Proposed Rule2023-10934
Medicaid Program; Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program
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Published
May 26, 2023
Issuing agencies
Health and Human Services DepartmentCenters for Medicare & Medicaid Services
Abstract
This proposed rule would seek to implement policies in the Medicaid Drug Rebate Program (MDRP) related to the new legislative requirements in the Medicaid Services Investment and Accountability Act of 2019 (MSIAA), which are needed to address drug misclassification, as well as drug pricing and product data misreporting by manufacturers. Additionally, we are proposing several other program integrity and program administration provisions or modifications in this proposed rule including revising and proposing key definitions used in the MDRP. This proposed rule also designates a time limitation on manufacturers initiating audits with States; clarifies and establishes requirements for State fee-for-service (FFS) pharmacy reimbursement; codifies conditions relating to States claiming FFP for physician-administered drugs (PADs); clarifies the requirement of accumulating price concessions when determining best price; designates drug price verification and transparency through data collection; and proposes two new contracting requirements between States and their Medicaid managed care plans. In addition, this rule includes a proposal unrelated to MDRP that would make revisions to the third-party liability regulation due to Bipartisan Budget Act (BBA) of 2018. Finally, we are proposing to rescind revisions made by the December 31, 2020 final rule "Medicaid Program; Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements" to the Determination of Best Price and Determination of Average Manufacturer Price (AMP) sections.
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[Federal Register Volume 88, Number 102 (Friday, May 26, 2023)]
[Proposed Rules]
[Pages 34238-34296]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10934]
[[Page 34237]]
Vol. 88
Friday,
No. 102
May 26, 2023
Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 433, 438, and 447
Medicaid Program; Misclassification of Drugs, Program Administration
and Program Integrity Updates Under the Medicaid Drug Rebate Program;
Proposed Rules
Federal Register / Vol. 88 , No. 102 / Friday, May 26, 2023 /
Proposed Rules
[[Page 34238]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 433, 438, and 447
[CMS-2434-P]
RIN 0938-AU28
Medicaid Program; Misclassification of Drugs, Program
Administration and Program Integrity Updates Under the Medicaid Drug
Rebate Program
AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).
ACTION: Proposed rule.
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SUMMARY: This proposed rule would seek to implement policies in the
Medicaid Drug Rebate Program (MDRP) related to the new legislative
requirements in the Medicaid Services Investment and Accountability Act
of 2019 (MSIAA), which are needed to address drug misclassification, as
well as drug pricing and product data misreporting by manufacturers.
Additionally, we are proposing several other program integrity and
program administration provisions or modifications in this proposed
rule including revising and proposing key definitions used in the MDRP.
This proposed rule also designates a time limitation on manufacturers
initiating audits with States; clarifies and establishes requirements
for State fee-for-service (FFS) pharmacy reimbursement; codifies
conditions relating to States claiming FFP for physician-administered
drugs (PADs); clarifies the requirement of accumulating price
concessions when determining best price; designates drug price
verification and transparency through data collection; and proposes two
new contracting requirements between States and their Medicaid managed
care plans. In addition, this rule includes a proposal unrelated to
MDRP that would make revisions to the third-party liability regulation
due to Bipartisan Budget Act (BBA) of 2018. Finally, we are proposing
to rescind revisions made by the December 31, 2020 final rule
``Medicaid Program; Establishing Minimum Standards in Medicaid State
Drug Utilization Review (DUR) and Supporting Value-Based Purchasing
(VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and
Third Party Liability (TPL) Requirements'' to the Determination of Best
Price and Determination of Average Manufacturer Price (AMP) sections.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, by July 25, 2023.
ADDRESSES: In commenting, please refer to file code CMS-2434-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-2434-P, P.O. Box: 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-2434-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Ruth Blatt, (410) 786-1767, for issues related to the definitions
of vaccine, noninnovator multiple-source drug, market date, and covered
outpatient drug (COD).
Ginger Boscas, (410) 786-3098, for issues related to third party
liability.
Michael Forman, (410) 786-2666, for issues related to physician-
administered drugs.
Whitney Swears (410) 786-6543, for issues related to time
limitation on audits, definition of vaccine, diagnosis on
prescriptions, professional dispensing fees, definition of a
manufacturer.
Christine Hinds, (410) 786-4578, for issues related to internal
investigation, removal of manufacturer rebate cap, drug cost
transparency in Medicaid managed care contracts, ``stacking'' when
determining best price, and drug price verification through data
collection.
Lisa Shochet, (410) 786-5445, for issues related to Beneficiary
Identification Number and Processor Control Number (BIN/PCN) and drug
misclassifications.
Terry Simananda, (410) 786-8144, for issues related to the
Collection of Information and Regulatory Impact Analysis sections.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the search instructions on that website to
view public comments. CMS will not post on <a href="http://Regulations.gov">Regulations.gov</a> public
comments that make threats to individuals or institutions or suggest
that the individual will take actions to harm the individual. CMS
continues to encourage individuals not to submit duplicative comments.
We will post acceptable comments from multiple unique commenters even
if the content is identical or nearly identical to other comments.
I. Background
A. Introduction
Under the Medicaid program, States may provide coverage of
prescribed drugs as an optional benefit under section 1905(a)(12) of
the Social Security Act (the Act). Section 1903(a) of the Act provides
for Federal Financial Participation (FFP) in State expenditures for
these drugs. In the case of a State that provides for medical
assistance for covered outpatient drugs (CODs), as provided under
section 1902(a)(54) of the Act, the State must comply with the
requirements of section 1927 of the Act. Section 1927 of the Act
governs the Medicaid Drug Rebate Program (MDRP) and payment for CODs,
which are defined in section 1927(k)(2) of the Act. In general, for
payment to be made available for CODs under section 1903(a) of the Act,
manufacturers must enter into a National Drug Rebate Agreement (NDRA)
as set forth in section 1927(a) of the Act. See also section
1903(i)(10) of the Act. The rebates paid by manufacturers to States
help to partially offset the Federal and State costs of most outpatient
prescription drugs dispensed to Medicaid beneficiaries. The MDRP
provides specific requirements for manufacturer rebate agreements, drug
pricing submission and confidentiality requirements, the formulas for
calculating rebate payments, drug utilization reviews (DUR), and
requirements for States for CODs.
With limited exceptions, if a manufacturer wants payment to be
[[Page 34239]]
available under Medicaid for their CODs, the manufacturer must
participate (have entered into and have in effect a rebate agreement)
in the MDRP, and agree to pay rebates for CODs dispensed and paid for
under the State Plan. The amount of the rebate is determined by a
formula set forth in section 1927(c) of the Act. Generally, the formula
to calculate the rebate that applies to a particular drug depends on
whether the drug is classified as (1) a single source drug (S drug) or
innovator multiple source drug (I drug) (commonly referred to as a
brand-name drug), or (2) other drugs, which include noninnovator
multiple source drugs (N drug), commonly referred to as generic drugs,
among others.
Consistent with section 1927(b)(3)(A) of the Act, a manufacturer
must report and certify certain drug product and drug pricing
information for CODs to CMS not later than 30 days after the last day
of each month and certain drug pricing information and drug product
data 30 days after the last day of each quarter of a rebate period. For
example, drug pricing information that manufacturers must submit and
certify includes average manufacturer price (AMP) and best price data
in addition to other information consistent with section 1927(b)(3)(A)
of the Act each quarter. We use the reported data to calculate an
accurate unit rebate amount (URA) for each covered outpatient drug to
assist States with billing manufacturers for rebates. Drug product
information that is reported includes the name of the drug, its
National Drug Code (NDC), drug category, and drug type, among other
items. However, manufacturers ultimately remain responsible for
accurately calculating the URA for their drug products. Manufacturers
pay rebates to States for each unit of the drug dispensed and paid for
under the State Plan on the basis of the URA.
Thus, the failure of a manufacturer to submit and certify timely
monthly and quarterly pricing and drug product data for a drug may
impede the States' ability to invoice and collect appropriate rebate
amounts. If a manufacturer fails to submit timely information, or
misreports information, we may be unable to establish accurate URAs due
to the misreporting or late reporting. While we provide URAs to the
States each quarter to help facilitate billing manufacturers for
rebates, it is ultimately the manufacturer's responsibility to assure
that accurate rebates are paid to States for their CODs.
One specific element of drug product information that is required
to be submitted by manufacturers includes drug category or drug
classification information. Generally, drugs classified as single
source or innovator multiple source pay higher rebates than those that
are classified as an ``other drug,'' such as noninnovator multiple
source drugs. In accordance with section 1927(c) of the Act and 42 CFR
447.509, the rebate calculation for a particular COD may also include
an additional inflationary component to account for increases in the
drug's Average Manufacturer's Price from the base date AMP quarter to
the current calendar quarter's AMP. That is, this additional rebate is
generally calculated based on the difference between the drug's current
quarter AMP and its base date AMP adjusted to the current period by the
Consumer Price Index for All Urban Consumers (CPI-U).
Prior to the enactment of the Medicaid Services Investment and
Accountability Act of April 2019 (MSIAA) (Pub. L. 116-16; enacted April
18, 2019), section 1927(k)(7)(A)(iv) of the Act defined a single source
drug as a covered outpatient drug which is produced or distributed
under an original new drug application. Section 1927(k)(7)(A)(ii) of
the Act similarly defined an innovator multiple source drug as a
multiple source drug that was originally marketed under an original new
drug application. A noninnovator multiple source drug was defined at
section 1927(k)(7)(A)(iii) of the Act as a multiple source drug that is
not an innovator multiple source drug.
Prior to the 2016 Medicaid Covered Outpatient Drug final rule with
comment period (COD final rule) (81 FR 5170), the regulatory
definitions of a single source and an innovator multiple source drug
largely mirrored the statute and defined a drug as a single source or
innovator multiple source drug based on whether it was produced,
distributed, or marketed under an ``original new drug application.''
The statute did not expressly define ``original NDA''. However, CMS'
longstanding interpretation of the term was that an original new drug
application (NDA) is an NDA approved under section 505(b)(1) or (2) of
the Federal Food, Drug, and Cosmetic Act (FFDCA), as distinguished from
one approved under an abbreviated NDA (ANDA) under section 505(j) of
the FFDCA (Manufacturer's Release 113).
We codified new regulatory definitions of single source and
innovator multiple source drugs in the COD final rule and added a
narrow exception for ``certain drugs [that] might be more appropriately
treated as if they were approved under an ANDA and classified as a
noninnovator multiple source drug'' (81 FR 5191). The COD final rule
also added a drug approved under a Biologics License Application (BLA)
to the definition of single source drug (81 FR 5203).
In the COD final rule, we also introduced a process by which drug
manufacturers could submit a request for a narrow exception to have us
recognize individual drugs approved under an NDA as noninnovator
multiple source drugs prospectively from the effective date of the COD
final rule. Instructions to manufacturers regarding this process were
included in Manufacturer Release #98, May 2, 2016 (<a href="https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-098.pdf">https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-098.pdf</a>).
The COD final rule did not, however, excuse manufacturers from their
obligation to correctly report drugs approved under an NDA as either
single source or innovator multiple source drugs prior to the effective
date of the COD final rule, which was April 1, 2016.
Yet, notwithstanding our interpretation of the statute, many
manufacturers have disregarded our reasonable interpretation of the
statute and have continued to misreport drugs marketed under an NDA as
noninnovator multiple source drugs for periods prior to April 1, 2016
(Manufacturer Release #113-<a href="https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf">https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf</a>).
B. Amendments Made by the Medicaid Services Investment and
Accountability Act of 2019 (MSIAA) to Section 1927 of the Act Regarding
MDRP Drug Classification Enforcement and Penalties
Section 6 of the MSIAA, titled ``Preventing the Misclassification
of Drugs Under the Medicaid Drug Rebate Program,'' amended sections
1903 and 1927 of the Act to specify the definitions for multiple source
drug, single source drug and innovator multiple source drug, and to
provide the Secretary with additional compliance, oversight and
enforcement authorities to ensure compliance with program requirements
with respect to manufacturers' reporting of drug product and pricing
information, which includes the appropriate classification of a drug.
Drug classification refers to how a drug should be classified--as a
single source, innovator multiple source, or noninnovator multiple
source drug for the purposes of determining the correct rebates that a
manufacturer owes
[[Page 34240]]
the States.\1\ In general, a misclassification in the MDRP occurs when
a manufacturer reports and certifies its covered outpatient drug under
a drug category that is not supported by the statutory and regulatory
definitions of S, I, or N. A drug that is misclassified is likely
paying different rebates to States than those supported by statute and
regulation.
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\1\ Section 1927(c)(3) of the Act describes rebates for ``other
drugs'' and section 1927(c)(3)(A) of the Act, more specifically
describes rebates for covered outpatient drugs ``other than single
source drugs and innovator multiple source drugs.'' The MDRP
reporting system provides for all ``other drugs'' that are covered
outpatient drugs to be classified in the system as N drugs,
regardless of whether they expressly meet the definition of
noninnovator multiple source drug. This reporting methodology has
been in effect for the history of the program and interested parties
have understood that a covered outpatient drug that was not an S or
an I drug is reported in the system as an N drug. In a later section
of this proposed rule, we are proposing changes to the regulatory
definition of a N drug to more clearly align with the statutory
definition of N drug. This is a technical change and is not intended
to modify any reporting requirements.
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We published guidance to manufacturers regarding compliance with
drug pricing and drug product information reporting under this new law
in Manufacturer Release #113 on June 5, 2020. See <a href="https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf">https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf</a>. Here,
although much of this law is self-implementing, we are proposing a
series of regulatory amendments at Sec. Sec. 447.509 and 447.510 to
implement and codify the statutory changes in regulation. We propose
that a misclassification of a drug under the MDRP has occurred or is
occurring when a manufacturer reports and certifies to the agency a
drug category or drug product information relating to that COD that is
not supported by the statutory and regulatory definitions of S, I, or
N. We also define a misclassification as a situation in which a
manufacturer is correctly reporting its drug category or drug product
information for a COD, but is paying a different rebate amount to the
States than is supported by the classification.
The MSIAA also amended the Act to expressly require a manufacturer
to report not later than 30 days after the last day of each month of a
rebate period under the agreement, such drug product information as the
Secretary shall require for each of the manufacturer's covered
outpatient drugs. We are proposing a definition of ``drug product
information'' for the purposes of the MDRP.
Similarly, the MSIAA amended the Act to specify that the reporting
of false drug product information and data related to false drug
product information would also be subject to possible civil monetary
penalties (CMPs) by the HHS Office of the Inspector General (OIG), and
to provide specific new authority to the Secretary to issue civil
monetary penalties related to knowing misclassifications of drug
product or misreported information. These new OIG authorities will not
be the subject of this rulemaking.
Under the MSIAA, if a manufacturer fails to correct the
misclassification of a drug in a timely manner after receiving
notification from the agency that the drug is misclassified, in
addition to the manufacturer having to pay past unpaid rebates to the
States for the misclassified drug if applicable, the Secretary can take
any or all of the following actions: (1) correct the misclassification,
using drug product information provided by the manufacturer on behalf
of the manufacturer; (2) suspend the misclassified drug, and the drug's
status as a covered outpatient drug under the manufacturer's national
rebate agreement, and exclude the misclassified drug from FFP
(correlating amendments to section 1903 of the Act); and, (3) impose
CMPs for each rebate period during which the drug is misclassified
subject to certain limitations. The Act expressly provides that the
imposition of such penalties may be in addition to other remedies, such
as termination from the MDRP, or CMPs under Title XI.
The manufacturer has an affirmative legal obligation to correctly
report all necessary drug product and pricing information to the agency
on a timely basis as described in the statute and regulations. When
issues or questions regarding a drug's classification arise, we
generally rely upon various sources of information to be able to
determine if a drug is misclassified in MDRP. In its oversight role,
the agency will use information reported by manufacturers to us, in
combination with publicly available information, to be able to make
determinations of whether a drug is misclassified in the MDRP. The
agency also uses manufacturer reported information, such as the COD
status code, in combination with information available on the Food and
Drug Administration's (FDA's) Comprehensive NDC Structured Product
Labeling (SPL) Data Elements file (NSDE) <a href="https://download.open.fda.gov/Comprehensive_NDC_SPL_Data_Elements_File.zip">https://download.open.fda.gov/Comprehensive_NDC_SPL_Data_Elements_File.zip</a>, and information from
FDA's drugs@fda web page <a href="https://www.accessdata.fda.gov/scripts/cder/daf/">https://www.accessdata.fda.gov/scripts/cder/daf/</a> to be able to verify that the national drug codes (NDCs) reported
to the MDRP by manufacturers are appropriately classified and reported.
Codifying these statutory amendments in our regulations provides an
opportunity for the agency to give additional clarity to and guidance
on the new legal authorities for ensuring oversight of, compliance
with, and enforcement of the provisions of the MDRP, and ultimately, to
ensure that Federal and State programs are receiving appropriate
rebates and that CMS continues to be a stringent steward of the
Medicaid program.
Table 1--History of the Changes in the Definition of Single Source Drug
and Innovator Multiple Source Drug
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Statute Regulation
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Prior to April 18, 2019 Single Source drug
MSIIA enactment. Section
1927(k)(7)(A)(iv)
of the Act.
A covered outpatient
drug which is
produced or
distributed under
an original new
drug application
approved by the
Food and Drug
Administration
(FDA), including a
drug product
marketed by any
cross-licensed
producers or
distributors
operating under the
new drug
application.
[[Page 34241]]
Innovator Multiple
Source Drug
Section
1927(k)(7)(A)(ii)
of the Act.
A multiple source
drug that was
originally marketed
under an original
new drug
application
approved by the
Food and Drug
Administration.
2007 Final Rule............. .................... Sec. 447.502
Single source drug
A covered outpatient
drug that is
produced or
distributed under
an original new
drug application
(NDA) approved by
the FDA, including
a drug product
marketed by any
cross-licensed
producers or
distributors
operating under the
NDA. It also
includes a covered
outpatient drug
approved under a
biological license
application (BLA),
product license
approval (PLA),
establishment
license approval
(ELA) or antibiotic
drug approval (ADA)
PLA, ELA, or ADA.
Innovator Multiple
Source Drug
A multiple source
drug that was
originally marketed
under an original
NDA approved by the
FDA, including an
authorized generic
drug. It includes a
drug product
marketed by any
cross-licensed
producers,
labelers, or
distributors
operating under the
NDA and a covered
outpatient drug
approved under a
PLA, ELA, or ADA.
2016 Final Rule............. .................... The term ``single
source drug'' means
a covered
outpatient drug
that is produced or
distributed under
an original NDA
approved by FDA and
has an approved NDA
number issued by
FDA, including a
drug product
marketed by any
cross licensed
producers or
distributors
operating under the
NDA. It also
includes a covered
outpatient drug
approved under a
BLA, PLA, ELA, or
ADA. For purposes
of this definition
and the MDR
program, an
original NDA means
an NDA, other than
an ANDA, approved
by the FDA for
marketing, unless
CMS determines that
a narrow exception
applies.
The term ``innovator
multiple source
drug'' means a
multiple source
drug that was
originally marketed
under an original
NDA approved by
FDA, including an
authorized generic
drug. It also
includes a drug
product marketed by
any cross-licensed
producers,
labelers, or
distributors
operating under the
NDA and a covered
outpatient drug
approved under a
BLA, ELA, or ADA.
For purposes of
this definition and
the Medicaid drug
rebates (MDR)
program, an
original NDA means
an NDA, other than
an Abbreviated New
Drug Application
(ANDA), approved by
the FDA for
marketing, unless
CMS determines that
a narrow exception
applies.
MSIAA enactment on April 18, Single Source drug
2019. Section
1927(k)(7)(A)(iv)
of the Act.
The term ``single
source drug'' means
a covered
outpatient drug,
including a drug
product approved
for marketing as a
non-prescription
drug that is
regarded as a
covered outpatient
drug under
paragraph (4),
which is produced
or distributed
under a new drug
application
approved by the
Food and Drug
Administration,
including a drug
product marketed by
any cross-licensed
producers or
distributors
operating under the
new drug
application unless
the Secretary
determines that a
narrow exception
applies (as
described in 42 CFR
447.502 (or any
successor
regulation)). Such
term also includes
a covered
outpatient drug
that is a
biological product
licensed, produced,
or distributed
under a biologics
license application
approved by the
Food and Drug
Administration.
[[Page 34242]]
Innovator Multiple
Source Drug
Section
1927(k)(7)(A)(ii)
of the Act.
The term ``innovator
multiple source
drug'' means a
multiple source
drug that is
marketed under a
new drug
application
approved by the
FDA, unless the
Secretary
determines that a
narrow exception
applies (as
described in 42 CFR
447.502 (or any
successor
regulation)).
2020 Final Rule............. .................... The term ``single
source drug'' means
a covered
outpatient drug,
including a drug
product approved
for marketing as a
non-prescription
drug that is
regarded as a
covered outpatient
drug under section
1927(k)(4) of the
Act, which is
produced or
distributed under a
new drug
application
[removing
`original']
approved by the
FDA, including a
drug product
marketed by any
cross-licensed
producers or
distributors
operating under the
new drug
application unless
the Secretary
determines that a
narrow exception
applies (as
described in this
section), and
includes a covered
outpatient drug
that is a
biological product
licensed, produced,
or distributed
under a biologics
license application
approved by the
FDA.
The term ``innovator
multiple source
drug'' means a
multiple source
drug that is
marketed [removing
`was originally
marketed'] under a
new drug
application
[removing
`original']
approved by the
Food and Drug
Administration,
unless the
Secretary
determines that a
narrow exception
applies (as
described in 42 CFR
447.502 (or any
successor
regulation)).
------------------------------------------------------------------------
C. MDRP Program Administration Proposed Changes
We are focused on increasing efficiency and economy of directing
overall operations, resources, and activities of MDRP to better
facilitate the needs of Medicaid beneficiaries. In that regard, we are
proposing a number of new regulatory policies and clarification of
existing policies.
Specifically, consistent with our statutory authorities, we are
proposing to define, specify or amend the definitions for COD, internal
investigation (for restatement purposes outside the 3-year time
window), manufacturer (for NDRA purposes), market date, noninnovator
multiple source drug, drug product information, and vaccine for the
purpose of MDRP. We are also proposing to specify that the rebate
provisions for a drug other than a single source drug or an innovator
multiple source drug apply to an array of drugs, including those that
may not satisfy the definition of multiple source drug. As noted above,
based on longstanding operational processes, such drugs are properly
classified as N drugs in the MDP reporting system.
Next, we are also proposing new policies, including to add a time
limitation on manufacturer ability to initiate audits with States, to
further clarify and establish the requirements for FFS pharmacy
reimbursement, and to clarify the required collection of all National
Drug Codes (NDC) for single and multiple source physician-administered
drugs to receive FFP and secure manufacturer rebates.
We also propose to revise Medicaid managed care standard contract
requirements to adopt a requirement for inclusion of Beneficiary
Identification Number and Processor Control Number (BIN/PCN) numbers on
Medicaid prescription identification cards, as well as enhance drug
cost transparency by adopting specific requirements relating to the
third-party administration of the pharmacy benefit.
These proposed revisions are designed to improve CMS oversight, and
State administration of Medicaid pharmacy benefits by promoting greater
consistency and accuracy of reporting, strengthened data, and robust
stewardship of State and Federal funds. These proposals would help to
strengthen and preserve the foundation of the MDRP by ensuring proper
payments so Federal expenditures are spent appropriately on delivering
quality, necessary care, while also ensuring sufficient access to care
for Medicaid beneficiaries.
1. Proposal To Modify the Definition of Covered Outpatient Drug
Sections 1927(k)(2) and (3) of the Act provide a definition of the
term ``covered outpatient drug'' (COD) and a limiting definition, which
excludes certain drugs, biological products, and insulin provided as
part of, or as incident to and in the same setting as, enumerated
services and settings. This exclusion is subject to a parenthetical,
however, which limits the exclusion to when payment may be made as part
of payment for the enumerated service or setting, and not as direct
reimbursement for the drug. In the COD final rule, we finalized a
regulatory definition of covered outpatient drug in Sec. 447.502 that
substantially mirrors the statutory definition, and consistent with
section 1927(k)(3) of the Act, the regulatory language includes a
limiting clause at Sec. 447.502 (covered outpatient drug) that
excludes from the definition of COD any drug, biological product, or
insulin provided as part of or incident to and in the same setting in a
list of services, and for which payment may be made as part of that
service instead of as a direct reimbursement for the drug.
Over the years we have received questions about when a payment is
considered to be a direct reimbursement for a drug and whether
identifying a
[[Page 34243]]
drug separately on a claim for payment may qualify as direct
reimbursement for a drug, rendering the drug eligible for rebates under
section 1927 of the Act, or in other words, making the limiting
definition inapplicable. To provide greater clarity, we propose to
amend the regulatory definition of the term covered outpatient drug at
Sec. 447.502 to clarify when a payment is considered direct
reimbursement for the drug.
Additionally, we propose to more closely align the regulatory
language to the statute by changing ``. . . instead of as a direct
reimbursement . . .'' to ``. . . and not as direct reimbursement . .
.''
2. Proposed Definition of an Internal Investigation for Purposes of
Pricing Metric Revisions
In accordance with section 1927(b)(3) of the Act, Sec. 447.510 of
the applicable regulations, and the terms of the NDRA, manufacturers
are required to report certain pricing and drug product information to
CMS on a timely basis or could incur penalties or other compliance and
enforcement measures. As explained in the ``Medicaid Program; Time
Limitation on Price Recalculations and Recordkeeping Requirements Under
the Drug Rebate Program'' final rule (final time limitation rule) (68
FR 51912, August 29, 2003), in an effort to improve the administration
and efficiency of the MDRP and assist States and manufacturers that
would otherwise be required to retain drug utilization pricing data
records indefinitely, we established the 12-quarter time frame for
reporting revisions to AMP or best price information.
Despite the 12-quarter time frame, we continued to receive requests
from manufacturers to make revisions to their pricing data that fall
outside of the 12-quarter period. Consequently, in the COD final rule
(81 FR 5278) we established Sec. 447.510(b)(1), which provides that a
manufacturer must report to CMS any revision to AMP, best price,
customary prompt pay discounts or nominal prices (pricing data) for a
period not to exceed 12 quarters from the quarter in which the data
were due unless one of a number of enumerated exceptions applies. See
Sec. 447.510(b)(1)(i) through (vi).
Section 447.510(b)(1)(v) provides an exception to the 12-quarter
price reporting rule if the change is to address specific rebate
adjustments to States by manufacturers, as required by CMS or court
order, or under an internal investigation, or an OIG or Department of
Justice (DOJ) investigation. However, as part of that rule, we did not
define the term internal investigation which has led to different
interpretations of the nature of an internal investigation. Therefore,
we propose to add a definition of internal investigation at Sec.
447.502 and additional clarity around the 12-quarter rule at Sec.
447.510.
3. Proposal To Modify the Definition of Manufacturer for National Drug
Rebate Agreement (NDRA) Compliance Purposes
At times, we receive requests from manufacturers to allow them to
exclude a particular labeler that they may own or have a business
affiliation with from participation in the MDRP, even though the
labeler markets products that meet the definition of covered outpatient
drug. It is our view that the statute requires that all labelers of a
manufacturer that market CODs be required to participate in the MDRP to
meet the statutory requirement that FFP is only available for a
manufacturer's drugs if they participate in the program. That is, all
the labelers of the manufacturer have to be in the program, or none of
the labelers can be in the program.
We are proposing to further refine the definition manufacturer at
Sec. 447.502 to codify the requirements under section 1927(a)(1) of
the Act which specifies that a manufacturer has to have entered into
and have in effect a rebate agreement with the Secretary in order for
payment to be available for their CODs under Medicaid. We are also
proposing to codify in regulation that all labelers (with their
applicable codes) that are associated or affiliated with a manufacturer
must have a rebate agreement in effect in order for the manufacturer to
satisfy the statutory requirement that the manufacturer have a rebate
agreement in effect with the Secretary.
Additionally, we are also proposing a new paragraph (h) in Sec.
447.510 to further specify the responsibilities of a manufacturer with
respect to rebate agreements when that manufacturer acquires or
purchases another labeler, acquires or purchases covered outpatient
drugs from another labeler, or forms a new subsidiary or associated
entity to ensure that any of a manufacturer's labeler codes that market
CODs are included in the MDRP. We also specify that termination of one
of the manufacturer's labelers from the program results in all labelers
of that manufacturer being terminated from the program whether
initiated by the manufacturer or the government. If the manufacturer is
terminated for noncompliance, they can come back into the program under
certain conditions, including resolving all compliance issues. However,
the one-quarter delay in program re-entry provided for in section
1927(b)(4)(C) of the Act still applies unless good cause is found.
4. Proposal To Establish a Definition of Market Date for a COD for the
Purposes of Determining a Base Date AMP for a COD
Section 1927 of the Act governs the MDRP and payment for CODs which
are defined in section 1927(k)(2) of the Act. Manufacturers that
participate in the MDRP are required to pay rebates for CODs that are
dispensed and paid for under the State Medicaid plan. See section
1927(b)(1)(A) of the Act.
The rebates due by manufacturers are calculated based on statutory
formulas described in section 1927(c) of the Act and consist of a basic
rebate and, in some cases, an additional rebate that is applicable when
an increase in the AMP, with respect to each dosage form and strength
of a drug, exceeds the rate of inflation. One of the factors in the
calculation of the additional rebate is the base date AMP of the drug,
a value that is determined based on the market date of the drug.
Manufacturers are required to report the market date of each dosage
form and strength of a COD for all of its CODs.
We have received numerous inquiries regarding the determination of
market date for reporting to MDRP, and some manufacturers have reported
incorrect market dates for their CODs. Because the term market date has
not been previously defined in regulation and it is a critical factor
in the determination of base date AMP, and ultimately, the calculation
of applicable rebates, we are proposing to define the term market date
at Sec. 447.502 for the purpose of the MDRP.
5. Proposal To Modify the Definition of Noninnovator Multiple Source
Drug
As discussed previously in this proposed rule, section 6(c) of the
MSIAA included a number of amendments to statutory definitions in
section 1927 of the Act. Generally, those statutory amendments were
discussed in the ``Medicaid Program; Establishing Minimum Standards in
Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based
Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug
Rebate and Third Party Liability (TPL) Requirements'' final rule
published in the December 31, 2020 Federal Register (the December 31,
2020 final rule) (see 85 FR 87000, 87032), where the regulatory
definitions of multiple source drug, innovator multiple source (I)
drug, and single source drug were amended
[[Page 34244]]
consistent with the MSIAA. One of the amendments to the regulatory
definitions was to remove the phrase ``was originally marketed'' from
the definition of an I drug and replace it with ``is marketed.''
The change in the statutory and regulatory definitions of an I drug
should have prompted us to also change the regulatory definition of
noninnovator multiple source (N) drug, however we neglected to do so in
the December 31, 2020 final rule. We are now proposing to amend the
definition of an N drug at Sec. 447.502 to maintain the clear
distinction between an I drug and an N drug.
6. Proposal To Define Vaccine for the Purposes of the MDRP Only
Section 1927(k)(2)(B) of the Act specifically excludes vaccines
from the definition of COD for purposes of the MDRP. This exclusion is
codified in paragraph (1)(iv) of the regulatory definition of COD at
Sec. 447.502. Section 1927 of the Act, specifically, does not define
vaccine. Nor is there a definition of vaccine in Title XI, XVIII, XIX,
or XXI of the Act (applicable to Medicare, Medicaid, and Children's
Health Insurance Program (CHIP)), that speaks to the specific kinds of
biological products that qualify as vaccines, in terms of their actions
in the human body and how and when they are used.\2\ Moreover, we are
not aware that any authorizing statutes for any other Department of
Health and Human Services agencies include such a statutory definition
of the term ``vaccine.''
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\2\ While section 1928(h) of the Act defines ``pediatric
vaccine'' and ``qualified pediatric vaccine,'' those definitions do
not speak to the actions of a vaccine in the human body and how and
when it is used, and therefore do not help CMS determine when a
product should count as a vaccine (as opposed to a drug) for
purposes of the Medicaid Drug Rebate Program.
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To date, we have not established a regulatory definition of the
term vaccine as used in section 1927(k)(2)(B) of the Act for the
specific purposes of the MDRP. However, given therapeutic advances that
have occurred since 1990, when the original rebate statute was enacted,
we believe that a regulatory definition is necessary to identify which
products are considered vaccines for the purposes of the MDRP and thus,
appropriately excluded from the definition of COD. We are therefore
proposing a definition of vaccine at Sec. 447.502 for the purpose of
identifying products that do not satisfy the definition of COD and are
therefore not subject to possible required coverage under the
prescribed drugs benefit consistent with section 1927 of the Act, and
applicable rebate liability under the MDRP. The regulatory definition
of vaccine that is proposed to be added to Sec. 447.502 would be
established solely for the purposes of the MDRP, and be applicable only
to that program. It would not apply under any title XIX statutory
provisions other than section 1927(k)(2), or to separate CHIPs
operating pursuant to 42 CFR 457.70(a)(1) and (d), or for purposes of
the Vaccines for Children Program. Nor would it apply to any other
programs within CMS or any other agencies within the Department of
Health and Human Services, (for example, FDA, Centers for Disease
Control and Prevention (CDC), or Health Resources and Services
Administration (HRSA)). We note that these proposed changes would only
specify which products are vaccines and are therefore excluded from the
definition of a covered outpatient drug and are not subject to Medicaid
drug rebates. This proposed policy would not apply with regard to any
applicable Federal or State requirements to cover vaccines for Medicaid
beneficiaries, as applicable.
7. Proposal To Accumulate Price Concessions and Discounts
(``Stacking'') When Determining Best Price
Section 1927(c)(1)(C) of the Act defines the term ``best price'' to
mean with respect to a single source drug or innovator multiple source
drug of a manufacturer (including the lowest price available to any
entity for any such drug of a manufacturer that is sold under a new
drug application approved under section 505(c) of the Federal Food,
Drug, and Cosmetic Act), the lowest price available from the
manufacturer during the rebate period to any wholesaler, retailer,
provider, health maintenance organization, nonprofit entity, or
governmental entity within the United States, subject to certain
exceptions and special rules.
The implementing regulations for the determination of best price
are found at Sec. 447.505, and we propose to revise Sec.
447.505(d)(3) to add language to make clearer that the manufacturer
must adjust the best price for a drug for a rebate period if cumulative
discounts, rebates, or other arrangements to best price eligible
entities subsequently adjust the prices available from the
manufacturer, and that those discounts, rebates, or other arrangements
must be stacked for a single transaction to determine a final price
realized by the manufacturer for a drug. In other words, we are
proposing to make clearer that manufacturers have to stack all
applicable discounts that they offer on a single sale of a covered
outpatient drug, including discounts or rebates provided to more than
one best price eligible entity.
8. Proposal To Establish a Time Limitation for Audits Over Utilization
Data With States: 12-Quarter Rebate Dispute Time Limitation
Currently, there is no time limit for a manufacturer to initiate an
audit or resolve previously disputed State utilization data with
respect to rebates owed, and section 1927 of the Act does not impose a
specific timeframe on a manufacturer's audit authority. As a result,
any dispute of State invoices arising from audits, reviews, or hearings
of State information on State utilization data is not limited to
current quarter rebate invoices, but may also be initiated for prior
quarterly rebate invoices that have been previously paid in full. We
are proposing to limit the time period for manufacturers to initiate
disputes, hearing requests and audits of State-invoiced utilization
data to 12 quarters from the last day of the quarter from the date of
State invoice to the manufacturer. We propose to include a new
paragraph (j), titled ``Manufacturer audits of State-provided
information,'' at Sec. 447.510, to limit the time a manufacturer has
to initiate a dispute, hearing request or audit of State-invoiced
utilization data with a State, to ensure more efficient administration
of the Medicaid Drug Rebate Programs.
9. Proposal Regarding Drug Price Verification and Transparency Through
Data Collection
Since the beginning of the MDRP in 1991, the Secretary has had the
authority, under section 1927(b)(3)(B) of the Act, to survey
wholesalers and manufacturers that directly distribute their covered
outpatient drugs, when necessary, to verify manufacturer prices that
are reported under section 1927(b)(3)(A) of the Act, if required to
make a payment. The prices that are subject to this survey include a
manufacturer's AMP, best price, Average Sales Price (ASP), and in
certain cases, Wholesale Acquisition Cost (WAC) for a drug. (Note that
in 2003, Congress amended section 1927(b)(3)(B) of the Act in the
Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of
2003 (Pub. L. 108-173, enacted December 8, 2003), to expand the
original survey authority to include manufacturer's average sales
prices (including wholesale acquisition cost or WAC).) These prices
that are reported to the agency under section 1927(b)(3)(A) of the Act
are used by various CMS programs, such as
[[Page 34245]]
Medicare Part B and State Medicaid agencies, to pay for drugs for
beneficiaries, as well as calculate rebates paid by manufacturers to
States under MDRP. Thus, there is a direct connection between the
prices reported to us and the payments made by Medicaid.
The types of drugs paid for by Medicaid, manufacturers' pricing
structures for these drugs, as well as the methods used by
manufacturers to distribute these drugs, have evolved since the
enactment of the MDRP, as well as the enactment of the MMA. New highly
individualized gene and cell therapy drug treatments have resulted in
manufacturer launch prices that have increased dramatically, impacting
the manufacturers' prices reported to CMS. In addition, manufacturers
and health plans now own pharmacy benefit managers (PBMs), and
manufacturers are more frequently limiting the distribution of drugs
through specialty pharmacies, some of which are owned by the PBMs
themselves.
All of these factors impact how manufacturers set drug pricing,
and, given that these prices are used to set payment rates, it affects
the payments that State Medicaid programs make for these drugs. For
example, State Medicaid programs use the ASP values reported by
manufacturers to make payment for many physician-administered drugs. A
product's WAC has generally tracked its acquisition cost to providers
for brand name drugs, and this WAC value is used by payers to reimburse
them for the drug cost component of providing the drug. AMP is used to
calculate Federal Upper Limits (FULs) for multiple source drugs.
While the model of distribution from manufacturer to wholesaler to
provider still exists, and the predominant provider of pharmacy
services remains the community-based pharmacy, there are other
arrangements emerging for the production and distribution of specialty
and high-cost gene therapy drugs, and pricing structures for these
drugs that were not necessarily existing in the market when the MDRP
was enacted.
Section 1902(a)(30)(A) of the Act requires that Medicaid payments
be consistent with economy, efficiency, and quality of care to enlist
enough providers so that care and services are available under the plan
to Medicaid beneficiaries at least to the extent that such care and
services are available to the general population in the geographic
area. It is important that the Medicaid program understand the
production and distribution method for these drugs, as well as the
impact on prices and charges, to assure beneficiary access to these
medications. Therefore, using the authority at section 1927(b)(3)(B) of
the Act, which grants the Secretary the ability to survey wholesalers
and manufacturers to obtain information about manufacturer's prices for
a drug reported to us under section 1927(b)(3)(A) of the Act, we are
proposing rules to describe those situations when it is necessary for
surveys to be sent to manufacturers and wholesalers to verify prices
and charges, and the information that would be requested, to verify
prices or charges such that payments can be made.
10. Proposal To Clarify and Establish Requirements for FFS Pharmacy
Reimbursement
In the COD final rule, we finalized regulations to move FFS
pharmacy reimbursement to an actual acquisition cost-based
reimbursement, under which pharmacists would be paid for the ingredient
costs of the drug that was dispensed, and a professional dispensing fee
(PDF) that reflected their costs of dispensing. Since that time, almost
every State has made the appropriate transition, and the updated
pharmacy reimbursement methodology is accurately reflected in approved
amendments to their State Plans. Nonetheless, we are proposing to
revise Sec. 447.518, ``State plan requirements, findings, and
assurances,'' in paragraph (d)(1) to ensure that pharmacy providers are
reimbursed adequately for both their pharmacy ingredient costs and
professional dispensing services costs consistent with the applicable
statutory and regulatory requirements.
This regulation currently indicates that States are required to
provide adequate data to support any proposed changes to either
component of the reimbursement methodology (ingredient cost or PDF),
such as a State or national survey of retail pharmacy providers or
other reliable data other than a survey. We are proposing to provide
clarity regarding adequate data so that payments are consistent with
efficiency, economy, and quality of care and are sufficient to enlist
enough providers so that care and services are available at least to
the extent that such care and services are available to the general
population in the geographic area, by expressly providing in regulation
that the research and data must be based on costs and be sufficient to
establish the adequacy of the pharmacy reimbursement methodology under
the State Plan. In addition, we are proposing to state in regulatory
text that other data, such as reimbursements that pharmacies accept
from third parties, are not cost-based data, and therefore, cannot be
used by States to justify PDFs.
11. Proposals Implementing Section 1927(a)(7) of the Act and Federal
Financial Participation (FFP): Conditions Relating to Physician-
Administered Drugs
Generally, physician-administered drugs may satisfy the definition
of a covered outpatient drugs (COD) under section 1927(k)(2) of the
Act, subject to the limiting definition at section 1927(k)(3) of the
Act. Prior to the Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171,
enacted February 8, 2006), States did not collect rebates on all
physician-administered drugs when they were not identified by NDC
number, because the NDC number is necessary for States to invoice
manufacturers for rebates.
Section 6002 of the DRA added sections 1903(i)(10)(C) and
1927(a)(7) to the Act to require the States to collect and submit
certain utilization data on certain physician-administered drugs in
order for FFP to be available for these drugs, and for States to secure
rebates. More specifically, in accordance with section 1927(a)(7) of
the Act, titled ``Requirement For Submission Of Utilization Data For
Certain Physician-Administered Drugs'', States are required to provide
for the collection and submission of utilization data and coding (such
as J-codes \3\ and NDC numbers) for a covered outpatient drug that is a
single source or a multiple source drug that is a top 20 high dollar
volume physician-administered drug on a published list (based on
highest dollar volume dispensed under Medicaid identified by the
Secretary) that the Secretary may specify in order for payment to be
available under section 1903 of the Act and for States to secure
applicable Medicaid rebates.\4\ This list may be modified year to year
to reflect changes in such volume.
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\3\ J codes are a subset of the Healthcare Common Procedure
Coding System (HCPCS) Level II code set used to primarily identify
injectable drugs.
\4\ <a href="https://www.govinfo.gov/content/pkg/CFR-2007-title42-vol4/pdf/CFR-2007-title42-vol4-sec447-520.pdf">https://www.govinfo.gov/content/pkg/CFR-2007-title42-vol4/pdf/CFR-2007-title42-vol4-sec447-520.pdf</a>.
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Regulations at Sec. 447.520 were established to implement these
statutory provisions in the final rule entitled ``Medicaid Program;
Prescription Drugs'' (72 FR 39142, 39162) (hereinafter referred to as
the July 17, 2007 final rule), specifying the conditions for FFP for
physician-administered drugs.\5\
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\5\ Ibid.
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We are proposing to amend Sec. 447.520 to require States to
collect NDC information on all covered outpatient single and multiple
source physician-
[[Page 34246]]
administered drugs and to specify that States should be invoicing for
rebates for all covered outpatient physician-administered drugs to
receive FFP and secure manufacturer rebates.
12. Proposal Related to Suspension of a Manufacturer's Drug Rebate
Agreement
We are proposing regulatory changes to further implement section
1927(b)(3)(C)(i) of the Act, which provides authority to suspend a
rebate agreement for a manufacturer's failure to timely report drug
pricing or drug product information to the agency, required under
section 1927(b)(3)(A) of the Act, and when there is a continued failure
to report after a 90-calendar day deadline for reporting of information
is imposed by the agency. Specifically, the new Sec. 447.510(i)
proposes that a manufacturer who has failed to report timely
information to the agency under Sec. 447.510(a) and (d), would be
imposed a 90-calendar day deadline determined by the agency, and
communicated to electronically and in writing by the agency to report
such information, or the manufacturer would have its rebate agreement
suspended.
This section further proposes that failure to report such
information to the agency after the end of the imposed 90-calendar day
period would result in suspension of the rebate agreement, and that
such agreement shall not be reinstated until such information is
reported in full and certified, but not for a period of suspension of
less than 30 calendar days. This suspension would apply to all of the
manufacturer's labelers that have a rebate agreement with the
Secretary, consistent with the proposed regulatory definition of
``manufacturer.''
This rule also proposes that continued suspension of the rebate
agreement could result in termination for cause. During the period of
time of the suspension, FFP would not be available to the States for a
manufacturer's CODs. The States would be given 30 calendar days' notice
before such a suspension is implemented. This would allow States to
notify prescribers and beneficiaries that a specific COD or specific
CODs may be unavailable for a period of time, and to allow the
beneficiary to switch to a different medication, if necessary. We are
proposing that the suspension would only be applicable to the
manufacturer's Medicaid program participation, and would not affect
manufacturer participation in Medicare Part B or the 340B Drug Pricing
Program during the time the rebate agreement is suspended. However, if
continued suspension results in termination, such termination could
affect Medicare Part B and 340B Drug Pricing Program participation.
13. Proposals Related to Managed Care Plan Standard Contract
Requirements
a. Requirement of BIN/PCN Inclusion on Medicaid Managed Care Pharmacy
Identification Cards
Patients enrolled in health care plans, including in Medicaid
managed care plans such as Medicaid managed care organizations (MCOs),
prepaid inpatient health plans (PIHPs), or prepaid ambulatory health
plans (PAHPs), generally use identification cards at the pharmacy so
they can obtain prescription drug benefits, as well as allow pharmacies
to process and bill claims in real time. Health plans use two codes on
the card to identify a patient's prescription health insurance and
benefits--the National Council for Prescription Drug Programs (NCPDP)
Processing Bank Identification Number (BIN) and Processor Control
Number (PCN). This information, along with a group number, can specify
that a beneficiary is part of a specific patient insurance group, such
as being a Medicaid managed care beneficiary.
However, it is often difficult to determine from a Medicaid managed
care beneficiary's health insurance card if he or she is covered under
a Medicaid managed care plan or under non-Medicaid coverage, such as an
employer-sponsored group health plan or individual market insurance,
offered by the same organization or entity that offers the Medicaid
managed care plan. This is due to the fact that Medicaid-specific BIN,
PCN, and group numbers are not always placed on Medicaid managed care
plan identification cards. However, if Medicaid-specific BIN/PCN and
group information were included on the card, the pharmacy could enter
this information into its claims processing system which would identify
that the beneficiary is enrolled in a Medicaid managed care plan. We
believe it is important that unique BIN/PCN/group numbers are
established for Medicaid managed care plans for several program needs,
including facilitating the appropriate identification of cost sharing
and ensuring claims are billed and paid for appropriately.
Use of Medicaid-specific BIN/PCN/group numbers can help States and
their managed care plans identify claims for drugs paid for under the
340B Drug Pricing Program (340B Program) and avoid invoicing for
rebates on 340B drugs. Section 340B(a)(5)(A) of the Public Health
Service Act (the PHS Act) prohibits duplicate discounts for drugs
purchased under the Medicaid drug rebate program. Section 1927(a)(5)(C)
of the Act requires the establishment of a mechanism to ensure against
duplicate discounts or rebates and section 1927(j)(1) of the Act
provides that covered outpatient drugs are not subject the requirements
of section 1927 of the Act if they are dispensed by health maintenance
organizations (HMOs), including MCOs that contract under section
1903(m) of the Act, and are subject to discounts under section
340B(a)(5)(A) of the PHS Act. Certain eligible entities and hospitals
are permitted to purchase drugs under the 340B Drug Pricing Program and
dispense these drugs to Medicaid beneficiaries. Identifying claims
where the dispensed drug has been discounted under the 340B program is
necessary to avoid duplicating that discount in the MDRP.
Duplicate discounts occur when a State erroneously bills a
manufacturer for a Medicaid drug program rebate involving a drug that
was purchased under the 340B Drug Pricing Program. That occurs because
the claim was not identified as a 340B claim before it was sent to the
State. If the identification card included a unique Medicaid BIN/PCN/
group number, and the State permits the use of 340B drugs at contract
pharmacies for individuals enrolled in Medicaid managed care, then it
would allow for the inclusion of a modifier at the point of dispensing
that would identify the claim as ineligible for a Medicaid rebate. This
would assist States with identifying 340B drug claims that should not
be invoiced for Medicaid drug rebates.
Section 1902(a)(4) of the Act allows the Secretary to specify
``methods of administration'' that are ``found by the Secretary to be
necessary for . . . proper and efficient operation.'' We believe that
having States require their MCOs, PIHPs, or PAHPs that provide CODs to
Medicaid beneficiaries to add unique identifiers onto the
identification cards would make the Medicaid drug program run more
efficiently, help avoid duplicate discounts, and improve the level of
pharmacy services provided to Medicaid beneficiaries.
Therefore, under the authority of section 1902(a)(4) of the Act, as
well as to ensure effective implementation of and compliance with
sections 1927(a)(5)(C) and 1927(j)(1) of the Act, we are proposing to
amend 42 CFR 438.3(s) to require MCOs, PIHPs, and PAHPs that provide
coverage of CODs to assign and exclusively use unique Medicaid BIN,
PCN, and group number identifiers for all Medicaid managed
[[Page 34247]]
care beneficiary identification cards for pharmacy benefits.
b. Drug Cost Transparency in Medicaid Managed Care Contracts
Medicaid managed care plans often contract with a subcontractor PBM
to operate the pharmacy benefit provided to Medicaid beneficiaries. In
order for a Medicaid managed care plan to appropriately calculate and
report its Medical Loss Ratio (MLR) under Sec. 438.8, the plan must
know from the subcontractor certain information relating to how much of
the payments made to the Medicaid managed care plan by the State was
used to pay for health care services and other specific categories
outlined in Sec. 438.8. To correctly report the MLR, a Medicaid
managed care plan must distinguish between expenses that are for
covered benefits (such as healthcare services and drug costs) and
administrative expenses, such as fees paid to its PBM for PBM services
(for example, claims adjudication, processing prior authorization
requests, etc.).
Therefore, we are proposing that MCOs, PIHPs, and PAHPs that
provide coverage of CODs structure any contract with any subcontractor
to require the subcontractor report the amounts related to the incurred
claims described in Sec. 438.8(e)(2), such as reimbursement for the
covered outpatient drug, payments for other patient services, and the
fees paid to providers or pharmacies for dispensing or administer a
covered outpatient drug, separately from any administrative costs,
fees, and expenses of the subcontractor.
14. Proposal To Rescind Revisions Made by the December 31, 2020 Final
Rule to Determination of Best Price (Sec. 447.505) and Determination
of Average Manufacturer Price (AMP) (Sec. 447.504) Consistent With
Court Order
On May 17, 2022, the United States District Court for the District
of Columbia vacated and set aside the ``accumulator adjustment rule of
2020'' in response to a complaint filed against the Secretary regarding
the best-price accumulator provisions within the December 31, 2020
final rule ``Medicaid Program; Establishing Minimum Standards in
Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based
Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug
Rebate and Third Party Liability (TPL) Requirements.'' See Pharm. Rsch.
& Mfrs. of Am. v. Becerra, 1:21-cv-01395-CJN (D.D.C. May 17, 2022).
This final rule had revised the conditions for excluding patient
assistance from AMP at Sec. 447.504(c)(25) through (29) and (e)(13)
through (17), and best price at Sec. 447.505(c)(8) through (12), to
add language (effective January 1, 2023) that would require
manufacturers to ``ensure'' the full value of the assistance provided
by patient assistance programs is passed on to the consumer and that
the pharmacy, agent, or other AMP or best price eligible entity does
not receive any price concession. While the district court's order
focused on the changes to the patient-assistance program exclusions
from best-price determinations, to which it referred as the
``accumulator adjustment rule of 2020,'' for consistency, we propose to
withdraw the changes to both the AMP and best-price sections made by
the December 31, 2020 final rule.
As a result, the regulations would maintain the language that has
been in place since 2016.
15. Proposals Related to Amendments Made by the American Rescue Act of
2021--Removal of Manufacturer Rebate Cap (100 Percent AMP)
Section 9816 of the American Rescue Plan Act of 2021 (Pub. L. 117-
2, enacted March 11, 2021) sunsets the limit on maximum rebate amounts
for single source and innovator multiple source drugs by amending
section 1927(c)(2)(D) of Act by adding ``and before January 1, 2024,''
after ``December 31, 2009''. In accordance with section
1927(c)(3)(C)(i) of the Act and the special rules for application of
provision in section 1927(c)(3)(C)(ii)(IV) and (V) of the Act, this
sunset provision also applies to the limit on maximum rebate amounts
for CODs other than single source or innovator multiple source drugs.
Therefore, to conform Sec. 447.509 with section 1927(c)(2)(D) of Act,
as amended by the American Rescue Plan Act of 2021, and sections
1927(c)(3)(C)(i), (ii)(IV), and (ii)(V) of the Act, we are proposing to
make conforming changes to Sec. 447.509 to reflect the removal of the
maximum rebate amounts for rebate periods beginning on or after January
1, 2024.
16. Request for Information--Comments on Issues Relating to Requiring a
Diagnosis on Medicaid Prescriptions as a Condition for Claims Payment
Under the MDRP, a COD is generally defined as a prescribed drug
that is FDA approved and used for a medically accepted indication.
While the statute limits the definition of a COD to those products used
for ``medically accepted indications,'' without a diagnosis on a
prescription drug claims, it is difficult to determine whether a drug
is being used for a medically accepted indication, and if it therefore
satisfies the definition of a COD, and is rebate eligible. We are
soliciting comments on the possibility and potential impact of
proposing a requirement that a patient's diagnosis be included on a
prescription as a condition of receiving Medicaid FFP for that
prescription. We are soliciting comment on the patient care, clinical,
and operational impact of requiring that a patient's diagnosis be
included on a prescription as a condition of a State receiving FFP for
that prescription. We are particularly interested in understanding any
operational implications, privacy related concerns, the burden
associated, and how to negate any foreseeable impact on beneficiaries
and providers, including what steps would be needed by States to
successfully implement a Medicaid requirement for diagnosis on
prescriptions. This is a request for information only.
17. Background on Coordination of Benefits/Third Party Liability
Regulation Due to Bipartisan Budget Act of 2018 (BBA 2018)
Medicaid is generally the payer of last resort, which means that
other available resources--known as third party liability, or TPL--must
be used before Medicaid pays for services received by a Medicaid-
eligible individual. Title XIX of the Act requires State Medicaid
programs to identify and seek payment from liable third parties, before
billing Medicaid. Section 53102 of the Bipartisan Budget Act of 2018
(BBA 2018) (Pub. L. 115-123, enacted February 9, 2018) amended the TPL
provision at section 1902(a)(25) of the Act.
Specifically, section 1902(a)(25)(A) of the Act requires that
States take all reasonable measures to ascertain the legal liability of
third parties to pay for care and services available under the plan.
That provision further specifies that a third party is any individual,
entity, or program that is or may be liable to pay all or part of the
expenditures for medical assistance furnished under a State Plan.
Section 1902(a)(25)(A)(i) of the Act specifies that the State Plan must
provide for the collection of sufficient information to enable the
State to pursue claims against third parties. Examples of liable third
parties include: Private insurance companies through employment-related
or privately purchased health insurance; casualty coverage resulting
from an accidental injury; payment received directly from an individual
who has voluntarily accepted or been assigned legal responsibility for
the health care of one or more Medicaid recipients;
[[Page 34248]]
fraternal groups, unions, or State workers' compensation commissions;
and medical support provided by a parent under a court or
administrative order.
To update the regulation for the recent statutory changes, a final
rule was published on December 31, 2020, which went into effect on
March 1, 2021, to include changes as authorized under the BBA 2018. We
are submitting a correction due to an omission in the regulation text
to require a State to make payments without regard to TPL for pediatric
preventive services unless the State has made a determination related
to cost-effectiveness and access to care that warrants cost avoidance
for up to 90 days.
II. Provisions of the Proposed Regulations
A. Payment of Claims (42 CFR 433.139)
In 1980, under the authority in section 1902(a)(25)(A) of the Act,
we issued regulations at part 433, subpart D, establishing requirements
for State Medicaid agencies to support the coordination of benefits
(COB) effort by identifying third party liability.
Section 433.139(b)(3)(i) and (b)(3)(ii)(B) detail the exception to
standard COB cost avoidance by allowing pay and chase for certain types
of care, as well as the timeframe allowed prior to Medicaid paying
claims for certain types of care. Specifically, we proposed to revise
Sec. 433.139(b)(3)(i) by adding--``that requires a State to make
payments without regard to third party liability for pediatric
preventive services unless the State has made a determination related
to cost-effectiveness and access to care that warrants cost avoidance
for up to 90 days.'' We propose to revise Sec. 433.139(b)(3)(i) and
(b)(3)(ii)(B) by adding ``within'' prior to the waiting periods
Medicaid has to pay claims for preventive pediatric and medical child
support claims. We also propose to revise Sec. 433.139(b)(3)(ii)(B) by
removing ``from'' and replacing it with ``after;'' and by removing
``has not received payment from the liable third party'' and adding the
following language at the end of the sentence ``provider of such
services has initially submitted a claim to such third party for
payment for such services, except that the State may make such payment
within 30 days after such date if the State determines doing so is
cost-effective and necessary to ensure access to care.'' These
revisions in language would permit States to pay claims sooner than the
specified waiting periods, when appropriate.
B. Standard Medicaid Managed Care Contract Requirements (Sec.
438.3(s))
1. BIN/PCN on Medicaid Managed Care Cards
We propose to amend Sec. 438.3(s) to add a new paragraph (s)(7) to
require States that contract with MCOs, PIHPs, or PAHPs that provide
coverage of CODs, to require those managed care plans to assign and
exclusively use unique Medicaid-specific BIN, PCN, and group number
identifiers for all Medicaid managed care beneficiary identification
cards for pharmacy benefits. We propose that the managed care
contracts, and thus MCOs, PIHPs and PAHPs, must comply with this new
requirement no later than the next rating period for Medicaid managed
care contracts, following the effective date of the final rule adopting
this new regulatory provision. We believe that the delay between the
effective date of the final rule and the start of the next rating
period would provide both States and the affected Medicaid managed care
plans with adequate time to prepare both the necessary contract terms,
and finish the necessary administrative processes for creating and
issuing beneficiary identification cards with these newly required
Medicaid-specific BIN, PCN, and group number identifiers.
This proposal is under our authority in section 1902(a)(4) of the
Act to specify ``methods of administration'' that are ``found by the
Secretary to be necessary for . . . proper and efficient operation.''
Having States require their MCOs, PIHPs, or PAHPs that provide CODs to
Medicaid beneficiaries to add these types of unique identifiers to the
identification cards would make the Medicaid drug program run more
efficiently, and improve the level of pharmacy services provided to
Medicaid beneficiaries. With the inclusion of Medicaid-specific BIN/PCN
and group numbers on the pharmacy identification cards issued to the
enrollees of MCOs, PHIPs and PAHPs, pharmacies would be able to
identify patients as Medicaid beneficiaries, and better provide
pharmacy services. This would be helpful to all parties to ensure that
Medicaid benefits are provided correctly, including the confirmation of
accurate cost sharing amounts, along with assisting that claims are
billed and paid for appropriately.
This proposed change would also help to reduce the incidence of
340B duplicate discounts. Section 340B(a)(5)(A) of the PHS Act
prohibits duplicate discounts; that is, manufacturers are not required
to both provide a 340B discounted price and pay the State a rebate
under the Medicaid drug rebate program for the same drug. Section
1927(a)(5)(C) of the Act requires the establishment of a mechanism to
ensure against duplicate discounts or rebates, and section 1927(j)(1)
of the Act also provides that CODs are not subject to, among other
requirements of section 1927 of the Act, MDRP rebates if: (1) they are
dispensed by health maintenance organizations, including MCOs that
contract under section 1903(m) of the Act, and are subject to 340B
discounts and (2) the drugs are subject to 340B discounts. Therefore,
CODs covered by MCOs, PIHPs, and PAHPs are within the scope of this
provision designed to prevent duplicate discounts. The existing
regulation at Sec. 438.3(s)(3) already reflects the position that CODs
covered by MCOs, PIHPs, and PAHPs must be identified to prevent
duplicate discounts under both section 1927 of the Act and section 340B
of the PHS Act. The identification of a Medicaid beneficiary at the
point of dispensing can result in the pharmacy placing a code on the
prescription, such as the NCPDP ``20'' submission clarification code,
so that the claim will be excluded from the Medicaid rebate pool.
Medicare Part D has supported the inclusion of BIN/PCN numbers for
pharmacy cards. That is, 42 CFR 423.120(c)(4) requires that Part D
sponsors assign and exclusively use a unique Part D BIN or RxBIN and
Part D processor control number (RxPCN) combination in its Medicare
line of business. The use of the BIN/PCN ensures that a pharmacy claim
can be accurately billed by the pharmacy. Medicare made the BIN/PCN
unique to Part D so that a Part D sponsor clearly identifies the
Medicare enrollee as part of a particular Part D plan and the pharmacy
knows that Medicare statute and rules may apply, such as not allowing
certain manufacturer coupons, which plan benefits apply, appeals
rights, etc.
In the absence of Medicaid-specific BIN, PCN, and group numbers to
identify beneficiaries as being Medicaid participants, it is difficult
for pharmacies and other providers, such as physicians and hospitals
that administer drugs to Medicaid beneficiaries, to determine whether
the beneficiary is enrolled in a Medicaid managed care plan, since a
group number alone is not sufficient for Medicaid identification.
Adding unique identifiers would make the beneficiary's Medicaid managed
care status distinguishable from the other lines of business offered by
the same organization or entity that contracts with the State to offer
an
[[Page 34249]]
MCO, PIHP or PAHP for Medicaid beneficiaries.
Accordingly, we propose to amend the regulatory language in Sec.
438.3(s) to add paragraph (s)(7) to mandate that Medicaid managed care
contracts require that Medicaid MCO, PIHPs, or PAHPs that provide
coverage of CODs must assign and exclusively use unique Medicaid BIN,
PCN, and group number identifiers for all Medicaid managed care
beneficiary identification cards for pharmacy benefits. We propose that
Medicaid managed care contract must include this new requirement (which
would require compliance by MCOs, PIHPs, and PAHPs) no later than the
next rating period for Medicaid managed care contracts, following the
effective date of the final rule adopting this new provision. We are
soliciting comments on the implementation time frame and other possible
operational issues of requiring unique Medicaid BIN, PCN, and group
numbers to be on Medicaid managed care beneficiary identification
cards.
2. Drug Cost Transparency in Medicaid Managed Care Contracts
We propose that the contracts between States and MCOs, PIHPs, or
PAHPs that provide coverage of CODs require those plans to structure
contracts with any subcontractor for the delivery or administration of
CODs, in a manner that ensures drug cost spending transparency by
requiring the subcontractor to report separately certain expenses and
costs. These subcontractors may include PBMs.
Most Medicaid beneficiaries receive either all or part of their
health care benefits, including CODs, through Medicaid managed care
plans. Because of the specialized nature of the COD benefit, many
Medicaid managed care plans (that is, the MCOs, PIHPs, or PAHPs) may
contract with, or have their own PBMs to administer the COD benefit.
PBMs are the middlemen of the relationship between the managed care
plans and the health care (medical and pharmacy) providers that provide
CODs. That is, they have contracts with both the managed care plans to
administer the pharmacy benefit, as well as with the health care
providers that administer or provide the drugs to patients that are
enrolled in the managed care plan. Among other tasks in the
marketplace, a PBM may be responsible for developing a drug formulary,
collecting manufacturer rebates on behalf of the managed care plan,
performing drug utilization review (DUR), adjudicating claims, and
contracting with retail community pharmacies and other health care
providers to develop a network of pharmacy providers that can dispense
drugs to managed care enrolled patients.
The PBM also negotiates reimbursement rates on behalf of the
various health plans, including managed care plans with which it
contracts, and pays the pharmacy and other health care providers for
the drugs that are dispensed or administered. In most cases, the
pharmacy reimbursement rates are specified in the contract between the
PBM and the pharmacy providers, and these include reimbursement rates
for brand name and generic prescription drugs, as well as the
dispensing fees paid to dispense or administer the prescription drug to
the beneficiary. There are also administrative fees paid to the PBM by
the managed care plans for its administration and operation of the
pharmacy benefit.
PBMs' methods of reimbursing health care providers for prescription
drugs may differ from those used to determine the charges to managed
care plans for the dispensed prescription. That is, a PBM's set of
reimbursement benchmarks can be used in one relationship, and another
set of reimbursement benchmarks in another, making it difficult for
health plans or Medicaid managed care plans to know how much they are
paying for the actual cost of the drug compared to the fees for
administering the benefit. For this reason, under Part D, CMS requires
that the price the PBM pays to the pharmacy for the cost of the drug is
passed through to the plan, and any ``spread'' that the PBM keeps is an
administrative cost that must be reported to the plan.
Medicaid-contracted PBMs (that is, PBMs contracted with or on
behalf of Medicaid managed care plans) often reimburse health care
providers using methods similar to those used in the commercial and
Medicare Part D markets, which are heavily dependent on drug pricing
benchmarks provided by manufacturers, and published by commercial
publishers of drug pricing data (that is Average Wholesale Price (AWP)
or Wholesale Acquisition Cost (WAC)). The PBMs may also use a Maximum
Allowable Cost (MAC) benchmark for generic drugs, which is a PBM
proprietary benchmark that reimburses pharmacy providers for generics.
For PBMs' payment to contracted health care providers,
reimbursement might be based on a discount off AWP, a markup on WAC, or
the Maximum Allowable Cost (MAC) for generics, plus any contractually
defined professional dispensing fee (PDF), which determines the total
reimbursement for each COD. In contrast, the PBM might charge the
managed care plans for dispensing that same COD based upon a different
fixed percentage discount from AWP, or a higher percentage of WAC,
either on a per-claim or aggregate spend basis. That is, a PBM's
benchmarks, markups, or discount percentages may differ for the same
COD. The result is that there is little to no transparency to the
managed care plan as to how much the plan actually pays for the COD
administered or dispensed to the patient, and how much is paid to the
PBM for fees related to the administration of the COD benefit. The cost
charged to the managed care plan for the COD by the PBM often includes
both the amount that the PBM reimbursed the medical or pharmacy
provider for the COD as well as the PBM's administrative fees for
operating the benefit program.
The margin between the amount charged to a managed care plan for a
COD, and the amount paid by a PBM to a pharmacy provider is referred to
as the ``spread'' or ``spread pricing.'' This margin or ``spread'' may
only be known by the PBM, unless a State Medicaid program or managed
care plan (or other prime contractor in other contexts) specifically
requires disclosure of the charge and payment data that are used to
make these calculations. This information deficit results in a lack of
accountability and transparency to the Medicaid program, which we
believe is contrary to proper and efficient operation of the State
Medicaid program and potentially creates conflicts of interest in
connection with payment for CODs.
Section 1902(a)(4)(A) of the Act requires that the State Plan for
medical assistance comply with methods of administration that are found
by the Secretary to be necessary for the proper and efficient operation
of the State Plan. Greater transparency and accountability by Medicaid
managed care plans (and their subcontractors) to the States for how
Medicaid benefits are paid compared to how administrative fees or
services are paid are necessary for efficient and proper operation of
Medicaid programs. Moreover, this lack of transparency makes it more
difficult for Medicaid managed care plans to assure that the plan's MLR
calculation is limited to the true medical costs associated with the
provision of CODs.
Medicaid managed care regulations at Sec. 438.8 require States,
through their contracts with managed care plans, to require each
managed care plan to calculate and report an annual MLR starting on or
after July 2017, consistent with the requirements of the regulation
[[Page 34250]]
detailing the calculation, including which expenses are in the
numerator and the denominator. We issued a Center for Medicaid & CHIP
Services (CMCS) Informational Bulletin on May 15, 2019, for Medicaid
Managed Care plans, titled ``Medicaid Loss Ratio (MLR) Requirements
Related to Third Party Vendors'' (``2019 CIB'') (see <a href="https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib051519.pdf">https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib051519.pdf</a>), regarding calculation of the MLR when a managed care
plan uses subcontractors for plan activities.
MLR calculations are used to develop capitation rates paid to
Medicaid managed care plans, thus their accuracy is critical in
assuring that Medicaid payments are reasonable, appropriate and
necessary for health care services when using a Medicaid managed care
plan. Managed care capitation rates must (1) be developed such that the
plan would reasonably achieve an 85 percent MLR (Sec. 438.4(b)(9)) and
(2) are developed using past MLR information for the plan (Sec.
438.5(b)(5)). In addition to other standards outlined in Sec. Sec.
438.4 through 438.7, these requirements for capitation rates related to
the MLR are key to ensuring that Medicaid managed care capitation rates
are actuarially sound. In addition, Medicaid managed care plans may
need to pay remittances (that is, refund part of the capitation
payments) to States should they not achieve the specific MLR target.
Thus, the accuracy of MLR calculation is important to conserving
Medicaid funds.
This 2019 CIB provided additional guidance regarding the
calculation of the MLR when third party vendors, such as PBMs, are
involved. The purpose was to assist States in ensuring that revenues,
expenditures and amounts are appropriately identified and classified
for the MLRs submitted by managed care plans, especially when a
subcontractor is used. The 2019 CIB uses PBM spread pricing as a
specific example. Several States have already implemented prohibitions
or other restrictions on the PBM practice of spread pricing. Although
there is not currently a Federal prohibition on using spread pricing in
Medicaid, as noted, we issued the 2019 CIB regarding the impact of the
lack of transparency between costs for administrative functions versus
actual Medicaid services on the managed care plan's MLR calculation.
The 2019 CIB is clear that when the subcontractor, in this case the
PBM, is performing administrative functions, such as eligibility and
coverage verification, claims processing, utilization review, or
network development, the expenditures and profits on these functions
are a non-claims administrative expense as described in Sec.
438.8(e)(2)(v)(A), and should not be counted as an incurred claim for
the purposes of MLR calculations.
In addition, the Medicaid managed care regulation at Sec.
438.230(c)(1) requires, through contractual requirements in the managed
care contract between the managed care plan and the State, certain
agreements to be in subcontracts, including that subcontractors agree
to perform the delegated activities and reporting responsibilities in
compliance with the managed care plan's contract obligations. Moreover,
the reporting standards at Sec. 438.8(k)(3) specify that managed care
plans must require any third-party vendor providing claims adjudication
activities to provide all underlying data associated with MLR
calculation and reporting. The 2019 CIB explains how these regulatory
obligations mean that all subcontractors that administer claims for the
managed care plan must report the incurred claims, expenditures for
activities that improve health care quality, and information about
mandatory deductions or exclusions from incurred claims (overpayment
recoveries, rebates, other non-claims costs, etc.) to the managed care
plan.
The requirements and definitions in Sec. 438.8 for these
categories of costs and expenditures must be applied to the required
reporting. The reporting from the subcontractor must have sufficient
detail to allow a managed care plan to accurately incorporate the
expenditures associated with the subcontractor's activities into the
managed care plan's overall MLR calculation. The level of detail must
meet the requirements in Sec. 438.8(k)(3) and the level of detail that
is required may vary based on what is necessary to accurately calculate
an overall MLR or to comply with any additional reporting requirements
imposed by the State in its contract with the managed care plan.
Medicaid managed care plans are generally paid by States using
single monthly capitation payments that for the plan's coverage of the
health care services covered under the Medicaid managed care contract,
including CODs. If the managed care plan contracts with a PBM, there
are different options for the managed care plan to pay the PBM for the
administrative services provided by the PBM. Payment for administrative
services is made in addition to the amount the managed care plan would
reimburse the PBM for the actual COD and dispensing fee costs. In
general, managed care plans have paid PBMs for administrative services
in one of two ways, or a mix of these approaches--either through a flat
administrative fee per prescription, or, as described above, by
including it in the overall COD payment (that is through ``spread
pricing'').
When payments to the PBM for the administration services are
included in the managed care plans' total COD payment without a clear
delineation of which amount is for administrative services, it obscures
how much of that total payment is actually paid to the provider for the
prescription and what is paid for administrative services furnished by
the PBM. In other words, it is difficult for the managed care plan to
determine the proportion of the payment to the PBM that is attributable
to the administrative service costs provided by the PBM.
Furthermore, incorrectly attributing administrative service costs
as medical expenditures, may increase the MLR numerator, and thus
increase the per-member-per-month (PMPM) revenue a managed care entity
can receive while appearing to meet MLR requirements. Given this lack
of transparency, the ``spread'', which has been the basis for
generating significant PBM profit, obscures from Medicaid and the
managed care plans the actual cost of the CODs dispensed to plan
enrollees. This makes it difficult for managed care plans and State
Medicaid agencies to determine whether the amount that the PBM is
charging to administer the benefit is a reasonable expense to be borne
by a Medicaid program. Moreover, it makes it difficult for plans to
ensure that their MLR calculations appropriately classify and account
for expenditures.
We provide a representative example of how spread pricing occurs in
the context of Medicaid prescription drug coverage provided by a
managed care plan. Specifically, in Table 2, we illustrate how a PBM
might leverage a 5 percent difference in the AWP value between the
amount charged to the plan and the amount paid to the pharmacy for a
commonly-dispensed generic drug product, to ultimately capture 30.76
percent of the dollars spent by the managed care plan for the
prescription.
[[Page 34251]]
Table 2--Example of Spread Pricing
------------------------------------------------------------------------
------------------------------------------------------------------------
Drug Product........................... NDC 1234567890, Drug 300 MG
CAPSULE, 60 capsules in
prescription.
Published AWP.......................... $1.33 per capsule.
PBM Reimbursement to pharmacy (MAC).... ((AWP-90%) * 60) + $1
dispensing fee = $8.98.
Amount PBM billed to Managed care plan. ((AWP-85%) * 60) + $1
dispensing fee = $12.97.
PBM spread =........................... ($12.97-$8.98) = $3.99.
PBM spread percentage =................ ($3.99/$12.97) = 30.76% of
total cost to managed care
plan.
------------------------------------------------------------------------
Table 2 shows that, while the pharmacy only received $8.98 in
reimbursement from the PBM for the prescription, PBM charged the
managed care plan $12.97, or about 31 percent more for the same
prescription. Depending on the specifics of the contract that the PBM
has with the managed care plan, some of this margin or spread might be
used to pay the PBM for managing or administering the pharmacy benefit
but in some cases, this spread may be in addition to administrative
fees paid by the plan to the PBM. For example, there may already be
included in the contract a specific fee that the Medicaid MCO is paying
for the administration of the COD benefit. These fees would be in
addition to the amounts being paid as part of the ``spread pricing.''
However, unless the managed care plan knows the amounts that the
pharmacy providers are being paid by the PBM, the managed care plan is
unable to assess the full scope of payments to the PBM for
administrative services furnished by the PBM. As a result, the plan may
not know whether the PBM is being appropriately compensated for
administering the COD benefit.
While the per-prescription dollar amounts above may not appear
substantial, the overall impact to a Medicaid managed care pharmacy
program may be significant given generic claims represent greater than
90 percent of total pharmacy claims. For example, an analysis of Ohio's
Medicaid managed care program by the Ohio Auditor of State revealed
$208.4 million of spread within their managed care plan's PBM
transactions for generic drug claims between April 1, 2017, and March
31, 2018.\6\ For the time period analyzed, this amount of PBM spread
represented 31.4 percent of total generic drug expenditures within the
State's Medicaid managed care program.
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\6\ David Yost, Ohio's Medicaid Managed Care Pharmacy Services
Auditor of the State Report (2018), available at <a href="https://tinyurl.com/mbn75c">https://tinyurl.com/mbn75c</a>.
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CMS has determined that 11 States \7\ have enacted relevant
legislation related to the practice of spread pricing. Four of these
States (Arkansas, Delaware, Michigan, and Oklahoma) have complete
State-wide prohibitions on the practice of spread pricing for any PBM
operating within the State, regardless of the payer. Five States
(Kentucky, Louisiana, New York, Pennsylvania, and Virginia) prohibit
the practice of spread pricing by PBMs or MCOs in Medicaid, explicitly.
One State (Pennsylvania) further requires that all Medicaid MCOs
include a spread pricing prohibition clause in all contracts with PBMs.
Only 2 of the 11 States with spread pricing laws (Alabama and Montana)
merely require disclosure of certain spread pricing information (that
is, annual report of aggregate rebate information and whether the PBM
engages in spread pricing). Spread pricing can increase Medicaid
pharmacy program costs, reduce efficient operation of the Medicaid
program, and reduce the transparency of State Medicaid expenditures
within managed care programs. This makes it more difficult for managed
care plans and States to discern which participants of the pharmacy
supply chain retain the bulk of the COD reimbursement.
---------------------------------------------------------------------------
\7\ <a href="https://nashp.org/comparison-of-state-pharmacy-benefit-managers-laws/">https://nashp.org/comparison-of-state-pharmacy-benefit-managers-laws/</a>.
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For these reasons, we are proposing to amend Sec. 438.3(s) to
require Medicaid MCOs, PIHPs, and PAHPs that provide coverage of CODs
to structure any contract with any subcontractor for the delivery or
administration of the COD benefit require the subcontractor to report
separately the amounts related to the incurred claims described in
Sec. 438.8(e)(2), such as reimbursement for the CODs, payments for
other patient services, and the dispensing or administering providers
fees, and subcontractor administrative fees. The proposal would ensure
that MLRs reported by MCOs, PIHPs, and PAHPs that use subcontractors in
the delivery of COD coverage would be more accurate and transparent.
The separate payment requirements would help States and managed care
plans better understand whether they are appropriately and efficiently
paying for the delivery of CODs, a significant part of which is funded
by the Federal Government. We note that this proposal does not change
the applicability of the 2019 CIB to PBM subcontractors or to other
subcontracting arrangements used by a Medicaid managed care plan; the
2019 CIB remains CMS' position on how Sec. Sec. 438.8 and 438.230
apply. This proposal would create additional requirements for MCOs,
PIHPs and PAHPs that help ensure that the objectives and
responsibilities outlined in the 2019 CIB are met.
The proposal requires MCOs, PIHPs, and PAHPs that cover CODs to
require their subcontractors to report their costs in a way that aligns
more fully with the specific categories specified in Sec. 438.8(e)(2)
regarding the MLR numerator. Fully aligning the subcontractor's reports
and billing (invoices) with how the MLR regulation categorizes and
treats specific costs and expenditures would make clearer for the MCOs,
PIHPs, and PAHPs how its payments to a subcontractor are used that
would be subject to proposed Sec. 438.3(s)(8), and allow those managed
care plans to incorporate the subcontractor's costs into the MLR
reporting and calculation. However, having the subcontractor's (in
particular a PBM's) expenditures and costs reported in the categories
that we are proposing might not be representative of how the industry
works, might require systems changes and impose burden that we have not
taken into account, or might result in unintended consequences.
Therefore, we are specifically soliciting comment on this point and on
other alternatives for how MCOs, PIHPs, and PAHPs should require
information from their subcontractors and how they should structure
payment or billing arrangements to achieve the policy goals we have
outlined.
We believe this new transparency requirement would assist States
and Medicaid managed care plans in complying with Sec. 438.8 and
related guidance because subcontractor PBMs would be required to
appropriately identify certain costs, so that the managed care plan can
appropriately calculate its MLR. In particular with COD spending, the
managed care plan would have to separately identify prescription drug
and dispensing or administration fee claim costs when calculating the
MLR, in contrast to
[[Page 34252]]
administrative costs. As a result, any payments for costs over and
above the cost of the prescription and dispensing fee would be
separately identifiable by the managed care plan and cannot be used to
inappropriately inflate the MLR which may result in managed care plan
capitation rates that are not actuarially sound.
C. MDRP Administrative and Program Integrity Changes
1. Proposed Definitions (Sec. 447.502)
a. Proposal To Modify the Definition of Covered Outpatient Drug (Sec.
447.502)
Sections 1927(k)(2) and (3) of the Act provide a definition of the
term ``covered outpatient drug'' (COD) and a limiting definition, which
excludes certain drugs, biological products, and insulin provided as
part of, or as incident to and in the same setting as, enumerated
services and settings from the definition of COD. This exclusion is
subject to a parenthetical, however, which limits the exclusion to when
payment may be made as part of payment for the enumerated service or
setting, and not as direct reimbursement for the drug.
In the COD final rule, we finalized a regulatory definition of COD
in Sec. 447.502 that substantially mirrors the statutory definition.
Consistent with section 1927(k)(3) of the Act, the regulatory
definition includes a limiting definition in paragraph (2) of the
definition of covered outpatient drug at Sec. 447.502 that excludes
from the definition of COD any drug, biological product, or insulin
provided as part of or incident to and in the same setting as any one
in a list of services, and for which payment may be made as part of
that service instead of as a direct reimbursement for the drug.
Over the years we have received questions about when a payment is
considered to be a direct reimbursement for a drug and whether
identifying a drug separately on a claim for payment may qualify as
direct reimbursement for a drug, rendering the drug eligible for
rebates under section 1927 of the Act as a COD, or in other words,
garnering the limiting definition exclusion inapplicable. If a drug and
its cost can be separately identified on a claim for payment it can be
considered subject to direct reimbursement. That is, if the payment to
the provider includes any reimbursement for the drug and the drug is
separately identified, then the reimbursement for the drug is a direct
reimbursement. Additionally, if the payment to the provider is solely
for the drug (and no other services), and the drug is separately
identified, it is also a direct reimbursement. Therefore, direct
reimbursement may be reimbursement for a drug alone, or reimbursement
for a drug plus the service, in one inclusive payment, if the drug plus
the itemized cost of the drug are separately identified on the claim.
In other words, the payment for the drug is not required to be a
separate payment in order for such payment to be considered direct
reimbursement.
To provide greater clarity on this point and the application of the
limiting definition, we propose to amend the regulatory definition of
the term covered outpatient drug at Sec. 447.502 to add that direct
reimbursement for the drug includes when a claim for payment identifies
the drug plus the itemized cost of the drug. Specifically, we propose
to add to the regulatory definition of covered outpatient drug at Sec.
447.502 that the direct reimbursement for a drug may include both
reimbursement for a drug alone, or reimbursement for a drug plus the
service, in one inclusive payment, if the drug and the itemized cost of
the drug are separately identified on the claim.
Additionally, the limiting definition in section 1927(k)(3) of the
Act includes the following parenthetical: ``. . . (and for which
payment may be made under this subchapter as part of payment for
[certain services] and not as direct reimbursement for the drug).'' The
term covered outpatient drug is defined in Sec. 447.502 and includes
this limiting definition parenthetical at paragraph (2): ``. . . (and
for which payment may be made as part of that service instead of as a
direct reimbursement for the drug).''
There is no meaningful distinction between the statutory and
regulatory language for purposes of the MDRP, and thus, we are
proposing to make a technical change by modifying the regulatory
language so that it more closely mirrors the statutory language. We
propose to add ``payment for'' after ``and for which payment may be
made as part of'' and to delete ``instead of as a'' in the limiting
definition of covered outpatient drug and replace it with ``and not
as''.
The proposed definition would then read, in significant part, as
``. . . (and for which payment may be made as part of payment for that
service and not as direct reimbursement for the drug).''
b. Proposal To Define Drug Product Information (Sec. 447.502)
Section 6(a)(1)(A)(iv) of MSIIA amended section 1927(b)(3) of the
Act by adding the words ``and drug product'' to the title of section
(b)(3), and adding section (b)(3)(A)(v), to require a manufacturer to
report drug product information that the Secretary shall require for
each of the manufacturer's CODs no later than 30 days after the last
day of each month of a rebate period. Section 1927(b)(3)(A) of the Act
describes the manufacturer drug product and pricing information that is
required to be reported to the agency by statute, and with respect to
the pricing information, specifically provides for the reporting of
such information, such as AMP and best price. To support the
implementation of this new statutory requirement to report drug product
information, we propose to define drug product information at Sec.
447.502.
We currently require manufacturers to submit drug product
information when the covered outpatient drug is entered into the MDP
system, although there is no regulatory definition of drug product
information. When initially reporting drug product data upon the
execution of an NDRA, manufacturers have 30 days after the date on
which they enter into an NDRA to report drug product data for their
existing CODs under section 1927(b)(3)(A) of the Act. After the
execution of an NDRA, manufacturers have 30 days from the end of each
rebate period to report drug product data for new CODs under section
1927(b)(3)(A)(v) of the Act.
We propose to define ``drug product information'' in Sec. 447.502
as information that includes, but is not limited to, NDC number, drug
name, units per package size (UPPS), drug category (``S'', ``I'',
``N''), unit type (for example, TAB, CAP, ML, EA), drug type
(prescription, over-the counter), base date AMP, therapeutic equivalent
code (TEC), line extension drug indicator, 5i indicator and route of
administration, if applicable, FDA approval date and application number
or OTC monograph citation if applicable, market date, COD status, and
any other information deemed necessary by the agency to perform
accurate URA calculations.
As previously discussed in this proposed rule, the drug category
for an NDC should be single source or innovator for the entire history
of the NDC if it was always produced, distributed, or marketed under an
NDA, unless a narrow exception applies, or single source if marketed
under a BLA. If a narrow exception has been granted by CMS, the drug
category for that NDC should historically be reported as single source
or innovator, and can be changed to noninnovator, effective April 1,
2016. We use the FDA ``applications.txt'' file to verify the type of
application associated with an application number. The file may be
accessed using the link to the Drugs@FDA download file found
[[Page 34253]]
on the FDA web page at <a href="https://www.fda.gov/drugs/drug-approvals-and-databases/drugsfda-data-files">https://www.fda.gov/drugs/drug-approvals-and-databases/drugsfda-data-files</a>.
The only situation in which a drug that is produced or marketed
under an NDA may be reported as a noninnovator drug is if a narrow
exception was granted by CMS in accordance with the process established
in the COD final rule. See 81 FR 5191. Definitions for these drug
categories can be found at section 1927(k)(7) of the Act and at Sec.
447.502.
Manufacturers should evaluate all of their NDCs for compliance with
drug product information reporting, and if they determine corrections
are required, they should contact the agency for assistance. In
Manufacturer Release No. 113, we address a manufacturer's
responsibility to ensure that all of their CODs are correctly
classified and reported in the Drug Data Reporting system (DDR) for the
history of the NDC, including such NDCs that may no longer be active:
<a href="https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf">https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf</a>.
As part of a manufacturer's evaluation of their NDCs for compliance
with accurate drug product information reporting, they should ensure
that each NDC is reported with an accurate market date. In this
proposed rule, we are proposing to add a definition for ``market date''
for the purposes of the MDRP. Please see proposed Sec. 447.502 for
that proposed definition and elsewhere in this preamble for an
explanation of how market date is used to determine the quarter that
establishes each drug's base date AMP.
Generally, a manufacturer cannot make the drug product information
corrections in the CMS system without our intervention. To request
corrections, a manufacturer should contact CMS using instructions that
are available on <a href="http://Medicaid.gov">Medicaid.gov</a> (<a href="https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-program/medicaid-drug-rebate-program-change-request/index.html">https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-program/medicaid-drug-rebate-program-change-request/index.html</a>) to correct drug product and pricing
information. If we identify a misclassified or misreported NDC as part
of the review of the information submitted by the manufacturer to
support these drug pricing or product information changes, and notify
the manufacturer, the link to the instructions for correcting the data
would generally be included as part of that notification.
For most drug product information changes, as outlined above, we
would make the requested changes on behalf of the manufacturer in the
CMS system, and those changes would subsequently be available for
manufacturer certification. However, in some situations where monthly
and/or quarterly pricing data must be updated as a result of the drug
product information change, if necessary, we would notify the
manufacturer that certain pricing data fields have been ``unlocked'' in
the CMS system to allow the manufacturer to enter or correct required
pricing information if applicable.
Regardless of whether we make a data change on behalf of a
manufacturer or whether the manufacturer enters required data directly
in the CMS system, manufacturers would be required to certify the
information in accordance with Sec. 447.510. If we make a data change
at the request of a manufacturer, the manufacturer is not relieved of
its responsibility to ensure the accuracy of such data, nor should it
be inferred that we have approved a variance from the requirements of
the statute.
Until certification is complete, the changes in the CMS system are
not considered final and would not be used in any quarterly rebate
calculations or transmitted to the States as part of the quarterly
rebate files; however, the manufacturer is still responsible for
correct URA calculations and rebate payments. If drug product
information changes are left uncertified, the previously certified
values would remain in effect; therefore, corrections made in the CMS
system that remain uncertified would result in the drug continuing to
be considered misclassified or misreported. We would consider this to
be late reporting of product data for which a manufacturer's rebate
agreement may be suspended from the MDRP under section 1927(b)(3)(C)(i)
of the Act, and eventually terminated as authorized under section
1927(b)(4)(B) of the Act.
c. Proposal To Define Internal Investigation for Purposes of Pricing
Metric Revisions (Sec. Sec. 447.502 and 447.510)
In accordance with section 1927(b)(3) of the Act, Sec. 447.510 of
the implementing regulations, and the terms of the NDRA, manufacturers
are required to report certain pricing and drug product information to
CMS on a timely basis or else they could incur penalties or be subject
to other compliance and enforcement measures. As explained in the final
time limitation rule, in an effort to improve the administration and
efficiency of the MDRP and assist States and manufacturers that would
otherwise be required to retain drug utilization pricing data records
indefinitely, we established the 12-quarter time frame for reporting
revisions to AMP or best price information. Notwithstanding the 12-
quarter time frame for reporting revisions, we continued to receive
requests outside of the 12-quarter period from manufacturers to revise
pricing data. These types of manufacturer requests, which could span
multiple years prior to the 12-quarter timeframe, and could sometimes
result in substantial recoupment of Medicaid rebates already paid to
States, impede the economic and efficient operation of the Medicaid
program.
Consequently, in the COD final rule (81 FR 5278) we finalized Sec.
447.510(b)(1), which provides that a manufacturer must report to CMS
any revision to AMP, best price, customary prompt pay discounts or
nominal prices (pricing data) for a period not to exceed 12 quarters
from the quarter in which the data were due unless one of a number of
enumerated exceptions applies. See Sec. 447.510(b)(1)(i) through (vi).
Of note, Sec. 447.510(b)(1)(v) provides an exception to the 12-quarter
price reporting rule if the change is to address specific rebate
adjustments to States by manufacturers, as required by CMS or court
order, or under an internal investigation, or an OIG or Department of
Justice (DOJ) investigation.
In a response to comment in the preamble of the COD final rule,
which added Sec. 447.510(b)(1)(v), we indicated that internal
investigation is intended to mean a manufacturer's internal
investigation, and we further explained that in the event that a
manufacturer discovers any discrepancy with its reported product and
pricing data to the MDRP that are outside of the applicable timeframes,
the manufacturer should determine if the change satisfies one of the
enumerated exceptions. (81 FR 5280)
However, we did not further define or give any greater explanation
for the applicability of the exception to the 12-quarter rule,
particularly in instances when manufacturers perform an internal
investigation of the prices (AMP and best price) reported and certified
in the Medicaid Drug Product systems by another manufacturer. Given the
absence of a definition of internal investigation or specificity as to
when this exception applies, some manufacturers have broadly
interpreted the internal investigation exception to the 12-quarter
rule.
Some manufacturers have requested revisions to AMP and best price
outside of the 12-quarter rule based upon an internal investigation
related to newly acquired products or lines of business
[[Page 34254]]
previously certified by the prior manufacturers without making findings
that the prior manufacturer violated any law. For example, some
requests from manufacturers to revise AMP or best price for drug
product and drug pricing information previously reported and certified
from another manufacturer were based on internal reviews that did not
result in proof that the prior manufacturer misapplied the laws or
regulations, or acted in a fraudulent or illegal manner.
In cases when a manufacturer requests an exception to the 12-
quarter rule due to an internal investigation, we propose to specify
that the manufacturer must make a finding that indicates a violation of
statute or regulation made by the prior manufacturer before we consider
such a request. For example, a request to restate or revise pricing
outside of the 12-quarter time frame by a manufacturer to previously
reported and certified data of a prior manufacturer based upon a mere
disagreement with the prior manufacturer's government pricing
calculations and assumptions would not be considered a valid reason to
revise a prior manufacturer's pricing outside of the 12-quarter time
frame. The manufacturer must make findings that include actual data as
evidence that the prior manufacturer violated statute or regulation.
Manufacturers should not use the internal investigation exception
to permit restatements to allow manufacturers to apply a different
methodology or reasonable assumption to determine AMP and best price to
its favor when the methodology originally applied was consistent with
statute and regulation, and drug product and pricing information was
properly reported and certified by the manufacturer at the time. To
ensure clarity on when the internal investigation exception may be
appropriately applied, we are proposing to define internal
investigation at Sec. 447.502 to mean a manufacturer's investigation
of its AMP, best price, customary prompt pay discounts or nominal
prices that have been previously certified in MDRP that results in a
finding made by the manufacturer of fraud, abuse or violation of law or
regulation. A manufacturer must make data available to CMS to support
its finding. We are also proposing to amend Sec. 447.510(b)(1)(v) to
reference the proposed definition of internal investigation at Sec.
447.502.
d. Proposal To Revise Definition of Manufacturer for NDRA Compliance
(Sec. 447.502)
When Congress passed the drug rebate provisions in 1990, they
established a framework for coverage and payment of covered outpatient
drugs under Medicaid, and prescribed drugs, generally. Often referenced
as the ``grand bargain'' between the States, the Federal Government,
and manufacturers, the MDRP made clear that if manufacturers paid
rebates for the covered outpatient drugs dispensed and paid for under
the State Plan, States would be required to cover their covered
outpatient drugs, subject to limited permissible restrictions and
exclusions. These policies would help increase Medicaid beneficiaries'
access to medications, while assisting States in striving to deliver an
economic and efficient Medicaid program. A key piece of the coverage
and payment framework the MDRP established is captured in section
1927(a)(1) of the Act, which provides that in order for payment to be
available under section 1903(a) or under part B of title XVIII for
covered outpatient drugs of a manufacturer, the manufacturer must have
entered into and have in effect a rebate agreement with the Secretary
as described in section 1927(b) of the Act.
With an effectuated rebate agreement in place, manufacturers
participating in the MDRP are required to provide periodic rebates for
CODs dispensed and paid for under the State Plan, and also provide
certain drug price and drug product information on a monthly and/or
quarterly basis to the agency. While entering into a rebate agreement
is voluntary, a manufacturer that does not enter into such an agreement
forgoes payment and coverage, for their covered outpatient drugs under
Medicaid. It also affects coverage under the 340B Drug Pricing Program
and may affect Medicare Part B reimbursement.
To implement the important requirement set forth at section
1927(a)(1) of the Act, and in an effort to prevent selective reporting
of NDCs, the agency has required manufacturers to ensure that all their
associated labeler codes with CODs enter into a rebate agreement to
comply with the terms of the NDRA. This requirement has been included
in the NDRA since the inception of the program. (See section II.,
Manufacturer's Responsibilities, subsection (a) of the previous NDRA,
and section II., Manufacturer's Responsibilities, subsection (b) of the
updated NDRA.) We also reiterated this point most recently in the
preamble to the updated NDRA, 83 FR 12770 (Mar. 23, 2018). In that
final notice, we explained that manufacturers are required to report
all CODs under their labeler code(s) to the MDRP, and may not be
selective in reporting their national drug codes (NDCs) to the program.
We continue to maintain that this requirement applies to all the
manufacturer's labeler codes, including newly acquired labeler codes,
newly formed subsidiaries, and labeler codes previously omitted from
the original rebate agreement. 83 FR 12771; see also Manufacturer
Releases #13 and #48. Thus, once we review a request for a rebate
agreement and the manufacturer confirms, among other things, that all
of a manufacturer's CODs are listed, a rebate agreement will be issued.
Manufacturers are then responsible for paying a rebate on those CODs
that were dispensed and/or paid for, as applicable, under the State
Plan. These rebates are paid by manufacturers on a quarterly basis to
States, and are shared between the States and the Federal Government to
partially offset the overall cost of prescription drugs under the
Medicaid program.
The term ``manufacturer'' was first defined in statute in 1990,
when section 1927 of the Act was established, and was interpreted in
regulation in 2007 at Sec. 447.502. Section 1927(k)(5) of the Act
defines the term ``manufacturer'' as any entity which is engaged in:
(1) the production, preparation, propagation, compounding, conversion,
or processing of prescription drug products, either directly or
indirectly by extraction from substances of natural origin, or
independently by means of chemical synthesis, or by a combination of
extraction and chemical synthesis; or (2) in the packaging,
repackaging, labeling, relabeling, or distribution of prescription drug
products.
The regulations at Sec. 447.502 define ``manufacturer'' to mean
any entity that holds the NDC for a covered outpatient drug or
biological product and meets the following criteria:
<bullet> Is engaged in the production, preparation, propagation,
compounding, conversion, or processing of covered outpatient drug
products, either directly or indirectly by extraction from substances
of natural origin, or independently by means of chemical synthesis, or
by a combination of extraction and chemical synthesis; or
<bullet> Is engaged in the packaging, repackaging, labeling,
relabeling, or distribution of covered outpatient drug products and is
not a wholesale distributor of drugs or a retail pharmacy licensed
under State law.
[[Page 34255]]
<bullet> For authorized generic products, the term ``manufacturer''
will also include the original holder of the NDA.
<bullet> For drugs subject to private labeling arrangements, the
term ``manufacturer'' will also include the entity under whose own
label or trade name the product will be distributed.
The labeler code is a unique 5-digit number within the NDC,\8\
assigned by the FDA, and one manufacturer may be assigned multiple
labeler codes by FDA. A manufacturer can obtain a different labeler
code for each manufacturing establishment or company under the same
ownership since the labeler code identifies a company marketing a drug
product.\9\ Some drug companies that have several divisions have more
than one labeler code, and a single manufacturer may be marketing its
drugs across or under multiple labeler codes. Furthermore, a
manufacturer may own, operate, or be associated or affiliated with
several labeler code subsidiaries, each of which makes CODs.
---------------------------------------------------------------------------
\8\ See 21 CFR 207.33.
\9\ Electronic Drug Registration and Listing Instructions
[verbar] FDA.
---------------------------------------------------------------------------
Consistent with the statute and regulation, our current policy is
that each of these associated labeler codes would have to have an
effectuated rebate agreement in order for the single manufacturer to be
considered to be in compliance with the requirement under section
1927(a)(1) of the Act that a manufacturer have a rebate agreement in
effect, and this has been noted in related guidance.\10\ We treat each
associated labeler code as part of the single manufacturer, and if any
of the labeler codes of a manufacturer do not have an NDRA in effect,
no FFP would be available for any of the CODs of the labeler codes of
the manufacturer, and all of the labelers would be subject to potential
termination from the MDRP.
---------------------------------------------------------------------------
\10\ Manufacturer Release 013 (October 6, 1994), Manufacturer
Release 048 (November 15, 2000) and 83 FR 12770, 12771 (Mar. 23,
2018).
---------------------------------------------------------------------------
We also explained in the final notice for the updated NDRA that
manufacturers that wish to terminate an NDRA that have active CODs must
request termination for all associated labeler codes, and provide a
reason for the request (for example, all CODs under the labeler code
are terminated), or if the request for termination is only for certain
labeler codes, provide justification for such request (83 FR 12770,
12771). In that same final notice, we indicated that for purposes of
ensuring beneficiary access to single source drugs and/or drugs that
are not otherwise available in the MDRP, we may choose to grant an
exception to issuing or reinstating an NDRA for certain labeler codes
of a manufacturer prior to issuing an NDRA for all of the labeler codes
of the manufacturer, or terminating certain labeler codes as mentioned
above (83 FR 12771).
The requirement that manufacturers that enter into a rebate
agreement cannot exclude any covered outpatient drug from their
listings applies to all CODs associated with any of the manufacturer's
labeler codes that market CODs, including newly-purchased labeler
codes, and newly-formed subsidiaries. This means a manufacturer has to
be ``all in'' for all its drugs, or ``all out''. Otherwise, there is a
possibility that a manufacturer would create separate labeler codes for
some of its drugs, and enter into a rebate agreement for some of its
labeler codes, and not others. Permitting a manufacturer to do so would
allow them the benefit of receiving FFP for some of their CODs, while
potentially avoiding the financial obligation to pay rebates for other
drugs that would otherwise qualify as CODs and be subject to rebates.
If a product meets the definition of a covered outpatient drug, but the
manufacturer of such drug does not have a rebate agreement in effect,
that drug is not eligible for FFP and may not be claimed on the CMS-64
form, even though the drug may meet the definition of a prescribed
drug. In these situations, while States would not be required to
provide mandatory coverage of such drugs, a State may still elect to
cover these products with State only funds.
While we believe that the overwhelming majority of manufacturers
are compliant with section 1927(a)(1) of the Act, and have had all
their associated labelers enter into and maintain drug rebate
agreements, this issue has been challenged by a few manufacturers. In
more recent times, manufacturers have suggested certain associated
labelers are exempt or not required to be included in the program under
the manufacturer's rebate agreement, stating that such associated
companies, parent entities and brother-sister entities are distinct
separate manufacturers. They have stated that the agency has not
required such a policy through final regulations, but rather has
articulated this policy only in program releases and preamble
statements, which are subregulatory guidance that do not carry the
force of law.
To codify the requirement at section 1927(a)(1) of the Act, that a
manufacturer have entered into and have in effect an agreement with the
Secretary to receive FFP for its CODs, we are now proposing to modify
the regulatory definition of manufacturer to specify how the term
``manufacturer'' is defined for purposes of complying with this
statutory requirement. To satisfy the requirement that a manufacturer
have entered into and have in effect an agreement with the Secretary,
we are specifying at proposed Sec. 447.510(h) that manufacturers must
provide CMS with all labeler codes for all the manufacturer's
applicable drugs. More specifically, we are proposing at Sec.
447.510(h)(2) that if any manufacturer with a signed rebate agreement
in effect, acquires or purchases another labeler, acquires or purchases
covered outpatient drugs from another labeler code, or forms a new
subsidiary, they must ensure that a signed rebate agreement is in
effect for these entities or covered outpatient drugs, consistent with
the definition of manufacturer at Sec. 447.502, within the first 30
days of the next full calendar quarter beginning at least 60 days after
the acquisition, purchase, asset transfer, or formation of the
subsidiary.
As first described in the ``Medicaid Program; Payment for Covered
Outpatient Drugs Under Drug Rebate Agreements With Manufacturers''
proposed rule (95 FR 48442; hereinafter referenced as the ``1995
proposed rule''), we have noted our intent that each associated
manufacturer's labeler codes would have to have an effectuated rebate
agreement in order for the single manufacturer to be considered to be
in compliance with the requirement under section 1927(a)(1) of the Act
that a manufacturer have a rebate agreement in effect. This 1995
proposed rule is informative and helpful to understanding and
describing the agency's initial proposed policy and intentions with the
Medicaid Drug Rebate Program.\11\ In this proposal, CMS proposed to
interpret the term ``manufacturer'' to specify that if a corporation
meets the statutory definition of manufacturer (that is, section
1927(k)(5) of the Act) and possesses legal title to the NDC, the agency
would consider the term to include associated companies, including
parent corporations, brother-sister corporations, and subsidiary
corporations. In addition, we further proposed to interpret the term to
specify that if a corporation meets the statutory definition of
manufacturer, and possesses legal title to the NDC number, we would
consider the term to include: (1) Any corporation that owns at least 80
percent of the total combined voting power of all classes of stock or
80 percent of the total value of shares in all
[[Page 34256]]
classes of stock in such entity (that is a parent corporation); (2) Any
other corporation in which a parent corporation of the entity owns at
least 80 percent of the total combined voting power of all classes of
stock or 80 percent of the total value of shares. (60 FR 48447-48448)
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\11\ 60 FR 48447 through 48448.
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This policy comports with Congress' desire to maximize recipient
access to medically necessary drugs, while at the same time providing a
more favorable drug purchasing arrangement for State Medicaid
programs.\12\ When Congress passed the drug rebate provisions in 1990,
they made it clear that States that elect to cover prescription drugs
must, except for certain restrictions or exclusions allowed under the
statute, cover the CODs of a manufacturer that enters into and complies
with a drug rebate agreement. In return for such coverage, a
manufacturer would be responsible for providing a rebate to the State
that would give the Medicaid program the benefit of those discounts
that other large public and private purchasers receive.\13\
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\12\ H.R. Conf. Rept. No. 964, 101st Cong., 2d Sess. 822, 832
(1990); H.R. Rept. No. 881, 101st Cong., 2d Sess. 996 (1990).
\13\ Id.
---------------------------------------------------------------------------
We believe it would be directly contrary to Congressional intent to
apply the definition of a manufacturer in a manner that would permit a
manufacturer (that is by forming a subsidiary corporation) to exclude
some of its drugs from the drug rebate program.\14\ Our proposal would
prevent manufacturers from manipulating the system as to select drugs
by assigning separate labeler codes, without consequence to all of
their CODs, and codify a longstanding policy that has faced scrutiny
more recently. As such, we continue to believe that when defining a
manufacturer, the term ``entity'' should be interpreted to include
parent, brother-sister, or subsidiary corporations, as well as,
labelers that are owned, acquired, subsidiaries, affiliates, parent
companies, franchises, business segments, part of holding companies, or
under common corporate ownership or control.
---------------------------------------------------------------------------
\14\ Id.
---------------------------------------------------------------------------
Therefore, to provide a clearer definition of the meaning of
manufacturer with respect to section 1927(a)(1) of the Act, we are
proposing to amend the regulatory definition of manufacturer at Sec.
447.502. Consistent with the statute and our understanding of
Congressional intent of the MDRP, which was increasing access to
medications while at the same time helping States manage pharmacy
program costs and maximizing Medicaid savings, we are proposing to
include a new paragraph (5) as part of the definition of a
manufacturer. This change explains that, for purposes of meeting the
requirements in section 1927(a)(1) of the Act of maintaining an
effectuated rebate agreement, that the term ``manufacturer'' means that
all associated labeler entities of the manufacturer that sell
prescription drugs, including, but not limited to, owned, acquired,
affiliates, brother or sister corporations, operating subsidiaries,
franchises, business segments, part of holding companies, divisions, or
entities under common corporate ownership or control, must each
maintain an effectuated rebate agreement in order for a manufacturer to
satisfy the requirement at section 1927(a)(1) of the Act to have
entered into and have in effect a rebate agreement with the Secretary.
Additionally, we are proposing a new paragraph (h), ``Participation
in the Medicaid Drug Rebate Program (MDRP),'' in Sec. 447.510 to
further specify the responsibilities of a manufacturer, specifying in
Sec. 447.510(h)(1) that manufacturers participating in the MDRP must
have a signed rebate agreement that complies with paragraph (5) in the
definition of the manufacturer in Sec. 447.502.
Furthermore, with respect to rebate agreements when a manufacturer
acquires or purchases another manufacturer, acquires or purchases
covered outpatient drugs from another manufacturer, or forms a new
subsidiary, we are proposing to add Sec. 447.510(h)(2), ``Newly
purchased labeler codes and covered outpatient drugs.'' We are
proposing that any manufacturer with a rebate agreement in effect that
acquires or purchases another labeler code, acquires or purchases
covered outpatient drugs from another labeler, or forms a new
subsidiary, must have in effect a rebate agreement for these entities
or covered outpatient drugs consistent with definition of manufacturer
at Sec. 447.502. The newly associated entity of the manufacturer must
also have a rebate agreement in effect within the first 30 days of the
next full calendar quarter beginning at least 60 days after the
acquisition, purchase, asset transfer, or creation of a subsidiary has
occurred. By including these provisions in regulation, we would better
specify that a manufacturer must, in part, assure that a NDRA is in
effect with the Secretary for all associated labeler codes and that
MDRP requirements apply to all CODs of a manufacturer, including newly
associated entities.
Finally, we are proposing to add a provision on termination in at
Sec. 447.510(h)(3) specifying that each associated labeler code of a
manufacturer is considered to be part of the single manufacturer, and
if any of the associated labeler codes as defined in paragraph (5) of
the definition of manufacturer at Sec. 447.502 do not have an NDRA in
effect, or are terminated, then all of the labeler codes will be
subject to termination.
e. Proposal To Define Market Date (Sec. 447.502)
Section 1927 of the Act governs the MDRP and payment for CODs which
are defined in section 1927(k)(2) of the Act. Manufacturers that
participate in the MDRP are required to pay rebates for CODs that are
dispensed and paid for under the State Medicaid plan. (See section
1927(b)(1)(A) of the Act.) Section 1927 of the Act provides specific
requirements for program implementation, including requirements for
rebate agreements, submission of drug pricing and product information,
confidentiality, the formulas for calculating rebate payments, and many
others related to State and manufacturer obligations under the program.
The rebates due by manufacturers are calculated based on statutory
formulas described in section 1927(c) of the Act and consist of a basic
rebate and, in some cases, an additional rebate that is applicable when
an increase in the AMP, with respect to each dosage form and strength
of a drug, exceeds the rate of inflation. This additional rebate
formula is set forth in sections 1927(c)(2) and 1927(c)(3)(C) of the
Act, and codified in regulation at Sec. 447.509(a)(2) and (7).\15\
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\15\ Section 602 of the Bipartisan Budget Act (BBA) of 2015
amended section 1927(c)(3) of the Act, to require that manufacturers
pay additional rebates when their covered outpatient drugs other
than single source or innovator multiple source drugs' average
manufacturer prices increase at a rate that exceeds the rate of
inflation. In accordance with section 1927(c)(3) of the Act, as
revised by section 602 of the BBA of 2015, manufacturers must
calculate these additional rebates for these drugs beginning with
the January 1, 2017 quarter (that is, first quarter of 2017).
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The additional rebate calculation requires a determination of the
AMP for the dosage form and strength of the drug for the current rebate
quarter, and a comparison of that AMP to the AMP for the dosage form
and strength of that drug for a certain calendar quarter, generally
referenced as the base date AMP quarter.\16\ For S or I drugs, that
[[Page 34257]]
base date AMP quarter is the third quarter of 1990, for drugs that were
first marketed prior to fourth quarter of 1990, or the first full
calendar quarter after the day on which the drug was first marketed for
drugs that were first marketed on or after October 1, 1990.\17\ See
sections 1927(c)(2)(A) and 1927(c)(2)(B) of the Act. For other drugs
(including N drugs and other drugs reported as N), that base date AMP
quarter is the third quarter of 2014 for drugs that were first marketed
prior to April 1, 2013, or the fifth full calendar quarter after the
day on which the drug was first marketed for drugs that were first
marketed on or after April 1, 2013. See section 1927(c)(3)(C) of the
Act. To determine the applicable base date AMP, and ultimately, to
calculate the additional rebate for a quarter, a critical data point is
the day on which the drug was first marketed. We reference this date as
a COD's ``market date.'' Manufacturers are required to report to CMS
the market date of each dosage form and strength of a COD for all of
its CODs.
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\16\ Base Date AMP is defined in the National Drug Rebate
Agreement (NDRA) at I.(c) as follows: ``Base Date AMP'' will have
the meaning set forth in sections 1927(c)(2)(A)(ii)(II) and
1927(c)(2)(B) of the Act. See also I.(l) definition of ``marketed''.
Section VIII.a, provides that the agreement is subject to any
changes in the Medicaid statute or regulations that affect the
rebate agreement. Thus, any changes to regulations will be
incorporated into rebate agreements without further action. See also
Manufacturer Release 113--Misclassification of Drugs (medicaid.gov);
<a href="https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-009.pdf">https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-009.pdf</a> Manufacturer release No. 9; form 367c data definitions.
\17\ For a drug with a market date prior to October 1, 1990, the
MDRP reporting system defaults to a market date of September 30,
1990. The system assigns a base date AMP quarter of fourth quarter
of 1990 to such drugs as the statute defines (section
1927(c)(2)(A)(ii) of the Act).
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Section 1927(c)(2)(A)(ii)(II) of the Act expressly provides that
the base date AMP quarter, with respect to a dosage form and strength
of a drug, is established ``without regard to whether or not the drug
has been sold or transferred to an entity, including a division or
subsidiary of the manufacturer. . .'' This means the market date of a
drug is the date that the drug was first marketed, regardless of the
entity that marketed the drug. Consistent with the statute, the market
date of a drug is not and cannot be based on the first date upon which
a subsequent manufacturer first markets the drug, but rather the
earliest date on which the drug was first marketed, by any
manufacturer, or under any NDC.
A new market date cannot be established for a drug that is marketed
under the same FDA-approved NDA number, ANDA number or BLA license
unless the drug is a new dosage form or strength because the rebate
statute requires an additional rebate amount based on the market date
for each dosage form and strength of a COD.\18\ Thus, if a drug is
purchased or otherwise acquired from another manufacturer, the market
date should not change, and should equal the market date of the drug
first marketed under the approved application.
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\18\ The FDA approved application (for example the NDA itself)
includes all FDA approved supplements to the application.
---------------------------------------------------------------------------
Some manufacturers have attempted to set a new market date to
establish a new base date AMP for a drug by making changes to a drug
already approved under an FDA application that are something other than
changes to the dosage form or strength. If changes to the drug are
approved under the same FDA application and do not constitute changes
to the dosage form or strength, a new base date AMP is not appropriate.
Over the years, manufacturers have sporadically engaged in debate
regarding the determination of a COD's market date, base date AMP
quarter, and base date AMP under varied fact-driven scenarios. This
proposed definition seeks to clarify the term ``market date'' as used
in the MDRP and to end any further such debates.
AMP is defined in section 1927(k)(1) of the Act and the definition
includes that it is ``. . . the average price paid to the manufacturer
for the drug. . . .'' If there have not been any sales of the drug,
there is no data upon which to determine an average price paid to the
manufacturer to most accurately calculate the AMP value. Historically,
in such cases where no sales may have occurred in a base date AMP
quarter (because sometimes a new NDC may be available for sale during a
quarter, but no sales occurred during that quarter), we have advised
manufacturers to use reasonable assumptions, as appropriate, and
consistent with applicable law to establish an AMP.
To assist manufacturers in reporting a more accurately calculated
AMP, we are proposing to define market date based on the first sale of
the drug, rather than the date the drug was first available for sale.
Linking the market date determination to the date of the first sale,
rather than the date the drug was first available for sale, would
permit a manufacturer to establish and report a base date AMP without
reliance on reasonable assumptions, and based on actual data. As a
result, the URA would also be calculated more accurately because actual
sales would be available for reporting.
For purposes of determining the base date AMP quarter and base date
AMP, we propose that market date be based upon the earliest date on
which the drug was first sold, by any manufacturer, or under any NDC,
and define the term to mean the date on which the COD was first sold by
any manufacturer.
We propose that first sold means any sale of the COD. We understand
defining market date, for purposes of determining a COD's base date
AMP, based on when the COD was first sold, may not completely eliminate
a manufacturer's need to make reasonable assumptions because the first
sales may include only AMP ineligible sales. For example, if all the
sales during the first quarter of a drug's availability are made to
entities other than retail community pharmacies or wholesalers, and are
not eligible for a 5i AMP calculation, then there may not be any AMP
eligible sales to use for the calculation of AMP for that quarter. In
such cases, a manufacturer may still need to use reasonable assumptions
to report an AMP for that quarter.
We propose that ``sold'' means that the drug has been transferred
(including in transit) to a purchasing entity. We are requesting
comments on this topic to determine what qualifies as ``sold'' for the
purposes of determining the market date of a drug, as we have also
experienced manufacturers interpreting the term ``sold'' differently
across the industry.
Because the term market date has not been previously defined in
regulation and it is data used in the determination of base date AMP,
we are proposing a definition of market date for the purposes of the
MDRP. We are proposing at Sec. 447.502 that market date, for the
purpose of establishing the base date AMP quarter, means the date on
which the COD was first sold by any manufacturer.
f. Proposal To Modify the Definition of Noninnovator Multiple Source
Drug (Sec. 447.502)
As discussed previously in this proposed rule, section 6(c) of the
MSIAA included a number of amendments to statutory definitions in
section 1927 of the Act. Generally, those statutory amendments were
discussed in the December 31, 2020 final rule (85 FR 87000, 87032)
where the regulatory definitions of multiple source drug, innovator
multiple source drug, and single source drug were amended consistent
with the MSIAA.
Although we made conforming changes to the regulatory definition of
an I drug in the December 31, 2020 final rule, because the MSIAA did
not
[[Page 34258]]
expressly amend or clarify the statutory definition of an N drug we did
not consider whether any changes to the regulatory definition of an N
drug were necessary at that time. After further evaluation, we propose
to amend the regulatory definition of an N drug to conform the
regulatory definition of an N drug to the regulatory definition of an I
drug. When we established a regulatory definition of an N drug in the
July 17, 2007 final rule, we did so to distinguish between multiple
source drugs approved under an ANDA (generally referenced as N drugs)
and multiple source drugs approved under an NDA (that is, S or I
drugs). Both I drugs and N drugs are generally multiple source drugs.
The main difference between the definitions is the authority under
which the drug is marketed. Generally speaking, I drugs are marketed
under an NDA and N drugs are marketed under ANDA, or are unapproved.
Section 1927(k)(7)(A)(iii) of the Act, which was not expressly
amended or clarified by the MSIAA, defines a noninnovator multiple
source (N) drug as a multiple source drug that is not an I drug. As
noted, the MSIAA amended the statutory definition of an I drug by
removing ``was originally marketed'' and adding ``is marketed,'' and we
made conforming changes to the regulatory definition of an I drug in
the December 31, 2020 final rule. When we modified the regulatory
definition of an I drug to replace ``was originally marketed'' with
``is marketed'', we neglected to make a corresponding change to the
definition of an N drug to maintain the clear distinction between an I
drug, which is marketed under an NDA, and an N drug, which is not
marketed under an NDA. Paragraph (3) of the regulatory definition of an
N drug, codified at Sec. 447.502, continues to refer to a COD that
entered the market before 1962 that was not originally marketed under
an NDA.
To maintain the clear distinction between an I drug and an N drug,
we propose to amend paragraph (3) of the definition of an N drug at
Sec. 447.502 by removing ``was not originally marketed'' and inserting
in place ``is not marketed.'' As amended, the regulatory definition of
an N drug would, in relevant part, have the same structure as the
statutory and regulatory definitions of an I drug and distinguish
between a multiple source drug approved under an ANDA (that is, an N
drug) and a multiple source drug approved under an NDA (that is, an S
or I drug) based on the authority under which the drug is marketed, not
how the drug was originally marketed.
Accordingly, we propose to amend Sec. 447.502 by revising
paragraph (3) of the definition of an N drug to read, a COD that
entered the market before 1962 that is not marketed under an NDA. We
believe this to be a technical correction to the regulatory text.
g. Proposal To Define Vaccine for Purposes of the MDRP Only (Sec.
447.502)
States that opt to cover prescribed drugs under section 1905(a)(12)
of the Act in their State Plan are required to do so consistent with
section 1927 of the Act, as set forth at section 1902(a)(54) of the
Act. With limited exceptions, if a manufacturer wants payment to be
available under Medicaid for their CODs, the manufacturer must
participate (have entered into and have in effect a rebate agreement)
in the MDRP, and agree to pay rebates for CODs dispensed and paid for
under the State Plan. States are then required to cover the drugs of a
manufacturer participating in the MDRP, if the drug satisfies the
definition of COD, and then are required to invoice manufacturers for
rebates on those CODs that are dispensed and paid for under the State
Plan. If a particular drug or biological product of a participating
manufacturer is excluded from or does not satisfy the definition of
COD, then with limited exceptions, a State is not required to cover the
product under the prescribed drugs benefit nor would it be subject to
section 1927 of the Act. Moreover, those drugs or biological products
are not eligible for rebate invoicing, even though a State may cover
them and seek FFP.
Section 1927(k)(2)(B) of the Act specifically excludes vaccines
from the definition of COD for purposes of the MDRP. This exclusion is
codified in paragraph (1)(iv) of the regulatory definition of COD at
Sec. 447.502. Section 1927 of the Act, specifically, does not define
vaccine. Nor is there a definition of vaccine in Title XI, XVIII, XIX,
or XXI of the Act (applicable to Medicare, Medicaid, and CHIP), that
speaks to the specific kinds of biological products that qualify as
vaccines, in terms of their actions in the human body and how and when
they are used. Moreover, we are not aware that any authorizing statutes
for any other Department of Health and Human Services agencies include
such a statutory definition of the term ``vaccine.'' We have not
established a regulatory definition of vaccine for purposes of the
MDRP, and we are not aware of any other statutory or regulatory
definition of vaccine (that speaks to the actions of a product in the
human body and how and when it is used) that would be applicable for
purposes of the MDRP. However, for the reasons discussed in this
section, we believe that a regulatory definition of vaccine is
necessary for the purposes of the MDRP to specify which products are
considered vaccines and thus excluded from the definition of COD.\19\
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\19\ Currently, for vaccines other than COVID-19 vaccines,
Medicaid coverage of vaccines and vaccine administration for adults
is generally optional for States. Coverage of certain vaccinations
recommended by the Advisory Committee on Immunization Practices
(ACIP) is required for children and youth under age 21 who are
eligible for the Early and Periodic Screening, Diagnostic, and
Treatment (EPSDT) benefit and for beneficiaries receiving Medicaid
coverage through an Alternative Benefit Plan. Additionally, to
receive a one percentage point increase in the Federal medical
assistance percentage for certain expenditures, States must cover
certain services, including approved adult vaccinations recommended
by the Advisory Committee on Immunization Practices (ACIP), without
cost-sharing. See <a href="https://www.medicaid.gov/state-resource-center/downloads/covid-19-vaccine-toolkit.pdf">https://www.medicaid.gov/state-resource-center/downloads/covid-19-vaccine-toolkit.pdf</a> for more information.
Beginning October 1, 2023, under section 11405 of the Inflation
Reduction Act of 2022, States are required to cover approved adult
vaccines recommended by the ACIP, and their administration, for many
adults enrolled in Medicaid and the CHIP program, without cost
sharing.
---------------------------------------------------------------------------
Generally, drugs and biological products that are used to treat a
disease fall into one of the categories of CODs set forth at section
1927(k)(2) of the Act. Since Congress excluded vaccines from the
definition of COD in the original 1990 law, and vaccines that were
licensed at that time have a different intended use than therapeutics,
we believe that vaccines were excluded because of their unique
characteristics among medical products marketed at the time of
preventing disease by inducing an immune response.
When the MDRP statute was enacted as part of the Omnibus Budget
Reconciliation Act of 1990 (Pub. L. 101-508, enacted November 5, 1990),
the term ``vaccine'' referred to a product administered to provide
active immunity to a person to prevent an infectious disease.\20\ At
the time, it was generally understood that vaccines are administered
prophylactically, to prevent the development of an infectious disease,
not to treat an existing non-infectious disease (such as a cancer).
Although we have not found any legislative history specifically
indicating why Congress chose to exclude vaccines from the definition
of COD, it is likely Congress understood the term ``vaccine'' to refer
to preventive vaccines only (that is, we do not believe that Congress
understood the term to
[[Page 34259]]
include therapeutic vaccines) because all licensed vaccines at the time
the law was enacted shared those characteristics.
---------------------------------------------------------------------------
\20\ See <a href="https://purplebooksearch.fda.gov/">https://purplebooksearch.fda.gov/</a>. The database at this
link provides information about all FDA-licensed biological
products, including the date on which they were licensed. All the
vaccines listed in the ``Purple Book'' are licensed to prevent an
infectious disease.
---------------------------------------------------------------------------
As the science of immunology has become more advanced, drugs and
biological products have been, and continue to be, developed that treat
diseases using immunotherapy, such as immunotherapy used to treat
certain cancers. Some manufacturers refer to such products as
``therapeutic'' vaccines. While both preventive vaccines and
``therapeutic vaccines'' work by creating an immune response, each type
of product has a unique role in health care.
In general, a preventive vaccine provides active immunity to a
disease, that is, it causes the body's immune system to produce an
antigen-specific immune response (for example, antibodies and/or a
cellular immune response) to antigens of the disease-causing
organism.\21\ A preventive vaccine is generally administered to induce
immunity and a ``memory'' response to a particular infectious disease-
causing organism so that in the event an individual is later exposed to
that disease, the body will recognize the disease and respond before
the disease has a chance to manifest or to reduce the severity of
illness. There are also situations in which a preventive vaccine may be
administered to an individual who has already been exposed to a
disease-causing organism but the disease has not yet developed and may
be prevented by a timely and robust vaccine-induced immune response
(for example, rabies and anthrax vaccines).
---------------------------------------------------------------------------
\21\ CDC describes active immunity as a long-lasting immunity
that develops by triggering antibody production. Conversely, they
describe passive immunity as a short-term immunity provided by the
administration of antibody-containing products. See <a href="https://www.cdc.gov/vaccines/vac-gen/immunity-types.htm">https://www.cdc.gov/vaccines/vac-gen/immunity-types.htm</a>.
---------------------------------------------------------------------------
In contrast, ``therapeutic vaccines'' are generally biological
products that are intended to induce an antigen specific immune
response to treat an already established disease (for example,
treatment of cancer by inducing a specific immune response to the
tumor). This type of product is generally intended to be a treatment
modality similar to other forms of immunotherapy such as the checkpoint
inhibitors or strategies that are based on the transfer of a preformed
immune response (for example, transfer of antibodies or immune effector
cells.)
If ``therapeutic vaccines'' were considered vaccines that are
excluded from the definition of COD at section 1927(k)(2)(B) of the
Act, a Medicaid beneficiary's access to these products under the
prescribed drugs benefit could be limited because States would not be
required to cover them under that benefit. Moreover, coverage of such a
product under other benefits might only be available if the CDC's
Advisory Committee on Immunization Practices (ACIP) issued a
recommendation for such a product. This potential lack of access to
important therapies for Medicaid beneficiaries is a critical concern.
Clinical research into ``therapeutic vaccines'' has been increasing and
several have been licensed by FDA that offer treatments for diseases
that previously had limited or no effective treatment available.
Similarly, if products that provide passive immunity, such as immune
globulins, were excluded from the definition of a COD, because they
were identified as vaccines, such treatments may not be made available
to Medicaid beneficiaries.
Thus, with the increasing development and availability of products
that use immunology to treat diseases, and because sometimes these
products are referred to as ``therapeutic vaccines'', we believe that
adopting an MDRP regulatory definition of ``vaccine'' that reflects
Congress' likely intent at the time of the enactment of section 1927 of
the Act is imperative to ensure that only the appropriate products are
excluded from the definition of a COD. This would ensure manufacturers
are able to report their drug product and drug pricing data for all
CODs accurately, pay appropriate rebates to States, and most
critically, that Medicaid beneficiaries have access to these important
therapies under the prescribed drugs benefit.\22\
---------------------------------------------------------------------------
\22\ Even if a ``therapeutic vaccine'' product is required
coverage under other Medicaid benefits, this proposal would help to
ensure that manufacturers report product and pricing data accurately
and pay rebates to States, as applicable.
---------------------------------------------------------------------------
Therefore, we are proposing to define ``vaccine'' at Sec. 447.502
for the specific purposes of the MDRP, so that manufacturers understand
which products are considered vaccines under the MDRP and are excluded
from the definition of COD, and not subject to rebates. The definition
would be applicable only to the MDRP and would not be applicable to any
other agencies or agency program implementation, including FDA, CDC,
and HRSA. The proposed definition of vaccine would not apply under any
Title XIX statutory provisions other than section 1927(k)(2), or to
separate CHIPs operating pursuant to Sec. 457.70(a)(1) and (d), or for
purposes of the Vaccines for Children Program. The definition would
apply to the MDRP for purposes of Medicaid expansion CHIPs, pursuant to
Sec. 457.70(c)(2). This proposed policy would not alter any applicable
Federal or State requirements to cover immunizations for Medicaid
beneficiaries, as applicable. Specifically, we are proposing to define
``vaccine'' to mean a product that is administered prophylactically to
induce active, antigen-specific immunity for the prevention of one or
more specific infectious diseases and is included in a current or
previous FDA published list of vaccines licensed for use in the United
States.
We are including in the proposed definition that a vaccine must be
administered prophylactically--that is, to prevent a disease and not to
treat a disease--because we believe that States should generally not
exclude from coverage, under the prescribed drugs benefit, drugs or
biologicals that treat disease. We are also proposing that a vaccine
must be administered to induce active, antigen-specific immunity
because that is a characteristic of preventive vaccines.
Finally, we are proposing to limit the definition of vaccine to
those products that satisfy the conditions of being administered
prophylactically, to prevent a disease, and induce active antigen-
specific immunity, that also appear on a current or previous list
compiled by FDA. FDA publishes a list of vaccines licensed for use in
the United States.\23\ As FDA is the agency responsible for licensing
vaccines, we believe that if a product satisfying the previously
described conditions appears on this list, it should be treated as a
vaccine for the purposes of the MDRP. We seek comment on whether the
proposed definition of vaccine, for purposes of the MDRP only,
appropriately distinguishes between preventive vaccines (which would
satisfy the definition of vaccine and, therefore, not satisfy the
definition of a covered outpatient drug and would not be eligible for
statutory rebates), and therapeutic vaccines (which would not satisfy
the definition of vaccine and therefore could satisfy the definition of
a covered outpatient drug and could therefore be eligible for statutory
rebates).
---------------------------------------------------------------------------
\23\ Vaccines Licensed for Use in the United States.
---------------------------------------------------------------------------
Additionally, while we propose to cabin this definition to the
MDRP, we seek comment on whether this definition might result in
indirect consequences for Medicaid benefits other than the prescribed
drugs benefit. We are also requesting comment about the consequences
for Medicaid of ACIP recommending immunization with a
[[Page 34260]]
product that would not qualify as a vaccine under this definition.
D. Proposal To Account for Stacking When Determining Best Price--(Sec.
447.505)
Section 1927(c)(1)(C) of the Act defines the term ``best price'' to
mean with respect to a single source drug or innovator multiple source
drug of a manufacturer (including the lowest price available to any
entity for any such drug of a manufacturer that is sold under a new
drug application approved under section 505(c) of the Federal Food,
Drug, and Cosmetic Act), the lowest price available from the
manufacturer during the rebate period to any wholesaler, retailer,
provider, health maintenance organization, nonprofit entity, or
governmental entity within the United States, subject to certain
exceptions and special rules. The implementing regulations for the
determination of best price are at Sec. 447.505.
In the COD final rule, we addressed a comment to our proposal to
make revisions to the determination of best price, and specify which
prices are included in best price. The comment requested that CMS
further adopt a policy with regard to the practice of a manufacturer
stacking two different price concessions provided to two different
entities, such that under these circumstances, the best price for a
drug should reflect all rebates and payments associated with a
transaction of a covered outpatient drug to a particular customer. (See
81 FR 5252.) In response to the commenter's request, we indicated that
a manufacturer is responsible for including all price concessions that
adjust the price realized by the manufacturer for the drug in its
determination of best price. We also explained that if a manufacturer
offers multiple price concessions to two entities for the same drug
transaction, such as rebates to a PBM where the rebates are designed to
adjust prices at the retail or provider level, in addition to discounts
to a retail community pharmacy's final drug price, all discounts
related to that transaction which adjust the price available from the
manufacturer should be considered in the final price of that drug when
determining best price (81 FR 5252 through 5253).
In the COD final rule with comment, we made minor revisions to the
regulatory text at Sec. 447.505(b) by deleting the reference to
``associated'' rebate and discounts and inserting a reference to
``applicable discounts, rebates'' so that it presently reads that the
best price for CODs includes all prices, including applicable
discounts, rebates or other transactions that adjust prices either
directly or indirectly to the best price-eligible entities listed in
Sec. 447.505(a).
We addressed the question regarding stacking in the response to
comments in the COD final rule, specifying that if multiple price
concessions are provided to two entities for the same drug transaction,
all discounts related to that transaction which adjust the price
available from the manufacturer should be considered when determining
best price. However, we did not revise or propose to revise the
regulation text at Sec. 447.505(d)(3) to address stacking in such
detail. Section 447.505(d)(3) currently indicates that the manufacturer
must adjust the best price for a rebate period if cumulative discounts,
rebates or other arrangements subsequently adjust prices available, to
the extent that such cumulative discounts, rebates or other
arrangements are not excluded from the determination of best price by
statute or regulation.
However, in the case United States ex rel. Sheldon v. Allergan
Sales, LLC., a relator alleged that a drug manufacturer failed to
aggregate discounts provided to separate customers for purposes of
determining best price, and the manufacturer argued that the stacking
requirement was not sufficiently clear. The district court granted
Allergan's motion to dismiss, ruling that relator failed to plausibly
allege either falsity or knowledge because Allergan's interpretation
``is objectively reasonable'' and CMS' rule had not specifically warned
against it. On appeal, a panel of the United States Court of Appeals
for the Fourth Circuit stated that, in that case, the drug manufacturer
had not been ``warned . . . by the authoritative guidance from CMS''
and that CMS had ``failed to clarify'' the stacking issue.\24\ The
Government filed an amicus brief supporting the relator's petition for
rehearing en banc, which the Fourth Circuit granted. Following
argument, the Fourth Circuit issued its decision with no substantive
opinion that vacated the prior panel decision and affirmed the district
court by an equally divided court.
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\24\ United States ex rel. Sheldon v. Allergan Sales, LLC, 24
F.4th 340, 351, 354 (4th Cir. 2022), reh'g en banc granted, No. 20-
2330, 2022 WL 1467710 (4th Cir. May 10, 2022).
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As noted, section 1927(c)(1)(C) of the Act defines the term ``best
price'' to mean with respect to a single source drug or innovator
multiple source drug of a manufacturer (including the lowest price
available to any entity for any such drug of a manufacturer that is
sold under a new drug application approved under section 505(c) of the
Federal Food, Drug, and Cosmetic Act), the lowest price available from
the manufacturer during the rebate period to any wholesaler, retailer,
provider, health maintenance organization, nonprofit entity, or
governmental entity within the United States. We interpreted this
section expansively as the statute refers to a manufacturer's lowest
price ``available'' ``to any'' entity on this statutory list. That is,
if a manufacturer provides a discount to a wholesaler, then a rebate to
the provider who dispensed the drug unit, and then another rebate to
the insurer who covered that drug unit, CMS has concluded that ``best
price'' must include (or ``stack'') all the discounts and rebates
associated with the final price, even if the entity did not buy the
drug directly from the manufacturer. By stacking, best price reflects
the lowest realized price at which the manufacturer made that drug unit
available. We also note that manufacturers are required to take rebates
into account for multiple entities when calculating AMP, and for
logical reasons, best price should do so as well, since including them
in AMP and not accounting for them in best price could result in AMP
being lower than best price.
Therefore, to remove any potential doubt prospectively, we are
proposing to revise Sec. 447.505(d)(3) to add to the existing
regulatory statement that the manufacturer must adjust the best price
for a covered outpatient drug for a rebate period if cumulative
discounts, rebates or other arrangements to best price eligible
entities subsequently adjust the price available from the manufacturer
for the drug. We are adding the clarifying statement that cumulative
discounts, rebates or other arrangements must be stacked to generate a
final price realized by the manufacturer for a covered outpatient drug,
including discounts, rebates or other arrangements provided to
different best price eligible entities.
E. Proposal To Rescind Revisions Made by the December 31, 2020 Final
Rule to Determination of Best Price (Sec. 447.505) and Determination
of Average Manufacturer Price (AMP) (Sec. 447.504) Consistent With
Court Order
Pharmaceutical manufacturers have provided purported financial
assistance payments (for example, in the form of copay coupons) to
patients for purposes of paying the patient cost obligation of certain
drugs.
[[Page 34261]]
On June 19, 2020, CMS proposed regulations to address the effect of
PBM accumulator adjustment programs on best price calculations (85 FR
37286) in relation to these purported manufacturer financial assistance
payments by instructing manufacturers on how to consider the
implementation of such programs when determining best price and AMP for
purposes of the Medicaid Drug Rebate Program (MDRP). In particular, CMS
proposed revising its regulations to provide that the exclusions for
manufacturer's financial assistance payments ``apply only to the extent
the manufacturer ensures the full value of the assistance or benefit is
passed on to the consumer or patient'' (85 FR 37299). On December 31,
2020, CMS finalized its proposed revisions (85 FR 87000, 87048 through
87055, and 87102 through 87103). The final rule codified the proposed
language to require that ``the manufacturer ensures that the full
value'' of the assistance or benefit is passed on to the consumer or
patient to exclude that assistance or benefit to an insured patient
from the manufacturer's best price calculation and AMP. The final rule
also delayed the effective date of the change until January 1, 2023, to
``give manufacturers time to implement a system that will ensure the
full value of assistance under their manufacturer-sponsored assistance
program is passed on to the patient.''
In May 2021, the Pharmaceutical Research and Manufacturers of
America (PhRMA) filed a complaint against the Secretary asking the
court to vacate these amendments to Sec. 447.505(c)(8) through (11)
(85 FR 87102 and 87103), as set forth in the 2020 final rule (referred
to by the Court as ``the accumulator adjustment rule of 2020''). On May
17, 2022, the United States District Court for the District of Columbia
ruled in favor of the plaintiff and ordered that the accumulator
adjustment rule of 2020 be vacated and set aside.
In response to this court order, we propose to withdraw the changes
made to best price and to also withdraw the changes to AMP to apply
consistent rules for determining best price and AMP. Therefore, we
propose to remove the language added to these sections as part of the
2020 final rule: Sec. Sec. 447.504(c)(25) through (29) and (e)(13)
through (17) and 447.505(c)(8) through (12). See 85 FR 87102 and 87103.
Specifically, we would remove ``the manufacturer ensures'' from these
provisions. As a result, these regulations would maintain the language
that has been in place since 2016. To be clear, the changes to these
regulations made by the 2020 final rule on January 1, 2023, were not
effective as a result of the court's order.
F. Drug Classification; Oversight and Enforcement of Manufacturer's
Drug Product Data Reporting Requirements--Proposals Related to the
Calculation of Medicaid Drug Rebates and Requirements for Manufacturers
(Sec. Sec. 447.509 and 447.510)
1. Medicaid Drug Rebates (MDR) and Penalties (Sec. 447.509)
Section 6 of the MSIAA, titled ``Preventing the Misclassification
of Drugs Under the Medicaid Drug Rebate Program,'' amended sections
1903 and 1927 of the Act to clarify the definitions for multiple source
drug, single source drug and innovator multiple source drug, and to
provide the Secretary with additional compliance, oversight and
enforcement authorities to ensure compliance with program requirements
with respect to manufacturers' reporting of drug product and pricing
information, which includes the appropriate classification of a drug.
Drug classification refers to how a drug should be classified--as a
single source, innovator multiple source, or noninnovator multiple
source drug--for the purposes of determining the correct rebates that a
manufacturer owes the States.\25\ When manufacturers misclassify their
drugs in the rebate program, it can result in manufacturers paying
rebates to States that are different than those that are supported by
statute and regulation, and in some cases, can result in the
manufacturer paying a lower per-unit rebate amount to the States.
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\25\ Note that section 1927(c)(3) of the Act describes rebates
for covered outpatient drugs other than single source and innovator
multiple source drugs in section 1927(c)(3) of the Act as ``rebates
for other drugs.'' The MDRP reporting system provides for all
``other drugs'' that are covered outpatient drugs to be classified
in the system as N drugs, regardless of whether they expressly meet
the statutory definition of noninnovator multiple source drug. This
reporting methodology has been in effect for the history of the
program and interested parties have understood that a covered
outpatient drug that was not an S or an I drug is reported in the
system as an N drug.
---------------------------------------------------------------------------
Specifically, section 1927(c)(4)(A) of the Act, ``Recovery of
Unpaid Rebate Amounts due to Misclassification of Drugs,'' was added to
the statute to provide new authorities to the agency to identify and
correct a manufacturer's misclassification of a drug, as well as impose
other penalties on manufacturers that fail to correct their
misclassifications. In general, a misclassification in the MDRP occurs
when a manufacturer reports and certifies its covered outpatient drug
under a drug category, or uses drug product information, that is not
supported by the statutory and regulatory definitions of S, I, or N.
We published guidance to manufacturers regarding compliance with
drug pricing and drug product information reporting under this new law
in Manufacturer Release #113 on June 5, 2020. See <a href="https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf">https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-113.pdf</a>.
Although much of this law is self-implementing, we are proposing a
series of regulatory amendments at Sec. Sec. 447.509 and 447.510 to
implement and codify the statutory changes in regulation. We propose
that a misclassification of a drug under the MDRP has occurred or is
occurring when a manufacturer reports its drug under a category that is
not supported by the statutory and regulatory definitions of S, I, or
N. A misclassification can also occur when a manufacturer's drug is
appropriately classified, but the manufacturer is paying rebates at a
different amount than required by the statute, or where the drug
manufacturer's certified drug product information for the COD is also
inconsistent with statute and regulation.
The MSIAA also amended the Act to expressly require a manufacturer
to report not later than 30 days after the last day of each month of a
rebate period under the agreement, such drug product information as the
Secretary shall require for each of the manufacturer's covered
outpatient drugs. In a separate section, we are proposing a definition
of ``drug product information'' for the purposes of the MDRP.
Similarly, the MSIAA amended the Act to clarify that the reporting
of false drug product information and data related to false drug
product information would also be subject to possible CMPs by the HHS
Office of the Inspector General (OIG), and to provide specific new
authority to the Secretary to issue civil monetary penalties related to
knowing misclassifications of drug product or misreported information.
These new OIG authorities will not be the subject of this rulemaking.
Under the MSIAA, if a manufacturer fails to correct the
misclassification of a drug in a timely manner after receiving
notification from the agency that the drug is misclassified, in
addition to the manufacturer having to pay past unpaid rebates to the
States for the misclassified drug if applicable, the Secretary can take
any or all of the following actions: (1) correct the misclassification,
using drug product information provided by the manufacturer on behalf
of the manufacturer; (2) suspend the misclassified drug, and the drug's
status as a covered outpatient drug under the
[[Page 34262]]
manufacturer's national rebate agreement, and exclude the misclassified
drug from FFP (correlating amendments to section 1903 of the Act); and,
(3) impose civil monetary penalties (CMP) for each rebate period during
which the drug is misclassified subject to certain limitations. The Act
expressly provides that the imposition of such penalties may be in
addition to other remedies, such as termination from the MDRP, or CMPs
under Title XI.
In Sec. 447.509, we propose to include a new paragraph (d),
``Manufacturer misclassification of a covered outpatient drug and
recovery of unpaid rebate amounts due to misclassification and other
penalties,'' to implement additional penalty and compliance authorities
outlined in section 6 of the MSIAA, which amended sections 1903 and
1927 of the Act. As some manufacturers may continue to misclassify drug
products, we believe these proposed penalties are necessary so that
manufacturers do not neglect to correct and certify their information,
to assure that States receive the rebates that they deserve, to assure
that public MDRP data are accurate, to protect the integrity of the
MDRP, and to ensure the efficient and economic administration of the
Federal Medicaid program.
Under the MDRP, a drug should be classified as a single source,
innovator multiple source, or noninnovator multiple source drug for the
purposes of determining the correct rebates that a manufacturer owes
the States. We propose that a misclassification in the MDRP occurs when
a manufacturer reports and certifies its covered outpatient drug under
a drug category or other drug product data related to a COD that is not
supported by the statutory and regulatory definitions of S, I, or N. We
also propose to define as a misclassification a situation in which the
manufacturer accurately reports and certifies its COD under a drug
category or other related drug product data for a COD, but is paying a
different rebate amount than that required by the statute and
regulations. The statute expressly indicates at section 1927(d)(4) of
the Act that a misclassification can occur without regard to whether
the manufacturer knowingly made the misclassification or should have
known that the misclassification was being made.
It is the legal responsibility of the manufacturer to report and
certify the correct classification of its covered outpatient drugs to
the agency, and the drug product information related to a COD. The
agency does not as a routine matter review or verify the drug category
classifications and related drug product information reported and
certified by the manufacturer. However, in its oversight role, the
agency will review the classification and other drug product and
pricing information reported by the manufacturer for a drug to
determine its accuracy, as needed. For example, when questions arise,
the agency will generally review the drug product and pricing
information reported and certified by a manufacturer. To this end, we
generally rely upon various sources of information to determine if a
drug is misclassified in the MDRP. This includes information reported
by manufacturers to CMS in combination with publicly available
information in making determinations of whether a drug is misclassified
in the MDRP. The agency also uses manufacturer reported information,
such as the COD status code, in combination with information available
on the FDA's Comprehensive NDC SPL Data Elements file (NSDE) <a href="https://download.open.fda.gov/Comprehensive_NDC_SPL_Data_Elements_File.zip">https://download.open.fda.gov/Comprehensive_NDC_SPL_Data_Elements_File.zip</a>, and
information from FDA's Drugs@FDA web page <a href="https://www.accessdata.fda.gov/scripts/cder/daf/">https://www.accessdata.fda.gov/scripts/cder/daf/</a> to verify that the national
drug codes (NDCs) reported to the MDRP by manufacturers are
appropriately classified and reported to MDRP.
Therefore, we propose in the new Sec. 447.509(d), the following
process to identify, notify and correct a manufacturer's drug category
misclassifications, and impose other penalties, while at the same time
notifying the HHS OIG and/or other governmental agencies about possible
violations of MDRP requirements.
a. Identification and Notification to Manufacturer To Correct
Misclassification (Sec. 447.509(d)(1) Through (4))
We are proposing in new paragraphs (d)(1) through (4) of Sec.
447.509, requirements relating to the process by which the agency would
identify when a misclassification of a drug has occurred in MDRP,
subsequently notify a manufacturer that we have determined that a drug
is misclassified in MDRP, indicate the penalties that may be imposed on
the manufacturer, as well that the manufacturer may owe past due
rebates.
We propose to define what constitutes a misclassification in
paragraph (d)(1). As proposed at Sec. 447.509(d)(1)(i),
misclassification in the MDRP occurs when a manufacturer reports and
certifies to the agency its drug category or drug product information
related to a covered outpatient drug that is not supported by
applicable statute or regulation. For example, a drug is misclassified
by the manufacturer if it is reported as a noninnovator multiple source
drug when the correct classification for the COD, as determined by the
agency, is a single source drug or an innovator multiple source drug,
based on application of relevant statutes and regulations. In such an
example, it is likely that the manufacturer has paid or is paying a
lower per unit rebate amount to a State as a result of the
misclassification, and the agency would notify the ma
[…truncated; see source link]Indexed from Federal Register on May 26, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.