatory provision. A rating period is defined in
Sec. 438.2 as a period of 12 months selected by the State for which
the actuarially sound capitation rates are developed and documented in
the rate certification submitted to CMS, and typically begins with a
calendar year or a State's fiscal year. We indicated 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 enrollee identification cards with these newly
required Medicaid-specific BIN, PCN, and group number identifiers.
This proposal was made 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 enrollees to add these types of unique
identifiers to the enrollee identification cards would make the
Medicaid drug program run more efficiently and improve the level of
pharmacy services provided to Medicaid enrollees. With the inclusion of
Medicaid-specific BIN, PCN, and group number identifiers on the
enrollee
[[Page 79027]]
identification cards issued to the enrollees of MCOs, PIHPs, and PAHPs,
pharmacies would be able to identify patients as Medicaid enrollees,
and better provide pharmacy services. This would be helpful to all
parties to ensure that Medicaid benefits are provided correctly,
including confirming any accurate cost sharing amounts, along with
helping to ensure that claims are billed and paid for appropriately.
This proposed change may help to reduce the incidence of 340B
Program duplicate discounts by identifying Medicaid managed care plans.
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.
Accordingly, we proposed 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 MCOs, PIHPs, and PAHPs that provide
coverage of CODs assign and exclusively use unique Medicaid BIN, PCN,
and group number identifiers for all Medicaid managed care enrollee
identification cards for pharmacy benefits. We proposed that Medicaid
managed care contracts 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 received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Many commenters supported the use of unique Medicaid-
specific BIN, PCN, and group number identifiers for managed care
enrollees to ensure proper enrollee identification, application of
benefits, and claims and billing processes, which would aid in reducing
uncertainty and ambiguity with Medicaid prescribed drug claims.
Commenters believe that this will help pharmacies identify patients as
Medicaid managed care enrollees and support administration of
appropriate Medicaid benefits. Some commenters also noted that many
States report that they either already require unique BIN, PCN, and
group identifier numbers or believe that this would be feasible to
implement.
Response: We appreciate the support and agree that unique BIN, PCN,
and group number identifiers on Medicaid managed care pharmacy
identification cards will be helpful in supporting the administration
of the Medicaid program.
Comment: Several commenters supported adding the requirement that
Medicaid managed care enrollee identification cards contain BIN and PCN
numbers but suggested that the requirement should be for a BIN and PCN
group combination, instead of requiring unique identifiers separately.
These commenters recommended that CMS clarify that the requirement
would be met by the inclusion of a unique combination of BIN, PCN, and
group number identifiers on Medicaid enrollee identification cards to
identify a patient as a Medicaid enrollee with coverage through a
specific Medicaid managed care plan contract. Other commenters
suggested that requiring unique BIN and PCN combinations for managed
care Medicaid enrollees would be more effective.
Response: We agree that separate, unique BIN and PCN numbers would
not be as effective as having a unique Medicaid-specific BIN and PCN
combination, along with a group number identifier, to be issued for
Medicaid managed care identification purposes. We understand that
without having a unique BIN and PCN combination requirement, there
could potentially be thousands of separate, individual new BINs and
PCNs. Therefore, as we noted in the response to the previous comment,
we are finalizing this requirement and are adding the term
``combination'' in this final rule so that a unique BIN and PCN
combination, along with a group number identifier, will be assigned for
Medicaid managed care enrollees' identification cards.
Comment: Several commenters suggested that a list of unique
Medicaid-specific BIN and PCNs with effective dates be publicly
published and updated in a timely manner. One commenter requested that
CMS publish the list by surveying States for unique BIN and PCN numbers
used for Medicaid managed care enrollees and publishing a list of all
such BIN and PCN numbers, similar to how HHS publishes lists of BIN and
PCN numbers used to identify Medicare Part D beneficiaries.
Additionally, one commenter suggested that Medicare and Medicaid
standardize the process by which the BIN and PCN numbers are published,
along with the publication of an up-to-date list of the unique BIN and
PCN numbers.
Other commenters suggested that the States publish the lists on
their websites, since they currently cannot be found in a centralized
location. One of these commenters believes that the creation of a
publicly published list of numbers would aid States' monitoring and
oversight efforts for this plan requirement. This commenter also
recommended CMS provide guidance on pharmacy point of sale (POS)
operations to aid associated State monitoring and oversight.
Another commenter recommended that the BIN and PCN numbers be
published on a list in machine readable form, mirroring how CMS
publishes BIN and PCN numbers for Medicare Part D beneficiaries via
various CMS web pages, such as the page entitled ``Part D Information
for Pharmaceutical Manufacturers.'' \7\
---------------------------------------------------------------------------
\7\ https://www.cms.gov/medicare/coverage/prescription-drug-coverage/part-d-information-pharmaceutical-manufacturers.
---------------------------------------------------------------------------
Response: We appreciate the recommendations from the commenters
concerning the publication of a list with unique BIN and PCN
identification numbers; however, we decline to adopt these suggestions.
Because States have the option of publishing a listing of their MCOs,
PIHPs, and PAHPs with the related BIN and PCN combinations, along with
the group number identifiers in any format on their websites, CMS
defers to States to determine if they believe this would improve
operations to include this information in one centralized location.
Comment: One commenter requested clarification on whether this
requirement for unique BIN, PCN, and group number identifies is
applicable to Title XXI CHIP, State-funded programs in addition to
Title XIX Medicaid.
Response: This regulation applies to Medicaid and CHIP managed care
programs subject to the requirements in 42 CFR part 438 in Title XIX
(Medicaid). This regulation does not apply to the separate CHIP
programs operating pursuant to 42 CFR 457 in Title XXI (State
Children's Health Insurance Program). States may also choose at their
option to consider a similar standard for State-funded programs.
Comment: Several commenters recommended changes to the
applicability date for the requirement to include unique BIN, PCN, and
group number identifiers on Medicaid managed care enrollee
identification cards for pharmacy benefits. These commenters expressed
concern with the proposed applicability date as they did not believe it
was feasible to implement this requirement by the next rating period
for Medicaid managed care contracts following the effective date of the
final rule. Commenters indicated additional time was needed for
necessary operational changes including
[[Page 79028]]
information system development, configuration and testing as well as
the creation of new enrollee identification cards and associated
distribution to enrollees. Commenters varied in the recommended delay
with timeframes with recommendations ranging from 12 to 18 months.
One commenter recommended that the applicability date be
accelerated to implement the inclusion of BIN, PCN, and group number
identifiers before the next contract rating period for managed care
plans as the commenter believes this could prevent 340B duplicate
discounts.
A few commenters were in support of unique BIN, PCN, and group
number identifiers for each enrollee on Medicaid managed care enrollee
identification cards but suggested that this requirement apply
prospectively only to new Medicaid managed care plan contracts entered
into or renewed after the effective date, as requiring mid-term
contractual amendments would be disruptive and burdensome. They
requested additional time sufficient for systems development,
configuration, testing, PBM support, and card development. A commenter
stated that many State Medicaid programs enter into multi-year
contracts with managed care plans that may still be in effect by the
time this rule is finalized.
Another commenter requested that as CMS finalizes an applicability
date for this provision that it considers the need to update industry
specifications that go through substantive, formal approval processes
prior to a formal adoption by a standards-setting authority. The
commenter suggested using existing standards and processes, when
possible, for consistency between Medicare Advantage and Medicaid in
the way these numbers are presented, if possible.
Response: We appreciate the issues raised concerning the timeframe
for including Medicaid-specific BIN and PCN combinations, along with
group number identifiers on enrollee identification cards for Medicaid
managed care enrollees. We agree that additional time may be needed for
all MCOs, PIHPs, or PAHPs to implement these requirements.
Therefore, we are finalizing the applicability date for this
provision to be the first rating period for contracts with managed care
plans beginning on or after 1 year following the effective date of this
final rule.
Comment: A few commenters stated that the BIN definition, format,
and field used in pharmacy claims transactions would be changing as of
the next version of the Telecommunication Standards named under HIPAA.
One commenter noted that CMS recently proposed to update the NCPDP
Telecommunication Standard in a proposed rule. The commenter stated
that the proposal has not yet been finalized but is expected soon and
will most likely require health plans to distribute new member enrollee
identification cards during the implementation period. The commenter
recommended that CMS should consider any unintended administrative
impacts that could occur due to the timing of rule implementation and
the resulting need to reissue enrollee identification cards.
Response: We appreciate the information that was shared regarding
the upcoming changes to the Telecommunication Standards. As stated
previously, we are extending the applicability date in this final rule
for this provision to be the first rating period for contracts with
managed care plans beginning on or after 1 year following the effective
date of this final rule. We believe this additional time will allow
States and managed care plans additional time to undertake the
operational activities associated with this requirement, including any
changes to the Telecommunication standards.
Comment: Multiple commenters supported the unique BIN, PCN, and
group number identifier requirements and suggested additional policies
to be developed to eliminate 340B Program duplicate discounts.
Commenters believe that this provision will not fully address the risk
of 340B duplicate discounts in Medicaid managed care and urged CMS to
consider additional policies designed to avoid Medicaid and 340B
Program duplicate discounts, including, but not limited to, a ``carve
out'' approach, wherein drugs purchased under the 340B Program may not
be furnished to Medicaid enrollees, a claim-level identification
approach, and requiring the usage of 340B Program claims modifiers.
Another commenter believes that if 340B covered entities disclosed to
insurers when drugs administered to their enrollees (or prescriptions
filled in contracted pharmacies) were purchased via the 340B Program,
this would assist with the prohibition on duplicate discounts. Other
commenters suggested that CMS should not allow providers to submit
Medicaid claims until after completing a 340B eligibility screening and
requiring States to provide detailed claim-level utilization data to
manufacturers. One commenter recommended that comparable identifiers be
used for medical benefit products.
A few commenters suggested requiring pharmacies to enter BIN, PCN,
and group number identifiers at the point of sale, so that having the
identification of a Medicaid managed care enrollee can signal to the
pharmacy to append the NCPDP ``20'' submission clarification code so
that the claim can be excluded from States' invoices to manufacturers
for Medicaid rebates. Other commenters stated that there are challenges
with requiring a point-of-sale modifier for contract pharmacies. Other
commenters noted that 340B determination of a prescription drug claim
is not always known at the point of sale. They stated that 340B
determination is often made retrospectively based on several factors,
such as the replenishment model and batch reporting to a clearinghouse.
Multiple commenters stated that they oppose pharmacies being
required to identify 340B claims either prospectively or retroactively,
but support an alternative solution where third-party administrators
provide 340B data to CMS. They also stated that there remains no
requirement for pharmacies to implement a system to flag a claim as
Medicaid.
Several commenters recommended clarity on the dispute resolution
process to determine if the State or the covered entity is responsible
for remedying a duplicate discount in a particular situation.
Commenters suggested that CMS issue guidance to States to establish a
transparent and consistent dispute resolution process to resolve issues
regarding duplicate Medicaid/340B discounts between manufacturers and
State Medicaid agencies. Commenters also stated that Medicaid managed
care plans contracting with States, to help assure accountability on
duplicate discounts, should be required to share data with
manufacturers to permit identification of claims for which the drug was
purchased under the 340B Program.
Other commenters encouraged CMS to work with the Health Resources
and Services Administration (HRSA) to ensure that Medicaid managed care
plan utilization is added to the Medicaid Exclusion File (MEF) as a way
to establish a mechanism to track and avoid duplicate discounts on
Medicaid managed care plan utilization. A few commenters suggested that
it would be more appropriate for HRSA to require that ``340B patients''
receive enrollee identification cards for their 340B prescription drug
benefits with this type of plan identifier information through their
340B covered entities.
Response: We believe that the new requirement for the inclusion of
a
[[Page 79029]]
unique Medicaid-specific BIN and PCN combination, along with a group
number identifier, may help States and their managed care plans avoid
invoicing for rebates on 340B drugs by identifying which plans are
covered under Medicaid. While we appreciate the comments received for
additional ways to improve the operations of the 340B Program, these
suggestions are outside of the scope of this final rule.
Comment: A few commenters expressed opposition to the exclusive use
of unique Medicaid-specific identifiers on enrollee identification
cards. Reasonings include that the addition of exclusive BIN and PCN
numbers is insufficient policy action to reduce or eliminate 340B
duplicate discounts and that the action is unduly burdensome and
unlikely to have a meaningful impact on 340B duplicate discounts. One
commenter requested that CMS allow for continued use of the existing
identification numbers.
Another commenter stated that the inclusion of identifiers on
enrollee identification cards could make it easier to engage in
discriminatory reimbursement for 340B covered entity providers. They
stated that such discriminatory reimbursement could have a negative
effect on certain 340B covered entities. Other commenters requested
that CMS not implicate pharmacies in the process of identifying and
reconciling 340B claims.
One commenter was opposed to this BIN, PCN and group number
identifier requirement since they believe the main purpose was to help
States and managed care plans identify claims for drugs paid for under
the 340B Program to help avoid duplicating discounts or rebates via the
MDRP. For their managed care delivery system in which Medicaid managed
care enrollees primarily access care from plans and contracted
providers that do not participate in 340B, the commenter stated that
there would be a significant operational burden to deploy new enrollee
identification cards with BIN, PCN, and group number identifiers
without a corresponding benefit.
Another commenter also stated that creating a unique BIN and PCN
for each managed care plan would be unduly burdensome. They recommended
amending this proposal such that this requirement would only apply to
unique group number identifiers, and not BIN and PCN, on Medicaid
managed care enrollee identification cards for pharmacy benefits. Other
commenters recommended that Medicaid be consistent with the policy
requiring Medicare Part D plan to use unique BIN and PCN combination
identifiers, and not include group number identifiers, to identify
enrollees.
Response: We appreciate the concerns raised by the commenters but
believe that mandating that States require their MCOs, PIHPs, and PAHPs
that provide CODs to Medicaid enrollees to include a unique Medicaid-
specific BIN and PCN combination, and group number identifiers, on the
enrollee identification cards would make the Medicaid drug program run
more efficiently, help avoid 340B duplicate discounts, and improve the
level of pharmacy services provided to Medicaid beneficiaries.
Pharmacies' identification of patients as Medicaid enrollees based
on the inclusion of Medicaid-specific BIN, PCN, and group number
identifiers on the enrollee identification cards must not be used in
any way to discriminate in the provision of healthcare services, and
such alleged behavior may be referred to HHS' Office for Civil Rights
or other authorities.
After considering the comments raised by the commenters, we are
finalizing Sec. 438.3(s) with some changes to the proposed regulatory
text. We will modify Sec. 438.3(s)(7) by: adding ``combination,'' so
that a unique BIN and PCN combination, and group number identifiers,
will be assigned and used on enrollee identification cards; removing
the comma after ``(BIN)'' and replacing it with ``and'' for grammatical
correctness; and replacing ``beneficiary'' with ``enrollee'' to
accurately acknowledge that enrollee identification cards are provided
to a Medicaid beneficiary enrolled in a managed care plan in a given
managed care program. Furthermore, we are revising the applicability
date for this provision to be the first rating period for contracts
with MCOs, PIHPs, and PAHPs beginning on or after 1 year following the
effective date of the final rule. To accomplish this, we are removing
the proposed applicability date from Sec. 438.3(s)(7) and establishing
Sec. 438.3(w) with this applicability date.
2. Drug Cost Transparency in Medicaid Managed Care Contracts
In the proposed rule, we included a provision that would require
that the contracts between States and MCOs, PIHPs, and PAHPs that
provide coverage of CODs require these managed care plans to structure
contracts with any subcontractor, which may include 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. As part of our proposal, we noted that
these subcontractors may include PBMs.
As stated in the preamble of the proposed rule, PBMs are
intermediaries in the relationship between the managed care plans and
the health care (medical and pharmacy) providers that provide CODs.
That is, PBMs have contracts with both the managed care plans to
administer the pharmacy benefit, as well as with the health care
providers that administer or dispense 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 providers that can dispense or
administer drugs to managed care enrolled patients.
PBMs also may negotiate pharmacy reimbursement rates on behalf of
the various health plans, including Medicaid managed care plans with
which it contracts, to pay the pharmacy and other health care providers
for the CODs 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 pharmacy
reimbursement rates for brand name and generic prescription drugs, as
well as the dispensing fees paid to dispense or administer the
prescription drug. In addition, there are also administrative fees paid
to the PBM by the managed care plans for its administration and
operation of the pharmacy benefit.
The margin between the amount charged by the PBM to a managed care
plan for a COD and the amount paid by the PBM to a pharmacy provider is
referred to as the ``spread,'' and this construct is referred to as
``spread pricing.'' A detailed description and example of how spread
pricing works and how it may affect Medicaid spending for prescription
drugs was included in the proposed rule at 88 FR 34250 thru 34251. The
amount of this margin or ``spread'' may only be known by the PBM,
unless a State Medicaid program or managed care plan specifically
requires the 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 managed care plans, and
thus the Medicaid program, which we believe is contrary to proper and
efficient operation of the State Medicaid program, and potentially
creates
[[Page 79030]]
conflicts of interest in connection with payment for CODs. 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.
We further noted in the preamble to the proposed rule that 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 are paid, are
both necessary for efficient and proper operation of Medicaid programs.
Moreover, this lack of transparency makes it more difficult for States
and Medicaid-managed care plans to ensure that the plan's Medical Loss
Ratio (MLR) calculation is limited to the true medical costs associated
with the provision of CODs. We noted that MLR calculations are used as
part of capitation rate development. Capitation rates are paid to
Medicaid managed care plans; thus, their accuracy is critical in
assuring that Medicaid payments are reasonable and appropriate. We
further noted that 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, requirements related to accurate MLRs
are key to ensuring that Medicaid managed care capitation rates are
actuarially sound. In addition, Medicaid managed care plans may need to
pay remittances to States should they not achieve a specific MLR target
when a remittance is required by a State. Thus, the accuracy of MLR
calculation is important to conserving Medicaid funds.
We also pointed out that CMS issued a Center for Medicaid & CHIP
Services (CMCS) Informational Bulletin on May 15, 2019, for States and
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), specifying MLR data collection requirements
when a managed care plan uses subcontractors for plan activities. The
2019 CIB provided additional guidance, including an example regarding
the MLR data collection requirements when third party vendors, such as
PBMs, are involved. However, while the 2019 CIB uses PBM spread pricing
as a specific example, there was nothing currently in Federal
regulation that specifically detailed contract requirements that (non-
claim) administrative costs, fees, or expenses of a managed care plan's
subcontractor should not be counted as incurred claims for purposes of
the managed care plan's MLR calculation.
In addition, the preamble to the proposed rule discussed that the
Medicaid managed care regulation at Sec. 438.230(c)(1) requires that
certain agreements are to be included in subcontracts, including that
subcontractors agree to perform the delegated activities and reporting
responsibilities in compliance with the managed care plan's contract
obligations, and that 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 explained
how these regulatory obligations require 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 and that the requirements and definitions in
Sec. 438.8 for these categories of costs and expenditures must be
applied to the required reporting.
For these reasons, we proposed to amend Sec. 438.3(s) to require
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 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 patients 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.
We noted that this proposal will 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.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Many commenters supported the requirement that managed
care plans separately report the amounts for incurred claims for CODs
and not include administrative costs in the MLR numerator, and by doing
so, this new requirement would provide transparency to help identify
PBM spread pricing practices that potentially lead to pharmacies being
underpaid for their services. Other commenters, while supporting the
proposal, questioned why spread pricing is not entirely prohibited.
Response: We appreciate commenters' support regarding the
regulation as proposed. We note that CMS does not have the authority
under Federal Medicaid statute to prohibit a PBM's practice of spread
pricing. However, we believe this regulation, once final, will provide
greater transparency to State Medicaid agencies and managed care plans
regarding how the PBMs are spending the payments that are made to them
by the Medicaid managed care plan to administer the Medicaid
prescription drug benefit. We believe this information will help to
inform the State's decision-making relating to the administration of
the prescription drug benefit. It will also help the Medicaid managed
care plans have more accurate data to calculate their MLRs, as well as
ensure that States can accurately develop capitation rates. Finally, it
will help States and managed care plans ensure that PBMs are being
appropriately compensated for their services by requiring that the
subcontractors report separately incurred claims for CODs and
administrative fees, costs, and expenses in sufficient detail and the
level of detail must be no less than the reporting requirements in 42
CFR 438.8(k).
Comment: With respect to CMS' proposal to separate the amounts
related to incurred claims (for example, COD reimbursement and
dispensing fees) from a PBM's administrative fees, commenters urged CMS
to also consider downstream impacts in the supply chain. The commenters
indicated that to support robust pharmacy market competition and lower
health care costs for beneficiaries, CMS must ensure that pharmacies
and other health care providers' proprietary information, such as the
pharmacy reimbursement (dollar amount) is not disclosed and cannot be
traced back to an individual pharmacy. The commenters also indicated
that they understand the difficulty in balancing both promoting market
[[Page 79031]]
competition and striving for greater transparency in the marketplace;
however, these commenters noted this balance could be achieved with
transparent accountability measures and comprehensive PBM reform.
Response: We continue to believe this requirement will not deter
market competition because it does not require public disclosure of
provider-specific proprietary information. Instead, Sec. 438.3(s)(8)
will require that the managed care plans contract with the
subcontractor will require the subcontractor report separately incurred
claims and administrative costs, fees and expenses of the subcontractor
necessary for the managed care plan's reporting of the MLR consistent
with the requirements at Sec. 438.8(e)(2). The reporting must be in
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. As
provided in the 2019 CIB, the level of detail must be no less than the
reporting requirements in 42 CFR 438.8(k), but may need to be more if
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. We note that there is nothing in the
regulation that prevents the subcontractor from negotiating terms
limiting the identification of provider-specific expenditures in the
contract with the managed care plan, as long as those terms are
consistent with the requirements of this final rule and other Federal
contract requirements in regulation at 42 CFR part 438.
Comment: Many commenters requested that CMS implement Federal
requirements on PBMs' arrangements with pharmacies rather than just
focus on contracting requirements between the managed care plans and
PBMs. The commenters encouraged CMS to consider issuing rulemaking that
would enhance pharmacy network adequacy, ensure reasonable
reimbursement for pharmacies, require certain payment models for
managed care plans that cover CODs, and promote payment parity between
PBM affiliated and non-affiliated pharmacies in Medicaid managed care.
Other commenters suggested including data quality controls, alignment
with other payer models, and limitations of reimbursements to non-PBM
affiliates. Specifically, commenters requested that CMS revise Sec.
438.3(s)(8) to:
Require managed care plans eliminate spread pricing, such
as by requiring the plans to utilize certain payment models with their
PBM subcontractors which dictate how much the PBM is paid for their
administrative activities and require specific payment models of how
much providers and pharmacies are paid. The commenter also pointed to
its support of current proposed Federal legislation (S. 1038, Drug
Price Transparency in Medicaid Act of 2023/HR 3561, the PATIENT Act)
that includes similar proposals that would ban spread pricing in
Medicaid.
Require that managed care plans' contracts with their
subcontracted PBMs require reimbursement for all in-network pharmacies
in the managed care program based on a transparent benchmark of
National Average Drug Acquisition Cost (NADAC), or WAC when there is
not a NADAC price, for a Medicaid COD with a commensurate dispensing
fee comparable to the State's Medicaid survey-based fee-for-service PDF
as a final payment, absent written proof of fraud. The commenter also
suggested that CMS should require that the managed care plan only
include these claim cost payments paid by the PBM to the pharmacy for
the managed care plan's reported MLR to a State Medicaid program.
Prohibit managed care plans and their subcontracted PBMs
from reimbursing non-PBM affiliated pharmacies less than PBM-owned or
PBM-affiliated pharmacies.
The commenters expressed their belief that by adding these
provisions to the proposed regulations, CMS would take important steps
to eliminate the managed care PBM practices that the commenter
indicates have led to nearly $1 billion in Medicaid fraud settlements
by 17 States against managed care plans for overbilling Medicaid
programs for managed care prescription benefits.
Response: We are aware of the settlements between PBMs and States,
and the potential that such spread pricing arrangements will result in
overbilling Medicaid. We believe that Sec. 438.3(s)(8), which will
require the subcontractor report to the managed care plan separately
incurred claims (for example, covered outpatient drug reimbursement)
from administrative costs, fees, and expenses for purposes of
calculating the managed care plan's MLR, will likely impact the
practice of PBM spread pricing. That is, greater transparency to the
States of how prescription expenditures are being allocated by the PBMs
contracted with the Medicaid managed care plans to provide pharmacy
benefits may reduce the likelihood that the PBM will engage in spread
pricing.
Furthermore, we are aware of actions taken by individual States at
their option to end or limit impact of PBM spread pricing, including in
Medicaid. However, as noted in the preamble, we do not believe we have
Federal authority to prohibit spread pricing. Nonetheless, we believe
that this final rule will provide greater transparency to State
Medicaid agencies and Medicaid managed care plans to help inform the
State's decision-making relating to the administration of the
prescription drug benefit and improving accuracy of plans' MLR
calculations.
With regards to pharmacy reimbursement, the adequacy of
reimbursement by managed care plans or their subcontractors to their
network or non-network pharmacies or providers is out of scope of this
final rule. Furthermore, CMS does not have authority to impose on
Medicaid managed care plans the State plan requirements at Sec.
447.518, which require State Medicaid FFS payment methodologies for
retail community pharmacies be in accordance with the definition of
actual acquisition costs at Sec. 447.502, including requiring the use
of an Actual Acquisition Cost (AAC) benchmark in setting prescription
drug reimbursement at the retail level. These regulations do not apply
to Medicaid managed care plan payments to pharmacies or providers for
CODs.
We note that if a State or CMS finds that a Medicaid managed care
plan does not have a sufficient network of pharmacies or providers to
ensure enrollee access to prescription drug benefits, the States and
CMS can engage with the Medicaid managed care plans on whether the
reimbursement to pharmacies and/or providers for prescription drugs is
adequate to attract pharmacies/providers in their network and ensure
Medicaid beneficiaries have access to the Medicaid prescription drug
benefit. We remind States of their obligation to develop and enforce a
quantitative network adequacy standard for pharmacies at Sec.
438.68(b)(1)(vi).
Comment: One commenter suggested that CMS urge PBMs to disclose and
document their profit usage and accounting for when profit is used to
augment beneficiaries' drug access. This same commenter questioned CMS'
position on PBMs charging insurers higher than what they pay
pharmacies, and recommended CMS investigate the efficacy of using PBMs
for negotiating reduced drug prices.
Response: We may consider the commenter's concerns in future policy
development. Otherwise, the use of a PBM's profits and investigation of
PBM practices are not a subject of this final rule.
[[Page 79032]]
Comment: Several commenters expressed their belief that increasing
the level and detail of reporting by PBMs is a good first step in
increasing transparency; however, they noted more could be done to
protect the intent and the efficacy of the 340B Program and its
eligible covered entities by not allowing PBMs to use discriminatory
practices, such as PBM payment cuts, that harm hospitals and community
health centers that are 340B covered entities and possibly jeopardize
patient access to 340B covered entities and contract pharmacies. The
commenters indicated that this would allow the savings generated
through the 340B Program to be passed along to the PBM to increase
their profits. The commenters supported provisions addressing the
contracting between PBMs and managed care plans but do not support any
policies that will impact a pharmacy's reimbursement.
Response: The efficacy of the 340B Program and any discriminatory
practices of PBMs is out of scope of this final rule. Furthermore, as
stated earlier, the adequacy of reimbursement by a plan (via its PBM)
to a managed care plan's network or non-network pharmacy, which could
be a covered entity, is also not a subject of this final rule, nor is
the effect of PBM practices on 340B entities and use of 340B savings.
Comment: Several commenters supported the proposed changes,
including the information subcontractors of managed care plans need to
separately identify (separately identify incurred claims from
administrative costs, fees, or expenses) and provide to managed care
plans, but requested that CMS develop detailed guidance on the specific
cost elements to be reported and a reporting template to ensure
standardization and ease of adoption. They indicated that it would be
helpful for CMS to indicate the specific parameters that would be
included in this requirement to provide greater transparency into PBM
and pharmacy services administrative organizations (PSAOs) and any
other subcontractor that has incurred claims on behalf of the managed
care plan associated with covered outpatient drug coverage.
Response: We appreciate the commenters' request for more detailed
guidance. We will evaluate if additional guidance is needed as part of
implementation efforts for this requirement and will take these
suggestions into consideration as part of that evaluation.
Comment: One commenter indicated that its State currently requires
its managed care plans to produce reports with claim level data on the
payment made to the PBM by its managed care plans and the amount of
payment the PBM has paid to the pharmacy. In addition to claim level
data, the commenter indicated that this State requires its managed care
plans to report on all payments, including administrative fees, to and
from the PBM, managed care plan, and pharmacies at an aggregate level.
The commenter believes additional Federal requirements would strengthen
States' abilities to secure data around drug costs. Another commenter
further pointed to the National Academy of State Health Policy (NASHP)
website, in which NASHP analyzed PBM contracts in a subset of States
and developed model contract language to address the lack of
transparency and promote cost-saving incentives in typical PBM
contracts.
Response: We appreciate the commenter's support for finalizing
Sec. 438.3(s)(8). We do not intend to further revise the Federal
requirements in Sec. 438.3(s)(8) at this time. We encourage States to
assess if they wish to impose additional reporting requirements on
plans or their subcontractors to facilitate State priorities such as
those on transparency and payment, or develop model contract language
for plans to utilize with their subcontractors.
Comment: One commenter suggested that CMS consider alignment with
other payer models for drug cost data collection, such as the
Prescription Drug Data Collection (RxDC) required by the Consolidated
Appropriations Act of 2021. The commenter noted that alignment would
facilitate the ability of managed care plans to provide cost
transparency, minimize burden, and improve the ability of CMS to
compare drug costs across delivery systems.
Response: We appreciate the commenter's suggestion that we align
Medicaid data collection efforts from payers with other data collection
programs, such as the RxDC, especially for purposes of transparency.
However, the data collection required under this provision is distinct
from the RxDC program and serves to ensure a Medicaid managed care plan
has the data it needs from its subcontractors to accurately calculate
and report its MLR.
Comment: A few commenters requested clarification regarding the
applicability date for Sec. 438.3(s)(8) and urged CMS to grant managed
care plans and their subcontractors sufficient time, such as 6 months
or more, to allow for necessary operational, system, and contracting
changes.
Response: The applicability date for Sec. 438.3(s)(8) as finalized
is no later than the State's first rating period for contracts with
MCOs, PIHPs, and PAHPs beginning on or after 1 year from the effective
date of this final rule. As part of this final rule, we have added
Sec. 438.3(w) to finalize this applicability date.
Comment: One commenter requested that spread pricing information be
made public where possible, stating it is vital to the public's
interest to understand what the cost of PBMs are to Medicaid and
enrollees.
Response: We assume that the commenter is requesting that CMS and/
or States publicly publish the information collected by the managed
care plans from PBMs that distinguish the PBM's payment for the drug
and the administration fee and how much the managed care plan paid the
PBM for such services. This final rule does not modify the elements
States are required to include in their MLR summary reports to CMS
under Sec. 438.74; therefore, CMS will not have routine access to PBM
payment information that is provided by PBMs to managed care plans and
cannot release it to the public. States may consider additional steps,
such as what level of data they wish to compile from plans and their
subcontractors, in addition to those required for reporting in
accordance with Sec. 438.74 and associated transparency on the State's
public website.
Comment: A few commenters acknowledged that, making PBMs break out
their costs would give State Medicaid programs a better sense of
whether spread pricing is occurring, but commenters suggested a more
effective approach would be to prohibit spread pricing in Medicaid
managed care. They noted that the Congress is currently considering
numerous bills related to PBM practices and could include a prohibition
of spread pricing in Medicaid managed care as part of those efforts.
Response: We appreciate the support for this final rule. As noted
previously, we do not have the authority to completely prohibit these
PBM practices.
Comment: One commenter requested clarification on the separate
identification of a COD, if a COD is deemed to be eligible for a MDRP
rebate. The commenter supported a requirement that if a Medicaid
managed care plan contracts with any subcontractor for the delivery or
administration of CODs, the managed care plan must require the
subcontractor to separately identify CODs, even if the
[[Page 79033]]
CODs are reimbursed as a bundled payment.
Response: As specified in Sec. 438.3(s)(8), we are finalizing a
requirement for Medicaid MCOs, PIHPs, and PAHPs that provide coverage
of CODs to require any subcontractor for the delivery or administration
of the COD benefit to report separately the amounts related to the
incurred claims described in Sec. 438.8(e)(2), such as reimbursement
for the CODs, from the administrative costs, fees, and expenses of the
subcontractor. The separate reporting requirement for the delivery or
administration of the covered outpatient drug benefit under Sec.
438.3(s)(8) is not limited to those instances when the COD benefit is
paid separately as a claim; the separate reporting requirement applies
regardless of the COD benefit reimbursement methodology (for example,
bundled payment for a specific service).
After consideration of public comments on this provision, we are
finalizing Sec. 438.3(s) with some changes to the proposed regulatory
text. While we discussed in the preamble of the proposed rule that this
would apply to MCOs, PIHPs, and PAHPs, we did not include the phrase
``MCO, PIHP, or PAHP'' in the regulatory text. Thus, we will modify
Sec. 438.3(s)(8) by adding at the beginning of the paragraph the
phrase ``The MCO, PIHP, or PAHP'' to conform with the other paragraphs
in Sec. 438.3(s), inserting ``must'' to replace ``to'' for additional
clarity, and inserting ``to the MCO, PIHP, or PAHP'' for clarity on the
entity that the subcontractor reports the required information to. We
also are adding Sec. 438.3(w) to include an applicability date for the
requirements of paragraphs (s)(7) and (s)(8), which will be the first
rating period for contracts with MCOs, PIHPs, or PAHPs beginning on or
after 1 year following November 19, 2024.
C. MDRP Administrative and Program Integrity Changes
1. Definitions (Sec. 447.502)
a. Modification to the Definition of Covered Outpatient Drug (Sec.
447.502)
In the proposed rule, we proposed to modify the definition of a
COD. We noted as background that 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 other words, a product that would otherwise qualify as a
COD, is excluded from the definition if it is administered in certain
settings and not directly reimbursed.
We also noted that in the 2016 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) 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 anyone 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.
We noted in the proposed rule that, 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.
Such situations would render the drug eligible for rebates under
section 1927 of the Act as a COD, or in other words, the limiting
definition exclusion would be inapplicable in certain circumstances. We
had proposed that, if a drug and its cost can be separately identified
on a bundled claim for payment, and the identified amount attributable
to the drug is made solely for the drug (and no other services), it can
be considered direct reimbursement for the drug. Therefore, we
indicated that 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 is separately
identified on the claim. The payment for the drug is not required to be
a distinct, separate payment for such payment to be considered direct
reimbursement.
Specifically, we proposed to amend the regulatory definition of the
term covered outpatient drug at Sec. 447.502 to add that direct
reimbursement for the drug includes situations in which a claim for an
all-inclusive payment identifies the drug plus the itemized cost of the
drug.
Additionally, to support our proposal, we noted that 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 definition of the term covered
outpatient drug in Sec. 447.502 includes similar limiting language in
a 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).'' We noted that there was no meaningful distinction between
the statutory and regulatory parenthetical language for purposes of the
MDRP, and thus, we proposed to make a technical change by modifying the
regulatory language so that it more closely mirrors the statutory
language. We proposed 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).''
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: We received several comments supporting the proposed
definition of direct reimbursement with respect to the COD's limiting
definition. Some comments provided general support for the proposed
definition. One commenter stated that the definition will help ensure
that Medicaid beneficiaries with a rare disease continue to have access
to affordable outpatient drugs. Another commenter stated that the
change will help ensure that States receive the MDRP rebates to which
they are entitled, allowing providers to make treatment decisions based
on the individual clinical circumstances of a patient. One commenter
supported the definition and noted that current claims processing
standards support the ability of a claim to contain the required
information so that rebates may be billed. One commenter supported the
definition and stated they believe that the modification to the
definition reflects our current policy, and they requested
clarification to confirm that understanding.
Response: We appreciate the support for the modification of the
definition of a direct reimbursement as it relates to the definition of
a COD. The modification to the definition was not intended to be a
departure from current practice or in conflict with the current
regulation or statute. Rather, the modification was intended to address
the fact that States are now using newer reimbursement methodologies
where it is not entirely clear whether drugs
[[Page 79034]]
reimbursed through that new methodology are CODs. As discussed
subsequently, we are also adding clarifying language to ensure that our
intention is clear that the definition does not inadvertently include
drugs that do in fact meet the statutory limiting definition of COD.
Comment: We received several comments that are outside the scope of
this rule. One commenter stated that the modified definition of COD
would affect the covered entities that participate under the HRSA 340B
Program because they use our definition of COD to determine if a drug
is subject to 340B pricing. One commenter stated that CMS fails to
convey how medical research and development will be protected with the
proposed revisions. A few commenters noted that the modified definition
of COD would increase the number of CODs subject to rebates which may
make it difficult for manufacturers to continue to offer their drugs in
Medicaid.
Response: Because these 340B issues are outside the scope of this
rule, we are not addressing them. We appreciate the commenters' concern
regarding the modification of the definition of COD and the increased
number of CODs subject to rebates. While we do not believe this
clarification to the definition will result in a significant change in
the number of CODs, it may increase the number of instances where a COD
may qualify for rebates. With respect to impact on research and
development, this proposal will clarify for States when a drug is a COD
and thus subject to rebates in some instances, and thus may result in
States collecting rebates in circumstances where they are not currently
collecting any rebates. As a result, States may take these
clarifications into account when determining coverage and reimbursement
policies for particular drugs. The impact of these clarifications may
result in States having a net reduction in cost for these drugs, which
may increase access to these drugs, and in turn, support manufacturers'
research and development efforts. CMS does not believe that the
clarification of the definition of a COD in this rule indicates that
scientific drug development is not valued or that the definition will
disincentivize the scientific development. The United States
pharmaceutical market is the largest in the world, with a strong record
of fostering innovation, and Federal health care programs are large
payers for medications in the United States, supporting incentives for
manufacturers to continue to develop innovative medicines and make
drugs available in the Medicaid program.
Comment: We received many comments stating that our proposed
clarification of the term ``direct reimbursement'' conflicts with the
language of the statute. Commenters also stated that the proposed
revision would represent a significant and impermissible change to the
meaning of the limiting language in the COD definition and stated that
it would render language in the statute unnecessary. Commenters pointed
to legislative history, assertions made by HHS in litigation that ``a
drug is not a covered outpatient drug if it is provided, and paid for,
as part of a bundled service,'' language in the 2016 COD final rule,
and responses in an FAQ published under the 2016 COD final rule to
support their position that CMS historically considered that a drug was
not a COD unless the drug was separately reimbursed. One commenter
cited the following language from the 2016 COD final rule to support
their position: ``a drug which is billed as part of a bundled service
with, and provided as part of or incident to and in the same setting as
the services'' [will only qualify as] a COD if ``the State authorizes
and provides a direct payment for the drug, consistent with the
applicable State plan, separately from the service.''
Response: Upon review of these comments, we are clarifying for
States the situations in which they will be able to bill for a rebate
for a COD that is directly reimbursed as part of a bundled or inclusive
payment. Specifically, we are clarifying the term ``direct
reimbursement'' as we agree that the proposed regulatory definition may
not have clearly identified those situations that will qualify as
direct reimbursement. In this final rule, we are adding language to the
regulatory definition to indicate that direct reimbursement includes
reimbursement for a drug that is part of an inclusive payment when the
inclusive payment includes an amount attributable to the drug, the
number of units of the drug that were dispensed or administered to the
patient, and the amount paid that is attributable to the drug is based
on a reimbursement methodology that is included in the applicable
section of the State plan.
Comment: Several commenters disagreed with CMS' assertion that the
proposed modification to the definition of COD is a clarification of
existing policy on the application of the limiting definition. They
stated that rather than a clarification, they view the modification as
a policy change with no presented rationale. Commenters also stated
that CMS' proposal is a departure from the agency's longstanding policy
that no Medicaid rebate liability attaches to units reimbursed via
bundled payments. Commenters also stated that our definition marks a
significant and unacknowledged departure from the agency's longstanding
approach to manufacturer rebate liability. A commenter mentioned that a
basic requirement of the Administrative Procedure Act is that an agency
must acknowledge that ``it is in fact changing its position'' and
provide good reasons for any change in policy. They stated that CMS
failed even to acknowledge its changing position and was, therefore,
acting in an arbitrary and capricious manner. A few other commenters
referenced language in the preamble to the 2016 COD final rule, when
CMS previously stated, ``if the drug is provided as part of a bundled
service and not separately reimbursed, then the drug does not qualify
as a [covered outpatient drug], in accordance with section 1927(k)(3)
of the Act and is not subject to rebates.''
Response: Our intent in the proposed rule was to provide
clarification regarding when a payment represents direct reimbursement
for a drug. Essentially, we were clarifying that, as used in the quoted
language, ``not separately reimbursed'' in the context of bundled rates
means not separately identified or itemized, with an amount associated
with payment for the drug. Based on the comments, we agree that our
proposed modification to the definition could be further clarified. In
the past we have stated that no rebate liability attaches to drugs that
are paid for as part of bundled payments. As just noted, this was
intended to address situations in which an amount paid for a COD is not
identified or itemized. As noted in the preamble to the proposed rule,
interested parties have requested that we define situations in which
rebates can be billed for drugs that are part of inclusive payments if
the quantity of drug dispensed or administered can be identified. As
noted in the response to previous comments, we are modifying the
definition of direct reimbursement in this final rule to make it clear
that, for rebates to be billed, the inclusive payment must include an
amount directly attributable to the drug, and the amount paid that is
attributable to the drug is based on a reimbursement methodology that
is included in the applicable section of the State plan.
Comment: We received some comments indicating that the proposed
change to the definition of COD would
[[Page 79035]]
nullify the distinction between direct reimbursement and reimbursement
made as part of a bundled payment. Commenters stated that ``direct
reimbursement'' cannot be construed to mean ``separately identified''
without there being a distinct payment for the drug. Commenters also
indicated that CMS failed to acknowledge that where a drug has been
paid for as part of an indivisible payment for the drug and its
associated services, Medicaid, by definition, has not directly
reimbursed for the drug, and there is no ``direct'' throughline between
the reimbursement amount and the payment associated with any one of the
bundled items or services. Some commenters also stated that the
proposed change ignores what they consider to be a reasonable
interpretation of direct reimbursement.
Response: We agree that the proposed revision to the definition of
COD regarding direct reimbursement did not adequately reflect that the
amount of reimbursement for the drug should be tied to the State's
approved reimbursement methodology for that drug. We have therefore
added language to the definition in this final rule to indicate that in
order for the payment for the drug to be treated as direct
reimbursement, the payment methodology for the inclusive payment must
identify an amount directly attributable to the drug, such that the
amount paid is based on a reimbursement methodology that is included in
the applicable section of the State plan.
Comment: We received a few comments that because our modified
definition of COD provides that drugs administered in an inpatient
setting could be included in the definition of ``covered outpatient
drug,'' we give no meaning to the word ``outpatient'' contained within
the term.
Response: The term ``covered outpatient drug'' is a statutory term
of art. The limiting definition in section 1927(k)(3) states that the
term COD does not include any drug provided as part of, or as incident
to and in the same setting as ``inpatient hospital services,'' among
others, and for which payment is not made as direct reimbursement for
the drug. If the Congress had intended for the statutory term of
``COD'' to be limited to the outpatient setting only, the limiting
definition would be superfluous as applied to being included in
inpatient hospital services. Because statutory interpretation
principles hold that an agency should not construe a statute in a
manner that renders a provision to have no effect, we disagree that the
term COD is limited to drugs dispensed or administered in an outpatient
setting. Based on the plain text of 1927(k)(3), the term COD excludes a
drug provided in the inpatient hospital setting only if the drug is
provided as part of or as incident to and in the same setting as
inpatient hospital services and for which payment is made as part of
such services and not as direct reimbursement for the drug. We proposed
to amend the regulatory definition of COD in a manner consistent with
the statutory definition of this term of art to provide greater
specificity as to when a drug provided in the inpatient setting is
subject to the limiting definition and does not qualify as a COD.
Comment: A commenter noted that the statute focuses on the manner
of payment, not the manner in which the provider's costs are reflected
on the claim, and that our proposed definition was only focusing on how
the claim was submitted.
Response: We agree that the definition should include language
about the manner of payment, which we understand to mean how the claim
is reimbursed, and not only based on the information submitted on the
claim. We have therefore revised the proposed definition to include
language about the manner of payment, including that the payment
methodology for the inclusive payment must include an amount directly
attributable to the drug, such that the amount paid is based on a
reimbursement methodology that is included in the applicable section of
the State plan.
Comment: Several commenters noted that when payments for new and
innovative therapies (cell and gene therapies, for example) are
reimbursed in a payment that is bundled with a service (for example,
under the Diagnosis-Related Group (DRG) system), the reimbursement is
often insufficient for the drug and potentially results in lack of
patient access to these new therapies. The commenters noted that
conversely, some States are reimbursing the hospital separately for
their acquisition cost of certain new and innovative drugs from their
inpatient services associated with administering the drug, and such
methods of direct reimbursement are adequately reimbursing providers/
hospitals and encouraging patient access.
Response: We note that section 1902(a)(30)(A) of the Act requires
States 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 under the plan at
least to the extent that such care and services are available to the
general population in the geographic area.'' The payment methodology
for a COD must be identified in the State Plan and meet the foregoing
standard. Some States already have approved methodologies outlined in
their State plan that results in the ability for the State to collect
rebates on some inpatient drugs. If a State plan does not address a
distinct reimbursement methodology for a drug included in a bundled
payment, then a SPA would need to be submitted and approved that
includes such methodology in the appropriate section of the State plan.
Comment: One commenter stated that manufacturers have launched
certain products assuming there would be limited MDRP rebates given the
products are included in a bundled payment arrangement and altering
this will lead to significant operational challenges, unsustainable
pricing expectations, potential drug shortages, and compromised
utilization within Medicaid.
Response: Again, we note that our intent for this clarification is
to help manufacturers and States better understand how the term direct
reimbursement for a drug will be applied with respect to the limiting
language within the COD definition. Our review of comments alerted us
to the fact that the proposed definition, as originally written, may be
open to multiple interpretations. As a result, in response to such
comments, we have modified the definition in this final rule to be
clearer about when a payment is a direct reimbursement for a drug.
Given the revisions, we do not believe that the challenges cited by the
commenter will occur. We also note that there are States whose current
Medicaid reimbursement policies account for carved out inpatient drugs
for separate payment. These payment models have been intact for years
and we do not have evidence that these payment models lead to
significant operational challenges, unstable pricing expectations, drug
shortages, or compromised Medicaid utilization. We also intend to
provide additional guidance to States with respect to how the
interpretation of direct reimbursement may be operationalized so that
States can invoice for rebates for these CODs.
Comment: A few commenters expressed their concerns regarding drug
manufacturers' lack of access to claims level data for purposes of
validating rebate invoices if CODs are merely identified or itemized
and not separately reimbursed. One commenter stated that neither CMS
nor States nor manufacturers have visibility into all payer claims to
be able to ascertain how
[[Page 79036]]
bundled drugs and associated items and services are itemized.
Manufacturers would have to obtain the billing document to verify the
validity of rebate invoices. Another commenter stated that it was
unclear that States would have the mechanism to collect such claims
data for bundled drugs and present to manufacturers if requested.
Response: Manufacturers are always able to work with States to
verify a claim for a Medicaid rebate. States will need to determine how
they instruct their providers and managed care plans to identify for
rebate billing purposes those inclusive payment claims where direct
reimbursement is being made for a COD. This will allow States to
include the COD in the rebate billings, as well as identify for
Medicaid managed care plans such claims that they will have to report
to the States for rebate billings.
For States that choose to reimburse these drugs separately, the
State will have the information submitted on the claim identifying the
drug and the number of dispensed or administered units of the drug. For
States that choose to use a bundled reimbursement model that separately
identifies the drug and takes the cost of the drug into account in the
reimbursement as outlined in the methodology in the State plan, those
States will also have sufficient information to identify the drug and
the number of dispensed or administered units of the drug. This claim
information will allow the State to provide utilization information to
the manufacturer in order for the manufacturer to verify that
utilization. Collection of the data and how it may be presented to
manufacturers may vary by State or manufacturer.
Comment: Several commenters stated that finalizing the COD
definition as proposed would subject some drugs (for example, cell and
gene therapies to new rebate requirements and would undermine efforts
to offer value-based payment models and innovative payment
arrangements.
Response: All CODs, including cell and gene therapy drugs that are
CODs for which the manufacturer has a rebate agreement, are subject to
basic minimum Medicaid rebate requirements, regardless of whether they
are provided as part of a value-based purchasing arrangement. As noted
previously, some States have already received approval for a State plan
amendment to carve out drugs, such as cell and gene therapy drugs from
inpatient hospital payment rates, and reimburse them separately, thus
allowing them to collect rebates. Further, the Cell and Gene Therapy
Access Model being tested by the CMS Innovation Center will require
participating States to carve model cell & gene therapy drugs out of an
inpatient payment bundle if the States want to participate in the Model
so that the States may collect rebates on the drugs. With the
clarification to the definition of direct reimbursement, as finalized
in this rule, States may also bill for rebates for drugs that are
provided as part of inclusive payments if they are itemized on the
provider's bill, the number of units dispensed are identified, and the
drug is paid according to the State's approved plan methodology for the
drug. With these clarifications, we also believe that manufacturers and
States may still pursue enhancements in patient access, equity, and
health outcomes by executing VBP agreements and supplemental rebates
for any COD per the State plan.
Comment: A few commenters stated that the cost of a drug has not
necessarily been included in the development of a bundled payment rate
for the underlying service. One commenter stated that a DRG-based
payment for a hospital inpatient stay does not provide reimbursement
for any one item or service involved in the bundle. Instead, the
commenter stated that bundled payment rates are meant to reimburse
generally for the collection of various items and services that may or
may not be necessary to the delivery of care for a specific illness,
procedure, or condition. The commenter noted that, typically, when DRG
rates are used to reimburse providers, the payment is a predetermined
amount that does not change based on the cost or amount of a specific
drug that is administered or dispensed to the patient.
Response: We recognize that DRG is a commonly employed bundled
payment methodology for an inpatient stay for a procedure or diagnosis.
The modified definition of COD that we are finalizing will continue to
exclude drugs from the definition of COD that are provided as part of,
or as incident to and in the same setting, as defined in
section1927(k)(3)(A) through (H) of the Act, for which payment for the
drug is bundled and not distinguishable from other costs associated
with that service. In addition, given that under a bundled payment, the
units of a drug that were provided during the service are not
identified on the bill, the State would not know how many units to bill
for rebates. We modified the proposed regulatory definition in this
final rule such that in order for the definition of direct
reimbursement to be met, the number of units administered to the
patient must be identified on the invoice for the inclusive payment and
reflected in a payment methodology in the State plan.
Comment: Several commenters noted that some States are reimbursing
the hospital for their acquisition cost of certain new and innovative
therapies separately from their inpatient services associated with
administering the drug. They believe this would qualify as direct
reimbursement, and result in States adequately reimbursing providers/
hospitals and encouraging patient access. One commenter suggested that
accounting for the drug cost separately in the reimbursement
calculation is a win-win situation.
Response: We agree that payment for drugs provided in this manner
consistent with the State plan constitutes a direct reimbursement and
the drug meet the definition of a covered outpatient drug.
Comment: A few commenters stated that the proposed definition could
make drugs reimbursed under a DRG reimbursement methodology or other
bundled payment subject to rebates when they historically were not.
These commenters supported this result and noted that these drugs are
currently carved out of DRGs to collect rebates. They noted that this
clarification would ensure States have the authority to collect rebates
regardless of the State's COD reimbursement methodology. These
commenters stated this may be particularly important for new high-cost
cell and gene therapies which are typically administered in medical
facilities.
Response: We agree the proposed definition could have been
interpreted to make drugs reimbursed under a DRG reimbursement
methodology or similar bundled payment methodology subject to rebates
regardless of the State's COD reimbursement methodology. As indicated
in response to previous comments, we did not intend for the
modification of the definition of COD to change current policy, but our
review of comments alerted us to the fact that the proposed definition
could be open to multiple interpretations. Based on such comments, we
have modified the definition in this final rule to clarify that direct
reimbursement does not occur unless the reimbursement for the drug is
based on a reimbursement methodology that is included in the applicable
section of the State plan, and that the inclusive payment includes an
amount directly attributable to the drug. Thus, a drug that is
reimbursed as part of a bundled payment under a DRG or similar bundled
payment methodology is not subject to rebates. However, if that drug is
carved out of the bundled payment and reimbursed directly, then
[[Page 79037]]
the drug is subject to rebates when applicable.
Comment: One commenter stated CMS should encourage State Medicaid
programs to implement reimbursement methodologies for gene therapies
that adequately cover both the direct gene therapy costs and the
patient care costs for services incident to that therapy.
Response: We note that reimbursement for gene therapies, as with
all CODs, are subject to section 1902(a)(30)(A) of the Act's
requirements ensuring that States' ``payments are consistent with
efficiency, economy, and quality of care and are sufficient to enlist
enough providers so that care and services are available under the plan
at least to the extent that such care and services are available to the
general population in the geographic area.''
Comment: One commenter stated that separate payment creates greater
equity in reimbursement rates across settings of care, such as
inpatient hospital versus outpatient hospital reimbursement.
Response: Our definition of COD is not designed to address site of
service concerns such as those raised by this commenter. Rather, it
addresses when drugs are considered CODs, and thus the States can
collect rebates, within various reimbursement methodologies.
Comment: One commenter stated that allowing States to seek rebates
on inpatient-administered drugs merely by identifying the drug on the
claim form and without some form of separate payment, would enable
States to seek rebates on drugs without establishing the separate
payment policies that make hospitals whole and help ensure patient
access.
Response: We agree that this is a potential outcome of defining
direct reimbursement without requiring a separate reimbursement policy
to account for the cost of the drug via the applicable State plan, and
that was not our intent. Our modified definition of direct
reimbursement as finalized addresses this potential issue by requiring
that the methodology for determining the reimbursement for a COD as
part of a bundled payment be set forth in the State plan.
Comment: A few commenters stated CMS does not explain what the
``itemized cost'' represents and how it is to be determined and claimed
it could essentially be a ``fictional amount.''
Response: This term is being revised in this final rule to ``the
charge for the drug''. Providers should rely on the State's billing
instructions to determine what to report to allow for appropriate
reimbursement.
Comment: A commenter questioned whether the bundled service must be
one in which the drug is always used.
Response: As noted in previous responses to comments, the
definition, as finalized in this rule, makes it clear that in order for
the drug to satisfy the COD definition, the drug used must be
identified, the charge for the drug must be itemized on the claim form,
and the payment must be consistent with the reimbursement methodology
for CODs in an approved State plan. These requirements may apply to
drugs that are always used in the bundled services and to drugs for
which this is not the case.
Comment: Commenters stated that simple ``itemization'' on a claim
form is not equivalent to ``direct reimbursement.''
Response: We agree, and therefore modified the definition in the
rule to more clearly state that direct reimbursement includes a
distinct methodology reflected in the State plan that accounts for the
reimbursement of the drug and is used to determine the inclusive
payment.
Comment: A few commenters stated that States would respond to this
modified definition of COD by requiring providers to include NDCs and
ingredient costs on all PAD claims in the future. One commenter
recommended that CMS consider the impact that its new proposed
definition has on providers' administrative burdens by requiring
collection of NDCs and ingredient cost information, suggesting that
including such information on Medicaid claims forms is both time-
consuming and labor-intensive.
Response: We appreciate the comments regarding the potential burden
to providers. Under their State plans, States have the discretion to
choose which reimbursement methodology to use for health care services
and what drugs, if any, they will carve out from that methodology and
directly reimburse for them. As of January 1, 2007, CMS regulations at
Sec. 447.520 have obligated States to require that providers submit
NDCs for physician-administered single source drugs and the 20 multiple
source drugs identified by the Secretary. Additionally, we note that in
section II. L. of this rule, States are required to provide for the
collection of NDCs for all physician-administered single source drugs
and multiple source drugs.
Comment: Some commenters stated that if a drug satisfies the
definition of COD, all requirements of section 1927 of the Act apply
(for example, all drugs of the manufacturer must be covered regardless
of hospital formularies, and reimbursement methodology must be
described in the State plan). Commenters acknowledged that States could
impose prior authorization requirements and that coverage decisions
should rest with the State and not the hospital. One commenter
suggested that States not be allowed to skirt the coverage requirements
of section 1927 of the Act by allowing hospitals to exclude from their
inpatient formulary drugs of a manufacturer that has signed a NDRA. A
few commenters expressed their concerns with their view that the
proposed rule did not address how a bundled drug would be covered in
the inpatient setting where restrictive formularies may apply.
Response: If a drug typically administered in the inpatient setting
qualifies as a COD, then we agree, notwithstanding exclusions, that
section 1927 of the Act applies to that drug. Our revised definition of
COD does not change the State's ability to decide the reimbursement
methodology for drugs so long as it is approved in their State plan.
Comment: One commenter stated that all reimbursement limitations
that apply to CODs would need to apply to these bundled hospital
inpatient drugs, specifically the Federal upper limit requirements
found in Sec. Sec. 447.512 and 447.514. The commenter noted that this
issue is not addressed in the proposed rule by the lack of new language
at Sec. 447.516 ``Upper limits on drugs furnished as part of
service''.
Response: We did not intend for the modification to the definition
of COD to change current policy, including Federal upper limit
regulations, but our review of comments alerted us to the fact that the
proposed definition as originally written could be open to multiple
interpretations. A ``bundled'' hospital inpatient drug that the
commenter mentions, for which direct reimbursement is not made, does
not qualify as a COD. Generally, the Federal upper limit requirements
only apply to multiple source drugs dispensed by a retail community
pharmacy. The regulatory language in Sec. 447.516 applies Federal
upper limits to payment for prescribed drugs furnished as part of a
service when provided as part of a skilled nursing facility service,
intermediate care facility service and under prepaid capitation
arrangement. This change to the COD definition does not make any
changes to the regulatory language in Sec. 447.516.
After considering the issues raised by the commenters, we have
decided to finalize this provision with modifications to our proposed
[[Page 79038]]
definition. In order for a payment to be considered direct
reimbursement for a drug, the claim must include the charge for the
drug, the number of units utilized, and the payment made to the
provider must include an amount directly attributable to the drug and
is based on a CMS approved reimbursement methodology.
b. Proposal To Define Drug Product Information (Sec. 447.502)
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. Section 6(a)(1)(A)(iv) of MSIAA amended section 1927(b)(3) of
the Act by adding section (b)(3)(A)(v), under which a manufacturer must
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. To support the implementation of
this new statutory requirement to report drug product information, we
proposed to define drug product information in regulation at Sec.
447.502.
In the proposed rule, we noted that we currently require
manufacturers to submit drug product information when the COD is
entered into the Medicaid Drug Programs (MDP) system, but that there is
no regulatory definition of drug product information. We, therefore,
proposed 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 (single source drug
(S), innovator multiple source drug (I), and noninnovator multiple
source drug (N)), unit type (for example, tablet, capsule, milliliter,
each, etc.), 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 discussed in the proposed rule, the drug category for an NDC
should be single source drug or innovator multiple source drug 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 drug or innovator multiple source drug, and can be
changed to noninnovator multiple source drug, effective April 1, 2016.
We noted that we use the FDA ``applications.txt'' file to verify the
type of application associated with an application number and that the
file may be accessed using the link to the Drugs@FDA download file
found on the FDA website at https://www.fda.gov/drugs/drug-approvals-and-databases/drugsfda-data-files.
We also noted in the proposed rule that the only situation in which
a drug that is produced or marketed under an NDA may be reported as a
noninnovator multiple source drug is if a narrow exception was granted
by CMS in accordance with the process established in the 2016 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.
We indicated that manufacturers should evaluate all of their NDCs
for compliance with drug product information reporting, and if they
determine corrections are required, they should contact CMS for
assistance. We also referenced Manufacturer Release No. 113, in which
we addressed a manufacturer's responsibility to ensure that all of
their CODs are correctly classified and reported in the Drug Data
Reporting system (DDR) (currently known as the MDP system) 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). We also noted that 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 the proposed rule, we proposed 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.
For most drug product information changes, we noted 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, we noted that in some situations where monthly
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. Additionally, we noted that
regardless of whether we make a data change on behalf of a manufacturer
or whether the manufacturer enters required data directly in the MDP
system, manufacturers would be required to certify the information in
accordance with Sec. 447.510. Thus, we indicated that 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.
We also stated that 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 remain 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 noted that
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.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: We received several comments supporting our proposed
definition of drug product information. Commenters indicated that the
proposed definition removes ambiguity and closes potential loopholes.
Response: We appreciate the commenters' support for the proposed
definition of drug product information.
Comment: A few commenters stated that the statute's scope is
limited to drug product attributes found in the statute and the
regulation, and that several data elements that we included in the
definition are not found in statute or regulation.
Response: We disagree that drug product information must be limited
to product attributes specifically mentioned in the statute. The
statute provides direction for CMS to administer the MDRP, which
includes how rebate amounts are calculated. Some data fields that are
utilized in calculating the unit rebate amount are not specifically set
forth in statute but are nonetheless required to perform the
calculations that are detailed in the statute or to confirm the
accuracy of
[[Page 79039]]
those calculations. For example, although ``unit type'' is not a data
element mentioned in statute, it is an important data element that
helps to identify what the reported AMP represents. If the unit type is
reported incorrectly, it is possible that the AMP value may be
misinterpreted. CMS has determined to set forth by regulation the data
elements that must be reported as part of drug product information.
Comment: One commenter suggested CMS limit the items included in
the definition of drug product information to those items related to
drug category.
Response: We are not limiting the items included in the definition
of drug product information to those items related to drug category
because we do not believe that approach would be consistent with the
statute. MSIAA inserted the words ``and drug product'' to the title of
section (b)(3) of the Act, as well as other references to drug product
information, when addressing the information required to be reported by
manufacturers and the misclassification of drugs. Therefore, the
definition must include not only elements that are related to drug
category, but also other elements that are required to perform the
calculations of the unit rebate amount and to be able to help confirm
the accuracy of the calculations in accordance with the statute. CMS
believes the elements chosen for inclusion in this definition are
essential to ensure that unit rebate amount calculations are accurate,
and that CMS has accurate data to be able to oversee the MDRP.
Comment: One commenter requested clarification on the inclusion of
base date AMP as an element of drug product information and questioned
if the current file format will be amended to include base date AMP.
Response: The current file format will not need to be amended for
the reasons explained later in this section. In order to fully respond
to this comment, we need to delineate between different base date AMP
values. If a drug has a market date of September 30, 1990, because it
was first available for sale on or before that date, then the base AMP
for the drug is referred to as the OBRA '90 base date AMP. The OBRA '90
base date AMP value, as well as all of the different base date AMP
values, are considered to be product data. A manufacturer reports the
OBRA '90 base date AMP value into MDP as part of the product data when
first reporting the drug to CMS. The OBRA '90 base date AMP value is a
value on the product data file (Form CMS-367c), and no file format
amendments are required.
In general, if a drug has a market date after September 30, 1990,
which is the date it was first available for sale, the base date AMP
values are derived from quarterly pricing information that is reported
by the manufacturer for the base AMP quarter. For each base date AMP
value other that the OBRA '90 base date AMP value, the MDP system
automatically populates the base date AMP value in the product data
using the quarterly pricing information submitted by the manufacturer
as pricing data for the base AMP quarter. Although these other base
date AMP values are derived from quarterly pricing information for the
base AMP quarter, the base date AMP values are not considered to be
pricing data. Those base date AMP values other than the OBRA '90 base
date AMP values are not reported directly into MDP as product data and
do not appear in the product data file.
Comment: A few commenters stated that the changes that the Congress
made to the statute were to address misclassifications, not drug
pricing issues, and therefore any drug pricing references should be
removed from definition of drug product information.
Response: The changes to the statute made by MSIAA are not solely
to address drug category, but also to address incorrect reporting of
additional drug product information. The items included in the
definition of drug product information are all considered to be product
information. As an example, although the base date AMP value is a
pricing value, it is considered product information. It generally does
not change once established and is tied to the drug throughout the
history of that drug in the MDP system. Pricing information is reported
monthly and quarterly and may change from one reporting period to the
next. Additionally, elements such as unit type or TEC code are not
directly related to drug category, however they are included in the
definition of drug product information.
Comment: A few commenters stated that the definition of drug
product information must be prospective only and that CMS should
clarify the effective dates of definition changes.
Response: The definition of drug product information becomes
effective on the effective date of this final rule. With this
definition of drug product information, we are not adding or changing
any reporting requirements, we are only defining which reporting
elements are included in the definition of drug product information.
Comment: A few commenters were concerned that the proposed rule
would treat a clerical error that has no impact on the MDRP the same as
a misreported data element that has direct impact on URA calculations,
such as base date AMP.
Response: The proposed definition of drug product information lists
the data elements that are considered to be drug product information.
The definition itself does not indicate how misreporting of any element
of drug product information will be evaluated for potential penalties;
misclassification of drug product information is addressed in the
misclassification section of the rule. In that section, we state that
we believe misclassification includes any incorrect drug product
information reported by the manufacturer. Also in that section, we
proposed several penalty options in accordance with the penalty options
contained in section 1927(c)(4)(B) of the Act and note that CMS may
utilize one or more of them in each situation. One of those options is
for CMS to correct the misclassification on behalf of the manufacturer
using drug product information provided by the manufacturer. As
discussed in the misclassification section, the enforcement provisions
in section 1927(c)(4)(B)(ii) provide options for CMS to take action
when a manufacturer fails to correct a misclassification. CMS' current
process within the MDP system requires the manufacturer to certify any
change made in the MDP system. However, CMS may certify changes on
behalf of the manufacturer and would do so in this specific situation.
Outside of this specific situation, as discussed in the preamble of the
proposed rule, any change made in the MDP system by CMS must be
certified by the manufacturer before it becomes effective.
Comment: We received several comments regarding the ``open-ended''
definition of drug product information. Commenters were concerned that
although we listed specific data that would be included in the
definition, we also specified that the definition was not limited to
those data elements. Specifically, commenters disagreed with the
inclusion of ``information that includes but is not limited to'' and
``and any other information deemed necessary by the Agency to perform
accurate Unit Rebate Amount calculations.'' Commenters stated that we
lack the authority to leave the definition open-ended, that issuing
``catch-all'' phrases in definitions bypasses the notice and comment
requirements, and that we must define terms with precision. Other
commenters were concerned that the broad, open-ended provision in the
[[Page 79040]]
definition gives CMS a vehicle for arbitrary enforcement and leaves
open the opportunity for inconsistent application year to year. One
commenter stated that we should either strike the open-ended definition
or delete ``drug product information'' from Sec. 447.509(d)(1).
Response: While we disagree that we lack the authority to adopt
provisions such as the definition proposed, we agree with the
commenters that it would be appropriate to remove the ``open-ended''
provisions in the proposed definition of drug product information. We
are additionally making slight edits to the construction of the
proposed definition to make it clear to which elements the term ``if
applicable'' applies. Therefore, drug product information will now be
defined as 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 type (prescription, over-the-counter), base
date AMP, therapeutic equivalent code (TEC), line extension drug
indicator, 5i indicator, 5i route of administration (if applicable),
FDA approval date, FDA-approved application number or OTC monograph
citation (if applicable), market date, and COD status.
Comment: A few commenters stated that the language proposes that
manufacturers would have to report each element of drug product
information repeatedly and that would be burdensome or unnecessary.
Response: Section 1927(b)(3)(A)(v) of the Act states that
manufacturers must 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. Currently, we require that
drug product information be reported not later than 30 days after the
date of entering into a rebate agreement, or, for newly introduced
drugs, not later than 30 days after the last day of the month during
which the new drug is introduced. Such drug product information is not
required to be reported on a monthly or quarterly basis at this time,
and we therefore disagree with commenters' concerns that the definition
requires unnecessary, repetitive, or overly burdensome reporting.
Based on the comments received, we are finalizing the definition as
proposed with the previously described sentence structure changes and
the following additional changes:
Deleting ``. . . includes but is not limited to . . .'' and
replacing it with ``means''
Deleting ``. . . COD status, and any other information deemed
necessary by the agency to perform accurate unit rebate amount (URA)
calculations.'' and replacing it with ``and COD status.''
c. Proposal To Define Internal Investigation for Purposes of Pricing
Metric Revisions (Sec. Sec. 447.502 and 447.510)
In the proposed rule, we included a provision that would define
internal investigation related to manufacturer reporting of quarterly
pricing metrics. As background, we noted in the preamble to the
proposed rule, 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 for the purposes of the MDRP, or
else they could incur penalties or be subject to other compliance and
enforcement measures. We noted that 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 period for reporting revisions to AMP or best price
information in final rule (Medicaid Program; Time Limitation on Price
Recalculations and Recordkeeping Requirements Under the Drug Rebate
Program) on August 29, 2003. However, we have continued to receive
requests outside of the 12-quarter time period from manufacturers to
revise pricing data. We stated that these types of manufacturer
requests, which could span multiple years prior to the 12-quarter time
period, could sometimes result in substantial recoupment of Medicaid
rebates already paid to States and impede the economic and efficient
operation of the Medicaid program.
We noted that in the 2016 COD final rule we offered exceptions to
the 12-quarter time period (81 FR 5278, See Sec. 447.510(b)(1)(i)
through (vi)). Specifically, we discussed one exception at Sec.
447.510(b)(1)(v) (which provides an exception to the 12-quarter time
period price reporting rule if the change requested by the manufacturer
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) pertaining to
adjustments pursuant to an internal investigation. We explained that
our policy has been that internal investigation is intended to mean a
manufacturer's internal investigation, and that if a manufacturer
discovers any discrepancy with its reported product and pricing data to
the MDRP that is outside of the applicable timeframes, the manufacturer
should determine if the change satisfies one of the enumerated
exceptions (81 FR 5280). However, we acknowledged that we have not
further defined or given any greater explanation for the applicability
of the exception to the 12-quarter time period rule up to that point,
particularly in instances when manufacturers perform an internal
investigation of the drug price information (AMP and best price)
reported and certified in MDP by another manufacturer. Additionally, we
noted that, 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 time period rule. Consequently, in the proposed rule, we
proposed a definition to provide greater clarity in this area. Our
requirement does not override or otherwise diminish a manufacturer's
obligation to make sure that it has paid the statutorily required
rebate amount. The discussion herein only applies to the paragraph of
Sec. 447.510(b)(1)(v) ``internal investigation'' and does not obviate
or negate any requirement resulting from a CMS or court order, or an
OIG or DOJ investigation.
In cases when a manufacturer requests an exception to the 12-
quarter time period rule due to an internal investigation, we proposed
to specify that the manufacturer must make a finding that indicates a
violation of statute or regulation before we consider such a request.
For example, a request by a manufacturer to restate or revise
previously reported and certified pricing data outside of the 12-
quarter time period based upon a mere disagreement with a 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 period. In this example, the
manufacturer must make findings that include actual data from the prior
manufacturer as evidence that the prior manufacturer violated statute
or regulation.
We noted in the preamble to the proposed rule that manufacturers
should not use the internal investigation exception to allow for
application of 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
[[Page 79041]]
reported and certified by the manufacturer at the time. Therefore, to
ensure clarity on when the internal investigation exception may be
appropriately applied, we proposed 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. We
further indicated that a manufacturer must make data available to CMS
to support its finding. We also proposed to amend Sec.
447.510(b)(1)(v) to reference the definition of internal investigation
at Sec. 447.502.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: A few commenters opposed the proposed definition of
internal investigation, with some stating that this definition will
lead manufacturers to avoid internal audits and fail to identify
violations of fraud, abuse, or violations of law or regulation, such
that it would reduce the accuracy and reliability of price reporting
metrics. The commenters encouraged CMS to develop a proposal that
maintains the viability of the internal investigation exception to the
12-quarter time period rule, instead of foreclosing price revision
requests following an internal investigation.
Specifically, commenters indicated that manufacturers would have to
admit legal fault in order to request a restatement outside the 12-
quarter time period, which would have a chilling effect on appropriate
restatements when there is no legal fault. For example, commenters
indicated that manufacturers that are risk averse, or maintain a more
conservative approach to price reporting than the previous owner, would
likely not pursue price revision requests because of admission of
fault. The commenters further indicated that there are many reasons why
a manufacturer's reported AMP and best price may require correction,
including resolution of price disputes for certain providers/customers
that eventually impact best price and/or AMP or discovery of good-faith
mathematical errors. They stated that CMS should withdraw its proposal
of the definition of internal investigation and recognize manufacturer
requests outside the 12-quarter time period for what they are: good
faith attempts to comply with complex and consequential government
reporting obligations.
Response: CMS believes that most manufacturers are making good
faith attempts to comply with MDRP price reporting rules. CMS also
maintains that manufacturers have sufficient time to address revisions
in MDP to the manufacturer's AMP, best price, customary prompt pay
discounts, or nominal prices within the 12-quarter time period (3-year
time period) in accordance with the timeframe set in Sec. 447.510.
Through notice and comment rulemaking, CMS published the final rule
(CMS-2175-FC) that set forth the 12-quarter (3-year) time period on
August 29, 2003. In the 2003 final rule, CMS reiterated concerns
expressed by States regarding pricing changes and recalculations that
were occurring under the MDRP back to 1991, and the significant burden
on States and manufacturers to maintain pricing data and supporting
documentation for such an extended time period. Based on these
considerations, a time limit was adopted (68 FR 51913). As there were
no comments received regarding extending this period beyond 12-quarters
in response to the 2003 proposed rule, CMS adopted the 12-quarter time
period and communicated that we would not choose a longer period than 3
years because it would not sufficiently alleviate States' fiscal
vulnerability with regard to retroactive pricing changes (68 FR 51916).
While we have enacted exceptions to allow for restatements in
certain circumstances beyond the 12-quarter time period, we continue to
believe that we should minimize requests to restate outside of that
time period to improve the administration and efficiency of the MDRP
and to assist States and manufacturers that would otherwise be required
to retain drug utilization pricing data records indefinitely (88 FR
34253). As a result, we are finalizing the definition of internal
investigation, but we are amending the definition to add the term
``possible'' so that such restatements would not be construed as an
admission of legal fault. Therefore, as finalized, we will 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 the MDRP that
results in a finding made by the manufacturer of possible fraud, abuse,
or violation of law or regulation. A manufacturer must make data
available to CMS to support its finding. CMS notes that neither the
general 12-quarter time period for restatements nor the exceptions
allowing for restatements in certain circumstances beyond the 12-
quarter time period, including pursuant to an internal investigation,
alleviate the manufacturer of its obligation to accurately report
product and pricing information for covered outpatient drugs to CMS
consistent with section 1927 of the Act and applicable regulations and
guidance.
Comment: A commenter indicated that a manufacturer may conclude
after an internal investigation that it should change a unit type for a
drug (for example, the unit type of a vial of lyophilized powder for
reconstitution and injection from gram to each) based on CMS guidance.
The commenter also indicated that although the use of the initial unit
type is not a violation of law or regulation, let alone fraud or abuse,
restatement beyond the 3-year window would be prohibited, and the
prospective use of the preferable unit type would be precluded by the
inability to correct the base date AMP. The commenter provided as
another example a manufacturer that, as a result of an internal
investigation, changes a reasonable assumption about a customer or its
class of trade. The commenter noted that an internal investigation may
uncover new information that a group purchasing organization (GPO)
passes through administrative fees to its members, or that a pharmacy
dispenses greater than 50 percent of its prescriptions through the
mail, which the commenter indicated could lead to a different treatment
of the customer in the AMP and best price calculations.
Response: Existing regulation at 447.510(b)(1)(v) provides that if
``[t]he change is to address specific rebate adjustments to States by
manufacturers, as required by CMS . . .'' and a manufacturer requests a
change to a drug's unit type in our system because CMS has directed the
manufacturer to make the change, that reason may be considered by CMS
as an exception to the 12-quarter time period rule. Revisions to a
manufacturer's determination of AMP and best price because a
manufacturer uncovers new information about the calculation it made 12
quarters in the past may meet the exception only if the change is to
address rebate adjustments to States as directed under
447.510(b)(1)(v). That is, the change is required by CMS or court
order, or under an internal investigation (as defined at 447.502) or an
OIG or DOJ investigation.
Comment: Several commenters noted that they are concerned with CMS'
assertion in the proposed rule that a manufacturer purchasing another
manufacturer or another manufacturer's products, are not valid reasons
to restate
[[Page 79042]]
pricing outside of the 12-quarter limit. A commenter stated that
revisions made outside of the 12-quarter time period conflict with a
basic operating premise of the MDRP, as codified in the NDRA. That is,
acknowledging the complexity of the Medicaid rebate statute and price
reporting requirements, the commenter stated that CMS has long
encouraged manufacturers to make ``reasonable assumptions'' in
calculating price reporting metrics. As a result, the commenter noted
that a manufacturer may revise the previously reported pricing data of
a prior manufacturer using a different, reasonable methodology to align
a newly acquired product with the reasonable assumptions and price
reporting practices of existing company products.
Commenters also indicated that the proposed definition would
prevent a manufacturer from requesting to restate pricing metrics
calculated using the manufacturer's preferred compliant method upon
acquiring a new COD where the pricing metrics for the COD were
initially reported with a different compliant method. They stated that
this policy would discourage merging entities from harmonizing their
reporting methods and could require a manufacturer to employ various
methods of calculating pricing metrics to various different CODs,
increasing the administrative burdens of complying with its reporting
obligations and increasing the risk of reporting inaccuracies by
introducing the potential for misapplication of the wrong calculation
method for a given COD.
Response: CMS reiterates that we will not accept a change in
pricing outside the 12-quarter time period because of a change in a
manufacturer's reasonable assumptions or ownership. The manufacturer
may prospectively, or within the 12-quarter time period, revise
reasonable assumptions associated with the drug pricing, including
correcting any customer or class of trade transactions associated with
the revised reasonable assumptions. Manufacturers may also harmonize
their preferred compliant methodology for pricing within the 12-quarter
time period. Permitting manufacturers to revise prices retroactively
that were previously verified by another manufacturer and in perpetuity
because of changes to a transfer of ownership would be contrary to the
established 12-quarter time period CMS adopted in rulemaking in 2003
under CMS-2175-FC. As previously noted, at that time, CMS decided not
to extend the 12-quarter time period and communicated that we would not
choose a longer recordkeeping than 3 years because it would not
sufficiently alleviate States' fiscal vulnerability with regard to
retroactive pricing changes (68 FR 51916). Therefore, while we have
established exceptions to the 12-quarter time period rule at Sec.
447.510(b), we believe we should minimize granting requests outside of
the 12-quarter time period, including restatements of pricing reported
for a product previously owned, reported, and certified by another
manufacturer.
Also, as noted in a prior response to comments, CMS seeks to
minimize requests to restate drug pricing information outside of the 3-
year timeframe 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 (88 FR
34253). In this regard, we continue to believe the 12-quarter time
period with the existing exceptions, as clarified in this final rule,
allows manufacturers to revise pricing without disrupting the
administration and efficiency of the MDRP. We note that if a
manufacturer is concerned with liability associated with the prices or
pricing metrics used by the selling manufacturer, CMS believes that
such concerns regarding legal liability because of the incorrect
reported price information should be addressed as part of contract
negations between the selling and buying manufacturer.
Comment: One commenter supported CMS' request for data to support
compliance with laws and regulations in 12-quarter time period rule
exception requests. The commenter agreed that it sets a clearer and
stricter standard for the exception of the 12-quarter time period by
excluding subsequent internal reviews to revise in the manufacturer's
favor pricing data that was compliant with laws and regulations.
Response: We agree with the commenter that the use of data to
support revisions to prices outside of the 3-year timeframe to
reinforce a manufacturer's finding of potential non-compliance with
laws and regulations establishes a clear standard for when an exception
may apply. We believe the definition of internal investigation, as
finalized in this rule, will address this concern.
Comment: A commenter indicated that the inability to restate a base
date AMP to harmonize different calculation methods could distort the
Medicaid additional rebate calculation. Such rebates are calculated by
reference to the difference between a COD's current AMP and its
baseline AMP. The commenter stated that if a manufacturer is prevented
from restating baseline AMP under its current AMP calculation method,
then the additional rebate calculations for every future period will be
distorted by the methodology difference.
Response: Manufacturers can restate base date AMP within 3 years of
the initial price reported consistent with Sec. 447.510(b).
Furthermore, when CMS issues final regulations to reflect revisions
made to the statute's calculation of AMP, CMS allows manufacturers to
restate their base date AMP in accordance with those regulatory and
statutory changes so that the baseline AMP is consistent with the
reported AMP. For example, in the 2016 COD final rule, CMS permitted
manufacturers to recalculate their base date AMP in accordance with the
revisions made to the determination of AMP under the Affordable Care
Act (see 81 FR 5281). In accordance with the Sec. 447.502 definition
of internal investigation, as finalized in this rule, CMS will not
permit a manufacturer to revise the base date AMP outside of the 3-year
timeframe unless the internal investigation results in a finding made
by the manufacturer of possible fraud, abuse, or violation of law or
regulation.
Comment: Several commenters pointed out that rebates under the
Medicare Part D Drug Inflation Rebate Program for Part D rebateable
drugs are calculated by reference to the amount by which the drug's
``annual manufacturer price'' (AnMP) exceeds the ``inflation-adjusted
rebate amount.'' AnMP is calculated by using, in part, the AMP of a
drug over 4 calendar quarters. The commenters indicated that any
inflation rebate calculated for Medicare Part D purposes could also be
distorted by CMS' proposal. They stated that if manufacturers are
prevented from restating AMP under this proposal in MDRP rulemaking,
then future Part D rebate calculations will be based on the same
distorted comparison as the Medicaid rebates. They also noted that as
AnMP and the benchmark period manufacturer price are calculated by
using multiple quarterly AMPs, any adjustments to CMS' proposed
redefinition intended to avoid these distortions should allow
manufacturers to restate AMP for all quarters relevant to these
calculations for the particular drug.
Response: As noted in the response to the previous comment,
manufacturers can restate base date AMP within 3 years of the initial
price reported consistent with Sec. 447.510(b), and CMS will allow
manufacturers to revise base date AMP to reflect revisions made to the
statute's calculation of AMP.
[[Page 79043]]
However, in accordance with the Sec. 447.502 definition of internal
investigation as finalized in this rule, CMS will not permit a
manufacturer to revise the base date AMP outside of the 3-year
timeframe unless the manufacturer's investigation results in findings
of possible fraud, abuse, or violation of law or regulation. As
previously stated and in the proposed rule, the definition will clarify
for manufacturers that they should not use the internal investigation
exception to allow for the application of 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 previously. CMS has
published revised guidance with respect to the operation of the
Medicare Part D Drug Inflation Rebate Program, Medicare Part D Drug
Inflation Rebates Paid by Manufacturers: Revised Guidance,
Implementation of Section 1860D-14B of the Social Security Act,\8\ and
is engaged in rulemaking for this program.\9\ CMS refers commenters to
Medicare Part D Drug Inflation Rebate Program materials for information
on how the Medicare Part D Drug Inflation Rebate Program will use AMP
data for the purposes of calculating inflation rebates.
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\8\ https://www.cms.gov/files/document/medicare-part-d-inflation-rebate-program-revised-guidance.pdf.
\9\ https://www.federalregister.gov/documents/2024/07/31/2024-14828/medicare-and-medicaid-programs-cy-2025-payment-policies-under-the-physician-fee-schedule-and-other.
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Comment: Several commenters believe that the proposed rule would
discourage manufacturers from taking the required measures of
correcting the calculations beyond the 12-quarter time period, which
could result in calculations that are inconsistent with the
manufacturer's methodology and may result in favor of the State. The
commenters suggested that CMS allow manufacturers to submit policy
changes prior to the 12-quarter time period and seek approval from CMS
with documentation and the reason for the policy change, but not
necessarily details pertaining to pricing impact either in States or
manufacturer's favor. The commenters indicated that, if CMS does not
approve the manufacturer's policy changes prior to the 12-quarter time
period, then the manufacturer should not proceed with restating the
price. The commenter also suggested that manufacturers be allowed to
get approval from CMS to recalculate prices when the manufacturer has
identified new or changed information in the underlying data which
caused the earlier calculation to be incorrect.
Response: We believe the commenter is requesting that CMS approve a
manufacturer's pricing methodology or change in information prior to
the manufacturer submitting a restatement beyond the 12-quarter time
period and not before the 12-quarter time period. Current CMS policy
allows the manufacturer to change its pricing information prior to the
12-quarter time period without requesting CMS approval. CMS has a long-
held policy that a manufacturer that needs to make future
recalculations regarding AMP or best price methodology may do so
without prior review and approval by CMS and that manufacturers must
report to CMS these revisions to AMP and or best price for a period not
to exceed 12 quarters from the quarter which the data were due.\10\
This final rule does not impact this CMS policy. However, if the
manufacturer provides findings to CMS that the manufacturer's pricing
methodology may result in possible fraud, abuse, or violation of law or
regulation, CMS may consider permitting the manufacturer to restate its
pricing based on the revised methodology outside of the 12-quarter time
period.
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\10\ Manufacturer Release #80: (https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-080.pdf).
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Therefore, as we noted in the response to the previous comment, we
will finalize the definition of internal investigation but amend the
definition to add the term ``possible'' so that a manufacturer's
restatements would not be construed as an admission of legal fault.
Instead, we will 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 the MDRP that results in a finding made by the
manufacturer of possible fraud, abuse, or violation of law or
regulation. A manufacturer must make data available to CMS to support
its finding.
d. Proposal To Revise the Definition of Manufacturer for NDRA
Compliance (Sec. 447.502)
We proposed to further refine the definition of 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 also proposed
to codify in regulation that all entities (with their applicable
labeler 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.
CMS received a number of thoughtful comments on this topic, and we
determined not to finalize the proposed policy at this time. We are
continuing to review the input provided by commenters, which may inform
future rulemaking on this topic.
e. Proposal To Define Market Date (Sec. 447.502)
In the proposed rule, we included a provision that would establish
a definition for market date in regulation. This proposed definition
would: (1) modify one aspect of previous agency guidance regarding the
market date for a drug by requiring in regulation that the market date
reflect the date of first sale of the drug, rather than the date the
drug was first available for sale, by any manufacturer; and, (2) codify
CMS' historical policy that the market date does not change if a drug
is purchased or otherwise acquired from another manufacturer.
Prior instructions and guidance to assist manufacturers in
determining the market date for a drug to report to MDP specified that
the market date was the date the drug was first available for sale by
any manufacturer. This prior guidance is available in various sources,
including program notices, the MDP User Guide located within MDP, user
manuals previously available in the older Drug Data Reporting for
Medicaid (DDR) system, and in data definitions in CMS form 367c.
As background in the preamble to the proposed rule, we noted that
section 1927 of the Act governs the MDRP and payment for CODs, which
are defined in section 1927(k)(2) of the Act. Pursuant to section
1927(b)(1)(A) 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. Additionally, 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 owed by
[[Page 79044]]
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).\11\
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\11\ 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).
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We also noted in the proposed rule that 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.\12\ For S or I drugs, the 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.\13\ (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), we noted that the 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, we noted that a critical data
point is the day on which the drug was first marketed. We refer to 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.
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\12\ 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 are incorporated
into rebate agreements without further action. See also Manufacturer
Release 113--Misclassification of Drugs (medicaid.gov); https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf.
\13\ 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).
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We also noted that 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. As such, we
noted that 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, we noted that 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.
We also stated that 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 statute requires an additional rebate amount based on the
market date for each dosage form and strength of a COD.\14\ Thus, if a
drug is purchased or otherwise acquired from another manufacturer, we
noted that the market date should not change, and should be the same as
the market date of the drug first marketed under the FDA-approved
application.
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\14\ The FDA approved application (for example the NDA itself)
includes all FDA approved supplements to the application.
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Because over the years, manufacturers have occasionally raised
questions to CMS regarding the determination of a COD's market date,
base date AMP quarter, and base date AMP under various fact-driven
scenarios, we proposed to clarify the term market date as used in the
MDRP and to resolve potential questions related to these issues.
Specifically, to assist manufacturers in reporting a more accurately
calculated AMP, for the purposes of determining the base date AMP
quarter and the base date AMP, we proposed that the market date be
based on the first sale of the drug by any manufacturer rather than the
date the drug was first available for sale by any manufacturer. We
indicated that 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
based on actual sales data. As a result, the Unit Rebate Amount (URA)
would also be calculated more accurately because actual sales would be
available for reporting the AMP and calculating the URA.
In other words, under our proposal, for purposes of determining the
base date AMP quarter and thus the base date AMP, the market date is
based upon the earliest date on which the drug was first sold, by any
manufacturer. As noted previously in this section, our proposal also
would codify the existing requirement that the market date for a COD is
determined with respect to ``any manufacturer.''
We also stated that we understand that defining market date, for
purposes of determining a COD's base date AMP, based on the date the
COD was first sold, may not completely eliminate a manufacturer's need
to make reasonable assumptions because the first sale(s) 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 proposed that sold means that the drug has been transferred
(including in transit) to a purchasing entity. We requested 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.
We received public comments on the proposed definition of market
date for the purposes of the MDRP. The following is a summary of the
comments we received and our responses.
Comment: We received numerous comments expressing support for the
proposed definition of market date and one comment that noted no
concerns with the proposed definition.
Response: We appreciate the support of the proposed definition of
market date.
Comment: We received a comment about how our proposed definition of
market date might intersect with the way Medicare proposes to determine
the market date for the purposes of certain provisions under the
Inflation Reduction Act (IRA). Commenters suggested that applying the
same
[[Page 79045]]
definition across CMS would provide consistency across the agency.
Response: CMS' interpretation of terms and the applicability of
those terms for programs other than the MDRP are outside the scope of
this final rule.
Comment: A few commenters suggested that we forgo setting forth a
definition for market date and allow manufacturers to continue to make
reasonable assumptions.
Response: We disagree that we should forgo finalizing a definition
for market date, because we believe a regulatory definition will bring
additional consistency to the MDRP and will assist manufacturers in
identifying the accurate market date. However, to the extent the
definition does not address a specific situation, manufacturers may
still need to make reasonable assumptions. As an example, we discuss
the potential need for reasonable assumptions further in our response
to comments regarding the proposed definition of ``sold'' within the
definition of market date.
Comment: One commenter questioned if the market date should be the
same for all 11-digit NDCs within a 9-digit NDC family, even if an
individual 11-digit NDC was introduced at a later time.
Response: The market date is the same for all 11-digit NDCs within
a 9-digit NDC family. The 9-digit NDC identifies a drug, dosage form,
and strength. The Package Size Intro Date (that is, the date of
introduction of a particular package size, identified by the last
segment of the 11-digit NDC), may or may not coincide with the market
date of the drug, dosage form, and strength, and therefore the date of
introduction of a package size is not a factor in determining the
market date of the drug, dosage form, and strength for the purposes of
determining AMP and URA. To reiterate, the market date for the 9-digit
NDC applies to every 11-digit NDC in the family and is tied to the
drug, dosage form, and strength marketed under an FDA-approved
application; it is not tied to the Package Size Intro Date for a
particular 11-digit NDC.
Comment: Several commenters discussed the effective date of the
definition of market date. The commenters inquired whether the
definition will be applied retroactively and suggested that retroactive
application is not permitted and would be a burden on States and
manufacturers.
Response: The definition of market date adopted under this final
rule applies as of the effective date of this final rule. Specifically,
if a manufacturer previously reported a market date based on earlier
program instructions that the market date was the earliest date the
drug was available for sale by any manufacturer, they will not be
required to change the market date to reflect the earliest date the
drug was sold by any manufacturer. However, after the effective date of
this final rule, manufacturers must use the earliest date the drug was
sold as the market date for new drug products.
The finalized definition of market date will change how
manufacturers determine what date to use to determine the value to
report; that is, manufacturers must use the date of first sale of the
drug, rather than the date first available for sale, as of the
effective date of this final rule. The finalized definition does not
make any changes to the already existing requirement that the market
date is linked to the drug, dosage form, and strength that was first
marketed under an FDA-approved application. Consistent with the statute
and prior CMS guidance, the market date of a specific drug, dosage
form, and strength does not change, even if the specific drug, dosage
form, and strength might be subsequently marketed under a different NDC
or by a different manufacturer. Specifically, prior instructions and
guidance given by CMS to assist manufacturers in determining the
accurate market date to report to MDP specifies that the market date is
the date the drug was first available for sale under the FDA-approved
application number by any labeler. This was first included in
Manufacturer Release #69 (May 13, 2005). It is also included in CMS'
NDRA Reference Guide, the MDP User Guide located within MDP, user
manuals previously available in the older Drug Data Reporting for
Medicaid (DDR) system, and in data definitions in CMS form 367c.
The finalized definition thus modifies one aspect of the previous
guidance regarding market date by requiring that the relevant date be
the date of first sale, while codifying CMS' historical policy that the
market date does not change if a drug is purchased or otherwise
acquired from another manufacturer. We reiterate that this finalized
definition does not change the requirement given in previous
instructions to report the market date as the earliest date the drug
was available for sale by any manufacturer. For example, if a
manufacturer that acquires a drug instead reports the date that they
first made the NDC available for sale, then that manufacturer would be
expected to correct or request that the market date be corrected in the
MDP system if they were not the earliest manufacturer to sell the drug.
Manufacturer Release No. 113 (June 5, 2020), available at https://www.medicaid.gov/sites/default/files/2020-06/mfr-rel-113_0.pdf also
addresses the historic policy. That release states:
``As manufacturers evaluate their NDCs for compliance, they should
also ensure they are accurately reporting the drug's market date. As
stated in section 4.15 of the Medicaid Drug Rebate Data Guide for
Labelers June 2019 (available within [MDP]), the market date for S, I,
and N drugs marketed under an FDA-approved application (for example,
BLA, NDA, ANDA) is the earliest date the drug was first marketed under
the application number by any labeler. If a drug was purchased or
otherwise acquired from another labeler, the market date should equal
the market date of the original product. However, if a market date
entered into [MDP] falls on a date that is earlier than 9/30/1990,
[MDP] automatically populates the market date field with a value of 9/
30/1990 (because dates earlier than the start of the MDRP are not
applicable).
In addition to being a required product data field under the MDRP,
the market date is also used to determine the quarter that is used to
establish each drug's Baseline Average Manufacturer Price (AMP).
Because the Baseline AMP is used to calculate the additional rebate
portion of the Unit Rebate Amount (URA) calculation, accurate market
date reporting is imperative in order to ensure that correct Baseline
AMP values are established. Prior to the implementation of the
additional rebate for N drugs, manufacturers may have reported a market
date that represented the date they began marketing the drug, rather
than the earliest date that the drug was marketed under the application
number by any labeler. If this is the case, a manufacturer must request
a change from the incorrectly reported market date to the correct one
to ensure that the correct Baseline AMP is accurately reflected in
[MDP]. CMS addresses a manufacturer's responsibility with respect to
correct reporting of baseline data for a drug that was purchased from
another manufacturer in Manufacturer Release No. 90 and Manufacturer
Release No. 101.''
In order to request corrections to the market date, manufacturers
should follow the instructions at https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-program/medicaid-drug-rebate-program-change-request/.
[[Page 79046]]
We also note that MSIAA added civil money penalties and provided
enforcement authority if a manufacturer provides false information
related to drug product information, which, as explained at section F
of this final rule, includes the market date. Penalties that were added
by MSIAA take effect as of the effective date of MSIAA. However, if
correcting a misreported market date leads to changes in a drug's URA,
manufacturers may be required to reconcile prior rebate payments with
the States.
Comment: In response to a request for comments about how to
determine what qualifies as sold for the purposes of determining the
market date of a drug, we received several suggestions. Several
commenters suggested CMS allow a manufacturer to use reasonable
assumptions. Reasons provided for using reasonable assumptions included
that manufacturers may identify their sale date based on commercial
agreements, business practices, date of payment, date of invoice, and
other determining factors. Other commenters suggested that a drug
should be considered sold on the date it is transferred to a purchasing
entity, or that it should be based on a customer invoice date.
Another commenter suggested that a sale only occurs if the
purchaser is AMP-eligible.
Response: We agree that different manufacturers may record sale
dates differently, based on their business practices. Therefore,
although we proposed a definition for the term sold and requested
comments regarding such a definition, we will not define sold as it
applies to the definition of market date and will permit manufacturers
to use reasonable assumptions as to the date a sale has occurred.
However, this does not mean that a manufacturer should report a market
date as the date they first sold the drug when another manufacturer
first sold the drug, dosage form, and strength under the FDA-approved
application number at an earlier date, as doing so would be
inconsistent with our previous guidance and the requirements of section
1927 of the Act. Rather, the manufacturer needs to report the market
date as the earliest date the drug was available for sale by any
manufacturer.
We disagree that only sales to purchasers that are AMP-eligible
should be considered when determining the date on which the drug was
first sold. The first date of sale, and therefore the market date, does
not depend on what entity is making the purchase.
After consideration of public comments on this provision, we are
finalizing the definition of market date as proposed. In the proposed,
rule we requested comments on what is meant by sold and what qualifies
as being sold, and we incorporated the comments we received into our
review of the definition of market date. We are not creating nor
finalizing a definition of sold for the purposes of determining the
market date of a drug.
f. Proposal To Modify the Definition of Noninnovator Multiple Source
Drug (Sec. 447.502)
As discussed previously in the proposed rule, section 6(c) of MSIAA
included a number of amendments to statutory definitions in section
1927 of the Act. Generally, those statutory amendments were discussed
in the 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 MSIAA. However,
although we made conforming changes to the regulatory definition of an
I drug in the 2020 final rule, because MSIAA did not expressly amend
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.
In the proposed rule, after further evaluation, we proposed to
amend the regulatory definition of an N drug to conform it to the
regulatory definition of an I drug. We noted that when we established a
regulatory definition of an N drug in the 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, 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 approved NDA, and N drugs are marketed
under an approved ANDA or are unapproved.
We noted that section 1927(k)(7)(A)(iii) of the Act, which was not
expressly amended or clarified by MSIAA, defines a noninnovator
multiple source (N) drug as a multiple source drug that is not an I
drug. As noted, MSIAA amended the statutory definition of an I drug by
removing ``was originally marketed'' and adding ``is marketed,'' and we
therefore made conforming changes to the regulatory definition of an I
drug in the 2020 final rule. However, as noted in the proposed 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. We noted that
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 and conform with the statute's clear distinction
between an I drug and an N drug, we therefore proposed 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 I drug) based on the
authority under which the drug is marketed, not how the drug was
originally marketed.
Accordingly, we proposed to amend Sec. 447.502 by revising
paragraph (3) of the definition of an N drug to read, ``A covered
outpatient drug 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.
We received public comments on this proposal. The following is a
summary of the comments we received and our response.
Comment: One commenter stated that the group they represent did not
report concerns with the proposed change in definition of noninnovator
multiple source drug. Another commenter supported CMS' efforts to
further clarify key program definitions, including the definition of
noninnovator multiple source drug.
Response: We appreciate the support of the proposed definition of
noninnovator multiple source drug.
After consideration of public comments, we are finalizing the
definition of noninnovator multiple source drug as proposed.
g. Proposal To Define Vaccine for Purposes of the MDRP Only (Sec.
447.502)
In the proposed rule, we included a provision that would define
vaccine for the purpose of operating the MDRP. As background, we noted
that States that opt to cover prescribed drugs under section
1905(a)(12) of the Act in their State plan are required to do so
[[Page 79047]]
consistent with section 1927 of the Act, as set forth at section
1902(a)(54) of the Act.
Section 1927(k)(2)(B) of the Act specifically excludes vaccines
from the definition of COD for purposes of the MDRP, and this provision
is codified in paragraph (1)(iv) of the regulatory definition of COD at
Sec. 447.502. We noted in the proposed rule that section 1927 of the
Act does not define vaccine, nor is there a relevant 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.\15\ Moreover, we
noted that 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. Therefore, we proposed a
regulatory definition of vaccine for the purposes of the MDRP to
specify which products are considered vaccines and thus excluded from
the definition of COD.\16\
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\15\ 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.
\16\ Beginning October 1, 2023, under section 11405 of the
Inflation Reduction Act of 2022, States were required to cover
approved adult vaccines recommended by the ACIP, and their
administration, for many adults enrolled in Medicaid and all adults
enrolled in CHIP, without cost sharing. States are required to cover
COVID-19 vaccines and COVID-19 vaccine administration through
September 30, 2024, for all CHIP beneficiaries and nearly all
Medicaid beneficiaries. For more information on Medicaid and CHIP
vaccination coverage, including on what types of CDC/ACIP
recommendations are relevant to that coverage, see https://www.medicaid.gov/sites/default/files/2023-06/sho23003.pdf.
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Specifically, we proposed 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 MDRP rebate liability.
We proposed that the definition would be applicable only to the MDRP
and would not be applicable to any other agencies or agency program
implementation, including FDA and CDC. We stated that the definition
will only be applicable to the HRSA 340B Program to the extent the
definition defines what drug products are CODs but otherwise will have
no applicability. We also stated that the definition of vaccine would
not apply under any title XIX statutory provisions other than section
1927(k)(2), or to separate CHIPs operating under Sec. 457.70(a)(1) and
(d), or for purposes of the VFC Program. However, we noted that the
definition will apply to the MDRP for purposes of Medicaid expansion
CHIPs, under Sec. 457.70(c)(2). We stated that the proposed definition
would also not apply with respect to any applicable Federal or State
requirements to cover immunizations for Medicaid beneficiaries.
We proposed 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. To meet the definition of a
vaccine for the purposes of the MDRP, we proposed that a product must
be administered prophylactically--that is, to prevent a disease and not
to treat a disease--because we do not interpret the statutory exclusion
of vaccines from the definition of COD to exclude drugs or biologicals
that treat a disease. We also proposed that a vaccine must be
administered to induce active, antigen-specific immunity because that
is a characteristic of preventive vaccines.
Finally, we proposed 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, and that also appear on a current or previous list
of vaccines compiled by FDA. FDA publishes a list of vaccines licensed
for use in the United States.\17\ As FDA is the agency responsible for
licensing vaccines, we stated our belief 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.
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\17\ https://www.fda.gov/vaccines-blood-biologics/vaccines/vaccines-licensed-use-united-states.
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We sought 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 COD and would not be subject
to the requirements of section 1927 of the Act), and therapeutic
vaccines (which would not satisfy the definition of vaccine and
therefore could satisfy the definition of a COD and thus be subject to
the requirements of section 1927 of the Act). Additionally, while we
proposed to limit this definition to the MDRP, we sought comment on
whether this definition might result in indirect consequences for
Medicaid benefits other than the prescribed drugs benefit. We also
requested comment about the consequences for Medicaid of ACIP's
recommending immunization with a product that would not qualify as a
vaccine under this definition.
We appreciate the thoughtful comments we received on this issue. At
this time, we are not finalizing the proposed regulatory definition. We
are continuing to review the input provided by commenters on the
proposed definition, which may inform future rulemaking on this topic.
D. Proposal To Account for Stacking When Determining Best Price--(Sec.
447.505)
In the proposed rule, we proposed revisions to the regulations for
the determination of best price at Sec. 447.505(d)(3) 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.
We described that 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. Consistent with this
provision, in 2007, CMS promulgated Sec. 447.505(e)(3) (currently
Sec. 447.505(d)(3)) to make clear that in order to reflect market
transactions, the best price for a rebate period should be adjusted by
the manufacturer if cumulative discounts or other arrangements
subsequently adjust the prices actually realized.\18\
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\18\ https://www.govinfo.gov/content/pkg/FR-2023-05-26/pdf/2023-10934.pdf.
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In the 2016 COD final rule, in response to a comment, CMS further
[[Page 79048]]
clarified 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. CMS' response provided a
specific example in which two best price eligible entities each receive
a rebate or discounts for the same drug transaction as it moves through
the supply chain, such as a rebate paid by a manufacturer to a PBM
where such rebate is designed to adjust prices at the retail or
provider level, and a discount to a retail community pharmacy. Each
transaction adjusts the final price realized by the manufacturer for
the sale of that drug. That is, all discounts, rebates, and price
concessions related to that transaction, which adjust the ultimate
price realized by the manufacturer, should be considered in the
manufacturer's final price of that drug when determining the best price
to be reported.\19\
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\19\ https://www.govinfo.gov/content/pkg/FR-2016-02-01/pdf/2016-01274.pdf.
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We indicated that we have considered stacking, as stated in the
preamble to the 2016 COD final rule, as consistent with current Sec.
447.505(d)(3), which requires that if cumulative discounts subsequently
adjust the price available from the manufacturer, they should be
included in the best price calculation. We indicated that the proposed
revisions to the regulatory text at Sec. 447.505(d)(3) would make
clearer that manufacturers must stack all applicable price concessions
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.
We received comments both supporting and opposing the proposed
revisions to Sec. 447.505(d)(3). Based on these comments, we are not
finalizing the proposal at this time. Instead, we are going to pursue
the collection of additional information from manufacturers related to
best price stacking methodologies to inform future rulemaking. We will
continue to consider the comments regarding stacking during this time.
While we believe that some manufacturers are already using some
type of stacking methodology in determining their best price, we
believe it important to further understand the various ways that
manufacturers are, in fact, determining their best price and the extent
they are using a stacking methodology in doing so. We understand from a
2019 OIG report (Reasonable Assumptions in Manufacturer Reporting of
AMPs and Best Prices) \20\ that about half of the manufacturers
responding to the survey indicated that they did stack their price
concessions in determining best price, but several indicated that they
wanted additional guidance from CMS.
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\20\ https://oig.hhs.gov/documents/evaluation/3188/OEI-12-17-00130-Complete%20Report.pdf.
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We intend to undertake a separate collection of information from
manufacturers to help us better understand the areas in which
additional guidance might be useful related to stacking methodologies.
The information collection would be intended to ascertain whether a
manufacturer implements any form of stacking and, if so, how that
stacking is performed.
We acknowledge that we may not have all the information necessary
to assess how stacking impacts manufacturers' reporting of best prices.
Collecting this additional information will assist the agency in its
consideration of the stacking issue and the comments submitted and may
inform future rulemaking.
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
In the proposed rule, we included a provision that would withdraw
changes to our regulations found at Sec. Sec. 447.504 and 447.505,
based on a court order. As background, on June 19, 2020, CMS proposed
regulations to address the effect of PBM accumulator adjustment
programs on best price and AMP calculations (85 FR 37286) in relation
to purported manufacturer financial assistance payments (that is,
financial assistance payments in the form of copay coupons to patients
for purposes of paying the patient cost obligation of certain drugs) by
instructing manufacturers on how to consider the impact of such
programs when determining best price and AMP for purposes of the MDRP.
CMS proposed that the exclusions for manufacturers' 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). The 2020 final rule finalized this
proposed change and 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'' (85 FR
87053).
In May 2021, the Pharmaceutical Research and Manufacturers of
America (PhRMA) filed a complaint against the Secretary, requesting
that the court vacate these revisions to Sec. 447.505(c)(8) through
(11) (85 FR 87102 and 87103), as set forth in the 2020 final rule. On
May 17, 2022, the United States District Court for the District of
Columbia ruled in favor of the plaintiff and ordered that the
applicable provisions of the 2020 final rule be vacated and set aside.
In response to this court order, we proposed in this rule to
withdraw the applicable changes made to the best price regulation and
to also withdraw the corresponding changes to the AMP regulation to
apply consistent rules for determining best price and AMP. Thus, in
making this proposal, we suggested the removal of 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 proposed the
removal of the phrase ``the manufacturer ensures'' from these
provisions. As a result, these regulations would revert back to the
language that has been in place since 2016.
We received public comments on this proposal. The following is a
summary of the comments we received and our responses.
Comment: A few commenters expressed support for the proposal to
rescind the revisions made by the 2020 final rule because they were
supportive of patient assistance programs and were concerned that the
requirement that AMP and best price include such price concessions
would have been detrimental to patient assistance programs (for
example, manufacturer coupons) if adopted. Many commenters also
suggested CMS search for alternative regulatory mechanisms to reduce
impacts caused by the transfer of the value of patient assistance
programs to payers through accumulator programs and consider ways to
correctly account for such programs in Medicaid AMP and best price
reporting for MDRP. They also emphasized that CMS should continue to
explore ways to minimize the harmful impact of manufacturer coupons on
beneficiaries and health care costs, specifically researching the
effects of induced demand, unnecessary spending, and the role they play
in the price manufacturers set for their drugs.
Response: We thank the commenters for sharing their views. Per the
court decision, CMS is rescinding the applicable revisions made by the
2020 final rule. We will continue to explore other ways to protect
consumers from accumulator programs that leave
[[Page 79049]]
vulnerable patient populations with a significant cost-sharing burden
once a patient exhausts a manufacturer patient benefit program.
Comment: A commenter requested that CMS rescind the portion of the
2021 Notice of Benefit and Payment Parameters (NBPP) final rule that
enables plans to not count manufacturer cost-sharing assistance toward
patients' annual cost-sharing limits, thereby effectively enabling the
use of PBM accumulator programs, which are harmful to patients.
Response: We thank the commenter but note that this request is
outside of the scope of this final rule.
Given the direction by the court's ruling to vacate and set aside
the changes made by the 2020 final rule, we are finalizing as proposed
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).
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)
In the proposed rule, we included a new process to identify, notify
and correct a manufacturer's drug category misclassifications. As
background, we noted that section 6 of 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 regarding the 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 (S), innovator multiple
source (I), or noninnovator multiple source drug (N)--for the purposes
of determining the correct rebates that a manufacturer owes the States.
We noted that 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.
We noted that 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. 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.
Although much of this law is self-implementing, we proposed a
series of regulatory amendments at Sec. Sec. 447.509 and 447.510 to
implement and codify the statutory changes in regulation. In Sec.
447.509, we proposed 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 MSIAA, which amended sections 1903 and 1927 of the Act.
MSIAA also 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 civil monetary penalties
(CMPs) by the HHS Office of the Inspector General (OIG), and to provide
specific new authority to the Secretary to issue CMPs related to
knowing misclassifications by drug manufacturers of drug product or
misreported information. We clarified in the proposed rule that these
new OIG authorities were not a subject of this rulemaking.
We also noted that, under 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.
a. Summary of Misclassification and General Comments Relating to
Proposed Regulation (Sec. 447.509(d)(1) Through (4))
We proposed 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, notify a
manufacturer that we have determined that a drug is misclassified in
MDRP, clarify the manufacturer's responsibility to pay past rebates due
to the misclassification, and indicate the penalties that may be
imposed on the manufacturer.
We received several general public comments on these proposals. The
following is a summary of the general comments we received and our
responses.
Comment: Some commenters provided overall support of the
misclassification sections of the proposed rule in Sec. 447.509(d), as
they believe it would lead to more accurate and consistent manufacturer
reporting and transparency, allow CMS to be able to correct drug
misclassifications, and penalize manufacturers in effective ways if
they continue to misclassify their drugs and not correct their
misclassifications. Other commenters expressed some level of support
but raised concerns about using suspension of the drug from the MDRP as
the tool for compliance with the new misclassification requirements, or
about the feasibility of the timelines.
Response: We thank the commenters for their support and address the
specific concerns in more detail later in this section.
Comment: Many commenters opposed various components of the proposed
enforcement options under MSIAA for those manufacturers that have
misclassified their drugs and continue to misclassify their drugs. The
commenters stated that these proposed enforcement regulations are
overly broad, and CMS lacks statutory authority to propose them.
[[Page 79050]]
Response: We appreciate the comments and address the specific
concerns in more detail with the other comments. However, we note that
the proposed regulations align with the requirements in the applicable
statutes, which gives CMS statutory authority to implement these
regulations.
Comment: A few commenters urged CMS to explicitly state in the
final rule that manufacturers who fail to provide 340B discounts during
the suspension of the drug due to the misclassification of the COD will
face civil monetary penalties. The commenters also seek clear guidance
on coverage and payment for 340B-eligible products in relation to
Medicaid during such suspensions of the drug due to misclassification.
Response: CMPs for not providing 340B pricing are outside the scope
of the rule and will not be addressed. However, regarding coverage and
payment for 340B-eligible products during the period of the suspension
of the COD for misclassification, manufacturers must still provide
drugs through the 340B Program pursuant to 42 U.S.C. 256b, and 340B
covered entities may dispense those medications to eligible patients.
To the extent the patients who receive these drugs acquired under the
340B Program are Medicaid beneficiaries, FFP would not be available for
the claims for these drugs as Medicaid FFP is not available for the
misclassified drug or drugs of this manufacturer during the period of
the suspension. States could opt to cover those claims through State-
only funds.
Comment: A few commenters suggested that MSIAA can only be applied
prospectively and any efforts to deem a product as misclassified or
impose any penalties retrospectively cannot be done. Specifically,
several commenters suggested that no misclassification can apply prior
to April 18, 2019, the effective date of MSIAA.
Response: The provisions of 42 CFR 447.509(d) become effective on
the effective date of this final rule. However, there is no provision
in the statute which would exempt manufacturers from their
responsibility of correcting their misclassification from before 2019.
Manufacturers have always been responsible for accurate reporting of
the classification of their drug and must certify to the completeness
and accuracy of that reporting when submitting data to CMS to comply
with statute and regulation, as well as the terms of the NDRA. MSIAA
provided new authorities to CMS to enforce this requirement with
respect to drug misclassification, including the ability to identify
and correct a manufacturer's misclassification as well as impose other
penalties on manufacturers that fail to correct their
misclassifications. CMS already provided guidance to manufacturers
regarding MSIAA in Manufacturer Release #113 on June 5, 2020. This rule
provides additional regulatory support to that guidance.
Comment: A commenter expressed concern that the proposed rule
inappropriately attempts to end-run a 6-year statute of limitations.
The commenter stated that CMS is attempting to apply penalties to
manufacturers for drug category misclassifications that occurred for
periods prior to 2Q2016. As such, the commenter stated that such claims
would likely be time-barred today. The commenter also stated that what
the commenter alleged to be CMS' failure to act on narrow exception
request appeals in a timely manner should not result in the application
of the civil monetary penalty process to drugs that may have been
misclassified during such time periods.
The commenter suggested that CMS consider drug classification
assumptions made by manufacturers in periods prior to 2Q2016 to have
been made on their merits (to the extent not already time-barred),
without summarily rejecting them because they were made prior to the
establishment of the ``narrow exception'' process. In particular, the
commenter suggested that products granted narrow exception status
should be assumed to be ``N'' drugs prior to 2Q2016, consistent with
reasonable assumptions made contemporaneously by the manufacturer.
Response: The development of a narrow exception process in the 2016
COD final rule, 81 FR 5170 (February 1, 2016) did not change the MDRP
manufacturer drug classification requirements prior to the development
of that process. In addition, CMS provided guidance to manufacturers
regarding MSIAA in Manufacturer Release #113 on June 5, 2020.
Comment: A couple of commenters requested that CMS clarify that no
manufacturer will be penalized if the manufacturer has an active and
pending narrow exception request and/or appeal. Some suggested CMS
should revise the definition of misclassification to make clear that
the definition does not include a COD for which a manufacturer has
submitted a narrow exception request but has not received a written
response from CMS regarding the disposition of that narrow exception
request.
Response: We agree that no penalty would apply until CMS completes
the narrow exception process. We do not believe this needs to be
addressed in the regulation, and no change to the definition of
misclassification is needed.
b. Definition of Misclassification--Sec. 447.509(d)(1)
We proposed to define what constitutes a misclassification in
paragraph (d)(1). As proposed at Sec. 447.509(d)(1)(i), a
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.
We also proposed 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 as 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.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters stated that the definition of
misclassification should only apply to the drug product's
classification under the MDRP and that MSIAA does not authorize CMS to
include any other misreported or inaccurate drug product information
that may have been reported by the manufacturer in the definition of
misclassification.
These commenters also expressed concern about the phrase ``any
other information CMS deems necessary'' in the drug product information
definition. They stated that what they called this ``open-ended''
phrase may result in the inclusion of drug product information in the
definition of misclassification to exceed the authority granted in
MSIAA. They suggested ``drug product information'' should be deleted
from 447.509(d), but if not, the ``open-ended'' language in the
definition of drug product information should be removed.
Response: We believe that drug product information can be included
in the definition of misclassification. The statute does not define
drug misclassification, and we believe the Congress intended the term
misclassification to include any incorrect drug product information
reported by the manufacturer, including but not limited to inaccurate
drug category. Section 1927(c)(4)(B)(ii)(I) of
[[Page 79051]]
the Act provides the Secretary with the authority to use drug product
information reported by a manufacturer to correct a drug
misclassification. Moreover, section 1927(b)(3)(C)(iii) of the Act
subjects a manufacturer to CMPs if it misclassifies a COD, such as by
knowingly submitting incorrect drug product information, or if the
manufacturer pays rebates at a level other than that associated with
the drug's classification. This provision clarifies that incorrect drug
product information constitutes a misclassification under section
1927(b)(3) of the Act. Through statutory construction, it implies that
incorrect drug product information in section 1927(c)(4) of the Act is
considered a misclassification as well. Thus, we are including drug
product information in the definition of misclassification.
As addressed in the drug product information section, we agree that
the phrase ``any other information CMS deems necessary'' should be
removed from the drug product information definition. Therefore, we
have removed this phrase in this final rule.
Comment: One commenter noted that the proposed definition omits any
mention of the extent to which the manufacturer had to have knowledge
of incorrect drug product information reporting that is necessary to
give rise to the sanctions contemplated by the statute. They suggested
that the regulation should clearly require that the manufacturer
knowingly misclassified the drug.
Response: Section 1927(d)(4) of the Act expressly states that a
drug misclassification can occur without regard to whether the
manufacturer knowingly made the misclassification or should have known
that the misclassification would be made. It is the legal
responsibility of the manufacturer to report and certify the correct
classification of its covered outpatient drugs as well as the drug
product information associated with those covered outpatient drugs.
c. Manufacturer Notification by the Agency of Drug Misclassification--
Sec. 447.509(d)(2)
We proposed at Sec. 447.509(d)(2) that if the agency makes a
determination of a misclassification, the agency would send a written
and electronic notice to the manufacturer, which may include a
notification that past rebates are due. The manufacturer would have 30
calendar days from date of the notice to submit the corrected drug
product information as well as any additional drug product and pricing
information necessary to calculate its rebate obligations to the
States. For example, if a manufacturer misclassified a drug as an N
when it should have been an S or I, then the manufacturer must submit
the correct drug category as well as the drug's ``best price'' data for
the period or periods during which it was misclassified because that
data is required to calculate rebate obligations applicable to S or I
drugs, but not N drugs. Once the information is changed in the MDP
system, the manufacturer must certify the data.
Upon notification by CMS that the manufacturer's information was
updated in the system, we proposed that the manufacturer certify the
applicable price and drug product data. We proposed that the
manufacturer must correct the misclassification and respond to the
agency's request to certify the information in the system within that
same timeline of 30 calendar days from the date of the original
notification to the manufacturer of the misclassification.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters raised concerns that the proposal
regarding the 30-day period for manufacturers to correct
misclassification is unreasonable and exposes manufacturers to
enforcement action with potential severe consequences and request that
CMS allow manufacturers more than 30 days post notification to provide
and certify data. One commenter suggested that CMS should liberally
provide for reasonable extensions to accommodate complex
reclassification and payment obligations.
Response: We believe that the 30-day period is sufficient in most
circumstances for manufacturers to correct and certify a data field.
Misclassification can affect the amount of rebates owed by
manufacturers to States, so it is important that it be addressed in a
timely manner. In other circumstances, manufacturers can informally
request extensions. Accordingly, if there are extenuating circumstances
that result in the manufacturer not being able to make the change
within 30 days, they may request an informal extension of this deadline
as well.
Comment: Some commenters urged CMS to adopt into the regulation a
dispute resolution process because they believe it is unfair that CMS
can solely determine if a misclassification occurred. Other commenters
suggested a collaborative process or a process by which manufacturers
are afforded the opportunity to investigate and validate suspected
misclassifications with the Agency before the start of the corrective
action. They recommend that the 30-day correction period start once the
manufacturer has validated with the Agency that a correction is needed.
Response: This misclassification process that was established in
MSIAA does not provide for a specific dispute resolution process for
misclassified drugs. CMS is implementing what the Congress set forth,
which did not propose a dispute resolution process. However, we will
take this suggestion into consideration for future rulemaking.
d. Manufacturer Payment of Unpaid Rebates Due to Misclassification--
447.509(d)(3)
Once a determination that a misclassification has occurred in Sec.
447.509(d)(1) and the manufacturer has been notified of the
misclassification in accordance with the proposed process steps at
Sec. 447.509(d)(2), we proposed 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
proposed that a manufacturer must pay to each State an amount equal to
the sum of the products of the difference between: the per unit rebate
amount (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 proposed in
Sec. 447.509(d)(3)(i) a requirement for manufacturers to pay these
unpaid rebate amounts and proposed to codify at Sec. 447.509(d)(3) the
timeframe by which the manufacturer must pay the 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. Specifically, we proposed
that 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 also proposed
[[Page 79052]]
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.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters supported the idea that manufacturers
must pay unpaid rebates that result from the correction to
misclassifications. One commenter recommended CMS clarify that this is
not limited to the previous 12 quarters.
Response: We appreciate the support and agree that past due rebates
from manufacturers to States for misclassified drugs are not limited to
just the previous 12 quarters. Manufacturers are responsible for
providing accurate information to CMS for their CODs for the entire
amount of time that the COD is reported in the system, and if the
inaccuracy of the reported drug product information goes back more than
12 quarters, manufacturers should address it back to the beginning of
the reporting of the incorrect drug product information.
Comment: A couple of commenters suggested that the payment of
unpaid rebates cannot go back further than 10 years since the
manufacturer record retention requirement is 10 years. They noted that
it might be difficult to meet this requirement in circumstances where
the drug was determined to be misclassified more than 10 years ago.
Response: There is no time limit in section 1927 of the Act
regarding manufacturers paying unpaid rebates back to States, whether
for misclassification of the drug or for other reasons. In other words,
there may be several reasons why a manufacturer may owe States past due
rebates, and that is not necessarily limited to drug
misclassifications. We note that 42 CFR 447.510(f) does include a 10-
year record keeping requirement for manufacturers with respect to their
price reporting. However, there are also provisions in that section
that require record keeping beyond the 10-year period in certain
circumstances, including situations in which the records are subject to
a government investigation or audit relating to pricing data of which
the manufacturer is aware (so long as that investigation or audit began
within the 10-year time period).
Comment: A few commenters expressed concerns about a manufacturer's
ability to meet the 60-day requirement to pay owed rebates for
misclassified drugs due to the volume of rebate invoices they already
receive from States under the MDRP and would further receive under this
provision. Commenters also stated that 60 days is an insufficient
amount of time to confirm a drug has been misclassified, collect and
submit the information to CMS, calculate any owed rebates to the
States, make the payment to the States, and provide documentation to
CMS that it is completed.
The commenters suggested the payment of any rebates due to
misclassification should be facilitated through the same mechanism
currently used for Medicaid rebates so they would be processed as prior
quarter adjustments. Another suggested that 180-day periods be allowed
to pay rebates due to misclassification (with reasonable extensions to
accommodate complex reclassification and payment obligations) since
that timeframe would be more reasonable. Another commenter requested
CMS provide manufacturers with the opportunity to start the 60-day
timeframe when the URA is updated in the MDP system.
Response: We disagree with the commenters' contentions and believe
that the assessment of a misclassification of a COD, and any resulting
rebate payments, can be made by the manufacturers within the 60-day
limit. Manufacturers must process revised rebates, which includes
calculating any updated pricing statistics, such as best price and AMP,
report those to CMS and certify them, and then use those revised data
to calculate new URAs for the misclassified drug. Manufacturers must
then use those data to adjust the rebates that they have already paid
to the State for the misclassified drug and pay those adjustments to
the State. We believe that a process separate from the normal quarterly
rebate cycle would help States ensure that the payments were made for
these misclassified drugs and could be tracked by States.
A separate process can ensure there is a collection for rebates due
for past quarters resulting from the misclassification. We also believe
that processing these requests for rebates for misclassified drugs as
the misclassification occurs rather than waiting for a quarterly rebate
invoice process ensures that the misclassification is handled timely
and appropriately. Accordingly, we believe a manufacturer can address a
misclassification and any subsequent rebate payment within the 60-day
timeframe.
e. Agency Authority To Correct Misclassifications and Additional
Penalties for Drug Misclassification--Sec. 447.509(d)(4)
We proposed Sec. 447.509(d)(4), consistent with section
1927(c)(4)(B) of the Act, which would allow 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 proposed 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 and to certify applicable pricing and drug
product information within 30 calendar days after the agency notifies
the manufacturer of the misclassification, 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 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.
We also proposed at Sec. 447.509(d)(4)(iv) to indicate that, in
addition to the actions described previously in the 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. We noted that 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
[[Page 79053]]
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 proposed that a manufacturer may be subject to
termination from the program if it fails to meet the agency's
specifications for participation in the MDRP program as proposed when
it is in violation of section 1927(b)(4)(B)(i) or (c)(4)(D) of the Act.
This 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 noted 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.
We also clarified that suspension of a drug under this section as a
COD due to a misclassification would not affect its status as a
reimbursable drug under Medicare Part B or a drug covered under the
340B Program.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Some commenters expressed support for CMS to be able to
reclassify a misclassified drug. Other commenters raised concerns about
CMS being able to do this and suggested having a collaborative process
or a dispute resolution process if the manufacturer disagrees.
Response: We acknowledge the commenter's concern but note that
manufactures can collaborate with CMS under the process set forth in
the proposed rule. As stated previously, under Sec. 447.509(d)(2),
when a manufacturer is notified of a misclassification, it must provide
the information necessary to correct the misclassification. Upon
receipt, CMS will make the corrections, and then the manufacturer must
certify the applicable price and/or drug product information entered by
CMS. This process allows for manufacturers to work with CMS to ensure
the information in the system is accurate.
It is only when the manufacturer takes no action to correct the
misclassification that section 1927(C)(4)(B)(i) of the Act now gives
CMS authority to correct misclassifications on behalf of the
manufacturer. Thus, the regulation gives the manufacturer time to
correct the misclassification and work with CMS to ensure the
information is accurate, but if they do not, in accordance with the
statute, CMS can use pricing and drug product information provided by
the manufacturer to make the correction. This is one of several actions
CMS may take if the manufacturer has not corrected the
misclassification in a timely manner.
In the Medicaid Drug Rebate Program Data Guide (July 2023), we
clarified that any change made in the MDP system, including any change
made by CMS, must be certified by the manufacturer in order for the
changes to be effective in the MDP system. This applies to any changes
made pursuant to CMS' authority in Sec. 447.509(d)(4). Given the
comments and concerns raised, we are amending the regulatory text in
Sec. 447.509(d)(4)(i) in this final rule to be consistent with this
guidance and to clarify that any changes made by CMS must be certified
by the manufacturer. Manufacturers will be given 30 days to certify
those changes; if they do not, then CMS may take other authorized
actions against the manufacturer.
Finally, we note that the process to address misclassifications was
established in MSIAA, and no dispute process was included in the
statute. That said, we will consider such a process for future
rulemaking.
Comment: Some commenters mentioned that if CMS and the manufacturer
are in a disagreement regarding a misclassification, CMS should not
revise the pricing data points. They suggest this should be part of
future rulemaking.
Response: Pursuant to the statute, CMS has authority to correct a
misclassification using the drug product information provided by the
manufacturer on behalf of the manufacturer. The enforcement provisions
in section 1927(c)(4)(B)(ii) of the Act provide options for CMS to take
action when a manufacturer fails to correct a misclassification. CMS'
current process within the MDP system requires the manufacturer to
certify any change made in the MDP system. However, CMS may certify
changes on behalf of the manufacturer and would do so in this specific
situation. We do not believe any additional regulatory changes are
necessary based on these comments.
Comment: Some commenters expressed support of CMS being able to
impose the enumerated penalties in Sec. 447.509(d)(4). Several raised
concerns specifically about the use of the suspension penalty. Some
provided suggestions for other enforcement actions, such as keeping the
drug available to Medicaid beneficiaries and taking other actions such
as the manufacturer covering the entire cost of the drug during the
suspension period, increasing the maximum civil monetary penalty that
may be imposed, or only imposing the suspension after repeated failure
by the manufacturer to correct the misclassification. One commenter
suggested the suspension should only be imposed if the
misclassification has a material impact on rebates.
Response: We appreciate the suggestions regarding enforcement
actions and the concerns that are raised about suspensions
specifically. The statute sets forth several alternative penalties,
including CMS making the correction on behalf of the manufacturer,
civil money penalties, and suspension of the misclassified drug. CMS
has incorporated these options into Sec. 447.509(d)(4) and provides
for flexibility for which penalties will be imposed on the
manufacturer. As noted previously, misclassifications of CODs that
occurred prior to 2019 must be corrected and must be done so in
accordance with the provisions in Sec. 447.509(d). There is no
provision in the statute which would exempt CODs from these provisions
if they were misclassified before 2019. If the manufacturer does not
take such actions to correct misclassifications of their CODs, the
penalties contained in Sec. 447.509(d)(4) will apply.
Comment: A commenter supported the proposed enforcement actions and
penalties as long as those are limited to data within the 10-year
retention period.
Response: As noted in other responses to comments, the reporting
requirements under section 1927 of the Act are not limited to 10 years
and, as such, changes may be necessary to correct misclassifications
that were reported more than 10 years ago. In the absence of guidance
and adequate documentation to the contrary, manufacturers may make
reasonable assumptions that are consistent with the requirements and
intent of section 1927 of the Act and Federal regulations for reporting
data for time periods prior to
[[Page 79054]]
10 years if they did not retain documents. However, if manufacturers do
not take the actions set forth in Sec. 447.509(d)(2) and/or (3), the
penalties in Sec. 447.509(d)(4) may be applied.
f. Transparency of Manufacturers' Drug Misclassification--Sec.
447.509(d)(5)
We proposed Sec. 447.509(d)(5) 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.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters supported CMS' proposal that to meet
the requirements of section 1927(c)(4)(C)(ii) of the Act, CMS will
provide public notice of misclassification of drugs through annual
reporting on a public website. One commenter questioned whether the
report will include drug pricing information.
Response: We appreciate the support of CMS' proposal. For the
question about including drug pricing information, we will not include
such information. The report will only include items that were used in
making the determination that the drug was misclassified, which will
not include any proprietary or confidential pricing information.
Instead, as included in the proposed rule, the report will include the
CODs that were identified as misclassified, any steps taken by CMS to
reclassify the drugs and ensure payment of unpaid rebate amounts, and a
disclosure of the expenditures of the funds created under section
1927(b)(3)(C)(iv) of the Act.
After consideration of public comments on this provision, we are
finalizing Sec. 447.509(d) as proposed with the exception of making a
modification to proposed Sec. 447.509(d)(4)(i), which will be amended
to add the following language at the end of that section: ``In such
case, the manufacturer must certify the applicable correction within 30
calendar days.''
2. Requirements for Manufacturers Relating to Drug Category--
Requirements for Manufacturers (Sec. 447.510(h))
Section 447.510(h) describes the process by which a manufacturer's
NDRA would be suspended after a manufacturer fails to report
information, which includes drug pricing and drug product information,
as described in section 1927(b)(3)(A) of the Act, within a specified
timeframe. This drug product and pricing information includes 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(h)(1) (originally
Sec. 447.510(i) in the proposed rule), proposed that if a manufacturer
fails to provide the information required to be reported to the agency
under Sec. 447.510(a) and (d), the agency will provide written notice
to the manufacturer of the failure to provide timely information and
provide a deadline by which such information must be reported. If the
manufacturer does not report the information within 90 calendar days
after that deadline, the manufacturer's rebate agreement will be
suspended for all CODs furnished after the end of the 90-calendar-day
period. Further, the rebate agreement will remain suspended for
Medicaid until such information is reported in full and certified, but
not for a period of less than 30 calendar days. This section also
proposed that continued suspension of the rebate agreement could result
in termination for cause.
As noted in the proposed rule, 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
Program.
Under proposed Sec. 447.510(i)(2), we indicated that the agency
would notify the States 30 calendar days before the effective date of
the manufacturer's suspension. In the preamble to the proposed rule, we
noted that the suspension of a manufacturer's agreement, and loss of
the availability of FFP for a period of time, would likely mean that
these manufacturer's drugs would not be available to Medicaid
beneficiaries during the period of the suspension. We indicated that
the 30-day notice would give States time 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 also stated our belief that the intermediate step
of suspension rather than termination should be sufficient incentive
for 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
also stated that we believe the proposed process provided clear
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.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Some commenters provided overall support of the proposed
rule in Sec. 447.510(i).
Response: We thank the commenters for their support.
Comment: Several commenters expressed opposition to the proposed
suspension regulations in general or to specific provisions within the
proposed regulations.
Response: We appreciate the comments and note that the proposed
regulations align with the requirements in the applicable statutes.
Comment: Several commenters urged CMS to explicitly state in the
final rule that manufacturers who fail to provide 340B discounts during
the suspension of the NDRA will face civil monetary penalties.
Commenters also seek clear guidance on coverage and payment for 340B-
eligible products in relation to Medicaid during such suspensions.
Response: CMPs on manufacturers for not providing 340B pricing is
outside the scope of the rule and will not be addressed. However,
regarding coverage and payment for 340B-eligible products during the
period of the suspension of the COD for misclassification,
manufacturers must still provide drugs through the 340B Program
pursuant to 42 U.S.C. 256b, and 340B covered entities may dispense
those medications. To the extent the patients who receive these drugs
acquired under
[[Page 79055]]
the 340B Program are Medicaid beneficiaries, there would be no FFP
available for the claims for these drugs as Medicaid FFP is not
available for the misclassified drugs of this manufacturer during the
period of the suspension. States could opt to cover those claims
through State-only funds.
Comment: A commenter suggested that while CMS' ability to suspend
NDRAs might prompt quicker pricing data disclosures, it does not
guarantee their accuracy; thus, CMS should audit suspicious claims.
Response: We appreciate the concern. Under section 1927(b)(3)(A) of
the Act, manufacturers have always been required to accurately report
their data to CMS, and in a timely manner as prescribed by statute.
Upon submitting their data, manufacturers certify their completeness
and accuracy. If a manufacturer subsequently needs to adjust their
pricing or product data, it may do so within specified periods of time
and under certain conditions, and may also adjust rebates paid to
States, if applicable. If CMS suspects that the manufacturer's data is
not complete or inaccurate, CMS will contact the manufacturer to
inquire about the data's completeness or accuracy, or if there are
still questions about the completeness or accuracy of the data, the
manufacturer can be referred to the OIG.
Comment: Some commenters suggested CMS provide a weekly file or use
another system to provide the updated suspended manufacturer
information on a more timely basis.
Response: For terminations of manufacturers from the program,
States are given a 30-day notice through a notification system, and
such terminations are noted at https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-program/newreinstated-terminated-labeler-information/. CMS will use the same type
of process to notify affected parties of suspensions of manufacturer
rebate agreements, and the status of such suspensions.
Comment: Many commenters suggested that providing a 30-day notice
to States regarding an upcoming suspension is too short. They expressed
concern about the impact on patient care. Others noted that it is
unclear how long the suspension will last, which impacts a State's
decision on coverage of a suspended manufacturer's covered outpatient
drugs.
Response: We provide a 30-day notice for terminations and believe
that it makes sense for this to be consistent for suspensions. After
the minimum 30-day suspension, the suspension can end as soon as the
late information is reported to CMS, CMS has reviewed for completeness,
and the manufacturer certifies the data. We also note that the length
of the suspension depends on how soon the manufacturer reports the
data.
Comment: Some commenters expressed concerns over CMS' proposed 90-
day window for manufacturers to provide information that was not
received by the statutory deadline prior to suspension. They expressed
a need for flexibility and requested additional time for data review
and validation.
Response: The statute does not allow for flexibility in the
timeline, and we believe the timeline is reasonable. The statute states
that if the information is not reported within 90 days of the imposed
deadline, the manufacturer's rebate agreement shall be suspended.
Manufacturers are expected to report on a timely basis; this proposal
provides an additional 90 days after missing a deadline to report prior
to suspension.
Comment: Several commenters expressed concern regarding the
requirement that CMS suspend a manufacturer's NDRA for a minimum of 30
days. Commenters also advocated for alternative compliance measures
such as fines or extended deadlines.
Response: We appreciate the comments but note that a suspension is
required by the statute. The statute requires the suspension for no
less than 30 days. We proposed that the manufacturer is suspended until
the date the information is reported to the agency and the agency
reviews for completeness but not for a period of fewer than 30 days.
The Secretary is authorized to impose penalties for late reporting.
CMS notes that the statute authorizes penalties for each day in which
the information has not been provided, and if such information is not
reported within 90 days of the imposed deadline, the agreement shall be
suspended. Penalties are assessed by the OIG and are outside the scope
of this rule; our rule addresses the situation once the suspension
phase is reached.
Comment: Several commenters noted that the loss of FFP could result
in an increased cost to the State if the products are covered with
State-only funds, which may result in States not covering the products
and effectively end coverage of these products. Some suggested that the
claims should not lose eligibility for Federal funding or should be
eligible for an additional 60 days after notice of suspension.
Response: As noted in our preamble in the proposed rule, during the
period of a suspension, the claims for the suspended drug are not
eligible for FFP. States may cover the product using State-only funds
if they choose or may choose to not cover the products while the
product is suspended. This is consistent with other coverage decisions
of products for which there is no FFP. Our hope is that manufacturers
will choose to report their required information in a timely manner and
not be subject to this suspension.
Comment: One commenter requested CMS clarify if FFP would be
available for crossover Part B claims for these drugs.
Response: FFP would not be available for Part B crossover claims
for dual eligibles. As we noted in the proposed rule, reimbursement
availability under Medicare Part B would not change. Thus, our rule
does not impact Medicare coverage or reimbursement. However, for
crossover purposes, the claim would not be eligible for FFP if the
Medicaid program made any payment on the claim. In addition, the claim
would not be eligible for manufacturer rebates.
After consideration of public comments on this provision, we are
finalizing this provision as proposed.
G. Proposals Related to Amendments Made by the American Rescue Plan Act
of 2021--Removal of the Manufacturer Rebate Cap (100 Percent AMP)
In the proposed rule, we added provisions that would make
conforming changes to our regulations based on section 9816 of the
American Rescue Plan Act (ARP) of 2021, which sunsetted the limit on
maximum rebate amounts for single source and innovator multiple source
drugs by amending section 1927(c)(2)(D) of the 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 the 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.
We noted that section 2501(e) of the Affordable Care Act had
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 dosage
form and strength of a single source or innovator multiple source drug
at 100 percent of AMP, effective January 1, 2010. This limit or
``rebate cap'' 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
[[Page 79056]]
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 each
dosage form and strength of such drugs if the AMPs of such drugs
increase at a rate that exceeds the rate of inflation. This provision
of BBA 2015 was effective beginning with the quarter starting on
January 1, 2017, 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).
To align 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 proposed 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 proposed to amend Sec. 447.509(a)(5) and (9)
to state that the limit on maximum rebate amounts applies to certain
timeframes, 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.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Commenters commended CMS' proactive steps in aligning the
regulations with the ARP provision to remove the manufacturer rebate
cap by January 1, 2024. One commenter indicated that while they support
the proposed change to regulation on the manufacturer rebate cap, they
also believe the Secretary should be given flexibility to reduce
Medicaid inflation rebate amounts owed under the MDRP for drugs in
shortage, consistent with a separate policy enacted under the Inflation
Reduction Act for rebate amounts owed under the Medicare Prescription
Drug Inflation Rebate Programs.
Response: We appreciate the support for the revisions made to the
regulation to remove the manufacturer rebate cap. As for the comment
regarding drug shortages, there is no statutory authority for the
Secretary to reduce rebate amounts or ``cap'' rebates with respect to
the MDRP in cases when a drug is in shortage.
Comment: A commenter raised concerns that the proposed rule prompts
questions about the 340B Program's ``penny pricing policy,''
potentially leading to negative ceiling prices, and how that aligns
with the intention to penalize manufacturers for rapid price hikes.
Specifically, the commenter requested that CMS work with HRSA to
clarify the impact of this provision on HRSA's ``penny pricing
policy,'' which requires that when the ceiling price calculation at 42
CFR 10.10(b) results in an amount less than $0.01, the 340B ceiling
price will be $0.01. The commenter stated that the current policy needs
to be addressed given that, beginning January 1, 2024, the ceiling
price calculation for the 340B Program could be a negative number
substantially lower than $0.01.
Response: This comment is outside of the scope of this rule. HRSA
administers the 340B Program and developed the policy referred to as
``penny pricing'' when the ceiling price (the maximum price a
manufacturer may charge a 340B covered entity) is zero. We note that
while CMS does not administer the 340B Program, HRSA and CMS often work
together when statutory changes to the MDRP may affect the 340B
Program. These comments have been shared with HRSA.
Comment: A commenter requested that CMS adopt what the commenter
considers to be a ``standard'' definition of ``rebate,'' that would
ensure that rebates under the MDRP do not surpass the State Medicaid
program's payment for a drug, eliminating potential constitutional
concerns and ambiguities. The commenter indicated that the meaning of
``rebate'' is compelled not only by the plain language of the statute,
but also by constitutional doctrines. The commenter stated that the
Takings Clause of the Fifth Amendment to the United States Constitution
(Takings Clause) supports this meaning because, otherwise,
manufacturers could be deprived of the economic value of their drugs
and, in some cases, even forced to pay States to dispense or administer
their drugs to Medicaid recipients. Furthermore, the commenter
indicated that Federal courts have consistently recognized that
``completely depriv[ing] an owner of `all economically beneficial
us[e]' of her property,'' or ``reduc[ing] to zero'' the economic value
of something, such as a drug product, would constitute a taking, which
presupposes, a fortiori, that making each sale cost the company more
than it earns would also affect a taking. The commenter noted that the
interpretation of the statute to which the commenter objects would take
drug manufacturers' property based on actions (such as price increases)
that took place long before the law was enacted, raising significant
retroactivity concerns that also implicate the Takings Clause.
The commenter indicated that these retroactivity concerns also
implicate the Due Process Clause, which ``protects the interests in
fair notice and repose that may be compromised by retroactive
legislation.'' The commenter noted that drug manufacturers made
business decisions years ago based on their understanding that they
would supply drugs at a discount under the MDRP, not pay States to
dispense or administer their products to Medicaid recipients. The
commenter stated that if the agency were to stray from the ordinary
meaning of ``rebate,'' that would effectively impose a potential
penalty without providing manufacturers with the requisite ``fair
warning of the conduct [the] regulation prohibits or requires.'' The
commenter recommended CMS codify in Sec. 447.509 that, irrespective of
the sunset of the statutory AMP rebate cap, there is a separate and
distinct natural limit on MDRP rebates stemming from the ordinary
meaning of the term ``rebate'' that does not permit such rebates to
exceed State purchase prices. The commenter recommended CMS address
this directly and adopt this ordinary meaning of the term ``rebate'' by
regulation so that there is no ambiguity on this point among the State
Medicaid programs.
Response: The ARP did not define rebate for purposes of the MDRP,
and CMS is not defining the term rebate as part of this final rule.
Furthermore, the amount of the rebate that is paid by the manufacturer
is not solely driven by the statute's removal of the cap, but also by
how much a manufacturer increases its drug prices, as reflected by
changes in the AMP, compared to the rate of inflation.
After consideration of public comments on this provision, we are
finalizing as proposed.
H. Proposal To Clarify Sec. 447.509(a)(6), (7), (8), and (9) and
(c)(4) With Respect to ``Other Drugs''
In the proposed rule, we included a provision that would replace
each appearance of the term ``noninnovator multiple source drug(s)'' in
Sec. 447.509 with ``drug(s) other than a single source drug or an
innovator multiple source drug.'' As background, we noted that section
1927(c) of the Act describes how the unit rebate amount (URA) is
determined for a COD. We also noted that there is a defined calculation
of the applicable basic rebate and additional rebate for a COD 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
[[Page 79057]]
calculation for ``other drugs,'' that is, a COD that is a drug other
than a single source drug or an innovator multiple source drug at
section 1927(c)(3) of the Act.
We provided background in the proposed rule explaining that 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 CODs
other than single source drugs and innovator multiple source drugs. We
noted that section 1927(c)(3)(C) of the Act describes the additional
rebate calculation for CODs other than single source drugs or innovator
multiple source drugs, explaining that the statute makes it clear that
rebates are applicable to all CODs, whether they are single source
drugs, innovator multiple source drugs, or drugs other than such drugs.
We also noted that manufacturers are required to report all of
their CODs in the 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 COD other
than a single source drug or an innovator multiple source drug in our
system for operational purposes. Choosing N in the MDRP 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. We noted that because
manufacturers are to report all of their CODs and identify the
applicable drug category, all CODs other than a single source drug or
an innovator multiple source drug should be identified with the drug
category of N, regardless of whether they satisfy the definition of
noninnovator multiple source drug.
We noted that in the 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). We stated that over the years, interested parties
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 innovator multiple source drug. We therefore noted that we
believe that the regulatory definition of noninnovator multiple source
drug may not fully align with the statutory definition because the
regulatory definition does not capture every COD that is something
other than a single source drug or an innovator multiple source drug;
that is, not every ``other drug'' is a multiple source drug.
Practically, though, we noted that while the terms ``other drugs'' and
``noninnovator multiple source drugs'' are not synonymous, they are
treated so for purposes of reporting the COD in the MDRP system,
because ``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 CODs, regardless of whether 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 proposed 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.''
We proposed 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 was proposed to be made in Sec. 447.509(a)(6), (7), (8),
and (9) and (c)(4).
We received a public comment on this proposal. The following is a
summary of the comment we received and our response.
Comment: One commenter stated that CMS should clarify that the
replacement of ``noninnovator multiple source drug'' with ``drug other
than a single source drug or innovator multiple source drug'' is not
intended to have any effect on the narrow exceptions process.
Response: The replacement of the term ``noninnovator multiple
source drug(s)'' in Sec. 447.509 with ``drug(s) other than a single
source drug or an innovator multiple source drug'' was proposed to
align the regulatory language with the statute, which requires rebates
for CODs other than single source drugs and innovator multiple source
drugs regardless of whether they are multiple source drugs. The
proposed change was also intended to clarify our longstanding policy
and practices of identifying ``other drugs'' as N drugs for the
purposes of the MDRP. The proposed changes in Sec. 447.509 are not
intended to change the narrow exception process.
After consideration of public comments, we are finalizing the
clarifications to the language in Sec. 447.509 as proposed. This
clarification should not affect the drug category code reported in the
MDRP reporting system for drugs other than single source drugs or
innovator multiple source drugs. 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''.
I. Proposal To Establish a 12-Quarter Rebate Audit Time Limitation
(Sec. 447.510)
In the proposed rule, we included provisions to provide a 12-
quarter time limit for processes related to the initiation of rebate
audits by manufacturers. As background, we noted that 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. For the purposes
of the regulation, we noted that audit authority is intended to refer
to any process a manufacturer is using to seek an adjustment to State
drug utilization data under section 1927(b)(2)(B) of the Act.
We also noted that section V. of the NDRA describes how the agency
operationalizes the manufacturer audit authority; that is, it describes
the procedures for manufacturer dispute resolutions 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.\21\ The audit/
[[Page 79058]]
dispute resolution processes are further discussed in a number of
manufacturer releases.\22\ We explained that 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.\23\ 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.'' Finally, consistent with section 1927(b)(2)(B) of the
Act, we noted that all disputes must be resolved on a unit basis only,
and not on any other factor (for example, monetary amounts,
percentages, etc.).\24\ 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's utilization invoice is sent.
---------------------------------------------------------------------------
\21\ See section V, Dispute Resolution, ``Medicaid Program:
Announcement of Medicaid Drug Rebate Program National Rebate
Agreement,'' Final Notice, 83 FR 12770 (Mar. 23, 2018).
\22\ State Release 177, State Release 181, State Release 56,
Manufacturer Release 115, Manufacturer Release 105, Manufacturer
Release 95, and Manufacturer Release 20.
\23\ https://www.ncpdp.org/NCPDP/media/pdf/WhitePaper/Medicaid-Drug-Rebate-Program-Challenges-Across-the-Industry.pdf?ext=.pdf.
\24\ Please see State Release 181, https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/state-rel-181_42.pdf.
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We also pointed out that while section V. of the NDRA, along with
several CMS-issued program releases, addresses 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.\25\
Thus, we indicated that 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 data
and is not an efficient use of resources. We, therefore, proposed to
use our authority under sections 1102 and 1902(a)(4) of the Act, which
authorizes the Secretary to specify methods of administration found to
be necessary for proper and efficient administration of the Medicaid
program, 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.
Consistent with this authority, we proposed 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 proposed a time limitation to help ensure that
discrepancies are identified and resolved, thereby promoting the
efficient operation of the MDRP.
---------------------------------------------------------------------------
\25\ https://www.ncpdp.org/NCPDP/media/pdf/WhitePaper/Medicaid-Drug-Rebate-Program-Challenges-Across-the-Industry.pdf?ext=.pdf.
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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; while we believe 38 days is optimal, we stated in
the proposed rule that 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. We reminded
manufacturers it also mirrors the timeline for reporting revisions to
monthly AMP at Sec. 447.510(d)(3). We also noted that there are 2-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, we
proposed 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. This is
consistent with our authority at section 1902(a)(4) of the Act.\26\
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\26\ We had also referenced section 1102 of the Act for our
authority to implement this provision. Section 1102 of the Act
grants the Secretary authority to promulgate regulations but not the
authority to impose specific requirements and thus does not need to
be cited as authority to implement this provision.
---------------------------------------------------------------------------
Accordingly, we proposed at Sec. 447.510(i) 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 SDUD reported under section
1927(b)(2)(A) of the Act on the State rebate invoices.
We received public comments on this proposal. The following is a
summary of the comments received and our responses.
Comment: We received numerous comments supporting CMS' proposal to
impose a 12-quarter limit on manufacturers initiating disputes on State
drug utilization data, as it will streamline administrative processes,
reduce burdens on States and providers, and ensure that disputes are
based on recent, validated data. Additionally, commenters noted that
imposing time limits on the initiation of disputes and audits
streamlines the States' management of the drug rebate program.
Response: We appreciate commenters' support. We are focused on
increasing efficiency and economy of overall MDRP resources to better
facilitate the needs of Medicaid beneficiaries. We believe the time
limitation on rebate disputes by manufacturers will help ensure that
discrepancies are timely identified and efficiently resolved, thereby
providing increased financial certainty to manufacturers and States,
while promoting the efficient operation of the MDRP.
Comment: Multiple commenters opposed CMS' proposal for a 12-quarter
audit limit, citing a lack of statutory authority, and questioned CMS'
authority to implement such a requirement.
Response: We believe that a limitation on the timeline of when a
manufacturer may audit comports with our policy goals and is supported
by CMS' general rulemaking authority in section 1102, as well as
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 have the responsibility of administering the MDRP and ensuring the
proper and efficient operation of the Medicaid program, and
establishing a timeframe limitation for manufacturer audits is
consistent with this goal. Additionally, having this timeline
limitation provides more financial certainty for States and
Manufacturers for rebate purposes because invoices, transactions, and
payments can be settled, therefore increasing stability in program
operations.
Comment: Some commenters suggested that if CMS imposes a 12-quarter
limit on manufacturers' ability to dispute rebates, they should ensure
the timeframe starts when manufacturers receive the State invoice.
Specifically, commenters stated that the timeframe should begin when
manufacturers receive the State invoice that includes the disputed
utilization or when manufacturers receive detailed claims data.
Response: We continue to encourage States to respond to reasonable
requests from manufacturers for claims level data, as the willingness
to share data, methodologies, and resolution strategies generally leads
to resolutions. However, as these requests are on an as-needed
[[Page 79059]]
basis, we do not believe the date for which claims level details are
received by the manufacturer is an appropriate date to start the
dispute initiation timeline limitation.
Upon further consideration, we believe the invoice postmark date
will offer the same clarity for the interested parties involved in the
dispute process and will better align with established Medicaid policy.
In accordance with section 1927(b)(1)(A) of the Act and the terms of
the NDRA, manufacturers are required to pay a rebate to each State for
all CODs of the manufacturer that were paid for in a quarterly rebate
period. This section of the Act also states that such rebate payments
are to be paid within 30 days of the manufacturer's receipt of the
State invoice. For purposes of calculating interest on late rebate
payments, previously issued guidance has noted that manufacturers have
37 calendar days as evidenced by the postmark by the U.S. Postal
Service on the envelope to pay rebates before interest begins to
accrue.\27\ That is, upon receipt of a quarterly invoice, manufacturers
have 37 calendar days' time from the invoice postmark date to pay
rebates before interest begins to accrue on the 38th day. Therefore, to
maintain consistency, we are amending the proposed language in this
final rule to specify that upon receipt of a quarterly invoice, the
period for manufacturers to initiate audits or disputes concerning
State drug utilization data begins on the last day of the quarter from
the State invoice's postmark date.
---------------------------------------------------------------------------
\27\ Please reference Manufacturer Release 89 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-089.pdf, Manufacturer Release 7 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-007.pdf, and State Release 29 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-029.pdf, for our policy on postmark dates.
---------------------------------------------------------------------------
As an example, if the invoice postmark date is in the fourth
quarter of 2024, then the time period to initiate a dispute ends 12
quarters after the last day of the fourth quarter of 2024, which would
be the last day of the fourth quarter of 2027. If States use electronic
invoicing via email, we expect States to include the invoice itself
within the body of the email to a manufacturer or, at minimum,
information on the number of units paid by NDC. In this case, we view
the postmark date as the date on which the email is sent. Similarly, if
a State sends an email with the invoice attached, then the date when
the initiation time period ends is 12 quarters from the last day of the
quarter in which the email was sent. For example, if the email was sent
in the fourth quarter of 2024, then the time period to initiate a
dispute ends 12 quarters after the last day of the fourth quarter of
2024, which would be the last day of 4Q2027.\28\
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\28\ Please see State Release 166 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-166.pdf, State Release 154 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-154.pdf, and
Manufacturer Release 80 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-080.pdf for our
policy and guidance related to postmark dates.
---------------------------------------------------------------------------
Comment: Some commenters expressed concerns regarding fairness and
parity between manufacturers and States. While advocating for equitable
treatment between manufacturers and States, some suggested either
adjustments to the proposal or that CMS set forth similar time limits
for similar types of requests by States or manufacturers. Some stated
that because similar limitations were not placed on States, the
provision is biased against manufacturers, possibly compromising
accuracy and fairness in the MDRP. Additionally, a few commenters
stated that manufacturers have reported receiving State rebate invoices
related to decades-old utilization, and that States should have time
limitations on disputes and submitting invoices to manufacturers,
including limitations on the initiation of corrections or resubmissions
of invoice data. These commenters stated that if manufacturers are to
be time-limited in their ability to audit invoices, State Medicaid
programs need to be held to a comparably limited period in which to
submit rebate utilization.
Response: Section 1927(b)(2)(B) of the Act provides that a
manufacturer may audit the rebate billing information provided by the
State under section 1927(b)(2)(A) of the Act. This includes 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.
Adjustments to rebates are based on unit utilization and are authorized
to the extent that the information provided by States indicates that
utilization was greater or less than the amount previously specified.
States have similar equitable timelines with which to comply when
invoicing for rebates. States are required to invoice manufacturers
based on the State's utilization of the manufacturer's CODs each
quarter and must provide invoices no later than 60 days after the end
of each quarter. Additionally, States have a 2-year timely claim filing
deadline under section 1132(A) of the Act. This incentivizes States to
manage and resolve disputes within this timeframe.
Disputes handled beyond this 2-year deadline create recordkeeping
and fiscal issues for the States, hindering them in claiming FFP from
the Federal government because the dispute exceeds the timely filing
window. Resolving disputes requires the claim to be reversed and
resubmitted, with States not receiving Federal match on these
resubmitted claims if the dates of service fall outside the timely
filing window. Therefore, we believe this timely filing deadline
provides necessary incentives for States to resolve rebate disputes
swiftly, as they must absorb the full cost of a rebate correction,
including the portion that would otherwise be paid for through FFP.
Furthermore, the 12-quarter timeframe provided to manufacturers
significantly extends the timeframe that was specified in previous
guidance. State Release Number 45 and Manufacturer Release Number 11
outline the Dispute Resolution Process for manufacturers and States in
rebate disputes. In these releases, we specified that manufacturers
should notify a State of disputed data no later than 38 days after the
State utilization data is sent. We continue to believe that
manufacturers and States need to communicate as soon as possible on
suspected drug unit issues to prevent and resolve disputes, preferably
even before rebates are due. Establishing the 12-quarter time
limitation for manufacturers to initiate disputes also aligns with the
timelines permitted for manufacturers to report changes to data
elements relevant to the calculation of MDRP rebate amounts. For these
reasons, we continue to believe this is a balanced solution that is
equitable for both manufacturers and States, providing sufficient time
for dispute initiation.
Comment: One commenter expressed concern that States do not always
engage effectively with manufacturers and their representatives when
disputes arise. They stated that CMS should require States to respond
to manufacturer-initiated disputes in a timely and effective manner and
provide guidance when such disputes reach an impasse.
[[Page 79060]]
Response: As stated in the NDRA, both the State and the
manufacturer are expected to use their best efforts to resolve a
dispute within a reasonable timeframe after the State's receipt of the
manufacturer's Reconciliation of State Invoice (ROSI) or Prior Quarter
Adjustment Statement (PQAS). CMS expects manufacturers and States to
work in partnership to resolve outstanding units in dispute. CMS has
issued guidance on dispute resolutions and we encourage commenters to
reference https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-105.pdf, https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-095.pdf and https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-181.pdf for dispute related issues. In addition, as noted
previously, we believe the prompt notice of disputes will encourage
States to resolve these issues in a timely manner.
Comment: Several commenters emphasized that 340B Program-related
audits may require more time than the proposed 12 quarters and suggest
CMS should clarify and potentially adjust the rule's applicability to
ensure fairness in dispute processes. Multiple commenters opposed the
proposed time limit, especially concerning 340B duplicate discounts,
which take longer to identify and resolve and suggest exemptions or
adjustments to the rule. Certain commenters also suggested that a
manufacturer be allowed to toll the time to request necessary data from
the State and during certain 340B disputes.
Response: We believe that manufacturers should, within 12 quarters
from the invoice postmark date, initiate a dispute with or audit of a
State for any disputes they may have with regard to 340B duplicate
discounts. We understand that covered entities and their contract
pharmacies work with their own third-party administrators (TPAs) that
help to identify prescription claims as 340B within a few days, or at
most a few weeks, well within the 12-quarter timeline that was
proposed. Thus, the 12-quarter timeframe should be sufficient for
identification of 340B claims and any disputes that may arise. CMS
issued guidance to States and other interested parties in January 2020
on Best Practices for Avoiding 340B Duplicate Discounts in Medicaid. We
have previously outlined a number of best practices that States are
encouraged to consider to avoid duplicate discounts.\29\ Additionally,
our 12-quarter time audit initiation limitation aligns with HRSA's
limitation of actions provision in 85 FR 80632, which specifies that a
covered entity or manufacturer must file a written claim for
administrative dispute resolution with HRSA within 3 years of the date
of the alleged violation. Furthermore, other proposals in this
regulation will help with that process, such as the proposal to include
BIN/PCN numbers on Medicaid managed care enrollee identification cards
for pharmacy benefits. Finally, we are finalizing that all audits must
be initiated within the 12-quarter time period, not that all disputes
are resolved within this timeline. We, therefore, do not believe a
tolling provision is necessary.
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\29\ For best practices for avoiding 340B duplicate discounts in
Medicaid, please see our January 8, 2020 Informational Bulletin
https://www.medicaid.gov/federal-policy-guidance/downloads/cib010820.pdf.
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Comment: A few commenters recommended that if CMS' proposed 12-
quarter rule is finalized, it should only apply to future claims,
ensuring manufacturers have time to address audits and disputes on past
claims without hindrance and that State invoices received prior to the
finalization of the rule would not be subject to the 12-quarter time
limitation. Several commenters requested that if this policy is
finalized, CMS should provide technical assistance on how to address
outstanding disputes that were previously submitted but are beyond the
proposed 12-quarter limit.
Response: The 12-quarter timeframe was proposed, in part, to 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. Unlike
manufacturers that can make reasonable assumptions regarding data and
reporting that occur beyond their record keeping requirements, States
must be able to provide specific drug unit data related to utilization.
Ideally, as we have stated, disputes should be raised and resolved
promptly before the invoice is paid by the manufacturers. However,
manufacturers can, and do, raise disputes after payment is made,
sometimes even years later. The current lack of a clear time limit
means previously settled invoices, transactions, and payments might not
be settled in actuality given potential new or additional disputes.
Having an unlimited period to initiate disputes is inconsistent with
the proper and efficient operation of the rebate program.
In addition, when a dispute concerning a possible provider billing
error arises, the passage of time makes investigation and correction by
the State more difficult. Claims data may not be available after a
number of years; States have reported they have trouble retrieving
older claims data because system upgrades have made accessing old data
and paper claims difficult or impossible. The provider may not have
records for the claim anymore because the record keeping requirements
do not require them to continue to retain the records, making resolving
disputes unnecessarily complicated. Thus, establishing a time limit for
manufacturers to initiate disputes will increase the efficiency of
dispute resolutions as well as the administration of MDRP. For this
reason, this provision should apply to all newly initiated rebate
disputes, regardless of when the claim was processed; any claim
currently in the dispute resolution process would not be affected.
Rather, under the 12-quarter time limit, 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 postmark date of the
State invoice.
Comment: Commenters stated that CMS' 12-quarter time limit proposal
lacks operational feasibility and raised concerns the proposal may
limit the ability of manufacturers to ensure accuracy of drug unit
utilization data received from the States.
Response: Currently, the lack of time limit on rebate dispute
initiation by manufacturers is creating operational challenges for both
States and manufacturers. We believe this creates long-term operational
feasibility challenges for States, and burdens resources that would be
better used towards patient care. During the dispute resolution
process, claims-level detail is normally required from the States to
assist in resolving a dispute; however, States often do not have such
data available to provide to manufacturers beyond a limited timeframe.
States need this source data when manufacturers request further proof
to resolve disputes. Such claim data may not still be available after a
fixed number of years, and the lack of a definitive timeline for
initiation of disputes on drug utilization data unreasonably burdens
programs.
After considering the issues raised by the commenters, we are
finalizing this provision as proposed except that we are amending the
language to clarify
[[Page 79061]]
that the 12 quarters begin based on the postmark date: 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 postmark
date of the State invoice. As noted in our previous responses, we
understand that in certain instances the resolution of a dispute may
extend beyond this time period, and we clarify that we are not
requiring that disputes are resolved within this time period.
J. Proposal Regarding Drug Price Verification Through Data Collection
(Sec. 447.510)
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'' the prices that manufacturers are
reporting under section 1927(b)(3)(A) of the Act, and in accordance
with Sec. 447.510. Under this authority, we proposed rules to describe
those situations when it would be considered necessary for such surveys
to be sent to manufacturers and wholesalers, and the information that
would be requested that we would use in order to verify the reported
prices at issue. We stated our intent that the proposed surveys would
help assure that Medicaid payments and applicable rebate payments for
CODs are accurate.
As we noted in the preamble to the proposed rule, currently, there
is no centralized process to collect specific data from manufacturers
(or wholesalers) to verify prices manufacturers report to us under
section 1927(b)(3)(A) of the Act. We proposed to interpret the language
in section 1927(b)(3)(B) of the Act 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 stated
that we believe this provision 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 to
purchasers.
We noted in the proposed rule that participating manufacturers are
required to report and certify to CMS certain product and pricing data
for each of their CODs on a monthly and quarterly basis. 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 Program uses the AMP and the Unit Rebate Amount (which is the
amount calculated to determine the quarterly 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, plus specified
professional dispensing fees for CODs dispensed by 340B entities.
Additionally, many State Medicaid programs use the ASP (as defined in
section 1847A(c) of the Act) and the Wholesale Acquisition Cost (as
defined in section 1847A(c)(6)(B) of the Act) for Medicaid payment for
physician administered drugs, such as those administered in hospital
outpatient departments and physician offices. Thus, we noted that it is
important, particularly in the case of high cost drugs, that CMS have
the ability to verify, in certain situations, the manufacturer's
submitted pricing data to ensure its accuracy, given the foregoing
ramifications.
We also proposed to publish non-proprietary information that we
receive from the manufacturer through the drug price verification
survey. We noted our belief that our proposed drug price verification
survey process and the publication of non-proprietary information,
along with the NADAC that we publish for retail community pharmacy
costs, should provide the public with an understanding of how CMS is
implementing its authority to understand how a manufacturer determines
and verifies its reported pricing for its CODs. We also noted that our
proposal would also provide information on the methods manufacturers
use to produce accurate price information. We indicated that Medicaid
managed care plans may be able to use such public information about the
accuracy of prices or charges that are collected under this process in
providing drug benefits if covered under their contracts.
For the foregoing reasons, we proposed to use the statutory
authority in section 1927(b)(3)(B) of the Act to collect additional
information about charges and prices from manufacturers and wholesalers
to verify the prices reported to us for CODs. We stated our belief that
this verification is extremely important, particularly in the case of
the significant number of new high-cost drugs and biologics, including
cell and gene therapy drugs, entering the market, as well as the costs
and prices associated with new and different pharmaceutical preparation
methods and distribution channels. We indicated that it is critical to
ensure that pricing information associated with these products is
accurate so that State Medicaid programs receive the full rebate
amounts to which they are entitled. Assuring States obtain accurate
rebates can make these products more affordable and thus more
accessible to patients. In addition, we noted that the increasingly
complex pharmaceutical distribution supply chain has made it more
challenging for manufacturers to calculate, and for CMS and States to
monitor the accuracy of, pricing information reported under section
1927 of the Act. Thus, we stated that the verification survey is needed
to help ensure that such calculations are being done correctly, given
the significant implications for MDRP rebate amounts and Medicaid
payments.
In the preamble to the proposed rule, we underscored that 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. We noted that we would not be using the survey
data to 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.
Therefore, we proposed 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 appreciate the thoughtful comments we received on this issue,
and we determined not to finalize the proposed policy at this time. We
are continuing to review the input provided by commenters, which may
inform future rulemaking on this topic.
[[Page 79062]]
K. Proposals Related to State Plan Requirements, Findings, and
Assurances (Sec. 447.518)
In the proposed rule, we included provisions 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 under Medicaid FFS. As background, we noted in the
preamble to the proposed rule that section 1902(a)(30)(A) of the Act
requires that States include in their State plans, 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. We also reminded States that, 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 that 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); \30\ and, (2) a
professional dispensing fee (PDF) for the drug based on the pharmacy's
cost of dispensing.
---------------------------------------------------------------------------
\30\ 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 additional background to support our proposal, we pointed to
existing policy requirements that the 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. We noted that, in SPA submissions, 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. We also noted that while States are
afforded the flexibility to adjust their reimbursement methodology
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.
With this background, we explained in the proposed rule that
recently we have seen States submit proposed changes to either or both
of the components of the reimbursement methodology without adequate
supporting data that reflect current drug acquisition cost prices or
actual costs to dispense, which is inconsistent with applicable law and
regulations. We also affirmed that the PDF 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. We stated that 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. We noted that States must submit adequate
cost data to CMS as part of its SPA process to justify its professional
dispensing fee amounts and that the data submitted cannot 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, we affirmed in the preamble to the
proposed rule that States must support determinations or proposed
changes for ingredient cost reimbursement with adequate cost-based
data. We cited previous rules and guidance, which provide ways States
could establish pharmacy reimbursement methodologies, noting that the
pricing benchmark that CMS makes available to States, for example the
weekly NADAC files, reflect current prices. We also noted that freezing
NADAC or AAC rates, and establishing a static provider reimbursement,
would not be consistent with applicable laws and regulations and that
reduced beneficiary access to medically necessary drugs could result if
pharmacy providers are unable to purchase drugs at a rate reflective of
current market conditions.
For these reasons, we proposed 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.
Specifically, a State must submit adequate cost-based data to support
any proposed changes to either or both of the components of the
reimbursement methodology and a State cannot rely on the amounts that
pharmacies are accepting from other third-party payers as a means of
determining professional dispensing costs. Rather, the data that are
acceptable could be a State's own survey, a neighboring States' survey,
or other credible survey data that reflect the current cost of
dispensing a prescription in the State (81 FR 5311). Additionally, to
pay based on costs, we clarified that States need to periodically
assess whether current rates being paid to pharmacies reflect current
costs, noting that there is no specific requirement as to how often and
when States must review their current fees. We therefore proposed to
update the heading of Sec. 447.518(d) heading to be ``Data
requirements'' and to revise paragraph (d)(1) to specify these
requirements in the regulatory text.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters provided general support statements for
the proposed updates to the data reporting requirements in Sec.
447.518 regarding State plan requirements, findings, and assurances,
which will ensure patient access and appropriate pharmacy
reimbursements.
Response: We appreciate receiving the comments in support of this
proposal.
Comment: One commenter agreed with the proposed rule and stated
that if pharmacies are unable to successfully acquire drugs at a rate
reflective of the current market, there would be a ripple effect, such
as limited beneficiary access due to pharmacy closures, and a negative
impact on health equity for these vulnerable populations.
Response: We agree with the commenter. To ensure beneficiaries can
access pharmacy services, CMS reviews each State's SPA to ensure that
the reimbursement methodologies are established in accordance with
applicable Federal provisions so 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.
Comment: Several commenters recommended that CMS consider outlining
how often States should assess if the pharmacy reimbursement rates
accurately reflect current costs or other mechanisms to collect
reliable data to ensure rates are current and adequate for pharmacies.
Another commenter stated that an annual assessment is not realistic or
feasible, and recommended that CMS consider requiring that States
conduct a periodic assessment at least
[[Page 79063]]
every 2-3 years to reflect current costs, but not less than 2 years.
Response: We appreciate the commenters' suggestions. CMS is not
requiring that a State conduct a cost of dispensing study on an annual
basis or any defined period of time. If the State proposes a change to
the ingredient cost reimbursement methodology, the State must also
review the adequacy of their current professional dispensing fees.
While this final rule is not designed to mandate the frequency at which
States should update their current professional dispensing fees, we
encourage States to undertake a periodic assessment of whether pharmacy
dispensing costs have changed, especially if there is a change to the
ingredient cost such that the State should consider conducting a cost
of dispensing study to comply with Federal regulations.
Comment: A commenter recommended enhanced professional dispensing
fees for 340B prescriptions to ensure adequate reimbursement. The
commenter specifically requested that CMS encourage States to consider
enhanced professional dispensing fees for 340B prescriptions to ensure
the adequacy of pharmacy reimbursement for 340B covered entities and
contract pharmacies.
Response: We appreciate the recommendation regarding enhanced
professional dispensing fees for 340B drugs. States continue to have
the ability to propose different professional dispensing fees for CODs,
such as for specialty drugs, hemophilia drugs, generics, brand drugs,
340B drugs, etc. CMS will review the proposed rates through the SPA
process to ensure that each State's proposed reimbursement methodology
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.
Comment: Two commenters disagreed with the proposal to require
professional dispensing fees to be based on cost data, as opposed to
market-based research, and claimed that these proposals are unnecessary
and redundant. One commenter was concerned that CMS' proposed
requirements divert the States' limited resources away from other more
pressing State Medicaid priorities and that CMS' prohibition on the use
of market-based reviews of professional dispensing fees is not
accompanied by findings that the States' approach is contributing to
unsustainable dispensing fee reimbursement. Another commenter stated
that imposing stricter standards for cost information in this case
means that dispensing fees are treated differently than traditional
Medicaid services. Conducting surveys or other research on cost-based
data will be an added burden on States, and it may be difficult to
obtain this information from providers as opposed to market-based
research.
Response: We understand the concerns raised by commenters; however,
CMS has no reason to believe that the provisions provided in this final
rule will divert the States' limited resources away from other more
pressing State Medicaid priorities. States are not required to complete
their own cost of dispensing study. States can propose their
professional dispensing fees based on a neighboring State's survey or
other credible survey data, as long as it is adequate and reflects the
current pharmacy costs of dispensing a prescription in their State.
CMS is requiring that the professional dispensing fee be based on
pharmacy cost data, and not be based on a market-based review. We
believe that market-based research is insufficient because it does not
reflect actual costs to pharmacies to dispense prescriptions.
Comment: Several commenters provided support for data used to
determine professional dispensing fees and ingredient costs and offered
suggestions on ways to better understand these costs and accommodate
individual States' needs. One commenter agreed that to the extent that
a State is conducting a cost of dispensing study, it should be a
transparent, comprehensive, and well-designed tool that addresses a
pharmacy provider's cost to dispense the drug product to a Medicaid
beneficiary. Several commenters expressed support for States to
periodically assess if pharmacy reimbursement rates accurately reflect
current costs, with suggestions for this assessment to occur every 2 to
3 years.
Response: We agree that a State's cost of dispensing survey should
be transparent, comprehensive, and reflective of the pharmacy's actual
cost of dispensing. As stated earlier, we are currently not requiring
that a State conduct a cost of dispensing survey based on any
timeframe, but States must review their current professional dispensing
fee whenever they propose to change their reimbursement methodologies
to ensure 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.
After consideration of public comments on this provision, we are
finalizing as proposed.
L. Federal Financial Participation (FFP): Conditions Relating to
Physician-Administered Drugs (Sec. 447.520)
In the proposed rule, we included a provision that would clarify
when States are required to invoice for rebates for PADs that are CODs.
As background, we noted that, generally, PADs may satisfy the
definition of a COD set forth under section 1927(k)(2) of the Act,
subject to the limiting definition at section 1927(k)(3) of the Act,
and that manufacturer rebates should be collected on these PADs. We
noted that in the past, many PADs were classified by Healthcare Common
Procedure Coding System (HCPCS) \31\ codes (commonly referred to as J-
codes), which group together different manufacturers of the same drug
that have different NDC codes within the same J-code, making it
impossible to know which manufacturer supplied the drug in question. We
noted that these broad J-codes cannot be used to bill for rebates, as
they do not identify the specific PADs NDC. Many providers were
submitting only these HCPCS codes to the States, rather than the NDC of
the specific PAD, making it difficult if not impossible for the State
to bill for rebates.\32\
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\31\ 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.
\32\ In its report titled ``Medicaid Rebates for Physician
Administered Drugs'' (April 2004, OEI-03-02-00660), the Office of
Inspector General (OIG) reported that of the 17 States that
collected drug manufacturer rebates for physician-administered drugs
in 2001, 3 collected rebates on all physician- administered drugs.
These three States used NDC codes for billing and the remaining 14
States used HCPC codes. These 14 States cross walked HCPC codes to
NDC codes for single-source drugs and collected rebates on these
drugs only.
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To help address this situation, and to improve a State's ability to
identify PADs that may be subject to rebates being invoiced, the
Congress enacted section 6002 of the Deficit Reduction Act of 2005
(DRA) adding sections 1927(a)(7) and 1903(i)(10)(C) to the Act to
require States to collect and submit certain utilization data on
certain PADs as a condition for FFP to be available in payments for
these drugs, and to facilitate State collection of manufacturer
rebates. More specifically, the DRA provisions required that for
payment to be available under section
[[Page 79064]]
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 NDCs) for all single source PADs (after January 1, 2006)
and multiple source drugs (after January 1, 2008) that are a top 20
high dollar volume PAD that appears on a published list (based on
highest dollar volume dispensed under Medicaid identified by the
Secretary, after January 1, 2007) in order for FFP to be available
under section 1903 of the Act in the case of these drugs, and to assist
the States in securing applicable Medicaid rebates for these drugs.
We noted that the 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.) Also, the statute required that only NDCs
be used after January 1, 2007 for billing for all PADs that are single
source CODs or the 20 multiple source CODs on the list published by the
Secretary, unless the Secretary specified that another alternative
coding system be used, or the State obtains a ``hardship waiver'' under
section 1927(a)(7)(D) of the Act. Further, if States are not collecting
NDCs and submitting the appropriate utilization data for these drugs
consistent with the foregoing requirements, FFP is not available in
payments for the CODs at issue. In addition, States would be forgoing
available manufacturer rebates for these drugs.
We also noted that the 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 complied with
the foregoing requirements pertaining to submission of codes from its
providers that allow it to appropriately bill manufacturers for rebates
for PADs. For single source PADs, we noted that the requirement to
submit appropriate coding went into effect as of January 1, 2006, and
specified 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. We also noted that Sec. 447.520(a)(2) further
specified that as of January 1, 2008, a State must require providers to
submit claims for single source and the top 20 multiple source PADs
identified by the Secretary, using NDCs. As such, under current Sec.
447.520(b), as of January 1, 2007, 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 noted that we retained this regulatory
language without modification in the 2016 COD final rule. See 81 FR
5322.
In the proposed rule, we included a provision to update the
regulatory language at Sec. 447.520 to more specifically and
accurately conform with the statutory requirements captured at section
1927(a)(7) of the Act. Specifically, in proposed Sec. 447.520(a)(1)
and (2), we outline the conditions under which FFP would be available
for States, as related to the NDCs States must require providers to use
in order for the State to secure rebates for PADs that are CODs. The
proposed language clarified that rebates are only due for PADs that are
CODs and specified that data must be submitted by providers in the
State in order for States to receive FFP as stated under sections
1927(a)(7)(A) and 1927(a)(7)(B)(i) of the Act and secure applicable
rebates. In proposed Sec. 447.520(a)(2), we also proposed that States
be required to collect rebates on all multiple source PADs in the
manner required under section 1927(a)(7) of the Act, for those 20
identified under section 1927(b)(i) of the Act. We also similarly
proposed at Sec. 447.520(b) that after January 1, 2007, a State would
have to require providers to submit claims for all COD single source
and all multisource PADs using NDC numbers to collect FFP and secure
rebates.
We also noted that States need to ensure that their Medicaid
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.\33\ Additionally, we proposed 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 also stated our
expectation that States would invoice rebates for all multiple source
PADs that are CODs, not just those identified on this list. In summary,
the proposed regulation would require States to require providers to
submit NDCs for all multiple source PADs that are CODs, which would
then be subject to manufacturer rebate invoicing, and not limit such
rebate invoicing to those on the top 20 high dollar multiple source
drug list subject to the statutory requirements in section 1927(a)(7)
of the Act. As technology and systems are currently in place, we noted
that this proposed regulation would reduce the administrative burden of
monitoring any revisions to the top 20 multiple source PADs and allow
States to invoice rebates for these PADs that are CODs.
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\33\ 86 FR 27498, May 6, 2016 (https://www.govinfo.gov/content/pkg/FR-2016-05-06/pdf/2016-09581.pdf).
---------------------------------------------------------------------------
Since publication of the proposed rule, we have determined that we
need to rely upon different statutory authority other than section
1927(d)(7) of the Act for our proposed requirements for multiple source
drugs that are not among the 20 identified by CMS under section
1927(a)(7)(b)(i) of the Act and Sec. 447.520(c). This is because the
statutory language in section 1927(a)(7)(b)(ii) of the Act conditioning
FFP on meeting its requirements, and the NDC code requirements in
section 1927(c) of the Act, only apply to the 20 multiple source drugs
identified under section 1927(a)(7)(b)(i) of the Act, and not to
multiple source drugs not on that list. We accordingly are relying on
our authority under section 1902(a)(4) of the Act to specify ``methods
of administration'' that ``are found by the Secretary to be necessary
for the proper and efficient operation'' of the State's Medicaid State
plan as authority for our proposal to extend the multiple source PAD
requirements under section 1927(a)(7)(B)(ii) and (C) of the Act that
only apply to multiple source PADs identified under section 1927(b)(i)
of the Act and Sec. 447.520(c) to other multiple source PADs not so
identified. Because requirements under section 1902(a)(4) of the Act
are enforced under section 1904 of the Act and regulations at Sec.
430.435, we have revised the regulation text to provide that compliance
with requirements in Sec. 447.520 applicable to multiple source PADs
not on the list of 20 identified under section 1927(b)(i) of the Act
and Sec. 447.520(c) will be enforced under section 1904 of the Act and
Sec. 430.435. Finally, because the new requirements that apply to
multiple source drugs not identified under section 1927(b)(i) of the
Act and Sec. 447.520(c) are not effective until the effective date of
this final rule, we have distinguished in the regulation text between
these new requirements and those that took effect for the 20 identified
multiple source drugs in 2006, 2007 or 2008.
We received several public comments on this proposal. The following
is a summary of the comments we received and our responses.
[[Page 79065]]
Comment: Several commenters support the revisions to the existing
regulatory language regarding the use of NDCs to identify PADs and
expanding rebate invoicing beyond the top 20 high-dollar volume list
for multiple source drugs. Commenters agree this would increase
transparency and allow States to obtain both manufacturer rebates and
receive FFP for these CODs. One commenter stated that Medicaid managed
care plans are in a position to require physicians to submit NDCs with
medical claims for drugs administered in the provider office or an
outpatient facility, which is consistent with Medicaid claims
submission for medical benefit drugs.
Response: We agree with the commenters that the policies we are
adopting in this final rule will allow States to obtain both
manufacturer rebates and FFP for reporting and invoicing NDC numbers
for all single source and multisource PADs that are CODs administered
under both the Medicaid FFS and Medicaid managed care programs.
Additionally, since most State Medicaid programs currently require
their providers to submit NDC numbers on PAD claims for all CODs that
are single source or multiple source drugs, we anticipate the
administrative burden to be minimal. We expect that Medicaid managed
care plans will continue to review and implement policies that will
ensure that prescribers are required to include NDC numbers on all PAD
claims.
Comment: One commenter noted that CMS and the Office of the
National Coordinator for Health Information Technology (ONC) are moving
in opposing directions when it comes to which drug codes to utilize
when submitting claims. This commenter stated that the ONC HTI-1
proposed rule discusses the possibility of what they refer to as
deprecating support for NDC codes in its certification programs in
favor of always requiring the use of RxNorm for medications.
Additionally, a commenter stated that if NDCs are required for any
drug, they need to be supported by a certified health IT system.
Response: We appreciate the comments about ONC's HTI-1 proposed
rule and use of RxNorm for exchanging information on clinical drugs to
ensure there is no ambiguity when it comes to identical medications
that have different names. We note that NDCs provide package-level
information about drugs and are used by healthcare organizations when
submitting claims for CODs and the vehicle used for State utilization
reporting for rebate purposes. RxNorm does not separately capture drug
manufacturer information and will not meet the needs of the MDRP
involving direct manufacturer attribution of CODs, as NDCs are required
for rebate purposes. The ONC Health IT Certification program
establishes certification criteria for health IT products, which are
generally used by health care providers in the provision of care. In
the HTI-1 final rule, published on January 9, 2024, ONC finalized
adoption of NDCs in 45 CFR 170.207(d)(4) through a cross reference to
45 CFR 162.1002(b)(2) as referenced in 45 CFR 162.1002(c)(1) for the
period on and after October 1, 2015 (89 FR 1226). ONC also finalized
adoption of the United States Core Data for Interoperability version 3
(USCDI v3), a standardized set of health data classes and constituent
data elements, in 45 CFR 170.213 (89 FR 1210). In addition to requiring
the use of RxNorm for medications, USCDI v3 added optional support for
NDCs. As finalized in the HTI-1 final rule, USCDI version 3 will be the
only version of USCDI referenced in certification criteria for health
IT under the ONC Health IT Certification Program beginning on January
1, 2026 (89 FR 1211), however, health IT developers may update their
products to conform to USCDI version 3 in advance of this compliance
date. These actions will support the availability of NDCs within
certified health IT products in alignment with finalized policies.
Comment: Several commenters opposed this proposed regulation as it
mandates submission of NDCs for all CODs, stating it will considerably
intensify the administrative tasks for Medicaid providers. It was
stated that this requirement that expands the claims for which NDCs
must be reported could strain the already limited resources of 340B
covered entities. Another commenter suggested requiring NDCs only for
medications that cost above a certain dollar threshold to reduce
administrative burden.
Response: We appreciate the concerns stated by the commenters
referencing the potential administrative burden to Medicaid providers
to submit NDCs for all multiple source PADs that are CODs. However,
since most State Medicaid programs currently require their providers to
submit NDC numbers on their PAD claims for all CODs that are single
source or multiple source drugs, we anticipate the administrative
burden caused by this rule to be minimal.
After consideration of public comments on this provision, we are
finalizing with the revisions set forth previously in this section.
M. Request for Information on Requiring a Diagnosis on Medicaid
Prescriptions
In the proposed rule, we noted that Medicaid COD prescription
claims do not currently require a diagnosis as a condition for payment.
When reviewing claims without a diagnosis, we noted that it is
difficult for the pharmacist or the State 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. We also noted that requiring a diagnosis on a
prescription may provide more information to the dispensing pharmacist
to enable counseling with a focus on drug-disease interaction, which
may improve the beneficiary's overall health.
The proposed rule also noted a 2011 OIG Medicare audit that
discovered that without a diagnosis code, it is difficult for Part D
sponsors to determine whether a drug claim is medically
appropriate.\34\ OIG stated that without access to diagnosis
information, CMS 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 the then Principal
Deputy Inspector General (and now current Inspector General) and Chief
Medical Officer from OIG advocated for a new mandate that physicians
include a diagnosis code with prescriptions.\35\ 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.
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\34\ https://oig.hhs.gov/reports/all/2011/medicare-atypical-antipsychotic-drug-claims-for-elderly-nursing-home-residents/.
\35\ STAT Op-Ed by Christi A. Grimm & Julie K. Taitsman [verbar]
Office of Inspector General [verbar] Government Oversight [verbar]
U.S. Department of Health and Human Services (hhs.gov) https://www.statnews.com/2021/03/01/why-drug-prescriptions-should-include-diagnoses/ March,1 2021.
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We also noted in the proposed rule that since many prescriptions
are being electronically prescribed, it may make it easier for
prescribers to include a diagnosis. Further, we noted several instances
in which we believed a diagnosis on a prescription could help States,
including implementation of certain Medicaid programs and benefits in
which they are eligible for enhanced
[[Page 79066]]
Federal matching funds, assistance to pharmacists to identify safety
issues and ensuring prescriptions are appropriate, medically necessary,
and not likely to result in adverse medical results, and assurance that
Medicaid reimbursement is limited to drugs with medically accepted
indications.
Given the various perspectives, we assumed there would be many
interested parties that would have views on a potential requirement to
include a diagnosis on a prescription, including but not limited to
patients, prescribers, pharmacists, States, and drug manufacturers.
Thus, we specifically solicited comments on this topic, its impact on
beneficiaries, providers, States, and Medicaid, and any operational
implications. We were particularly interested in understanding the
benefits and burdens of such a proposal and sought comments on how to
mitigate the impact on beneficiaries and providers, and steps which
would be needed by States to successfully implement a Medicaid
requirement for diagnoses on prescriptions as a condition of FFP. We
also requested comments regarding the potential impact of a policy to
require Medicaid diagnoses on prescriptions on payment, health care
quality, access to care, and program integrity. In addition, we
requested comments on the potential impact of such a policy on
beneficiary access to commonly used, medically accepted, compendia
supported, off-label uses of CODs.
We received many public comments on this request for information on
requiring a diagnosis on Medicaid COD prescription claims. The
following is a summary of the comments we received and our response.
Comment: A few commenters provided general support for the
requirement of diagnoses on prescriptions; however, the majority of
commenters stated their strong opposition to requiring diagnoses on
prescriptions. These arguments focused mostly on administrative burden,
potential information technology (IT) issues with delays in care,
significant system alterations, stigma, and other complications.
Several commenters stated that because of the technical and operational
challenges of including a diagnosis on a prescription, it could also
lead to manufacturers initiating unnecessary disputes. Furthermore,
many commenters opposed the requirement of diagnoses on prescriptions
due to possible impact on equitable access to care, including delays
and denials in care, added burden to patients, exacerbation of already
existing barriers to care, and overall reduction in care access.
Response: We appreciate the comments received in response to the
request for information on requiring a diagnosis on Medicaid
prescriptions. After careful review and consideration of the public
comments received, and due to the overwhelming number of comments that
were opposed to this requirement, we are not pursuing this requirement
in rulemaking at this time. We will continue to review the feedback we
receive from interested parties and may address this issue in future
rulemaking if appropriate.
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.
Our May 26, 2023 (88 FR 34238) proposed rule (CMS-2434-P; RIN 0938-
AU28) solicited public comment on each of the aforementioned issues for
the following sections of the rule that contained collection of
information requirements. Comments were received and are summarized and
responded to later under sections III.B.1. (Identification and
Notification to Manufacturer to Correct Drug Misclassification),
III.B.2. (Definitions), III.B.3. (State Plan Requirements, Findings,
and Assurances), III.B.4. (Federal Financial Participation (FFP):
Conditions Relating to Physician-Administered Drugs), and III.B.6.
(Standard Medicaid Managed Care Contract Requirements) of this final
rule.
A. Wage Estimates
To derive average costs, we used data from the U.S. Bureau of Labor
Statistics' (BLS') May 2023 National Occupational Employment and Wage
Estimates for all salary estimates (https://www.bls.gov/oes/current/oes_nat.htm#23-0000). In this regard, Table 2 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 2--National Occupational Employment and Wages Estimates
----------------------------------------------------------------------------------------------------------------
Fringe benefits Adjusted
Occupation title Occupation Mean hourly and other indirect hourly wage ($/
code wage ($/hr) costs ($/hr) hr)
----------------------------------------------------------------------------------------------------------------
Operations Research Analyst................... 15-2031 45.96 45.96 91.92
----------------------------------------------------------------------------------------------------------------
As indicated, we adjusted 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. Information Collection Requirements (ICRs)
1. ICRs Regarding Identification and Notification to Manufacturer To
Correct Drug Misclassification (Sec. 447.509(d)(1) Through (4))
We added new paragraphs (d)(1) through (4) to Sec. 447.509 to add
new
[[Page 79067]]
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. A manufacturer's
effort to address the misclassification of its CODs is currently
approved by OMB under control number 0938-0578 (CMS-367). The active
collection considers 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 may vary by manufacturer based on the extent to which they
misclassify drugs and subsequently need to correct those
misclassifications. The extent of the burden may also be impacted based
on when the misclassification originally occurred. Since the
manufacturer requirements and burden do not require any changes as a
result of this rule, we are not making any changes under the
aforementioned OMB control number. The manufacturer burden is subject
to a regulatory impact analysis which can be found in the Regulatory
Impact Analysis section in section IV. of this final rule.
We received numerous public comments on these proposals, but very
few, if any, addressed this burden. The following is a summary of the
comments we received and our response.
Comment: We received three comments that stated that requiring a
manufacturer to correct misclassifications of CODs that occurred more
than 10 years ago will be more difficult to address due to the 10-year
record retention requirement.
Response: Section 1927 of the Act specifies that rebates can be
collected back to the effective date of that section of the Act. Thus,
manufacturers must correct misclassifications back to the date of the
misclassification so that correct rebates may be paid by the
manufacturers on these misclassified drugs. As we note in other
sections of this final regulation, manufacturers can make reasonable
assumptions regarding their data for any period that extends beyond the
10-year record retention if such records are not available.
After consideration of the public comments, we are finalizing Sec.
447.509(d)(1) through (4) as proposed, with the exception of making a
modification to Sec. 447.509(d)(4)(i), to add the following language
at the end of that section: ``In such case, the manufacturer must
certify the applicable correction within 30 calendar days.''
2. ICRs Regarding Definitions (Sec. 447.502)
To further consider commenters' concerns, we are not finalizing at
this time our proposal to add a new paragraph (5) to the definition of
manufacturer or Sec. 447.510(h) or our proposal to add a new paragraph
to Sec. 447.502 to define vaccine for purposes of the MDRP only.
Consistent with our proposed rule, we do not believe that any of
the following new terms or definition modifications and clarifications
that are being finalized 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), and (5)
proposal to clarify Sec. 447.509(a)(6) through (9) and (c)(4) with
respect to ``other drugs''. Consequently, none of the definition
changes are subject to the requirements of the PRA.
We received extensive public comments on these proposals; however,
only a few address estimates of effort and burden. The following is a
summary of the comments we received and our responses.
Comment: Regarding the modification to the definition of COD,
several commenters expressed their concerns regarding the lack of
visibility that CMS, manufacturers, and States have into payer claims
data to understand how drugs and associated services are itemized. One
commenter suggested manufacturers would have to hire personnel to
procure and assess claims data in order to verify rebate invoices from
the State. A few commenters questioned the States' ability to capture
necessary data for bundled drugs on payer claims. One commenter noted
the proposed definition of COD will serve to generate even more good
faith disputes, given the greater challenge posed by generating and
providing such claims-level detail in relation to bundled payments,
which will result in increases in disputed rebate claims and delayed
payments to the States due to this longer validation time.
Response: Manufacturers and States should have current procedures
and practices in place regarding how they validate invoices for the
purpose of paying claims, and thus billing manufacturers for rebates.
We acknowledge that as a result of the clarification to the definition
of COD in this rule, States may have to consider how they instruct
providers to bill for certain drugs that are paid for under an all-
inclusive rate, such that the State or the Medicaid managed care plan
can identify CODs that would be eligible for rebates under inclusive
payment models.
Comment: One commenter stated that the proposed changes to Sec.
447.502 would result in a significant burden on the manufacturer and
thus are subject to the requirements of the PRA.
Response: The commenter did not describe the nature of the burden
in any detail, so we are unable to provide a substantive response.
Comment: Regarding the modification to the definition of COD, one
commenter stated collecting NDCs and ingredient cost information and
applying such information on Medicaid claims forms is both time-
consuming and labor-intensive. CMS should, therefore, refrain from
imposing more administrative burdens on providers.
Response: We appreciate the comments regarding the potential burden
to providers. Pursuant to their State plans, States have the discretion
to choose which reimbursement methodology to employ and what drugs, if
any, they will carve out from that methodology and directly reimburse
for them. States also dictate the terms of what information is
necessary from the provider in order for direct reimbursement to be
executed. As of January 1, 2007, Sec. 447.520 has obligated States to
require that providers submit NDCs for physician-administered single
source drugs and the 20 multiple source drugs identified by the
Secretary. Additionally, we note that in section II.L of this rule, it
is required that States provide for the collection of NDCs for all
physician-administered single source drugs and multiple source drugs.
However, since most State Medicaid programs currently require their
providers to submit NDC numbers on their PAD claims for all CODs that
are single source or multiple source drugs, we anticipate the
administrative burden caused by this rule to be minimal.\36\
---------------------------------------------------------------------------
\36\ Physician-Administered Drug, Paperwork Reduction Act
(PRA)--Identifying Medicaid Payment for Physician Administered Drugs
(CMS-10215) OMB CONTROL NUMBER: 0938-1026. At the time the original
PRA (November 5, 2007) was approved, collecting and submitting PAD
data was a greater burden. At that time, patient records were
retained primarily in paper, and claim submissions were made
utilizing paper forms. Initial estimates were all made based on the
standard of practice in 2007. Since that time, subsequent PRA
extensions have been approved; however, these versions did not
address improved medical standards of practice with respect to
record retention and billing, rule-making requirements relating to
including the NDC on the claim so States could bill for rebates
(that is, CMS-2345-F, Medicaid Program; Covered Outpatient Drugs).
---------------------------------------------------------------------------
[[Page 79068]]
Comment: We received a few comments suggesting that the proposed
requirement to report drug product information monthly would place an
unnecessary burden on both manufacturers and the Agency.
Response: Section 1927(b)(3)(A)(v) of the Act states that
manufacturers must 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 CODs. Currently, approved by OMB under control number
0938-0578 (CMS-367), we require that certain drug product information
be reported not later than 30 days after the date of entering into a
rebate agreement, or, for newly introduced drugs, not later than 30
days after the last day of month during which the new drug is
introduced. Such drug product information is not required on a monthly
or quarterly basis at this time. Unless future changes are made to the
MDRP that require monthly or quarterly reporting of certain drug
product information, we will not require repeated reporting.
3. ICRs Related to State Plan Requirements, Findings, and Assurances
(Sec. 447.518)
The burden for submissions relating to Sec. 447.518 is currently
approved by OMB under control number 0938-0193 (CMS-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 Sec. 447.518
of this rule clarifies the data requirements that States must submit to
establish the adequacy of both the current ingredient cost and the
professional dispensing fee reimbursement, this will not add any new or
revised requirements or burden, we are not making any changes under
that control number.
The proposed rule had inadvertently identified the package as
``CMS-10398 #179''. The correct CMS identification number is ``CMS-
179'' as indicated previously in this section. The control number is
correct in both instances.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters expressed support for the use of
pharmacy cost data to determine professional dispensing fees and
ingredient costs and offered suggestions on ways to better understand
these costs and accommodate individual States' needs. One commenter
agreed that to the extent that a State is conducting a cost of
dispensing study, it should be a transparent, comprehensive, and well-
designed tool that addresses a pharmacy provider's cost to dispense the
drug product to a Medicaid beneficiary. Several commenters expressed
support for States to periodically assess if pharmacy reimbursement
rates accurately reflect current costs, with suggestions for this
assessment to occur every 2 to 3 years.
Response: We appreciate the commenters' support. We agree that a
State's cost of dispensing survey should be transparent and
comprehensive, and the results should reflect the pharmacy's actual
cost of dispensing a prescription and the ingredient cost of the drug.
The survey must be based on actual pharmacy cost of dispensing data,
not market-based data. As stated earlier, we are currently not
requiring that a State conduct a cost of dispensing survey based on any
timeframe, but States must review their current professional dispensing
fee whenever they propose to change their reimbursement methodologies
to ensure 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.
After consideration of the public comments, we are finalizing the
proposed provisions without change.
4. ICRs Relating to Federal Financial Participation (FFP): Conditions
Relating to Physician-Administered Drugs (Sec. 447.520)
We are updating Sec. 447.520 to make it consistent with section
1927(a)(7) of the Act, and codifying the requirement that States must
collect NDC information on all single and multiple source PADs that are
CODs for the purposes of invoicing manufacturers for rebates, and
ensuring that FFP is available, as appropriate. We are requiring that
States must invoice for rebates for all PADs that are CODs. We will
continue to publish the top 20 high dollar volume list of multiple
source PADs, 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 thus not invoicing for rebates on these drugs.
This will be applicable to all States; however, we believe this would
cause minimal administrative burden because most 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 PADs and invoicing manufacturers for rebates as applicable under
OMB control number 0938-1026 (CMS-10215). Since the provisions will not
add any new or revised requirements or burden, we are not making any
changes under that control number.
We received public comments on these proposals. The following is a
summary of the comments we received and our response.
Comment: Several commenters opposed this proposed regulation as it
mandates submission of NDCs for all CODs, and they stated it
considerably intensifies the administrative tasks for Medicaid
providers. It was stated that this requirement, previously limited to
single source PADs and the top 20 multiple source PADs, could strain
the already limited resources of 340B covered entities. Another
commenter suggested requiring NDC numbers only for medications that
cost above a certain dollar threshold to reduce administrative burden
to States.
Response: We appreciate the concerns expressed by the commenters
referencing potential administrative burden to State providers to
submit NDCs for all single source and multiple source covered
outpatient PADs. However, since most State Medicaid programs currently
require their providers to submit utilization data through use of NDC
numbers for all CODs that are single source or multiple source drugs,
including PADs, we anticipate the administrative burden to be minimal.
After consideration of the public comments, we are finalizing the
proposed provisions without change.
5. ICRs Regarding Verification Survey of Reported CODs Through Data
Collection (Sec. 447.510)
We proposed at Sec. 447.510(k) a process to survey 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 would have been submitted to OMB for review if the
proposed rule was finalized and the corresponding survey instruments
(one for requesting information from States as proposed under Sec.
447.510(k)(3)(ii) and (iii)(A), and another for surveying
manufacturers).
Through the proposed rule, we solicited comments to help us develop
the manufacturer survey and the State survey and received some
suggestions. However, we determined not to finalize
[[Page 79069]]
the proposed policy at this time. We are continuing to review the input
provided by commenters, which may inform future rulemaking on this
topic. The estimates included in the proposed rule regarding these
survey instruments have been removed from the final rule.
6. ICRs Regarding Standard Medicaid Managed Care Contract Requirements
(Sec. 438.3(s))
The following changes regarding drug cost transparency in Medicaid
managed care contracts will be submitted to OMB for approval under
control number 0938-1445 (CMS-10855).
We are amending Sec. 438.3(s) to require MCOs, PIHPs, and PAHPs
that provide coverage of covered outpatient drugs to assign and
exclusively use a unique Medicaid-specific BIN and PCN combination, and
group number identifiers on all issued Medicaid managed care enrollee
identification cards for pharmacy benefits. It is a standard business
practice for the MCOs, PIHPs, and PAHPs to routinely issue enrollee
identification cards for pharmacy benefits, even though there is no
Federal requirement to issue such cards. The MCOs, PIHPs, and PAHPs
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 standard 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 plans 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 the Regulatory Impact Analysis section
in section IV. of this final rule.
Comment: A few commenters noted the administrative burden of
creating potentially thousands of unique BIN, PCN, and group number
identifiers instead of the requirement using a BIN and PCN combination.
Commenters also expressed concern regarding the administrative burden
for assigning each enrollee with a unique BIN, PCN, and group number.
Response: CMS is finalizing the rule to include this recommendation
to require a BIN and PCN combination, along with a group number
identifier, rather than unique numbers for each component. We agree
that it would be administratively burdensome to require unique BINs and
unique PCNs, along with a group identifier. The combination approach
will achieve the intended result, while minimizing any potential
administrative issues.
Comment: One commenter stated that there would be a cost associated
with reprinting pharmacy identification cards to meet with new
requirement. Another commenter expressed concern regarding the
potential operational burden for needing to reissue member ID cards to
beneficiaries regarding the new BIN/PCN requirement.
Response: This final rule does not mandate reprinting or re-
issuance of enrollee identification cards solely based on when a unique
BIN and PCN combination and group number identifier is assigned, but
rather re-issuance of cards shall bear the unique identifiers upon
routine card issuance. Plans are expected to fulfill these requirements
within their standard business practices.
The applicability date for the BIN and PCN combination, and group
number identifier provision will be the first rating period for State
contracts with MCOs, PIHPs, and PAHPs beginning on or after 1 year
following the effective date of the final rule.
Comment: One commenter stated that pharmacies submitting a 340B
identifier on claims involves high administrative burden and financial
risk and should be considered a last resort.
Response: Inclusion of accurate submission clarification codes is a
standard NCPDP guided practice for pharmacies to include additional
information to the processor when submitting a claim. We do not believe
the submission of accurate submission clarification codes is a burden
outside of the normal current business practices. However, the
inclusion of 340B identifiers on claims is outside the scope of this
final rule.
Additionally, the provision outlined in Sec. 438.3(s)(8) requires
that MCOs, PIHPs, and PAHPs that provide coverage of covered outpatient
drugs that contract with any subcontractor for the delivery or
administration of the covered outpatient drug benefit must 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 reporting requirements would affect 282
managed care plans and 40 States. We further estimate that it would
take an Operations Research Analyst at the State level, 25 hours at
$91.92/hr to revise 282 managed care contracts to require those plans
to comply with Sec. 438.3(s)(8). In aggregate, we estimated a one-time
burden of 1,000 hours (40 State responses x 25 hr/response) at a cost
of $91,920 (1,000 hr x $91.92/hr).
For the same contract changes between the managed care plans and
the subcontractors (mainly PBMs), we also estimated a one-time private
sector burden of 7,050 hours (282 managed care plans x 25 hr/response)
at a cost of $648,036 (7,050 hr x $91.92/hr).
With respect to the reporting burden, we estimate that for 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 will take approximately 2 hours annually 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 $51,842.88 (564 hr x $91.92/
hr).
We did not receive any comments regarding the proposed provisions
and burden estimates. We are finalizing them in this rule without
change.
C. Summary of Burden Estimates
In Table 3, we present a summary of this rule's collection of
information requirements and associated burden estimates.
Table 3--Summary of Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Time per
Regulatory section(s) under OMB Control No. (CMS ID Number respondents Total number of response Total time Labor cost Total cost
Title 42 of the CFR No.) responses (hr) (hr) ($/hr) ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 438.3(s)(8)............ 0938-1445 (CMS-10855).. 40 States............. 40 25 1,000 91.92 91,920
Sec. 438.3(s)(8)............ 0938-1445 (CMS-10855).. 282 managed care plans 282 25 7,050 91.92 648,036
Sec. 438.8(s)(8)............ 0938-1445 (CMS-10855).. Subcontractor PBMs of 282 2 564 91.92 51,842.88
the 282 managed care
plans.
------------------------------------------------------------------------
[[Page 79070]]
Total..................... 322 (40 States + 282 ...................... 604 Varies 8,614 91.92 791,798.88
managed care plans).
--------------------------------------------------------------------------------------------------------------------------------------------------------
IV. Regulatory Impact Analysis
A. Statement of Need
The intent of this final 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 MSIAA was signed into law on April 18,
2019. Section 6 of 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. The final rule includes
policies to implement these new statutory authorities, as required.
The 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 finalizing several important MDRP program administration and
integrity policies such as: implementing a time limitation on
manufacturer disputes and audits with States regarding rebates. The
final rule also specifies a number of existing policies including: 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.
The final rule includes two new requirements for the contracts
between States and their Medicaid managed care plans, specifically
MCOs, PIHPs, and PAHPs. That is, States would be required to include in
their contracts with MCOs, PIHPs, and PAHPs a requirement that each
Medicaid enrollee's identification card used for pharmacy benefits
would include a unique Medicaid-specific BIN and PCN combination, along
with a group number. The applicability date of these unique Medicaid-
specific BIN and PCN combinations on the enrollee identification cards
will be the first rating period for contracts with MCOs, PIHPs, and
PAHPs beginning on or after 1 year following the effective date of the
final rule. This requirement would assist providers in identifying
patients as Medicaid beneficiaries.
In addition, we are finalizing that Medicaid MCO, PIHP, or PAHP
(managed care plans) that contract with any subcontractor for the
delivery or administration of the covered outpatient drug benefit must
require the subcontractor to report separately to the MCO, PIHP, or
PAHP incurred claims and administrative costs, fees, and expenses of
the subcontractor.
Moreover, we are also finalizing 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, and
market data; and modifying the definition of COD. Included was also a
provision not directly related to MDRP, that is, a proposed revision to
third-party liability regulation resulting from statutory changes in
the BBA 2018.
On May 17, 2022, the United States District Court for the District
of Columbia vacated and set aside the accumulator provisions within the
2020 final rule. The 2020 final rule required 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, before excluding such amounts from the
determination of best price or AMP. In response to the district court's
order, we are withdrawing the changes made to these sections by the
2020 final rule.
We received public comments on these provisions. The following is a
summary of the comments we received and our responses.
Comment: One commenter stated the regulatory burden of the rule
will stifle innovation.
Response: We do not believe the regulatory burden of the rule will
stifle innovation. Rather, we believe our policies as contained in this
final rule (including BIN/PCN on cards, drug cost transparency in
Medicaid managed care contracts, etc.) will help promote transparency,
flexibility, and innovation in the operation of the Medicaid Drug
Rebate Program.
B. Overall Impact
We have examined the impacts of this 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), Executive Order 14094 entitled ``Modernizing
Regulatory Review'' (April 6, 2023), the Regulatory Flexibility Act
(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the
Social Security 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). The
Executive Order 14094 entitled ``Modernizing Regulatory Review''
(hereinafter, the Modernizing E.O.) amends section 3(f)(1) of Executive
Order 12866 (Regulatory Planning and Review). The amended 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 (adjusted
every 3 years by the Administrator of OIRA for changes in gross
domestic product), or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, territorial, 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) raise legal or policy issues for which
centralized review would meaningfully further the President's
[[Page 79071]]
priorities or the principles set forth in this Executive order, as
specifically authorized in a timely manner by the Administrator of OIRA
in each case.
A regulatory impact analysis (RIA) must be prepared for major rules
with significant regulatory action/s and/or with significant effects as
per section 3(f)(1) ($200 million or more in any 1 year).
Based on our estimates, OMB's Office of Information and Regulatory
Affairs has determined this rulemaking is significant under section
3(f)(1). The Office of Information and Regulatory Affairs has also
determined that this final rule meets the criteria set forth in 5
U.S.C. 804(2) (Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996, also known as the Congressional Review Act).
C. Detailed Economic Analysis
There is a need for greater clarity regarding some of the
administrative policies of the MDRP, and this final rule aims to
establish regulations to provide guidance to States, manufacturers, and
other related parties. This final 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 final rule is mindful of the impact of changes in
regulations on affected interested parties, and the degree of
compliance issued 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 provisions in the final rule are not implemented, there
would be no specific policies in place in the MDRP related to the new
legislative requirements in MSIAA, and no clear policies to address
drug misclassification and drug product information misreporting by
manufacturers. Accordingly, the final 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, could not be
conducted.
Additionally, if the provisions are not implemented, there would be
no regulatory policies for addressing the provision in 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 drugs other than single source
and innovator 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; market date; and noninnovator multiple source drug.
Moreover, currently 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; and specify
conditions relating to payment for PADs. The reasons and rationales for
these provisions were detailed in the preamble section of the proposed
rule. The economic impacts of these provisions are detailed later in
this section of the final rule.
We solicited 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 final
rule.
1. Benefits
The provision requiring that subcontractors of Medicaid managed
care plans, such as PBMs or pharmacy benefit administrators (PBAs),
report specific categories of drug expenditures to their contracted
managed care plan will benefit States and Medicaid managed care plans,
as it assures a more accurate calculation of plans' MLRs and aids
States in development of managed care plan capitation rates, resulting
in more accurate Medicaid spending. As indicated in the proposed rule,
the shift in policy to eliminate spread pricing in Medicaid managed
care pharmacy programs has begun in many States. Therefore, the benefit
associated with this final regulation, as we noted in the proposed
rule, cannot be quantified at the national level. We do not have data
on which States have done this already, that is, eliminated spread
pricing, versus States that would need to implement this because of
this final rule.
However, we believe that the majority of States do not require
their Medicaid managed care plans to include such PBM transparency
language in their managed care contracts. For that reason, we do expect
that implementation of this provision will result in savings to the
Medicaid program, as States will have a better understanding of their
pharmacy program spending and can make any adjustments accordingly.
While this provision does not eliminate spread pricing in Medicaid, a
March 2020 Congressional Budget Office (CBO) estimate of the Federal
proposal \37\ 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 decrease in Federal
Medicaid prescription drug spending.
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\37\ 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.
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In regard to Medicaid Drug Rebates (MDR) and penalties for
manufacturer misclassification of drugs, these provisions will
implement MSIAA provisions related to misclassification. Finalization
of the rule could result in monetary and non-monetary penalties against
manufacturers, which are not quantifiable at this time. It could also
benefit States if they receive any past rebates that are due to them as
a result of a manufacturer's misclassification of drugs.
The majority of drugs are appropriately classified in the Medicaid
Drug Programs (MDP) system 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
correct their misclassification and will also allow us to impose
penalties on manufacturers that do not pay the unpaid rebates owed to
the States as a result of the misclassification.
Modifying the definition of covered outpatient drug will benefit
the manufacturers, States, and CMS. The provision will 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 and payment for the drug is made as direct
reimbursement. This will make these therapies more affordable to States
and increase beneficiary access to these medications. It will 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 benefit is currently not
quantifiable because we
[[Page 79072]]
do not know how many drugs this provision will affect.
Finalizing the definition of internal investigation at Sec.
447.502 for purposes of manufacturers making pricing metric revisions,
as amended from the proposed definition, will benefit States and
manufacturers. It will benefit manufacturers because it will 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 will
benefit States because it will deter manufacturers from submitting to
CMS a request for a 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.
The benefit of defining internal investigation as part of this final
rule is not quantifiable as it is not known how many manufacturers will
be deterred from submitting the request to restate outside of the 12-
quarter timeframe. However, as noted in the proposed rule, we do not
get these requests frequently. We did not receive any comments
regarding the impact of the definition of internal investigation at
Sec. 447.502.
We proposed to update the definition of manufacturer at Sec.
447.502 and to add a new paragraph (h) in Sec. 447.510 to further
specify the responsibilities of a manufacturer. After consideration of
public comments, we have opted not to proceed with finalizing the
proposed definition of manufacturer at Sec. 447.502 and related
changes in Sec. 447.510(h) to further consider commenters' concerns.
The provision to define market date using the date of first sale,
rather than the date first available for sale, will benefit some
manufacturers, CMS, and States. Manufacturers will not be required to
report AMP information until they have actual pricing data based on
sales data to report. As a result, there will be decreased reliance by
manufacturers to use reasonable assumptions to calculate and report
AMP. CMS and States will also benefit because we will 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 the market date of their drug as 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, which is not the case.
States are likely to benefit from the provision to establish a 12-
quarter rebate manufacturer dispute, hearing, and audit time limitation
in Sec. 447.510(i). 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.
With this provision, States will no longer have to look back and
research paper claims dating back to as early as 1991, which is the
beginning of the MDRP. We estimate the provision will reduce the amount
of time it will 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 will no longer be considered.
Regarding the regulatory revisions regarding FFP for conditions
relating to physician-administered drugs, these provisions will benefit
States and the Federal Government. By revising the regulations to be
consistent with the statute, States will gain a better understanding of
the requirement that they must invoice for all covered outpatient
single and multiple source physician-administered drugs. This final
rule will help ensure that States will receive FFP for these PADs by
requiring the collection of NDC numbers 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 provision for inclusion of a BIN/PCN combination, along with a
group number identifier, on Medicaid managed care enrollee
identification cards will benefit States, the Federal Government,
providers, and manufacturers. With the inclusion of Medicaid-specific
BIN/PCN combinations and group number identifiers on the pharmacy
identification cards issued to the enrollees of MCOs, PIHPs, and PAHPs,
pharmacies will be able to identify patients as Medicaid beneficiaries.
This will be helpful to all parties to ensure that Medicaid benefits
are applied appropriately. This will also help avoid duplicate
discounts between Medicaid and the 340B Program, which occurs when a
State bills for a Medicaid rebate on a discounted 340B drug, because it
will provide 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.
The provision for drug cost transparency in Medicaid managed care
contracts will benefit States and the Federal Government. It will
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, managed care plans that provide coverage of CODs
must 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
will be able to calculate and report its MLR more accurately.
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 and appropriate. Managed
care capitation rates must (1) be developed such that the plan will
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 to States should they not achieve the specific MLR
target when a remittance is required by a State. Thus, the accuracy of
MLR calculation is important to conserving Medicaid funds.
The payment of claims provision will benefit States, the Federal
Government, providers, and beneficiaries. This provision will 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 will also
benefit beneficiaries and providers as
[[Page 79073]]
they permit 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 clarify our longstanding policy to account for
manufacturer stacking of discounts when determining best price is not
being finalized at this time. Therefore, we will not be responding to
any comments submitted on the impact of this specific proposal.
2. Costs
a. Manufacturer Misclassification of a Covered Outpatient Drug and
Recovery of Unpaid Rebate Amounts Due to the Misclassification and
Other Penalties
In regard to the costs associated with this provision, if CMS
identifies that a drug has been misclassified, the manufacturer will be
responsible for paying any unpaid rebates to the States as a result of
the misclassification. This will mean that the manufacturers will have
to determine which prices to use to calculate the past due rebates and
for which unit rebates are owed, and then pay the States the calculated
rebate amount. They will also have to report to CMS that such rebates
have been paid. In this situation, the States will not incur any new
costs; rather it will help ensure that manufacturers are accurately
paying rebates to States, thus benefitting the States. 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. In this situation, the States would incur costs as they
reimburse the manufacturer for the overpayment. CMS may be required to
share in repayment of some of these rebates.
The amount of rebates owed or collected by the manufacturers under
these new regulatory misclassification provisions cannot be estimated.
We cannot predict how many, if any, drugs are or will be misclassified
and require payment of unpaid rebates.
We did not receive public comments on this Regulatory Impact
Analysis provision, and therefore, we are finalizing as proposed.
b. Suspension of Manufacturer NDRA for Late Reporting of Pricing and
Drug Product Information
This provision will implement existing statute and is being
implemented to encourage manufacturer adherence with program reporting
requirements and enhance administrative efficiency. Manufacturers that
are not reporting their pricing or product information in a timely
manner per statutory and regulatory requirements will have their rebate
agreement (and those of their associated labelers) suspended for
purposes of Medicaid and the MDRP. This means that States will not have
to cover or pay for the drugs of the manufacturer during the period of
the suspension unless they are paid through their own State funds. 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 will serve as an incentive for
manufacturers to report their product and pricing information timely so
that drugs of the manufacturer will continue to be covered under
Medicaid and the MDRP.
This provision will have minimal cost to the States as their only
responsibility will 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 required 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 solicited comments on how to
develop a cost estimate.
We did not receive public comments on this Regulatory Impact
Analysis provision, and therefore, we are finalizing as proposed.
c. Modified the Definition of Covered Outpatient Drug
This provision may increase manufacturers' rebate liability to the
States because it will 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 a
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 will involve minimal burden, as
States could inform their providers as part of their regular
communications.
We received public comments on these Regulatory Impact Analysis
provisions. The following is a summary of the comments we received and
our responses.
Comment: One commenter stated that CMS should undertake a formal
regulatory impact analysis regarding the modification to the definition
of covered outpatient drug to properly assess positive and negative
effects.
Response: As we stated in the proposed rule, we are unable to
quantify what impact the modification to the definition of covered
outpatient drug will have. However, this will clarify for States and
manufacturers the application of the ``direct reimbursement'' part of
the definition of COD and may assist in identifying utilization that
qualifies for rebates in situations where States have not previously
collected rebates. We accounted for the administrative costs of
reviewing and interpreting this definition in the Regulatory Review
section later in this rule.
Comment: One commenter pointed out implementation challenges,
including substantial changes to billing and claims systems to capture
information about the specific services that are included in a bundled
payment. They stated it would be extremely difficult to understand all
of the scenarios where the payment for a code was inclusive of the drug
reimbursement.
Response: We intend for the modification to the definition to
provide clarification regarding when a payment represents direct
reimbursement for a drug. Based on the comments, though, it is evident
that our proposed modification to the definition did not make this
clear. In the past we have stated that no rebate liability attaches to
drugs that are paid for as part of bundled payments. However, we have
received questions from interested parties to define situations in
which rebates can be billed for drugs that are part of inclusive
payments in which the quantity of drug dispensed or administered can be
identified. We are therefore modifying the proposed definition of
direct reimbursement to make it clear that, for such rebates to be
billed, the inclusive payment includes an amount directly attributable
to the drug, where such amount is based on a reimbursement methodology
that is included in the applicable section of the State plan. We
believe that the modification to the proposed definition resolves the
implementation concerns.
After consideration of public comments, we are finalizing the
provision with the amended language as set out at the end of this
document.
[[Page 79074]]
d. Defined Internal Investigation for Purposes of Pricing Metric
Revisions
The cost of the final definition will be the amount of time that
needs to be taken by manufacturer personnel to determine how to apply
the definition of internal investigation when considering submitting a
request to CMS for a recalculation. This legal analysis will not apply
to every manufacturer or to every drug of the manufacturer. It will
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. As stated in the proposed rule, we have received only a minimal
number of such requests from manufacturers. We assumed the time to
perform legal analysis is 5 hours. Using the May 2023 mean (average)
wage information from the BLS for lawyers (Code 23-1011), we estimated
that the cost of reviewing this provision is $169.68 per hour,
including fringe benefits and other indirect costs (https://www.bls.gov/oes/current/oes231011.htm) with a total cost of ($169.68 x
5), is $848.40 for each manufacturer. We estimated that only one
percent of manufacturers will 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
$6,787.20 (8 x $848.40). We estimated one percent because currently
only one manufacturer has submitted such a request. This provision will
not impose substantial costs on the State.
We received no public comments on these estimates associated with
the definition of internal investigation. We are adopting a definition
of internal investigation at Sec. 447.502, as amended and discussed in
section II.C.1.c. of this final rule.
e. Revised Definition of Manufacturer for NDRA Compliance
Several analyses and reviews were performed to better assess
current manufacturer compliance with the requirement that a
manufacturer have a rebate agreement in effect that includes all
associated labeler codes. While this policy has already been specified
in guidance and preambles, we are opting not to finalize the proposed
definition of manufacturer and conforming changes in Sec. 447.510 at
this time to further consider commenters' concerns.
f. Define Market Date
In regard 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. That
is because they may have assumed that the market date of the COD is the
date that they purchased it, rather than the date the COD was sold by
any manufacturer and may not have access to relevant pricing records
before the date they purchased the drug. 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.
We did not receive public comments on this Regulatory Impact
Analysis provision, and therefore, we are finalizing as proposed.
g. Modify the Definition of Noninnovator Multiple Source Drug
This provision proposed 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.
We did not receive public comments on this Regulatory Impact
Analysis provision, and therefore, we are finalizing as proposed.
h. Define Vaccine for Purposes of the MDRP Only
We are opting not to finalize the proposed definition of vaccine at
this time. We are continuing to review the input provided by commenters
on the proposed definition, which may be used in future rule making on
this topic.
i. Proposal To Establish a 12-Quarter Rebate Audit Time Limitation
We estimated a decrease in burden associated with this proposal.
After contacting several States, we estimated 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 and 4 months to resolve,
depending on the complexity of the dispute and how long ago the claim
was paid. That means at any given time, the States, many of which have
limited staff resources in the pharmacy program, are dealing with
hundreds of manufacturer disputes for rebate claims that are more than
3 years old. For our best estimate of the quantifiable impact, with all
50 States, the District of Columbia, and Puerto Rico being affected, we
estimated it would take 52 Operations Research Analysts, 15-2031 (1 for
each State) 7 hours to resolve a dispute at $91.92/hr (https://www.bls.gov/oes/current/oes152031.htm) $643.44 ($91.92 x 7) (for 45
outstanding disputes [(10 disputes + 80 disputes)/2] per State for
claims greater than 3 years old. We, therefore, estimated a one-time
decreased burden reduction of $6,022,598.40 (45 disputes x $643.44 hr/
dispute x 52 States x 4 quarters (1 year)). Manufacturers will only
have the ability to initiate a dispute on claims for up to 12 quarters,
from the last day of the quarter from the date of State invoice
postmark.
We did not receive public comments relating to regulatory impact on
this provision, and we are finalizing as proposed.
j. Proposals Related to State Plan Requirements, Findings, and
Assurances
The 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 and services at least equivalent
to the care and service available to the general population.
Pharmacists must be accurately reimbursed by the State for drug
ingredient costs and professional dispensing services under Sec.
447.518.
We have not included time and cost burdens for individual State
dispensing fee surveys in this final 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 the proposed rule, we specified that the type of data that
States must submit to justify their professional dispensing fees must
be based on actual costs of dispensing.
We received public comments on this Regulatory Impact Analysis
provision. The following is a summary of the comments we received and
our responses.
Comment: Two commenters disagreed with the proposal to require
professional dispensing fees to be based on cost data, as opposed to
market-based research, and claimed that these proposals are unnecessary
and redundant. One commenter was concerned that CMS' proposed
requirements divert the States' limited resources away from other more
[[Page 79075]]
pressing State Medicaid priorities and that CMS' prohibition on the use
of market-based reviews of PDFs is not accompanied by findings that the
States' approach is contributing to unsustainable dispensing fee
reimbursement. Another commenter stated that imposing stricter
standards for cost information in this case means that dispensing fees
are treated differently than traditional Medicaid services. Conducting
surveys or other research on cost-based data will be an added burden on
States, and it may be difficult to obtain this information from
providers as opposed to market-based research.
Response: We understand the concerns; however, CMS has no reason to
believe that the provisions provided in this final rule will divert the
States' limited resources away from other more pressing State Medicaid
priorities. States are not required to complete their own cost of
dispensing study. States can propose their professional dispensing fees
based on a neighboring State's survey, or other credible survey data,
as long as it is adequate and reflects the current pharmacy costs of
dispensing a prescription in their State.
CMS is also requiring that the professional dispensing fee be based
on pharmacy cost data, and not be based on a market-based review, since
we believe that market-based research is insufficient because it does
not reflect actual costs to pharmacies to dispense prescriptions.
After consideration of public comments on this provision, we are
finalizing as proposed.
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 PADs.
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 under regulatory language in Sec. 447.520.
These provisions clarify the existing statute to ensure FFP and
rebate collection for all covered outpatient single and multiple source
physician-administered drugs.
We received public comments on this Regulatory Impact Analysis
provision. The following is a summary of the comments we received and
our responses.
Comment: Several commenters opposed this proposed regulation which
mandates submission of NDCs for all covered outpatient drugs, as it
considerably intensifies the administrative tasks for Medicaid
providers. It was stated that this requirement, previously limited to
single source PADs and the top 20 multiple source PADs, could strain
the already limited resources of 340B covered entities. Another
commenter suggested requiring NDC numbers only for medications that
cost above a certain dollar threshold to reduce administrative burden.
Response: We appreciate the concerns expressed by the commenters
referencing potential administrative burden to State providers to
submit NDC numbers for all single source and multiple source drugs.
However, since most State Medicaid programs currently require their
providers to submit utilization data through use of NDC numbers for all
CODs that are single source or multiple source drugs, we anticipate
administrative burden to be minimal. Additionally, 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.
After consideration of public comments on this Regulatory Impact
Analysis provision, we are finalizing as proposed.
l. BIN/PCN on Medicaid Managed Care Cards
The cost is limited to the time the Medicaid managed care plans
need to program the new codes onto the cards.
We did not receive public comments on this Regulatory Impact
Analysis provision regarding the programming time it would take for
managed care plans to assign the newly required BIN and PCN
combination, and group number identifiers onto the enrollee
identification cards, and therefore, we are finalizing as proposed.
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 the proposed rule, we estimated that
these requirements would affect 282 managed care plans and their
subcontractors (mainly PBMs) in the country and 40 States. We estimated
it would take an Operations Research Analyst (Code 15-2031) 25 hours at
$91.92 per hour, including fringe benefits and other indirect costs, to
renegotiate and revise 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, estimated that the burden associated with this
provision will be a one-time cost for each managed care plan of $2,298
or $648,036 for all managed care plans. There are 40 States with
Medicaid managed care plans; therefore, we estimated the State's
Operations Research Analyst (Code 15-2031) 25 hours at $91.92 per hour,
including fringe benefits and other indirect costs to revise State
contracts for a one-time cost per State of $2,298 or $91,920 for all 40
States.
Federal savings may be captured by an estimate associated with a
statutory change to eliminate PBM spread pricing at $929 Million over
10 years.\38\ 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.
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\38\ 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.
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There is currently no 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
[[Page 79076]]
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. By requiring managed care plans to 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 as well
as the base data utilized when developing capitation rates 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.
We received the following comment regarding this Regulatory Impact
Analysis provision.
Comment: A commenter specified that the proposed rule aiming to
enhance transparency in PBM reporting may unintentionally raise costs
for the Medicaid program due to PBMs acting as middlemen. Moreover,
shifting away from spread pricing contracts, often without added fees,
could lead to higher-cost fee-based contracts despite their increased
transparency, ultimately imposing a higher cost on payers.
Response: We do not agree that the provision in Sec. 438.3(s)(8)
that requires the managed care plan to specify in its contract with
subcontractors that the subcontractor is required to report separately
the amounts related to incurred claims and administrative costs, fees
and expenses of the subcontractor will unintentionally raise costs for
the Medicaid program. We believe this information will help to inform
the State's decision-making relating to the administration of the
prescription drug benefit. It will also help the Medicaid managed care
plans have more accurate data to calculate their MLRs, as well as
ensure that States can accurately develop capitation rates. Finally, it
will help States and managed care plans ensure that PBMs specifically
are being appropriately compensated for their services by requiring
that the subcontractors report separately incurred claims for CODs and
administrative fees, costs, and expenses in sufficient detail and the
level of detail must be no less than the reporting requirements in
Sec. 438.8(k).
After consideration of public comments on this provision, we are
finalizing Sec. 438.3(s) with some changes to the proposed regulatory
text. We will modify Sec. 438.3(s)(8) by: adding at the beginning of
paragraph (8) the phrase ``The MCO, PIHP, or PAHP'' to conform with the
other paragraphs in Sec. 438.3(s), inserting ``must'' to replace
``to'' for additional clarity, and inserting ``to the MCO, PIHP, or
PAHP'' for clarity on the entity that the subcontractor reports the
required information to. We also are adding Sec. 438.3(w) to include
an applicability date for the requirements of paragraphs (s)(7) and
(s)(8), which will be the first rating period for contracts with MCOs,
PIHPs, or PAHPs beginning on or after 1 year following November 19,
2024.
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.\39\ 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 5 includes the savings which are CBO estimates from when the
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 in the
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.
---------------------------------------------------------------------------
\39\ https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.
---------------------------------------------------------------------------
We did not receive public comments on the estimates related to this
Regulatory Impact Analysis provision and are finalizing as proposed.
o. Payment of Claims
At this time, there is no need to determine cost estimates for this
item. The 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 the 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.
We received 2 public comments on these proposals. The following is
a summary of the comments we received and our responses.
Comment: A couple of commenters stated they were in support of our
proposal to correct omissions in regulatory language to align with
statutory language, ensuring Medicaid remains the payer of last resort
while also permitting States to pay claims sooner than the specified
waiting periods when doing so is cost-effective and necessary to ensure
access to care.
Response: We appreciate the support for this proposal.
After consideration of public comments, we are finalizing this
provision as proposed.
p. Requests for Information on Requiring a Diagnosis on Medicaid
Prescriptions
This provision was a request for information only. We sought
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.
We received many public comments on these proposals. The following
is a summary of the comments we received and our response.
Comment: A few commenters provided general support for the
requirement of diagnoses on prescriptions; however, the majority of
commenters stated their opposition to requiring diagnoses on
prescriptions. These arguments focused mostly on administrative burden,
potential
[[Page 79077]]
information technology (IT) issues with delays in care, significant
system alterations, stigma, and other complications. Several commenters
stated that because of the technical and operational challenges of
including a diagnosis on a prescription, it could also lead to
manufacturers initiating unnecessary disputes. Furthermore, many
commenters opposed the requirement of diagnoses on prescriptions due to
possible impact on equitable access to care, including delays and
denials in care, added burden to patients, exacerbation of existing
barriers to care, and overall reduction in care access.
Response: We appreciate all the comments received for the request
for information on requiring a diagnosis on Medicaid prescriptions.
After careful review and consideration of the public comments
received, and due to the overwhelming number of comments that were
opposed to this requirement, we are not going to pursue this
requirement in rulemaking at this time. We will continue to review the
feedback we receive from interested parties and may address this
provision in future rulemaking if appropriate.
q. Proposal To Account for Stacking When Determining Best Price
We are opting not to finalize the proposed provision related to
stacking when determining the best price at this time to further
consider comments received and pursue collection of information through
a separate Paperwork Reduction Act (PRA) request to collect additional
information related to manufacturers' stacking methodologies.
r. Proposal Regarding Drug Price Verification Through Data Collection
We are opting not to finalize the proposed provision related to the
drug price verification survey at this time.
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 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, and the pharmacy, agent, or other AMP or best price
eligible entity does not receive any part of the manufacturer patient
assistance in the form of additional price concessions.
As part of the 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 is being eroded by
PBM copay accumulator programs because the patient assistance is
accumulating to the economic benefit of health plans, not to patients,
given that the health plans' spending on drugs for patients decreases
as a result of such programs. We also believed that, 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 make 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 requesting that
the court vacate these amendments to Sec. 447.505(c)(8) through (11)
(85 FR 87102 and 87103), as set forth in the 2020 final rule. On May
17, 2022, the United States District Court for the District of Columbia
ruled in favor of the plaintiff and ordered that the applicable
provisions of the 2020 final rule be vacated and set aside.
In response to the order issued by the United States District Court
for the District of Columbia to vacate the applicable provisions of the
2020 final rule, we proposed to withdraw the applicable changes made to
Sec. 447.505, and, for consistency, withdraw the corresponding
revisions to regulations addressing AMP made by the 2020 final rule. At
the time of the 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.
3. Regulatory Review Cost Estimation
If regulations impose administrative costs on private entities,
such as the time needed to read and interpret the 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 the proposed rule, we
assume that the total number of unique commenters is based on the
current 792 manufacturers participating in the MDRP. Nevertheless, we
estimated that the current 792 manufacturers would need to review the
proposed rule.
Furthermore, we anticipated 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 the proposed rule. Additionally, we estimated that 19 trade
organizations may review the proposed rule. The 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 the
proposed rule in detail, and it is also possible that some reviewers
will choose not to comment on the proposed rule. In addition, we
assumed 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 assumed that approximately 863 (792 manufacturers + 52 States + 19
trade associations) entities may review the proposed rule. For these
reasons, we believed that the number of commenters would be a fair
estimate of the number of reviewers who are directly impacted by the
proposed rule. We solicited comments on this assumption.
We also recognized that different types of entities are in many
cases affected by mutually exclusive sections of the proposed rule.
However, for the purposes of our estimate, we assumed that each
reviewer reads 100 percent of the proposed rule.
Using the May 2023 mean (average) wage information from the BLS for
medical and health service managers (Code 11-9111), we estimated that
the cost of reviewing the proposed rule is $129.28 per hour, including
fringe benefits and other indirect costs (https://www.bls.gov/oes/current/oes119111.htm). Assuming an average reading speed of 250 words
per minute, we estimated that it would take approximately 288 minutes
(4.8 hours) for the staff to read the rule, which is approximately
72,000 words. For each medical and health service manager (Code 11-
9111) that reviews the proposed rule, the estimated cost is (4.8 x
$129.28) or $620.54. In part, we estimated that the cost of reviewing
this final rule by medical and health service managers is $535,526.02
($620.54 x 863
[[Page 79078]]
reviewers). Additionally, there is also a lawyer who will review the
final rule. Using the May 2023 mean (average) wage information from the
BLS for lawyers (Code 23-1011), we estimated that the cost of reviewing
the final rule is $169.68 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 estimated
that it would take approximately 288 minutes (4.8 hours) for the staff
to review the final rule, which is approximately 72,000 words. For each
lawyer (Code 23-1011) that reviews the proposed rule, the estimated
cost is (4.8 x $169.68) or $814.46. In part, we estimated that the cost
of reviewing the rule by lawyers is $702,878.98 ($814.46 x 863
lawyers). In total, we estimated the one-time cost of reviewing the
rule is $1,238,405.00 ($535,526.02 + $702,878.98).
We acknowledged that these assumptions may understate or overstate
the costs of reviewing the rule.
We did not receive public comments on this Regulatory Impact
Analysis provision, and therefore, we are finalizing as proposed.
Table 4--Summary of the One-Time Quantitative Costs and Benefits
----------------------------------------------------------------------------------------------------------------
Line item Cost Entity Timeframe
----------------------------------------------------------------------------------------------------------------
Regulatory review................. $1,238,405.00 Manufacturers, One-time cost.
States, Trade
Association.
Define manufacturer internal 6,787.20 Manufacturers........ One-time cost.
investigation.
Establish a 12-Quarter Rebate (6,022,598.40) States and Federal One-time cost savings.
Audit Time Limitation. Government.
Drug Cost Transparency in Medicaid 648,036.00 Managed care plans One-time cost.
Managed Care Contracts. and their
subcontractors.
Drug Cost Transparency in Medicaid 91,920 States............... One-time cost.
Managed Care Contracts.
------------------
Total......................... (4,037,450.20)
----------------------------------------------------------------------------------------------------------------
Table 5--Summary of the Annual Quantitative Costs and Benefit
----------------------------------------------------------------------------------------------------------------
Line item Cost Entity Timeframe
----------------------------------------------------------------------------------------------------------------
Drug cost transparency in Medicaid ($929,000,000.00) Federal Government.... Over 10 years.
managed care contracts.
Removal of manufacturer rebate cap (14,211,000,000.00) Federal and State Over 10 years.
(100% of AMP). Governments.
-----------------------
Total........................... (15,140,000,000.00)
----------------------------------------------------------------------------------------------------------------
D. Alternatives Considered
Some provisions are directly linked to statute and therefore
alternatives cannot be considered. Nevertheless, alternatives which we
have considered are detailed in this section.
We proposed 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.
However, based on public comment, we are not finalizing this proposal
at this time.
We proposed to define vaccine to endeavor to prevent disputes with
manufacturers about what products are and are not vaccines for purposes
of the MDRP, given that there may be products coming to market for
which this definition might help provide clarity. However, we are not
finalizing this proposal at this time. We are continuing to review the
input provided by commenters on the proposed definition, which may be
used in future rule making on this topic.
We proposed 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 from States 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, this alternative would have allowed disputes to be
initiated on claims for any 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.
Additionally, we believe the more recent the claim corresponding with
the dispute, the easier it will be to resolve disputes, and this
provision will improve the accuracy and speed of dispute resolutions.
We did not receive public comment on this proposal, which relates
to our regulatory impact analysis, and we are finalizing this
provision.
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 6 showing the classification of the impact associated with the
provisions of this final rule.
Table 6--Accounting Statement: Classification of Estimated Costs/Savings
----------------------------------------------------------------------------------------------------------------
Units
--------------------------------------
Category Estimates Discount Period
Year dollar rate (%) covered
----------------------------------------------------------------------------------------------------------------
Costs/Savings:
Annualized Monetized ($million/year).................... ($0.54) 2021 7 2024-2034
(0.46) 2021 3 2024-2034
[[Page 79079]]
Costs/Savings:
Annualized Monetized ($million/year).................... (1,328.96) 2021 7 2024-2034
(1,433.53) 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 estimated 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 Manufacturing
industries. Note that the SBA does not provide any revenue data at this
time to measure the size of these industries.
According to the SBA's website at https://www.sba.gov/document/support-table-size-standards, the drug manufacturers referred to in the
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 that have less
than 1,250 employees annually for pharmaceutical preparation
manufacturing and biologic product (except diagnostic) manufacturing
industries. Table 7 presents the total number of small businesses in
each of the two industries mentioned.
Table 7--NAICS 32541 Pharmaceutical and Medicine Manufacturing Size Standards
----------------------------------------------------------------------------------------------------------------
SBA size standard/ small
NAICS (6-digit) Industry subsector description entity threshold Total small
(employees) businesses
----------------------------------------------------------------------------------------------------------------
325412................................. Pharmaceutical Preparation 1,250 2,722
Manufacturing.
325414................................. Biologic Product (except 1,250 587
Diagnostic).
----------------------------------------------------------------------------------------------------------------
Source: 2019 Economic Census.
Table 8--Concentration Ratios (NAICS 325412) Pharmaceutical Preparation
----------------------------------------------------------------------------------------------------------------
Employee per
Firm size (by number of employees) Firm count Percentage of Total firm to total
small firms (%) 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.
[[Page 79080]]
Table 9--Concentration Ratios (NAICS 325414) Biologic Product (Except Diagnostic) Manufacturing
----------------------------------------------------------------------------------------------------------------
Employee per
Firm size (by number of employees) Firm count Percentage of Total firm to total
small firms (%) 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
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 8 and 9, the economic impacts are
disproportionate for small firms. Tables 8 and 9 show the employees for
each of the size categories and the employee impact per small entity.
For example, in Table 8, 390 of the smallest firms employ only 0.68
percent of the employees in its industry; while, in Table 9, 71 of the
smallest firms employ only 0.65 percent of the employees in its
industry.
Therefore, as can be seen in Tables 8 and 9, almost all
Pharmaceutical and Medicine Manufactures are small entities as that
term is used in the RFA. Additionally, Tables 8 and 9 show the
disproportionate impacts among firms, and between small and large
firms. In Tables 8 and 9, 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
1,250 total employees in any 1 year.
At this time, revenue data are not currently available. However,
2012 revenue data from the U.S. Economic Census were 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 final rule will not have a significant impact (that
is, a 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 the proposed rule. Therefore, the Secretary has
certified that the 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 604 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 final rule will not
have a significant impact on small rural hospitals. We did not prepare
an analysis for section 1102(b) of the Act because we have determined,
and the Secretary has certified, that the final 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 2024, that
threshold is approximately $183 million.
This final rule imposes mandates that will result in anticipated
costs to State, local, and Tribal governments or the private sector,
but the transfer costs will be less than the threshold. States will
receive additional monetary rebates
[[Page 79081]]
from manufacturers brought into compliance with drug misclassification.
This final rule will 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 final rule will 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 $183 million in
any 1 year.
H. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a proposed rule (and subsequent final
rule) that imposes substantial direct requirement costs on State and
local governments, preempts State law, or otherwise has Federalism
implications. This final 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.
This final regulation is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress
and the Comptroller General for review.
Chiquita Brooks-LaSure, Administrator of the Centers for Medicare &
Medicaid Services, approved this document on September 9, 2024.
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 amends 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) and (w) to
read as follows:
Sec. 438.3 Standard contract requirements.
* * * * *
(s) * * *
(7) The MCO, PIHP, or PAHP must assign and exclusively use unique
Medicaid-specific Bank Identification Number (BIN) and Processor
Control Number (PCN) combination, and group number identifiers for all
Medicaid managed care enrollee identification cards for pharmacy
benefits.
(8) The MCO, PIHP, or PAHP that contracts with any subcontractor
for the delivery or administration of the covered outpatient drug
benefit must require the subcontractor to report separately to the MCO,
PIHP, or PAHP 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.
* * * * *
(w) Applicability date. Paragraphs (s)(7) and (8) of this section
apply to the first rating period for contracts with MCOs, PIHPs, and
PAHPs beginning on or after 1 year following November 19, 2024.
* * * * *
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
iii. Adding paragraph (4);
0
b. Adding the definitions of ``Drug product information'', ``Internal
investigation'' and ``Market date'' in alphabetical order; and;
0
c. In the definition of ``Noninnovator multiple source drug,'' revising
paragraph (3).
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
[[Page 79082]]
payment for that service and not as direct reimbursement for the drug,
as described in paragraph (4) of this definition).
* * * * *
(4) Direct reimbursement for a drug may include both:
(i) Reimbursement for a drug alone, or
(ii) Reimbursement for a drug plus the service, in a single
inclusive payment if:
(A) The drug, charge for the drug, and number of units of the drug
are separately identified on the claim, and;
(B) The inclusive payment includes an amount directly attributable
to the drug, and,
(C) The amount paid that is attributable to the drug is based on a
reimbursement methodology that is included in the applicable section of
the State plan.
* * * * *
Drug product information means 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 type (prescription,
over-the-counter), base date AMP, therapeutic equivalent code (TEC),
line extension indicator, 5i indicator, 5i route of administration (if
applicable), FDA approval date, FDA application number or OTC monograph
citation (if applicable), market date, and COD status.
* * * * *
Internal investigation means a manufacturer's investigation of its
AMP, 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 possible
fraud, abuse, or violation of law or regulation. A manufacturer must
make data available to CMS to support its finding.
* * * * *
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;
* * * * *
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) 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.
* * * * *
[[Page 79083]]
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. In such
case, the manufacturer must certify the applicable correction within 30
calendar days.
(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 79084]]
(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) and (i).
The revisions and additions 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) 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 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.
(i) 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
State invoice postmark date.
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. Section 447.520 is revised to read as follows:
Sec. 447.520 Federal Financial Participation (FFP): Conditions
relating to physician-administered drugs.
(a) Availability of FFP. No FFP is available for physician-
administered single source drugs or the multiple source drugs
identified under paragraph (c) of this section 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 in a manner consistent with the
requirements of this section. In the case of multiple source drugs not
identified under paragraph (c), a failure to comply with the
requirements of this section may result in FFP being withheld as
provided under 42 CFR 430.35.\40\
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\40\ https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-C/part-430.
---------------------------------------------------------------------------
(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 (copyright) 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.
(3) States are required to invoice for rebates consistent with this
section for multiple source physician-administered drugs that are CODs
and that are not on the top 20 multiple source physician-administered
drug list published under paragraph (c) of this section, or may be
subject to a withhold of FFP as provided under 42 CFR 430.35.\41\
---------------------------------------------------------------------------
\41\ Ibid.
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(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 that is a
physician-administered drug using NDC numbers. As of November 19, 2024,
a State must also comply with this requirement for a covered outpatient
drug that is a physician-administered drug described in paragraph
(a)(3) of this section.
(c) Top 20 multiple source physician-administered drug list. The
top 20 multiple source physician-administered drug list, identified by
the Secretary as
[[Page 79085]]
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.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2024-21254 Filed 9-20-24; 4:15 pm]
BILLING CODE 4120-01-P