Rule2024-21254
Medicaid Program; Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program
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Published
September 26, 2024
Effective
November 19, 2024
Issuing agencies
Health and Human Services DepartmentCenters for Medicare & Medicaid Services
Abstract
This final rule implements policies in the Medicaid Drug Rebate Program (MDRP) related to the new legislative requirements in the Medicaid Services Investment and Accountability Act of 2019 (MSIAA), which address drug misclassification, as well as drug pricing and product data misreporting by manufacturers. Additionally, we are finalizing several other proposed program integrity and program administration provisions or modifications in this final rule, including revising and finalizing key definitions used in the MDRP. This rule also finalizes a provision not directly related to MDRP that makes revisions to the third-party liability regulation due to amendments made by the Bipartisan Budget Act (BBA) of 2018. We also are finalizing our proposal to rescind revisions made by the December 31, 2020 final rule "Medicaid Program; Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements" ("the 2020 final rule") to the Determination of Best Price and Determination of Average Manufacturer Price (AMP) sections.
Full Text
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[Federal Register Volume 89, Number 187 (Thursday, September 26, 2024)]
[Rules and Regulations]
[Pages 79020-79085]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21254]
[[Page 79019]]
Vol. 89
Thursday,
No. 187
September 26, 2024
Part III
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 433, 438, and 447
Medicaid Program; Misclassification of Drugs, Program Administration
and Program Integrity Updates Under the Medicaid Drug Rebate Program;
Final Rule
Federal Register / Vol. 89 , No. 187 / Thursday, September 26, 2024 /
Rules and Regulations
[[Page 79020]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 433, 438, and 447
[CMS-2434-F]
RIN 0938-AU28
Medicaid Program; Misclassification of Drugs, Program
Administration and Program Integrity Updates Under the Medicaid Drug
Rebate Program
AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).
ACTION: Final rule.
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SUMMARY: This final rule implements policies in the Medicaid Drug
Rebate Program (MDRP) related to the new legislative requirements in
the Medicaid Services Investment and Accountability Act of 2019
(MSIAA), which address drug misclassification, as well as drug pricing
and product data misreporting by manufacturers. Additionally, we are
finalizing several other proposed program integrity and program
administration provisions or modifications in this final rule,
including revising and finalizing key definitions used in the MDRP.
This rule also finalizes a provision not directly related to MDRP that
makes revisions to the third-party liability regulation due to
amendments made by the Bipartisan Budget Act (BBA) of 2018. We also are
finalizing our proposal to rescind revisions made by the December 31,
2020 final rule ``Medicaid Program; Establishing Minimum Standards in
Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based
Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug
Rebate and Third Party Liability (TPL) Requirements'' (``the 2020 final
rule'') to the Determination of Best Price and Determination of Average
Manufacturer Price (AMP) sections.
DATES: These regulations are effective on November 19, 2024.
Applicability Dates: In the Supplementary Information section of
this final rule, we provide a table (Table 1), which lists key changes
in this final rule that have an applicability date other than the
effective date of this final rule.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Omar Alemi, 720-853-2724, <a href="/cdn-cgi/l/email-protection#7f10121e0d511e131a12163f1c120c5117170c51181009"><span class="__cf_email__" data-cfemail="187775796a3679747d7571587b756b3670706b367f776e">[email protected]</span></a>, for issues
related to the definition of covered outpatient drug (COD) and removal
of manufacturer rebate cap.
Ruth Blatt, 410-786-1767, <a href="/cdn-cgi/l/email-protection#cdbfb8b9a5e3afa1acb9b98daea0bee3a5a5bee3aaa2bb"><span class="__cf_email__" data-cfemail="f68483829ed8949a978282b6959b85d89e9e85d8919980">[email protected]</span></a>, for issues
related to the definitions of noninnovator multiple-source drug, market
date, and COD.
Ginger Boscas, 410-786-3098, <a href="/cdn-cgi/l/email-protection#03646a6d6466712d616c7060627043606e702d6b6b702d646c75"><span class="__cf_email__" data-cfemail="45222c2b2220376b272a36262436052628366b2d2d366b222a33">[email protected]</span></a>, for issues
related to third-party liability.
Michael Forman, 410-786-2666, <a href="/cdn-cgi/l/email-protection#9af7f3f9f2fbfff6b4fcf5e8f7fbf4daf9f7e9b4f2f2e9b4fdf5ec"><span class="__cf_email__" data-cfemail="75181c161d1410195b131a0718141b351618065b1d1d065b121a03">[email protected]</span></a>, for
issues related to physician-administered drugs.
Charlotte Hammond, 410-786-1092, <a href="/cdn-cgi/l/email-protection#d2b1bab3a0bebda6a6b7fcbab3bfbfbdbcb692b1bfa1fcbabaa1fcb5bda4"><span class="__cf_email__" data-cfemail="3c5f545d4e505348485912545d51515352587c5f514f1254544f125b534a">[email protected]</span></a>, for
issues related to diagnosis on prescriptions and professional
dispensing fees.
Mickey Morgan, 443-745-3950, <a href="/cdn-cgi/l/email-protection#bdd0d4ded6d8c493d0d2cfdadcd38cfdded0ce93d5d5ce93dad2cb"><span class="__cf_email__" data-cfemail="e4898d878f819dca898b9683858ad5a4878997ca8c8c97ca838b92">[email protected]</span></a>, for issues
related to drug cost transparency in Medicaid managed care contracts
and accounting for accumulated price concessions from 'stacking' when
determining best price.
Lisa Shochet, 410-786-5445, <a href="/cdn-cgi/l/email-protection#4c20253f2d623f24232f2429380c2f213f6224243f622b233a"><span class="__cf_email__" data-cfemail="54383d27357a273c3b373c3120143739277a3c3c277a333b22">[email protected]</span></a>, for issues
related to Bank Identification Number and Processor Control Number
(BIN/PCN).
Terry Simananda, 410-786-8144, <a href="/cdn-cgi/l/email-protection#483c2d3a3a31663b2125292629262c29082b253b6620203b662f273e"><span class="__cf_email__" data-cfemail="77031205050e59041e1a16191619131637141a04591f1f0459101801">[email protected]</span></a>, for
issues related to internal investigation, Collection of Information,
and Regulatory Impact Analysis sections.
Whitney Swears, 410-786-6543, <a href="/cdn-cgi/l/email-protection#5a2d32332e343f2374292d3f3b28291a39372974323229743d352c"><span class="__cf_email__" data-cfemail="86f1eeeff2e8e3ffa8f5f1e3e7f4f5c6e5ebf5a8eeeef5a8e1e9f0">[email protected]</span></a>, for
issues related to time limitation on audits and the definition of
manufacturer.
Cathy Traugott, 720-853-2785, <a href="/cdn-cgi/l/email-protection#4d2e2c3925283f24232863393f2c382a2239390d2e203e6325253e632a223b"><span class="__cf_email__" data-cfemail="620103160a07100b0c074c16100317050d161622010f114c0a0a114c050d14">[email protected]</span></a>, for
issues related to drug misclassifications, definition of vaccine, and a
drug price verification process through data collection survey.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
Under the Medicaid program, section 1902(a)(54) of the Social
Security Act (the Act) provides States with the option of providing
coverage of prescribed drugs as described in section 1905(a)(12) of the
Act, and to date, all States have elected to do so. Section 1903(a) of
the Act provides for Federal Financial Participation (FFP) in State
expenditures for these covered outpatient drugs (CODs). Coverage of
CODs under the option provided by section 1902(a)(54) of the Act must
comply with the requirements of section 1927 of the Act. Section 1927
of the Act governs the Medicaid Drug Rebate Program (MDRP) and payment
for CODs, which are defined in section 1927(k)(2) of the Act. In
general, for payment to be made available for CODs under section
1903(a) of the Act, manufacturers must enter into a National Drug
Rebate Agreement (NDRA) as set forth in section 1927(a) of the Act. See
also section 1903(i)(10) of the Act conditioning FFP in medical
assistance for drugs covered under section 1902(a)(54) on the
manufacturer of the drug having an NDRA. The rebates paid by
manufacturers to States help to partially offset the Federal and State
costs of most outpatient prescription drugs dispensed to Medicaid
beneficiaries.
The amount of the rebate is determined by a formula set forth in
section 1927(c) of the Act. Generally, the formula to calculate the
rebate that applies to a particular drug depends on whether the drug is
classified as (1) a single source drug (S drug) or innovator multiple
source drug (I drug), commonly referred to as a brand-name drug, or (2)
other drugs, which include noninnovator multiple source drugs (N drug),
commonly referred to as generic drugs, among others. Generally,
pursuant to section 1927 of the Act, drugs classified as single source
drugs or innovator multiple source drugs pay higher rebates than those
that are classified as an ``other drug,'' such as noninnovator multiple
source drugs.
Consistent with section 1927(b)(3)(A) of the Act, a manufacturer
must report and certify certain drug product and drug pricing
information for CODs to CMS not later than 30 days after the last day
of each month and certain drug product and drug pricing information 30
days after the last day of each quarter of a rebate period. If a
manufacturer fails to submit timely information, or misreports
information, we may be unable to establish accurate Unit Rebate Amounts
(URAs) due to the misreporting or late reporting. While we provide URAs
to the States each quarter to help facilitate billing manufacturers for
rebates, it is ultimately the manufacturer's responsibility to ensure
accurate rebates are paid to States for their CODs.
Prior to the enactment of the Medicaid Services Investment and
Accountability Act of 2019 (MSIAA) (Pub. L. 116-16; enacted April 18,
2019), section 1927(k)(7)(A)(iv) of the Act defined a single source
drug as a covered outpatient drug which is produced or distributed
under an original new drug application (NDA). Section 1927(k)(7)(A)(ii)
of the Act similarly defined an innovator multiple source drug as a
multiple source drug that was originally marketed under an original
NDA. A noninnovator multiple source drug was defined at section
[[Page 79021]]
1927(k)(7)(A)(iii) of the Act as a multiple source drug that is not an
innovator multiple source drug. MSIAA made several revisions to these
definitions, including adding a provision to ratify CMS' existing
policy to permit certain exceptions from the definitions if a narrow
exception applies, as described in Sec. 447.502 or any successor
regulation.
This narrow exception process in Sec. 447.502 was created in the
2016 final rule entitled ``Medicaid Program; Covered Outpatient Drugs''
\1\ (2016 COD final rule), under which drug manufacturers could submit
a request for a narrow exception to allow individual drugs approved
under an NDA to be treated as if they were approved under an
abbreviated new drug application (ANDA) and classified as noninnovator
multiple source drugs prospectively from the effective date of the 2016
COD final rule. Instructions to manufacturers regarding this process
were included in Manufacturer Release #98, May 2, 2016.\2\ The 2016 COD
final rule did not, however, excuse manufacturers from their obligation
to correctly report drugs approved under an NDA, as either single
source or innovator multiple source drugs prior to the effective date
of the 2016 COD final rule, which was April 1, 2016. This narrow
exception process was codified into statute in MSIAA when the Congress
removed the word ``original'' from the definitions of single source
drug and innovator multiple source drug, thereby confirming CMS' pre
2016 interpretation.
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\1\ <a href="https://www.govinfo.gov/content/pkg/FR-2016-02-01/pdf/2016-01274.pdf">https://www.govinfo.gov/content/pkg/FR-2016-02-01/pdf/2016-01274.pdf</a>.
\2\ <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>.
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We published the proposed rule (88 FR 34238-34296) on May 26, 2023,
and provided a 60-day comment period. A total of 128 comments were
received. We are now publishing the final rule. We are clarifying and
emphasizing our intent that if any provision of this final rule is held
to be invalid or unenforceable by its terms, or as applied to any
person or circumstance, or stayed pending further action, it shall be
severable from other parts of this final rule, and from rules and
regulations currently in effect, and not affect the remainder thereof
or the application of the provision to other persons not similarly
situated or to other, dissimilar circumstances. Through this rule, we
adopt provisions that are intended to and will operate independently of
each other, even if each serves the same general purpose or policy
goal. Where a provision is necessarily dependent on another, the
context generally makes that clear.
B. Amendments Made by the Medicaid Services Investment and
Accountability Act of 2019 (MSIAA) to Section 1927 of the Act Regarding
MDRP Drug Classification Enforcement and Penalties
Section 6 of MSIAA, titled ``Preventing the Misclassification of
Drugs Under the Medicaid Drug Rebate Program,'' amended sections 1903
and 1927 of the Act to (1) specify the definitions for single source
drug, innovator multiple source drug, and noninnovator multiple source
drug, and (2) to provide the Secretary with additional compliance,
oversight and enforcement authorities to ensure compliance with program
requirements with respect to manufacturers' reporting of drug product
and pricing information, which includes the appropriate classification
of a drug. Drug classification refers to how a drug should be
classified--as a single source drug, innovator multiple source drug, or
noninnovator multiple source drug--for the purposes of determining the
correct rebates that each manufacturer owes the States.
Although much of this law is self-implementing, we proposed a
series of regulatory amendments at Sec. Sec. 447.509 and 447.510 to
implement and codify the statutory changes in regulation. We proposed
that misclassification of a drug under the MDRP has occurred or is
occurring when a manufacturer reports and certifies to the agency a
drug category or drug product information relating to that COD that is
not supported by the statutory and regulatory definitions of S, I, or N
drug. We also defined a misclassification as a situation in which a
manufacturer is correctly reporting its drug category or drug product
information for a COD but is paying a different rebate amount to the
States than is supported by the classification.
MSIAA also amended the Act to expressly require a manufacturer to
report not later than 30 days after the last day of each month of a
rebate period under the agreement, such drug product information as the
Secretary shall require for each of the manufacturer's covered
outpatient drugs. We proposed a definition of ``drug product
information'' for the purposes of the MDRP.
Similarly, MSIAA amended the Act to specify that the reporting of
false information, including information related to drug pricing, drug
product information, and data related to drug pricing or drug product
information, would also be subject to possible civil monetary penalties
(CMPs) by the Department of Health and Human Services (HHS) Office of
the Inspector General (OIG), and to provide specific new authority to
the Secretary to issue CMPs related to knowing misclassifications of
drug product or misreported information. These OIG authorities are not
the subject of this rulemaking.
Under MSIAA, if a manufacturer fails to correct the
misclassification of a drug in a timely manner after receiving
notification from the agency that the drug is misclassified, in
addition to the manufacturer having to pay past unpaid rebates to the
States for the misclassified drug if applicable, the Secretary can take
any or all of the following actions, including correcting the
misclassification, suspending the misclassified drug from the MDRP,
imposing CMPs, or ultimately terminating the manufacturer's
participation in the MDRP.
Codifying these statutory amendments in our regulations provides an
opportunity for the agency to give additional clarity to and guidance
on the new legal authorities for ensuring oversight of, compliance
with, and enforcement of the provisions of the MDRP, and ultimately to
ensure that Federal and State programs are receiving appropriate
rebates and that CMS continues to be a stringent steward of taxpayer
monies.
C. MDRP Program Administration Proposed Changes
In order to increase efficiency and economy of directing overall
MDRP operations, resources, and activities to better facilitate the
needs of Medicaid beneficiaries, we proposed a number of new regulatory
policies and clarifications of existing policies. Specifically,
consistent with our statutory authorities, we proposed to define,
specify, or amend the definitions for COD, internal investigation (for
restatement purposes outside of a 3-year time window), manufacturer
(for National Drug Rebate Agreement (NDRA) purposes), market date,
noninnovator multiple source drug, drug product information, and
vaccine for the purposes of the MDRP. We also proposed to specify that
the rebate provisions for a drug other than a single source drug or an
innovator multiple source drug apply to an array of drugs, including
those that may not satisfy the definition of noninnovator multiple
source drug.
In addition, we proposed new policies, including to add a time
[[Page 79022]]
limitation on manufacturers' ability to initiate audits with States, to
further clarify and establish the requirements for FFS pharmacy
reimbursement, and to clarify the required collection of all National
Drug Codes (NDCs) for single and multiple source physician-administered
drugs to receive FFP and secure manufacturer rebates.
We also proposed to revise Medicaid managed care standard contract
requirements to adopt a requirement for the inclusion of Bank
Identification Number and Processor Control Number (BIN/PCN) numbers on
Medicaid enrollee identification cards for pharmacy benefits, as well
as enhance drug cost transparency by adopting specific requirements
relating to the third-party administration of the pharmacy benefit. We
provide additional background later in this rule.
1. Proposal To Modify the Definition of Covered Outpatient Drug
In the 2016 COD final rule (81 FR 5278), we finalized a regulatory
definition of covered outpatient drug in Sec. 447.502 that
substantially mirrors the statutory definition and is consistent with
section 1927(k)(3) of the Act. The definition includes a limiting
definition which exempts from the COD definition, and thus from
rebates, any drug, biological product, or insulin provided as part of,
or as incident to and in the same setting as, (and for which payment
may be made under this title as part of payment for the following and
not as direct reimbursement for the drug) certain health care setting
or situations described in section 1927(k)(3). However, we never
clarified what the term ``direct reimbursement'' means for the purposes
of defining those situations under which a State could bill a
manufacturer for a rebate for a COD when the COD is part of an
inclusive payment for the COD and related services. In regulation, we
proposed to define the term direct reimbursement at Sec. 447.502 so
that States know those situations in which the limiting definition
would not apply such that a State could bill for a rebate. CMS received
several thoughtful comments on this issue, and based on these comments,
we realized the proposed language did not adequately clarify the
policy. Thus, we are further refining the definition to more clearly
delineate the situations in which the limiting definition would not
apply.
2. Proposed Definition of an Internal Investigation for Purposes of
Pricing Metric Revisions
In accordance with section 1927(b)(3) of the Act, Sec. 447.510 of
the applicable regulations, and the terms of the NDRA, manufacturers
are required to report certain pricing and drug product information to
CMS on a timely basis or else they could incur penalties or other
compliance and enforcement measures. In the 2016 COD final rule, we
established Sec. 447.510(b)(1), which provides that a manufacturer
must report to CMS any revision to AMP, best price, customary prompt
pay discounts, or nominal prices (pricing data) for a period not to
exceed 12 quarters from the quarter in which the data were due unless
enumerated exceptions apply. See Sec. 447.510(b)(1)(i) through (vi).
The existing regulation at Sec. 447.510(b)(1)(v) provides an
exception to the 12-quarter price reporting rule if the change is being
made to address specific rebate adjustments to States by manufacturers,
as required by CMS or court order, or under an internal investigation
or an OIG or Department of Justice (DOJ) investigation. However, up to
this point, we have not defined the term internal investigation, which
has led to different interpretations of the nature of an internal
investigation. Therefore, we proposed to add a definition of internal
investigation at Sec. 447.502 and additional clarity around the 12-
quarter price reporting rule at Sec. 447.510. Based on comments we
received, we are finalizing as proposed except we are adding the term
``possible'' to ``fraud, abuse or violation of law or regulation''.
3. Proposal To Modify the Definition of Manufacturer for National Drug
Rebate Agreement (NDRA) Compliance Purposes
We proposed to further refine the definition of manufacturer to
clarify that a manufacturer includes all other manufacturers that are
associated or affiliated with that manufacturer. This was intended to
clarify that once a manufacturer has entered into a rebate agreement
with CMS, all entities (with their applicable labeler codes) that are
associated or affiliated with a manufacturer must have a rebate
agreement in effect in order for the manufacturer to satisfy the
statutory requirement that the manufacturer have a rebate agreement in
effect with the Secretary.
We appreciate the thoughtful comments received on this issue, and
we determined not to finalize the proposed policy at this time. We are
continuing to review the input provided by commenters, which may inform
future rulemaking on this topic.
4. Proposal To Establish a Definition of Market Date for a COD for the
Purposes of Determining a Base Date AMP for a COD
The rebates due by manufacturers are calculated based on statutory
formulas described in section 1927(c) of the Act and consist of a basic
rebate and, in some cases, an additional rebate that is applicable when
an increase in the AMP, with respect to each dosage, form, and strength
of a drug, exceeds the rate of inflation. A key factor in the
calculation of the additional rebate is the base date AMP \3\ of the
drug, a value that is determined based on the market date of the drug.
Manufacturers are required to report the market date of each dosage
form and strength of a COD for all of their CODs. The term market date
has not been previously defined in regulation for purposes of the MDRP,
and CMS has received numerous questions regarding the determination of
market date. Accordingly, we proposed to define the term market date at
Sec. 447.502 for the purpose of the MDRP and are finalizing as
proposed.
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\3\ The terms ``base date AMP,'' ``baseline AMP,'' and ``base
AMP'' are used interchangeably within this document.
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5. Proposal To Modify the Definition of Noninnovator Multiple Source
Drug
As discussed previously in the proposed rule, section 6(c) of MSIAA
included a number of amendments to statutory definitions in section
1927 of the Act. One of the amendments to the statutory definitions was
to remove the phrase ``was originally marketed'' from the definition of
an I drug and replace it with ``is marketed.'' We also made conforming
changes to the regulatory definition of an I drug in the 2020 final
rule.
These amendments should have prompted a corresponding change to the
regulatory definition of noninnovator multiple source (N) drug in the
2020 final rule to align with the statutory and regulatory change to
the definition of an I drug, however we neglected to include the
change. Therefore, we proposed to amend the definition of an N drug at
Sec. 447.502 to maintain the clear distinction between an I drug and
an N drug and are finalizing as proposed.
6. Proposal To Define Vaccine for the Purposes of the MDRP Only
Section 1927(k)(2)(B) of the Act specifically excludes vaccines
from the definition of COD for purposes of the MDRP. This exclusion is
codified in paragraph (1)(iv) of the regulatory definition of COD at
Sec. 447.502. Section 1927 of the Act does not define vaccine.
[[Page 79023]]
We proposed a definition of vaccine at Sec. 447.502 for the
purpose of identifying products that do not satisfy the definition of
COD and are therefore not subject to possible required coverage under
the prescribed drugs benefit consistent with section 1927 of the Act
and applicable rebate liability under the MDRP. We noted that the
regulatory definition of vaccine is intended to be established solely
for the purposes of the MDRP and is intended to be applicable only to
that program and Medicaid expansion CHIP programs (that is, CHIP
programs operating pursuant to 42 CFR 457.70(a)(2) and (c)). It is not
intended to apply under any title XIX statutory provisions other than
section 1927(k)(2), or to separate CHIPs operating pursuant to 42 CFR
457.70(a)(1) and (d), or for purposes of the Vaccines for Children
(VFC) Program. Nor is it intended to apply to any other programs within
CMS or any other agencies within HHS (for example, the Food and Drug
Administration (FDA), Centers for Disease Control and Prevention (CDC),
or Health Resources and Services Administration (HRSA)). Rather, we
stated that the proposed changes would only specify which products are
vaccines and are therefore excluded from the definition of a COD under
the MDRP and thus are not subject to section 1927, including to MDRP
rebate liability; the proposed changes would not apply to any
applicable Federal or State requirements to cover vaccines for Medicaid
beneficiaries, as applicable. We appreciate the thoughtful comments we
received on this issue. At this time, we are not finalizing the
proposed regulatory definition. We are continuing to review the input
provided by commenters, which may inform future rulemaking on this
topic.
7. Proposal To Account for Stacking When Determining Best Price
We proposed to revise Sec. 447.505(d)(3) to add language to make
clearer that the manufacturer must adjust the best price for a drug for
a rebate period if cumulative discounts, rebates, or other arrangements
to best price eligible entities subsequently adjust the prices
available from the manufacturer, and that those discounts, rebates, or
other arrangements must be ``stacked'' for a single transaction to
determine a final price realized by the manufacturer for a drug. CMS
received a number of thoughtful comments on this issue, and we have
determined not to finalize the proposed regulation changes at this
time. We are continuing to review the input provided by commenters. We
intend to collect information through a separate Paperwork Reduction
Act (PRA) request to collect additional information related to
manufacturers' stacking methodologies, which may inform future
rulemaking on this topic.
8. Proposal To Establish a Time Limitation for Audits Over Utilization
Data With States: 12-Quarter Rebate Dispute Time Limitation
Currently, there is no time limit for a manufacturer to initiate an
audit or resolve previously disputed State utilization data with
respect to rebates owed, and section 1927 of the Act does not impose a
specific timeframe on a manufacturer's audit authority. We proposed to
limit the time period during which manufacturers may initiate disputes,
hearing requests, and audits of State-invoiced utilization units to 12
quarters from the last day of the quarter from the date of State
invoice to the manufacturer. Upon reviewing comments, we believe
referencing the invoice postmark date instead of the date of the State
invoice offers the same clarity for both States and Manufacturers on
the timeline initiation and would align with previous DP policy.
Therefore, we are finalizing as proposed, with the exception of
referencing ``postmark date'' instead of ``the date of the State
invoice''.
9. Proposal Regarding Drug Price Verification Through Data Collection
Section 1927(b)(3)(B) of the Act authorizes the Secretary to
``survey wholesalers and manufacturers that directly distribute their
[CODs], when necessary, to verify manufacturer prices'' reported under
section 1927(b)(3)(A) of the Act. Under this authority, we proposed
rules to describe those situations when it would be considered
``necessary'' for such surveys to be sent to manufacturers and
wholesalers, and the information that would be requested to use in
order to verify the reported prices at issue.
We appreciate the thoughtful comments we received on this issue,
and we determined not to finalize the proposed policy at this time. We
are continuing to review the input provided by commenters, which may
inform future rulemaking on this topic.
10. Proposal To Clarify and Establish Requirements for FFS Pharmacy
Reimbursement
In the 2016 COD final rule, we finalized at Sec. 447.518 moving
FFS pharmacy reimbursement to an actual acquisition cost-based
reimbursement, under which pharmacists would be paid for the ingredient
costs of the drug that was dispensed, and a professional dispensing fee
(PDF) that reflected their costs of dispensing. We proposed to revise
Sec. 447.518, ``State plan requirements, findings, and assurances,''
in paragraph (d)(1) to clarify State requirements regarding pharmacy
ingredient costs and professional dispensing fees to be consistent with
the applicable statutory and regulatory requirements, specifying in
particular that any dispensing fee surveys must be based on actual
pharmacy dispensing costs data and not market research data. We are
finalizing as proposed.
11. Proposals Relating to Section 1927(a)(7) of the Act and Federal
Financial Participation (FFP): Conditions Relating to Physician-
Administered Drugs (PADs)
In accordance with section 1927(a)(7) of the Act, for payment to be
available under section 1903 of the Act, and for States to secure
applicable Medicaid rebates, States are to provide for the collection
and submission of utilization data and coding (such as J-codes \4\ and
NDC numbers) for a COD that is a physician-administered single source
drug as determined by the Secretary, or that is a multiple source drug
that is determined by the Secretary to be a top 20 high dollar volume
PAD dispensed under Medicaid (as identified on a published list).\5\
Regulations at Sec. 447.520 were established to implement these
statutory provisions in the final rule entitled ``Medicaid Program;
Prescription Drugs'' (72 FR 39142, 39162) (hereinafter referred to as
the 2007 final rule), specifying the conditions for FFP for PADs.\6\
---------------------------------------------------------------------------
\4\ J codes are a subset of the Healthcare Common Procedure
Coding System (HCPCS) Level II code set used to primarily identify
injectable drugs.
\5\ <a href="https://www.medicaid.gov/medicaid/prescription-drugs/state-prescription-drug-resources/physician-administered-drugs-pad/index.html">https://www.medicaid.gov/medicaid/prescription-drugs/state-prescription-drug-resources/physician-administered-drugs-pad/index.html</a>.
\6\ <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>.
---------------------------------------------------------------------------
We proposed to amend Sec. 447.520 to require States to collect NDC
information on all covered outpatient single and multiple source PADs
and to specify that States must invoice for rebates for all covered
outpatient PADs to receive FFP and secure manufacturer rebates. We are
finalizing as proposed but have added a discussion of our statutory
authority for extending this requirement by regulation beyond the top
20 multiple source drugs already required by statute.
[[Page 79024]]
12. Proposal Related to Suspension of a Manufacturer's Drug Rebate
Agreement
We proposed regulatory changes to further implement section
1927(b)(3)(C)(i) of the Act, which provides authority to suspend a
rebate agreement for a manufacturer's failure to timely report drug
pricing or drug product information to the agency, when there is a
continued failure to report after a 90-calendar day deadline is imposed
by the agency. Specifically, we proposed in Sec. 447.510(i) that a
manufacturer must report information required under Sec. 447.510(a)
and (d), and the failure to report such information to the agency after
the end of an imposed 90-calendar day period would result in suspension
of the manufacturer's rebate agreement, and that such agreement would
not be reinstated until such information was reported in full and
certified, but not for a period of suspension of less than 30 calendar
days. We are finalizing as proposed.
13. Proposals Related to Managed Care Plan Standard Contract
Requirements
a. Requirement of BIN/PCN Inclusion on Medicaid Managed Care Pharmacy
Identification Cards
Patients enrolled in health care plans, including in Medicaid
managed care plans such as Medicaid managed care organizations (MCOs),
prepaid inpatient health plans (PIHPs), or prepaid ambulatory health
plans (PAHPs), generally use enrollee identification cards at the
pharmacy so they can obtain prescription drug benefits, as well as
allow pharmacies to process and bill claims in real-time. Health plans
use two codes on the card to identify a patient's prescription health
insurance and benefits--the National Council for Prescription Drug
Programs (NCPDP) Processing Bank Identification Number (BIN) and
Processor Control Number (PCN). This information, along with a group
number identifier, can specify that a patient is covered by a specific
insurance group, such as being a Medicaid managed care enrollee.
Without the BIN, PCN, and group number identifiers, it is often
difficult to determine from a Medicaid managed care enrollee's
identification card if he or she is covered under a Medicaid managed
care plan or under non-Medicaid coverage, such as an employer-sponsored
group health plan or individual market insurance, offered by the same
organization or entity that offers the Medicaid managed care plan.
While the use of Medicaid-specific BIN, PCN, and group number
identifiers does not assist in identifying claims for drugs purchased
under the 340B Drug Pricing Program (340B Program), it may help States
and their managed care plans avoid invoicing for rebates on 340B drugs
by identifying which plans are covered under Medicaid. Section
340B(a)(5)(A) of the Public Health Service Act (the PHS Act) prohibits
duplicate discounts for drugs purchased under the MDRP. Identifying
claims where the dispensed drug has been discounted under the 340B
Program is necessary to avoid duplicating that discount in the MDRP.
Therefore, under the authority of section 1902(a)(4) of the Act, to
ensure effective implementation of and compliance with sections
1927(a)(5)(C) and 1927(j)(1) of the Act, we proposed to amend Sec.
438.3(s) to require States to require (via standard contract
requirements) MCOs, PIHPs, and PAHPs that provide coverage of CODs to
assign and exclusively use unique Medicaid BIN, PCN, and group number
identifiers for all Medicaid managed care enrollee identification cards
for pharmacy benefits. Based on comments received, we are changing the
requirement to be a unique BIN/PCN combination with a group number
identifier, as well as the effective date.
b. Drug Cost Transparency in Medicaid Managed Care Contracts
Medicaid managed care plans often contract with a subcontractor
Pharmacy Benefit Manager (PBM) to operate the pharmacy benefit provided
to Medicaid beneficiaries. For a Medicaid managed care plan to
appropriately calculate and report its Medical Loss Ratio (MLR) under
Sec. 438.8, the plan must know from the subcontractor certain
information relating to how much of the payments made to the Medicaid
managed care plan by the State were used to pay for health care
services and other specific categories outlined in Sec. 438.8. To
correctly report the MLR, a Medicaid managed care plan must distinguish
between expenses that are for covered benefits (such as incurred claims
for health care services and drug costs) and administrative expenses,
such as fees paid to its PBM for PBM services (for example, claims
adjudication and processing prior authorization requests).
Therefore, we proposed that MCOs, PIHPs, and PAHPs that provide
coverage of CODs require any subcontractor to report the amounts
related to the incurred claims described in Sec. 438.8(e)(2)
separately from any administrative costs, fees, and expenses of the
subcontractor. Based on comments received, we are finalizing as
proposed, with a few clarifying changes. We are adding ``MCO, PIHP or
PAHP'' in a few places to be consistent with other paragraphs in 42 CFR
438.3(s) and are adding a subsection to include an effective date,
which will be the first rating period for contracts beginning on or
after 1 year following the effective date of the rule.
14. Proposal To Rescind Revisions Made by the December 31, 2020 Final
Rule To Determination of Best Price (Sec. 447.505) and Determination
of Average Manufacturer Price (AMP) (Sec. 447.504) Consistent With
Court Order
On May 17, 2022, the United States District Court for the District
of Columbia vacated and set aside the ``accumulator adjustment rule of
2020'' in response to a complaint filed against the Secretary regarding
the accumulator provisions within the 2020 final rule ``Medicaid
Program; Establishing Minimum Standards in Medicaid State Drug
Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP)
for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third
Party Liability (TPL) Requirements.'' This final rule had revised the
conditions for excluding patient assistance from AMP at Sec.
447.504(c)(25) through (29) and (e)(13) through (17), and best price at
Sec. 447.505(c)(8) through (12), to add language (effective January 1,
2023) that would require manufacturers to ``ensure'' the full value of
the assistance provided by patient assistance programs is passed on to
the consumer and that the pharmacy, agent, or other AMP or best price
eligible entity does not receive any price concession. While the
district court's order focused on the changes to the patient assistance
program exclusions from best price determinations, for consistency, we
proposed to withdraw the changes related to patient assistance to both
the AMP and best price sections made by the 2020 final rule so that the
regulations would revert back to the language that has been in place
since 2016. We are finalizing this provision as proposed.
15. Proposals Related to Amendments Made by the American Rescue Plan
Act of 2021--Removal of the Manufacturer Rebate Cap (100 Percent AMP)
Section 9816 of the American Rescue Plan Act of 2021 (Pub. L. 117-
2, enacted March 11, 2021) sunsets the limit on maximum rebate amounts
for single source and innovator multiple source drugs by amending
section 1927(c)(2)(D) of the Act to add ``and before January 1, 2024,''
after ``December 31, 2009.'' In accordance with section
1927(c)(3)(C)(i) of the Act and the special rules for application of
the provision in section
[[Page 79025]]
1927(c)(3)(C)(ii)(IV) and (V) of the Act, this sunset provision also
applies to the limit on maximum rebate amounts for CODs other than
single source or innovator multiple source drugs. Therefore, to conform
Sec. 447.509 with section 1927(c)(2)(D) of the Act, as amended by the
American Rescue Plan Act of 2021, and sections 1927(c)(3)(C)(i),
(ii)(IV), and (ii)(V) of the Act, we proposed to make conforming
changes to Sec. 447.509 to reflect the removal of the limit on maximum
rebate amounts for rebate periods beginning on or after January 1,
2024. We are finalizing this provision as proposed.
16. Request for Information--Comments on Issues Relating To Requiring a
Diagnosis on Medicaid Prescriptions as a Condition for Claims Payment
We solicited comments on the patient care, clinical, and
operational impact of requiring that a patient's diagnosis be included
on a prescription as a condition of a State receiving FFP for that
prescription. We were particularly interested in understanding any
operational implications, privacy related concerns, associated burden,
and approaches to negate any foreseeable impact on beneficiaries and
providers, including what steps would be needed by States to
successfully implement a Medicaid requirement for diagnosis on
prescriptions.
We appreciate the thoughtful comments we received on this issue,
and we determined we are not moving forward with any proposed
regulations regarding this topic at this time.
17. Background on Coordination of Benefits/Third Party Liability
Regulation Due to Bipartisan Budget Act of 2018 (BBA 2018)
Medicaid is generally the payer of last resort, which means that
certain other available resources--known as third party liability, or
TPL--must be used before Medicaid pays for services received by a
Medicaid-eligible individual. Title XIX of the Act requires State
Medicaid programs to identify and seek payment from liable third
parties, before billing Medicaid. Section 53102 of the Bipartisan
Budget Act of 2018 (BBA 2018) (Pub. L. 115-123, enacted February 9,
2018) amended the TPL provision at section 1902(a)(25) of the Act.
Specifically, section 1902(a)(25)(A) of the Act requires that
States take all reasonable measures to ascertain the legal liability of
third parties to pay for care and services available under the plan.
That provision further specifies that a third party is any individual,
entity, or program that is or may be liable to pay all or part of the
expenditures for medical assistance furnished under a State plan.
Section 1902(a)(25)(A)(i) of the Act specifies that the State plan must
provide for the collection of sufficient information to enable the
State to pursue claims against third parties.
To update the regulation for the recent statutory changes, a final
rule was published on December 31, 2020, which went into effect on
March 1, 2021, to include changes as authorized under the BBA 2018. We
submitted a correction due to an omission in the regulation text to
require a State to make payments without regard to TPL for pediatric
preventive services unless the State has made a determination related
to cost-effectiveness and access to care that warrants cost avoidance
for up to 90 days.
D. Applicability and Compliance Timeframes
Generally, we are finalizing that this rule, including the
proposals being finalized herein, will be effective 60 days after
publication of this final rule, with the exception of two provisions in
the Standard Medicaid Managed Care Contract Requirements section. We
are including Table 1 with these provisions and relevant timing
information and dates. We encourage all interested parties to confirm
the applicability dates indicated in this final rule for any changes
from the proposed.
Table 1--Applicability Dates
------------------------------------------------------------------------
Regulation text Applicability date
------------------------------------------------------------------------
Sec. 438.3(s)(7)........ First rating period for contracts with MCOs,
PIHPs, and PAHPs beginning on or after 1
year following November 19, 2024.
Sec. 438.3(s)(8)........ First rating period for contracts with MCOs,
PIHPs, and PAHPs beginning on or after 1
year following November 19, 2024.
------------------------------------------------------------------------
II. Summary of Proposed Provisions, Analysis of and Responses to Public
Comments, and Provisions of the Final Rule
The proposed rule to implement regulatory policies in the Medicaid
Drug Rebate Program (MDRP) related to the new legislative requirements
in the Medicaid Services Investment and Accountability Act of 2019
(MSIAA), which address drug misclassification, as well as drug pricing
and product data misreporting by manufacturers, was published on May
26, 2023 (88 FR 34238). As discussed in the proposed rule, we also made
proposals to enhance program integrity and improve program
administration for the MDRP. The proposals included a time limitation
on manufacturers initiating audits with States, clarifications and
requirements for State fee-for-service (FFS) pharmacy reimbursement,
and the establishment of conditions relating to States claiming Federal
Financial Participation (FFP) for physician-administered drugs (PADs).
Other proposals included two new requirements for contracts between
States and their Medicaid managed care plans in connection with
coverage of covered outpatient drugs (CODs). In addition, the rule
included a proposal not directly related to the MDRP that would modify
the third-party liability regulation based on the Bipartisan Budget Act
of 2018 (BBA of 2018). Finally, the proposed rule solicited comments
related to the issues, benefits, and challenges of requiring the
inclusion of diagnoses on Medicaid prescriptions.
We received 128 comments from drug manufacturers, membership
organizations, law firms, pharmacy benefit managers (PBMs), State
Medicaid agencies, advocacy groups, not-for-profit organizations,
consulting firms, health care providers, employers, health insurers,
health care associations, and individuals. The comments ranged from
general support or opposition to the proposed provisions to very
specific questions or comments regarding the proposed changes.
We also received public comments on this regulation that were out
of scope for this rulemaking, and, therefore, are not being addressed
in this rule. The following summarizes comments about the proposed rule
in general or about specific issues that are not addressed in this
final rule.
Comment: Several commenters submitted comments that were outside of
the scope of the proposed rule. Examples of out-of-scope comments
include but are not limited to whether Medicaid accepts JW/JZ modifiers
when billing radiopharmaceuticals at free-
[[Page 79026]]
standing radiology offices, the amount charged for a specific drug per
month, and comments on CMS' ``Medicare Part D Drug Inflation Rebates
Paid by Manufacturers: Initial Memorandum, Implementation of Section
1860D-14B of Social Security Act, and Solicitation of Comments,'' that
CMS issued on February 9, 2023.
Response: We appreciate commenters' interest in these topics.
However, because these comments are outside of the scope of the
proposed rule, we are not addressing them in this final rule.
Comment: A commenter stated that Federal agencies must align their
rules and proposals to ensure compatibility. The commenter believes
there are a variety of currently proposed, pending, or expected rules
from CMS and the Office of the National Coordinator for Health
Information Technology (ONC) that are not completely independent from
each other; they noted, in some cases, there may be components of
different rules that contradict each other, and in other cases, they
may be written in ways that unnecessarily increase the burden on one or
more parties subject to the rule. Specifically, the commenter mentioned
CMS discusses requiring NDC codes for medications in this rule, but the
recent ONC Health Data, Technology, and Interoperability: Certification
Program Updates, Algorithm Transparency, and Information Sharing (HTI-
1) Proposed Rule discusses the possibility of deprecating support for
NDC codes in its certification programs in favor of always requiring
use of RxNorm for medications. Concerns were raised that the rules were
not coordinated so that their requirements are compatible and
executable without placing additional burden on individuals or
organizations that need to implement more than one rule.
Response: We appreciate the request for Federal agencies to align
their rules to ensure compatibility. We are addressing only those
proposals that were part of the proposed rule (88 FR 34238 through
34296). See also the discussion in section II.L., Federal Financial
Participation (FFP): Conditions Relating to Physician Administered
Drugs related to the HTI-1 final policy and CMS and ONC collaboration.
Comment: A commenter requested CMS postpone finalizing the
proposals in the proposed rule. The commenter encouraged CMS to
actively seek additional feedback from interested parties, including
individuals and advocacy organizations who represent those most
affected by Medicaid coverage challenges.
Response: Through the rulemaking process, the proposed rule was
published, and the public was provided the opportunity to comment on
the proposed rule's provisions. We have reviewed and addressed public
comments and will proceed with finalizing the rule as noted herein.
A. Payment of Claims (42 CFR 433.139)
In the proposed rule, we included regulatory revisions that would
make technical changes to the process for making payment of Medicaid
claims. As background, we noted that in 1980, under the authority in
section 1902(a)(25)(A) of the Act, we issued regulations at part 433,
subpart D, that established requirements for State Medicaid agencies to
support the coordination of benefits (COB) effort by identifying third
party liability. We pointed out that Sec. 433.139(b)(3)(i) and
(b)(3)(ii)(B) detail the exception to standard COB cost avoidance by
allowing pay and chase for certain types of care, as well as the
timeframe allowed prior to Medicaid paying claims for certain types of
care.
To better align our regulations with statute, we proposed to revise
Sec. 433.139(b)(3)(i) by adding--``that requires a State to make
payments without regard to third party liability for pediatric
preventive services unless the State has made a determination related
to cost-effectiveness and access to care that warrants cost avoidance
for up to 90 days.'' We also proposed to revise Sec. 433.139(b)(3)(i)
and (b)(3)(ii)(B) by adding ``within'' prior to the waiting periods
Medicaid has to pay claims for preventive pediatric and medical child
support claims. Additionally, we proposed to revise Sec.
433.139(b)(3)(ii)(B) by removing ``from'' and replacing it with
``after;'' and by removing ``has not received payment from the liable
third party'' and adding the following language at the end of the
sentence ``provider of such services has initially submitted a claim to
such third party for payment for such services, except that the State
may make such payment within 30 days after such date if the State
determines doing so is cost-effective and necessary to ensure access to
care.'' These revisions in language would permit States to pay claims
sooner than the specified waiting periods, when appropriate.
We received two public comments on this proposal. The following is
a summary of the comments we received and our response.
Comment: The commenters stated that they were in support of our
proposed regulation changes.
Response: We appreciate the support on this section.
After consideration of public comments on these provisions, we are
finalizing as proposed.
B. Standard Medicaid Managed Care Contract Requirements (Sec.
438.3(s))
1. BIN/PCN on Medicaid Managed Care Enrollee Identification Cards
In the proposed rule, we included a provision to require States
that contract with MCOs, PIHPs, or PAHPs that provide coverage of CODs,
to require those managed care plans to assign and exclusively use
unique Medicaid-specific BIN, PCN, and group number identifiers for all
Medicaid managed care enrollee identification cards for pharmacy
benefits. Although not required to issue enrollee identification cards,
it is a standard business practice for the MCOs, PIHPs, and PAHPs to
routinely issue such cards for pharmacy benefits for Medicaid
enrollees. We proposed that the States' managed care contracts with
MCOs, PIHPs, and PAHPs must comply with this new requirement no later
than the beginning of the State's next rating period for Medicaid
managed care contracts following the effective date of the final rule
adopting this new regulatory provision. A rating period is defined in
Sec. 438.2 as a period of 12 months selected by the State for which
the actuarially sound capitation rates are developed and documented in
the rate certification submitted to CMS, and typically begins with a
calendar year or a State's fiscal year. We indicated that the delay
between the effective date of the final rule and the start of the next
rating period would provide both States and the affected Medicaid
managed care plans with adequate time to prepare both the necessary
contract terms and finish the necessary administrative processes for
creating and issuing enrollee identification cards with these newly
required Medicaid-specific BIN, PCN, and group number identifiers.
This proposal was made under our authority in section 1902(a)(4) of
the Act to specify ``methods of administration'' that are ``found by
the Secretary to be necessary for . . . proper and efficient
operation.'' Having States require their MCOs, PIHPs, or PAHPs that
provide CODs to Medicaid enrollees to add these types of unique
identifiers to the enrollee identification cards would make the
Medicaid drug program run more efficiently and improve the level of
pharmacy services provided to Medicaid enrollees. With the inclusion of
Medicaid-specific BIN, PCN, and group number identifiers on the
enrollee
[[Page 79027]]
identification cards issued to the enrollees of MCOs, PIHPs, and PAHPs,
pharmacies would be able to identify patients as Medicaid enrollees,
and better provide pharmacy services. This would be helpful to all
parties to ensure that Medicaid benefits are provided correctly,
including confirming any accurate cost sharing amounts, along with
helping to ensure that claims are billed and paid for appropriately.
This proposed change may help to reduce the incidence of 340B
Program duplicate discounts by identifying Medicaid managed care plans.
Section 340B(a)(5)(A) of the PHS Act prohibits duplicate discounts;
that is, manufacturers are not required to both provide a 340B
discounted price and pay the State a rebate under the Medicaid drug
rebate program for the same drug.
Accordingly, we proposed to amend the regulatory language in Sec.
438.3(s) to add paragraph (s)(7) to mandate that Medicaid managed care
contracts require that Medicaid MCOs, PIHPs, and PAHPs that provide
coverage of CODs assign and exclusively use unique Medicaid BIN, PCN,
and group number identifiers for all Medicaid managed care enrollee
identification cards for pharmacy benefits. We proposed that Medicaid
managed care contracts must include this new requirement (which would
require compliance by MCOs, PIHPs, and PAHPs) no later than the next
rating period for Medicaid managed care contracts, following the
effective date of the final rule adopting this new provision.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Many commenters supported the use of unique Medicaid-
specific BIN, PCN, and group number identifiers for managed care
enrollees to ensure proper enrollee identification, application of
benefits, and claims and billing processes, which would aid in reducing
uncertainty and ambiguity with Medicaid prescribed drug claims.
Commenters believe that this will help pharmacies identify patients as
Medicaid managed care enrollees and support administration of
appropriate Medicaid benefits. Some commenters also noted that many
States report that they either already require unique BIN, PCN, and
group identifier numbers or believe that this would be feasible to
implement.
Response: We appreciate the support and agree that unique BIN, PCN,
and group number identifiers on Medicaid managed care pharmacy
identification cards will be helpful in supporting the administration
of the Medicaid program.
Comment: Several commenters supported adding the requirement that
Medicaid managed care enrollee identification cards contain BIN and PCN
numbers but suggested that the requirement should be for a BIN and PCN
group combination, instead of requiring unique identifiers separately.
These commenters recommended that CMS clarify that the requirement
would be met by the inclusion of a unique combination of BIN, PCN, and
group number identifiers on Medicaid enrollee identification cards to
identify a patient as a Medicaid enrollee with coverage through a
specific Medicaid managed care plan contract. Other commenters
suggested that requiring unique BIN and PCN combinations for managed
care Medicaid enrollees would be more effective.
Response: We agree that separate, unique BIN and PCN numbers would
not be as effective as having a unique Medicaid-specific BIN and PCN
combination, along with a group number identifier, to be issued for
Medicaid managed care identification purposes. We understand that
without having a unique BIN and PCN combination requirement, there
could potentially be thousands of separate, individual new BINs and
PCNs. Therefore, as we noted in the response to the previous comment,
we are finalizing this requirement and are adding the term
``combination'' in this final rule so that a unique BIN and PCN
combination, along with a group number identifier, will be assigned for
Medicaid managed care enrollees' identification cards.
Comment: Several commenters suggested that a list of unique
Medicaid-specific BIN and PCNs with effective dates be publicly
published and updated in a timely manner. One commenter requested that
CMS publish the list by surveying States for unique BIN and PCN numbers
used for Medicaid managed care enrollees and publishing a list of all
such BIN and PCN numbers, similar to how HHS publishes lists of BIN and
PCN numbers used to identify Medicare Part D beneficiaries.
Additionally, one commenter suggested that Medicare and Medicaid
standardize the process by which the BIN and PCN numbers are published,
along with the publication of an up-to-date list of the unique BIN and
PCN numbers.
Other commenters suggested that the States publish the lists on
their websites, since they currently cannot be found in a centralized
location. One of these commenters believes that the creation of a
publicly published list of numbers would aid States' monitoring and
oversight efforts for this plan requirement. This commenter also
recommended CMS provide guidance on pharmacy point of sale (POS)
operations to aid associated State monitoring and oversight.
Another commenter recommended that the BIN and PCN numbers be
published on a list in machine readable form, mirroring how CMS
publishes BIN and PCN numbers for Medicare Part D beneficiaries via
various CMS web pages, such as the page entitled ``Part D Information
for Pharmaceutical Manufacturers.'' \7\
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\7\ <a href="https://www.cms.gov/medicare/coverage/prescription-drug-coverage/part-d-information-pharmaceutical-manufacturers">https://www.cms.gov/medicare/coverage/prescription-drug-coverage/part-d-information-pharmaceutical-manufacturers</a>.
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Response: We appreciate the recommendations from the commenters
concerning the publication of a list with unique BIN and PCN
identification numbers; however, we decline to adopt these suggestions.
Because States have the option of publishing a listing of their MCOs,
PIHPs, and PAHPs with the related BIN and PCN combinations, along with
the group number identifiers in any format on their websites, CMS
defers to States to determine if they believe this would improve
operations to include this information in one centralized location.
Comment: One commenter requested clarification on whether this
requirement for unique BIN, PCN, and group number identifies is
applicable to Title XXI CHIP, State-funded programs in addition to
Title XIX Medicaid.
Response: This regulation applies to Medicaid and CHIP managed care
programs subject to the requirements in 42 CFR part 438 in Title XIX
(Medicaid). This regulation does not apply to the separate CHIP
programs operating pursuant to 42 CFR 457 in Title XXI (State
Children's Health Insurance Program). States may also choose at their
option to consider a similar standard for State-funded programs.
Comment: Several commenters recommended changes to the
applicability date for the requirement to include unique BIN, PCN, and
group number identifiers on Medicaid managed care enrollee
identification cards for pharmacy benefits. These commenters expressed
concern with the proposed applicability date as they did not believe it
was feasible to implement this requirement by the next rating period
for Medicaid managed care contracts following the effective date of the
final rule. Commenters indicated additional time was needed for
necessary operational changes including
[[Page 79028]]
information system development, configuration and testing as well as
the creation of new enrollee identification cards and associated
distribution to enrollees. Commenters varied in the recommended delay
with timeframes with recommendations ranging from 12 to 18 months.
One commenter recommended that the applicability date be
accelerated to implement the inclusion of BIN, PCN, and group number
identifiers before the next contract rating period for managed care
plans as the commenter believes this could prevent 340B duplicate
discounts.
A few commenters were in support of unique BIN, PCN, and group
number identifiers for each enrollee on Medicaid managed care enrollee
identification cards but suggested that this requirement apply
prospectively only to new Medicaid managed care plan contracts entered
into or renewed after the effective date, as requiring mid-term
contractual amendments would be disruptive and burdensome. They
requested additional time sufficient for systems development,
configuration, testing, PBM support, and card development. A commenter
stated that many State Medicaid programs enter into multi-year
contracts with managed care plans that may still be in effect by the
time this rule is finalized.
Another commenter requested that as CMS finalizes an applicability
date for this provision that it considers the need to update industry
specifications that go through substantive, formal approval processes
prior to a formal adoption by a standards-setting authority. The
commenter suggested using existing standards and processes, when
possible, for consistency between Medicare Advantage and Medicaid in
the way these numbers are presented, if possible.
Response: We appreciate the issues raised concerning the timeframe
for including Medicaid-specific BIN and PCN combinations, along with
group number identifiers on enrollee identification cards for Medicaid
managed care enrollees. We agree that additional time may be needed for
all MCOs, PIHPs, or PAHPs to implement these requirements.
Therefore, we are finalizing the applicability date for this
provision to be the first rating period for contracts with managed care
plans beginning on or after 1 year following the effective date of this
final rule.
Comment: A few commenters stated that the BIN definition, format,
and field used in pharmacy claims transactions would be changing as of
the next version of the Telecommunication Standards named under HIPAA.
One commenter noted that CMS recently proposed to update the NCPDP
Telecommunication Standard in a proposed rule. The commenter stated
that the proposal has not yet been finalized but is expected soon and
will most likely require health plans to distribute new member enrollee
identification cards during the implementation period. The commenter
recommended that CMS should consider any unintended administrative
impacts that could occur due to the timing of rule implementation and
the resulting need to reissue enrollee identification cards.
Response: We appreciate the information that was shared regarding
the upcoming changes to the Telecommunication Standards. As stated
previously, we are extending the applicability date in this final rule
for this provision to be the first rating period for contracts with
managed care plans beginning on or after 1 year following the effective
date of this final rule. We believe this additional time will allow
States and managed care plans additional time to undertake the
operational activities associated with this requirement, including any
changes to the Telecommunication standards.
Comment: Multiple commenters supported the unique BIN, PCN, and
group number identifier requirements and suggested additional policies
to be developed to eliminate 340B Program duplicate discounts.
Commenters believe that this provision will not fully address the risk
of 340B duplicate discounts in Medicaid managed care and urged CMS to
consider additional policies designed to avoid Medicaid and 340B
Program duplicate discounts, including, but not limited to, a ``carve
out'' approach, wherein drugs purchased under the 340B Program may not
be furnished to Medicaid enrollees, a claim-level identification
approach, and requiring the usage of 340B Program claims modifiers.
Another commenter believes that if 340B covered entities disclosed to
insurers when drugs administered to their enrollees (or prescriptions
filled in contracted pharmacies) were purchased via the 340B Program,
this would assist with the prohibition on duplicate discounts. Other
commenters suggested that CMS should not allow providers to submit
Medicaid claims until after completing a 340B eligibility screening and
requiring States to provide detailed claim-level utilization data to
manufacturers. One commenter recommended that comparable identifiers be
used for medical benefit products.
A few commenters suggested requiring pharmacies to enter BIN, PCN,
and group number identifiers at the point of sale, so that having the
identification of a Medicaid managed care enrollee can signal to the
pharmacy to append the NCPDP ``20'' submission clarification code so
that the claim can be excluded from States' invoices to manufacturers
for Medicaid rebates. Other commenters stated that there are challenges
with requiring a point-of-sale modifier for contract pharmacies. Other
commenters noted that 340B determination of a prescription drug claim
is not always known at the point of sale. They stated that 340B
determination is often made retrospectively based on several factors,
such as the replenishment model and batch reporting to a clearinghouse.
Multiple commenters stated that they oppose pharmacies being
required to identify 340B claims either prospectively or retroactively,
but support an alternative solution where third-party administrators
provide 340B data to CMS. They also stated that there remains no
requirement for pharmacies to implement a system to flag a claim as
Medicaid.
Several commenters recommended clarity on the dispute resolution
process to determine if the State or the covered entity is responsible
for remedying a duplicate discount in a particular situation.
Commenters suggested that CMS issue guidance to States to establish a
transparent and consistent dispute resolution process to resolve issues
regarding duplicate Medicaid/340B discounts between manufacturers and
State Medicaid agencies. Commenters also stated that Medicaid managed
care plans contracting with States, to help assure accountability on
duplicate discounts, should be required to share data with
manufacturers to permit identification of claims for which the drug was
purchased under the 340B Program.
Other commenters encouraged CMS to work with the Health Resources
and Services Administration (HRSA) to ensure that Medicaid managed care
plan utilization is added to the Medicaid Exclusion File (MEF) as a way
to establish a mechanism to track and avoid duplicate discounts on
Medicaid managed care plan utilization. A few commenters suggested that
it would be more appropriate for HRSA to require that ``340B patients''
receive enrollee identification cards for their 340B prescription drug
benefits with this type of plan identifier information through their
340B covered entities.
Response: We believe that the new requirement for the inclusion of
a
[[Page 79029]]
unique Medicaid-specific BIN and PCN combination, along with a group
number identifier, may help States and their managed care plans avoid
invoicing for rebates on 340B drugs by identifying which plans are
covered under Medicaid. While we appreciate the comments received for
additional ways to improve the operations of the 340B Program, these
suggestions are outside of the scope of this final rule.
Comment: A few commenters expressed opposition to the exclusive use
of unique Medicaid-specific identifiers on enrollee identification
cards. Reasonings include that the addition of exclusive BIN and PCN
numbers is insufficient policy action to reduce or eliminate 340B
duplicate discounts and that the action is unduly burdensome and
unlikely to have a meaningful impact on 340B duplicate discounts. One
commenter requested that CMS allow for continued use of the existing
identification numbers.
Another commenter stated that the inclusion of identifiers on
enrollee identification cards could make it easier to engage in
discriminatory reimbursement for 340B covered entity providers. They
stated that such discriminatory reimbursement could have a negative
effect on certain 340B covered entities. Other commenters requested
that CMS not implicate pharmacies in the process of identifying and
reconciling 340B claims.
One commenter was opposed to this BIN, PCN and group number
identifier requirement since they believe the main purpose was to help
States and managed care plans identify claims for drugs paid for under
the 340B Program to help avoid duplicating discounts or rebates via the
MDRP. For their managed care delivery system in which Medicaid managed
care enrollees primarily access care from plans and contracted
providers that do not participate in 340B, the commenter stated that
there would be a significant operational burden to deploy new enrollee
identification cards with BIN, PCN, and group number identifiers
without a corresponding benefit.
Another commenter also stated that creating a unique BIN and PCN
for each managed care plan would be unduly burdensome. They recommended
amending this proposal such that this requirement would only apply to
unique group number identifiers, and not BIN and PCN, on Medicaid
managed care enrollee identification cards for pharmacy benefits. Other
commenters recommended that Medicaid be consistent with the policy
requiring Medicare Part D plan to use unique BIN and PCN combination
identifiers, and not include group number identifiers, to identify
enrollees.
Response: We appreciate the concerns raised by the commenters but
believe that mandating that States require their MCOs, PIHPs, and PAHPs
that provide CODs to Medicaid enrollees to include a unique Medicaid-
specific BIN and PCN combination, and group number identifiers, on the
enrollee identification cards would make the Medicaid drug program run
more efficiently, help avoid 340B duplicate discounts, and improve the
level of pharmacy services provided to Medicaid beneficiaries.
Pharmacies' identification of patients as Medicaid enrollees based
on the inclusion of Medicaid-specific BIN, PCN, and group number
identifiers on the enrollee identification cards must not be used in
any way to discriminate in the provision of healthcare services, and
such alleged behavior may be referred to HHS' Office for Civil Rights
or other authorities.
After considering the comments raised by the commenters, we are
finalizing Sec. 438.3(s) with some changes to the proposed regulatory
text. We will modify Sec. 438.3(s)(7) by: adding ``combination,'' so
that a unique BIN and PCN combination, and group number identifiers,
will be assigned and used on enrollee identification cards; removing
the comma after ``(BIN)'' and replacing it with ``and'' for grammatical
correctness; and replacing ``beneficiary'' with ``enrollee'' to
accurately acknowledge that enrollee identification cards are provided
to a Medicaid beneficiary enrolled in a managed care plan in a given
managed care program. Furthermore, we are revising the applicability
date for this provision to be the first rating period for contracts
with MCOs, PIHPs, and PAHPs beginning on or after 1 year following the
effective date of the final rule. To accomplish this, we are removing
the proposed applicability date from Sec. 438.3(s)(7) and establishing
Sec. 438.3(w) with this applicability date.
2. Drug Cost Transparency in Medicaid Managed Care Contracts
In the proposed rule, we included a provision that would require
that the contracts between States and MCOs, PIHPs, and PAHPs that
provide coverage of CODs require these managed care plans to structure
contracts with any subcontractor, which may include for the delivery or
administration of CODs, in a manner that ensures drug cost spending
transparency by requiring the subcontractor to report separately
certain expenses and costs. As part of our proposal, we noted that
these subcontractors may include PBMs.
As stated in the preamble of the proposed rule, PBMs are
intermediaries in the relationship between the managed care plans and
the health care (medical and pharmacy) providers that provide CODs.
That is, PBMs have contracts with both the managed care plans to
administer the pharmacy benefit, as well as with the health care
providers that administer or dispense drugs to patients that are
enrolled in the managed care plan. Among other tasks in the
marketplace, a PBM may be responsible for developing a drug formulary,
collecting manufacturer rebates on behalf of the managed care plan,
performing Drug Utilization Review (DUR), adjudicating claims, and
contracting with retail community pharmacies and other health care
providers to develop a network of providers that can dispense or
administer drugs to managed care enrolled patients.
PBMs also may negotiate pharmacy reimbursement rates on behalf of
the various health plans, including Medicaid managed care plans with
which it contracts, to pay the pharmacy and other health care providers
for the CODs that are dispensed or administered. In most cases, the
pharmacy reimbursement rates are specified in the contract between the
PBM and the pharmacy providers, and these include pharmacy
reimbursement rates for brand name and generic prescription drugs, as
well as the dispensing fees paid to dispense or administer the
prescription drug. In addition, there are also administrative fees paid
to the PBM by the managed care plans for its administration and
operation of the pharmacy benefit.
The margin between the amount charged by the PBM to a managed care
plan for a COD and the amount paid by the PBM to a pharmacy provider is
referred to as the ``spread,'' and this construct is referred to as
``spread pricing.'' A detailed description and example of how spread
pricing works and how it may affect Medicaid spending for prescription
drugs was included in the proposed rule at 88 FR 34250 thru 34251. The
amount of this margin or ``spread'' may only be known by the PBM,
unless a State Medicaid program or managed care plan specifically
requires the disclosure of the charge and payment data that are used to
make these calculations. This information deficit results in a lack of
accountability and transparency to the Medicaid managed care plans, and
thus the Medicaid program, which we believe is contrary to proper and
efficient operation of the State Medicaid program, and potentially
creates
[[Page 79030]]
conflicts of interest in connection with payment for CODs. Spread
pricing can increase Medicaid pharmacy program costs, reduce efficient
operation of the Medicaid program, and reduce the transparency of State
Medicaid expenditures within managed care programs.
We further noted in the preamble to the proposed rule that section
1902(a)(4)(A) of the Act requires that the State plan for medical
assistance comply with methods of administration that are found by the
Secretary to be necessary for the proper and efficient operation of the
State plan. Greater transparency and accountability by Medicaid managed
care plans (and their subcontractors) to the States for how Medicaid
benefits are paid compared to how administrative fees are paid, are
both necessary for efficient and proper operation of Medicaid programs.
Moreover, this lack of transparency makes it more difficult for States
and Medicaid-managed care plans to ensure that the plan's Medical Loss
Ratio (MLR) calculation is limited to the true medical costs associated
with the provision of CODs. We noted that MLR calculations are used as
part of capitation rate development. Capitation rates are paid to
Medicaid managed care plans; thus, their accuracy is critical in
assuring that Medicaid payments are reasonable and appropriate. We
further noted that managed care capitation rates must (1) be developed
such that the plan would reasonably achieve an 85 percent MLR (Sec.
438.4(b)(9)) and (2) are developed using past MLR information for the
plan (Sec. 438.5(b)(5)). In addition to other standards outlined in
Sec. Sec. 438.4 through 438.7, requirements related to accurate MLRs
are key to ensuring that Medicaid managed care capitation rates are
actuarially sound. In addition, Medicaid managed care plans may need to
pay remittances to States should they not achieve a specific MLR target
when a remittance is required by a State. Thus, the accuracy of MLR
calculation is important to conserving Medicaid funds.
We also pointed out that CMS issued a Center for Medicaid & CHIP
Services (CMCS) Informational Bulletin on May 15, 2019, for States and
Medicaid managed care plans, titled ``Medicaid Loss Ratio (MLR)
Requirements Related to Third Party Vendors'' (``2019 CIB'') (see
<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>), specifying MLR data collection requirements
when a managed care plan uses subcontractors for plan activities. The
2019 CIB provided additional guidance, including an example regarding
the MLR data collection requirements when third party vendors, such as
PBMs, are involved. However, while the 2019 CIB uses PBM spread pricing
as a specific example, there was nothing currently in Federal
regulation that specifically detailed contract requirements that (non-
claim) administrative costs, fees, or expenses of a managed care plan's
subcontractor should not be counted as incurred claims for purposes of
the managed care plan's MLR calculation.
In addition, the preamble to the proposed rule discussed that the
Medicaid managed care regulation at Sec. 438.230(c)(1) requires that
certain agreements are to be included in subcontracts, including that
subcontractors agree to perform the delegated activities and reporting
responsibilities in compliance with the managed care plan's contract
obligations, and that the reporting standards at Sec. 438.8(k)(3)
specify that managed care plans must require any third-party vendor
providing claims adjudication activities to provide all underlying data
associated with MLR calculation and reporting. The 2019 CIB explained
how these regulatory obligations require that all subcontractors that
administer claims for the managed care plan must report the incurred
claims, expenditures for activities that improve health care quality,
and information about mandatory deductions or exclusions from incurred
claims (overpayment recoveries, rebates, other non-claims costs, etc.)
to the managed care plan and that the requirements and definitions in
Sec. 438.8 for these categories of costs and expenditures must be
applied to the required reporting.
For these reasons, we proposed to amend Sec. 438.3(s) to require
MCOs, PIHPs, and PAHPs that provide coverage of CODs to structure any
contract with any subcontractor for the delivery or administration of
the COD benefit to require the subcontractor to report separately the
amounts related to: (i) The incurred claims described in Sec.
438.8(e)(2) such as reimbursement for the covered outpatient drug,
payments for other patients services, and the fees paid to providers or
pharmacies for dispensing or administering a covered outpatient drug;
and (ii) Administrative costs, fees and expenses of the subcontractor.
We noted that this proposal will not change the applicability of the
2019 CIB to PBM subcontractors or to other subcontracting arrangements
used by a Medicaid managed care plan; the 2019 CIB remains CMS'
position on how Sec. Sec. 438.8 and 438.230 apply.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Many commenters supported the requirement that managed
care plans separately report the amounts for incurred claims for CODs
and not include administrative costs in the MLR numerator, and by doing
so, this new requirement would provide transparency to help identify
PBM spread pricing practices that potentially lead to pharmacies being
underpaid for their services. Other commenters, while supporting the
proposal, questioned why spread pricing is not entirely prohibited.
Response: We appreciate commenters' support regarding the
regulation as proposed. We note that CMS does not have the authority
under Federal Medicaid statute to prohibit a PBM's practice of spread
pricing. However, we believe this regulation, once final, will provide
greater transparency to State Medicaid agencies and managed care plans
regarding how the PBMs are spending the payments that are made to them
by the Medicaid managed care plan to administer the Medicaid
prescription drug benefit. We believe this information will help to
inform the State's decision-making relating to the administration of
the prescription drug benefit. It will also help the Medicaid managed
care plans have more accurate data to calculate their MLRs, as well as
ensure that States can accurately develop capitation rates. Finally, it
will help States and managed care plans ensure that PBMs are being
appropriately compensated for their services by requiring that the
subcontractors report separately incurred claims for CODs and
administrative fees, costs, and expenses in sufficient detail and the
level of detail must be no less than the reporting requirements in 42
CFR 438.8(k).
Comment: With respect to CMS' proposal to separate the amounts
related to incurred claims (for example, COD reimbursement and
dispensing fees) from a PBM's administrative fees, commenters urged CMS
to also consider downstream impacts in the supply chain. The commenters
indicated that to support robust pharmacy market competition and lower
health care costs for beneficiaries, CMS must ensure that pharmacies
and other health care providers' proprietary information, such as the
pharmacy reimbursement (dollar amount) is not disclosed and cannot be
traced back to an individual pharmacy. The commenters also indicated
that they understand the difficulty in balancing both promoting market
[[Page 79031]]
competition and striving for greater transparency in the marketplace;
however, these commenters noted this balance could be achieved with
transparent accountability measures and comprehensive PBM reform.
Response: We continue to believe this requirement will not deter
market competition because it does not require public disclosure of
provider-specific proprietary information. Instead, Sec. 438.3(s)(8)
will require that the managed care plans contract with the
subcontractor will require the subcontractor report separately incurred
claims and administrative costs, fees and expenses of the subcontractor
necessary for the managed care plan's reporting of the MLR consistent
with the requirements at Sec. 438.8(e)(2). The reporting must be in
sufficient detail to allow a managed care plan to accurately
incorporate the expenditures associated with the subcontractor's
activities into the managed care plan's overall MLR calculation. As
provided in the 2019 CIB, the level of detail must be no less than the
reporting requirements in 42 CFR 438.8(k), but may need to be more if
necessary to accurately calculate an overall MLR or to comply with any
additional reporting requirements imposed by the State in its contract
with the managed care plan. We note that there is nothing in the
regulation that prevents the subcontractor from negotiating terms
limiting the identification of provider-specific expenditures in the
contract with the managed care plan, as long as those terms are
consistent with the requirements of this final rule and other Federal
contract requirements in regulation at 42 CFR part 438.
Comment: Many commenters requested that CMS implement Federal
requirements on PBMs' arrangements with pharmacies rather than just
focus on contracting requirements between the managed care plans and
PBMs. The commenters encouraged CMS to consider issuing rulemaking that
would enhance pharmacy network adequacy, ensure reasonable
reimbursement for pharmacies, require certain payment models for
managed care plans that cover CODs, and promote payment parity between
PBM affiliated and non-affiliated pharmacies in Medicaid managed care.
Other commenters suggested including data quality controls, alignment
with other payer models, and limitations of reimbursements to non-PBM
affiliates. Specifically, commenters requested that CMS revise Sec.
438.3(s)(8) to:
<bullet> Require managed care plans eliminate spread pricing, such
as by requiring the plans to utilize certain payment models with their
PBM subcontractors which dictate how much the PBM is paid for their
administrative activities and require specific payment models of how
much providers and pharmacies are paid. The commenter also pointed to
its support of current proposed Federal legislation (S. 1038, Drug
Price Transparency in Medicaid Act of 2023/HR 3561, the PATIENT Act)
that includes similar proposals that would ban spread pricing in
Medicaid.
<bullet> Require that managed care plans' contracts with their
subcontracted PBMs require reimbursement for all in-network pharmacies
in the managed care program based on a transparent benchmark of
National Average Drug Acquisition Cost (NADAC), or WAC when there is
not a NADAC price, for a Medicaid COD with a commensurate dispensing
fee comparable to the State's Medicaid survey-based fee-for-service PDF
as a final payment, absent written proof of fraud. The commenter also
suggested that CMS should require that the managed care plan only
include these claim cost payments paid by the PBM to the pharmacy for
the managed care plan's reported MLR to a State Medicaid program.
<bullet> Prohibit managed care plans and their subcontracted PBMs
from reimbursing non-PBM affiliated pharmacies less than PBM-owned or
PBM-affiliated pharmacies.
The commenters expressed their belief that by adding these
provisions to the proposed regulations, CMS would take important steps
to eliminate the managed care PBM practices that the commenter
indicates have led to nearly $1 billion in Medicaid fraud settlements
by 17 States against managed care plans for overbilling Medicaid
programs for managed care prescription benefits.
Response: We are aware of the settlements between PBMs and States,
and the potential that such spread pricing arrangements will result in
overbilling Medicaid. We believe that Sec. 438.3(s)(8), which will
require the subcontractor report to the managed care plan separately
incurred claims (for example, covered outpatient drug reimbursement)
from administrative costs, fees, and expenses for purposes of
calculating the managed care plan's MLR, will likely impact the
practice of PBM spread pricing. That is, greater transparency to the
States of how prescription expenditures are being allocated by the PBMs
contracted with the Medicaid managed care plans to provide pharmacy
benefits may reduce the likelihood that the PBM will engage in spread
pricing.
Furthermore, we are aware of actions taken by individual States at
their option to end or limit impact of PBM spread pricing, including in
Medicaid. However, as noted in the preamble, we do not believe we have
Federal authority to prohibit spread pricing. Nonetheless, we believe
that this final rule will provide greater transparency to State
Medicaid agencies and Medicaid managed care plans to help inform the
State's decision-making relating to the administration of the
prescription drug benefit and improving accuracy of plans' MLR
calculations.
With regards to pharmacy reimbursement, the adequacy of
reimbursement by managed care plans or their subcontractors to their
network or non-network pharmacies or providers is out of scope of this
final rule. Furthermore, CMS does not have authority to impose on
Medicaid managed care plans the State plan requirements at Sec.
447.518, which require State Medicaid FFS payment methodologies for
retail community pharmacies be in accordance with the definition of
actual acquisition costs at Sec. 447.502, including requiring the use
of an Actual Acquisition Cost (AAC) benchmark in setting prescription
drug reimbursement at the retail level. These regulations do not apply
to Medicaid managed care plan payments to pharmacies or providers for
CODs.
We note that if a State or CMS finds that a Medicaid managed care
plan does not have a sufficient network of pharmacies or providers to
ensure enrollee access to prescription drug benefits, the States and
CMS can engage with the Medicaid managed care plans on whether the
reimbursement to pharmacies and/or providers for prescription drugs is
adequate to attract pharmacies/providers in their network and ensure
Medicaid beneficiaries have access to the Medicaid prescription drug
benefit. We remind States of their obligation to develop and enforce a
quantitative network adequacy standard for pharmacies at Sec.
438.68(b)(1)(vi).
Comment: One commenter suggested that CMS urge PBMs to disclose and
document their profit usage and accounting for when profit is used to
augment beneficiaries' drug access. This same commenter questioned CMS'
position on PBMs charging insurers higher than what they pay
pharmacies, and recommended CMS investigate the efficacy of using PBMs
for negotiating reduced drug prices.
Response: We may consider the commenter's concerns in future policy
development. Otherwise, the use of a PBM's profits and investigation of
PBM practices are not a subject of this final rule.
[[Page 79032]]
Comment: Several commenters expressed their belief that increasing
the level and detail of reporting by PBMs is a good first step in
increasing transparency; however, they noted more could be done to
protect the intent and the efficacy of the 340B Program and its
eligible covered entities by not allowing PBMs to use discriminatory
practices, such as PBM payment cuts, that harm hospitals and community
health centers that are 340B covered entities and possibly jeopardize
patient access to 340B covered entities and contract pharmacies. The
commenters indicated that this would allow the savings generated
through the 340B Program to be passed along to the PBM to increase
their profits. The commenters supported provisions addressing the
contracting between PBMs and managed care plans but do not support any
policies that will impact a pharmacy's reimbursement.
Response: The efficacy of the 340B Program and any discriminatory
practices of PBMs is out of scope of this final rule. Furthermore, as
stated earlier, the adequacy of reimbursement by a plan (via its PBM)
to a managed care plan's network or non-network pharmacy, which could
be a covered entity, is also not a subject of this final rule, nor is
the effect of PBM practices on 340B entities and use of 340B savings.
Comment: Several commenters supported the proposed changes,
including the information subcontractors of managed care plans need to
separately identify (separately identify incurred claims from
administrative costs, fees, or expenses) and provide to managed care
plans, but requested that CMS develop detailed guidance on the specific
cost elements to be reported and a reporting template to ensure
standardization and ease of adoption. They indicated that it would be
helpful for CMS to indicate the specific parameters that would be
included in this requirement to provide greater transparency into PBM
and pharmacy services administrative organizations (PSAOs) and any
other subcontractor that has incurred claims on behalf of the managed
care plan associated with covered outpatient drug coverage.
Response: We appreciate the commenters' request for more detailed
guidance. We will evaluate if additional guidance is needed as part of
implementation efforts for this requirement and will take these
suggestions into consideration as part of that evaluation.
Comment: One commenter indicated that its State currently requires
its managed care plans to produce reports with claim level data on the
payment made to the PBM by its managed care plans and the amount of
payment the PBM has paid to the pharmacy. In addition to claim level
data, the commenter indicated that this State requires its managed care
plans to report on all payments, including administrative fees, to and
from the PBM, managed care plan, and pharmacies at an aggregate level.
The commenter believes additional Federal requirements would strengthen
States' abilities to secure data around drug costs. Another commenter
further pointed to the National Academy of State Health Policy (NASHP)
website, in which NASHP analyzed PBM contracts in a subset of States
and developed model contract language to address the lack of
transparency and promote cost-saving incentives in typical PBM
contracts.
Response: We appreciate the commenter's support for finalizing
Sec. 438.3(s)(8). We do not intend to further revise the Federal
requirements in Sec. 438.3(s)(8) at this time. We encourage States to
assess if they wish to impose additional reporting requirements on
plans or their subcontractors to facilitate State priorities such as
those on transparency and payment, or develop model contract language
for plans to utilize with their subcontractors.
Comment: One commenter suggested that CMS consider alignment with
other payer models for drug cost data collection, such as the
Prescription Drug Data Collection (RxDC) required by the Consolidated
Appropriations Act of 2021. The commenter noted that alignment would
facilitate the ability of managed care plans to provide cost
transparency, minimize burden, and improve the ability of CMS to
compare drug costs across delivery systems.
Response: We appreciate the commenter's suggestion that we align
Medicaid data collection efforts from payers with other data collection
programs, such as the RxDC, especially for purposes of transparency.
However, the data collection required under this provision is distinct
from the RxDC program and serves to ensure a Medicaid managed care plan
has the data it needs from its subcontractors to accurately calculate
and report its MLR.
Comment: A few commenters requested clarification regarding the
applicability date for Sec. 438.3(s)(8) and urged CMS to grant managed
care plans and their subcontractors sufficient time, such as 6 months
or more, to allow for necessary operational, system, and contracting
changes.
Response: The applicability date for Sec. 438.3(s)(8) as finalized
is no later than the State's first rating period for contracts with
MCOs, PIHPs, and PAHPs beginning on or after 1 year from the effective
date of this final rule. As part of this final rule, we have added
Sec. 438.3(w) to finalize this applicability date.
Comment: One commenter requested that spread pricing information be
made public where possible, stating it is vital to the public's
interest to understand what the cost of PBMs are to Medicaid and
enrollees.
Response: We assume that the commenter is requesting that CMS and/
or States publicly publish the information collected by the managed
care plans from PBMs that distinguish the PBM's payment for the drug
and the administration fee and how much the managed care plan paid the
PBM for such services. This final rule does not modify the elements
States are required to include in their MLR summary reports to CMS
under Sec. 438.74; therefore, CMS will not have routine access to PBM
payment information that is provided by PBMs to managed care plans and
cannot release it to the public. States may consider additional steps,
such as what level of data they wish to compile from plans and their
subcontractors, in addition to those required for reporting in
accordance with Sec. 438.74 and associated transparency on the State's
public website.
Comment: A few commenters acknowledged that, making PBMs break out
their costs would give State Medicaid programs a better sense of
whether spread pricing is occurring, but commenters suggested a more
effective approach would be to prohibit spread pricing in Medicaid
managed care. They noted that the Congress is currently considering
numerous bills related to PBM practices and could include a prohibition
of spread pricing in Medicaid managed care as part of those efforts.
Response: We appreciate the support for this final rule. As noted
previously, we do not have the authority to completely prohibit these
PBM practices.
Comment: One commenter requested clarification on the separate
identification of a COD, if a COD is deemed to be eligible for a MDRP
rebate. The commenter supported a requirement that if a Medicaid
managed care plan contracts with any subcontractor for the delivery or
administration of CODs, the managed care plan must require the
subcontractor to separately identify CODs, even if the
[[Page 79033]]
CODs are reimbursed as a bundled payment.
Response: As specified in Sec. 438.3(s)(8), we are finalizing a
requirement for Medicaid MCOs, PIHPs, and PAHPs that provide coverage
of CODs to require any subcontractor for the delivery or administration
of the COD benefit to report separately the amounts related to the
incurred claims described in Sec. 438.8(e)(2), such as reimbursement
for the CODs, from the administrative costs, fees, and expenses of the
subcontractor. The separate reporting requirement for the delivery or
administration of the covered outpatient drug benefit under Sec.
438.3(s)(8) is not limited to those instances when the COD benefit is
paid separately as a claim; the separate reporting requirement applies
regardless of the COD benefit reimbursement methodology (for example,
bundled payment for a specific service).
After consideration of public comments on this provision, we are
finalizing Sec. 438.3(s) with some changes to the proposed regulatory
text. While we discussed in the preamble of the proposed rule that this
would apply to MCOs, PIHPs, and PAHPs, we did not include the phrase
``MCO, PIHP, or PAHP'' in the regulatory text. Thus, we will modify
Sec. 438.3(s)(8) by adding at the beginning of the paragraph the
phrase ``The MCO, PIHP, or PAHP'' to conform with the other paragraphs
in Sec. 438.3(s), inserting ``must'' to replace ``to'' for additional
clarity, and inserting ``to the MCO, PIHP, or PAHP'' for clarity on the
entity that the subcontractor reports the required information to. We
also are adding Sec. 438.3(w) to include an applicability date for the
requirements of paragraphs (s)(7) and (s)(8), which will be the first
rating period for contracts with MCOs, PIHPs, or PAHPs beginning on or
after 1 year following November 19, 2024.
C. MDRP Administrative and Program Integrity Changes
1. Definitions (Sec. 447.502)
a. Modification to the Definition of Covered Outpatient Drug (Sec.
447.502)
In the proposed rule, we proposed to modify the definition of a
COD. We noted as background that sections 1927(k)(2) and (3) of the Act
provide a definition of the term ``covered outpatient drug'' (COD) and
a limiting definition, which excludes certain drugs, biological
products, and insulin provided as part of, or as incident to and in the
same setting as, enumerated services and settings from the definition
of COD. This exclusion is subject to a parenthetical, however, which
limits the exclusion to when payment may be made as part of payment for
the enumerated service or setting, and not as direct reimbursement for
the drug. In other words, a product that would otherwise qualify as a
COD, is excluded from the definition if it is administered in certain
settings and not directly reimbursed.
We also noted that in the 2016 COD final rule, we finalized a
regulatory definition of COD in Sec. 447.502 that substantially
mirrors the statutory definition. Consistent with section 1927(k)(3) of
the Act, the regulatory definition includes a limiting definition in
paragraph (2) that excludes from the definition of COD any drug,
biological product, or insulin provided as part of or incident to and
in the same setting as anyone in a list of services, and for which
payment may be made as part of that service instead of as a direct
reimbursement for the drug.
We noted in the proposed rule that, over the years, we have
received questions about when a payment is considered to be a direct
reimbursement for a drug, and whether identifying a drug separately on
a claim for payment may qualify as direct reimbursement for a drug.
Such situations would render the drug eligible for rebates under
section 1927 of the Act as a COD, or in other words, the limiting
definition exclusion would be inapplicable in certain circumstances. We
had proposed that, if a drug and its cost can be separately identified
on a bundled claim for payment, and the identified amount attributable
to the drug is made solely for the drug (and no other services), it can
be considered direct reimbursement for the drug. Therefore, we
indicated that direct reimbursement may be reimbursement for a drug
alone, or reimbursement for a drug plus the service, in one inclusive
payment if the drug plus the itemized cost of the drug is separately
identified on the claim. The payment for the drug is not required to be
a distinct, separate payment for such payment to be considered direct
reimbursement.
Specifically, we proposed to amend the regulatory definition of the
term covered outpatient drug at Sec. 447.502 to add that direct
reimbursement for the drug includes situations in which a claim for an
all-inclusive payment identifies the drug plus the itemized cost of the
drug.
Additionally, to support our proposal, we noted that the limiting
definition in section 1927(k)(3) of the Act includes the following
parenthetical: ``. . . (and for which payment may be made under this
subchapter as part of payment for [certain services] and not as direct
reimbursement for the drug).'' The definition of the term covered
outpatient drug in Sec. 447.502 includes similar limiting language in
a parenthetical at paragraph (2): ``. . . (and for which payment may be
made as part of that service instead of as a direct reimbursement for
the drug).'' We noted that there was no meaningful distinction between
the statutory and regulatory parenthetical language for purposes of the
MDRP, and thus, we proposed to make a technical change by modifying the
regulatory language so that it more closely mirrors the statutory
language. We proposed to add ``payment for'' after ``and for which
payment may be made as part of'' and to delete ``instead of as a'' in
the limiting definition of covered outpatient drug and replace it with
``and not as''.
The proposed definition would then read, in significant part, as
``. . . (and for which payment may be made as part of payment for that
service and not as direct reimbursement for the drug).''
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: We received several comments supporting the proposed
definition of direct reimbursement with respect to the COD's limiting
definition. Some comments provided general support for the proposed
definition. One commenter stated that the definition will help ensure
that Medicaid beneficiaries with a rare disease continue to have access
to affordable outpatient drugs. Another commenter stated that the
change will help ensure that States receive the MDRP rebates to which
they are entitled, allowing providers to make treatment decisions based
on the individual clinical circumstances of a patient. One commenter
supported the definition and noted that current claims processing
standards support the ability of a claim to contain the required
information so that rebates may be billed. One commenter supported the
definition and stated they believe that the modification to the
definition reflects our current policy, and they requested
clarification to confirm that understanding.
Response: We appreciate the support for the modification of the
definition of a direct reimbursement as it relates to the definition of
a COD. The modification to the definition was not intended to be a
departure from current practice or in conflict with the current
regulation or statute. Rather, the modification was intended to address
the fact that States are now using newer reimbursement methodologies
where it is not entirely clear whether drugs
[[Page 79034]]
reimbursed through that new methodology are CODs. As discussed
subsequently, we are also adding clarifying language to ensure that our
intention is clear that the definition does not inadvertently include
drugs that do in fact meet the statutory limiting definition of COD.
Comment: We received several comments that are outside the scope of
this rule. One commenter stated that the modified definition of COD
would affect the covered entities that participate under the HRSA 340B
Program because they use our definition of COD to determine if a drug
is subject to 340B pricing. One commenter stated that CMS fails to
convey how medical research and development will be protected with the
proposed revisions. A few commenters noted that the modified definition
of COD would increase the number of CODs subject to rebates which may
make it difficult for manufacturers to continue to offer their drugs in
Medicaid.
Response: Because these 340B issues are outside the scope of this
rule, we are not addressing them. We appreciate the commenters' concern
regarding the modification of the definition of COD and the increased
number of CODs subject to rebates. While we do not believe this
clarification to the definition will result in a significant change in
the number of CODs, it may increase the number of instances where a COD
may qualify for rebates. With respect to impact on research and
development, this proposal will clarify for States when a drug is a COD
and thus subject to rebates in some instances, and thus may result in
States collecting rebates in circumstances where they are not currently
collecting any rebates. As a result, States may take these
clarifications into account when determining coverage and reimbursement
policies for particular drugs. The impact of these clarifications may
result in States having a net reduction in cost for these drugs, which
may increase access to these drugs, and in turn, support manufacturers'
research and development efforts. CMS does not believe that the
clarification of the definition of a COD in this rule indicates that
scientific drug development is not valued or that the definition will
disincentivize the scientific development. The United States
pharmaceutical market is the largest in the world, with a strong record
of fostering innovation, and Federal health care programs are large
payers for medications in the United States, supporting incentives for
manufacturers to continue to develop innovative medicines and make
drugs available in the Medicaid program.
Comment: We received many comments stating that our proposed
clarification of the term ``direct reimbursement'' conflicts with the
language of the statute. Commenters also stated that the proposed
revision would represent a significant and impermissible change to the
meaning of the limiting language in the COD definition and stated that
it would render language in the statute unnecessary. Commenters pointed
to legislative history, assertions made by HHS in litigation that ``a
drug is not a covered outpatient drug if it is provided, and paid for,
as part of a bundled service,'' language in the 2016 COD final rule,
and responses in an FAQ published under the 2016 COD final rule to
support their position that CMS historically considered that a drug was
not a COD unless the drug was separately reimbursed. One commenter
cited the following language from the 2016 COD final rule to support
their position: ``a drug which is billed as part of a bundled service
with, and provided as part of or incident to and in the same setting as
the services'' [will only qualify as] a COD if ``the State authorizes
and provides a direct payment for the drug, consistent with the
applicable State plan, separately from the service.''
Response: Upon review of these comments, we are clarifying for
States the situations in which they will be able to bill for a rebate
for a COD that is directly reimbursed as part of a bundled or inclusive
payment. Specifically, we are clarifying the term ``direct
reimbursement'' as we agree that the proposed regulatory definition may
not have clearly identified those situations that will qualify as
direct reimbursement. In this final rule, we are adding language to the
regulatory definition to indicate that direct reimbursement includes
reimbursement for a drug that is part of an inclusive payment when the
inclusive payment includes an amount attributable to the drug, the
number of units of the drug that were dispensed or administered to the
patient, and the amount paid that is attributable to the drug is based
on a reimbursement methodology that is included in the applicable
section of the State plan.
Comment: Several commenters disagreed with CMS' assertion that the
proposed modification to the definition of COD is a clarification of
existing policy on the application of the limiting definition. They
stated that rather than a clarification, they view the modification as
a policy change with no presented rationale. Commenters also stated
that CMS' proposal is a departure from the agency's longstanding policy
that no Medicaid rebate liability attaches to units reimbursed via
bundled payments. Commenters also stated that our definition marks a
significant and unacknowledged departure from the agency's longstanding
approach to manufacturer rebate liability. A commenter mentioned that a
basic requirement of the Administrative Procedure Act is that an agency
must acknowledge that ``it is in fact changing its position'' and
provide good reasons for any change in policy. They stated that CMS
failed even to acknowledge its changing position and was, therefore,
acting in an arbitrary and capricious manner. A few other commenters
referenced language in the preamble to the 2016 COD final rule, when
CMS previously stated, ``if the drug is provided as part of a bundled
service and not separately reimbursed, then the drug does not qualify
as a [covered outpatient drug], in accordance with section 1927(k)(3)
of the Act and is not subject to rebates.''
Response: Our intent in the proposed rule was to provide
clarification regarding when a payment represents direct reimbursement
for a drug. Essentially, we were clarifying that, as used in the quoted
language, ``not separately reimbursed'' in the context of bundled rates
means not separately identified or itemized, with an amount associated
with payment for the drug. Based on the comments, we agree that our
proposed modification to the definition could be further clarified. In
the past we have stated that no rebate liability attaches to drugs that
are paid for as part of bundled payments. As just noted, this was
intended to address situations in which an amount paid for a COD is not
identified or itemized. As noted in the preamble to the proposed rule,
interested parties have requested that we define situations in which
rebates can be billed for drugs that are part of inclusive payments if
the quantity of drug dispensed or administered can be identified. As
noted in the response to previous comments, we are modifying the
definition of direct reimbursement in this final rule to make it clear
that, for rebates to be billed, the inclusive payment must include an
amount directly attributable to the drug, and the amount paid that is
attributable to the drug is based on a reimbursement methodology that
is included in the applicable section of the State plan.
Comment: We received some comments indicating that the proposed
change to the definition of COD would
[[Page 79035]]
nullify the distinction between direct reimbursement and reimbursement
made as part of a bundled payment. Commenters stated that ``direct
reimbursement'' cannot be construed to mean ``separately identified''
without there being a distinct payment for the drug. Commenters also
indicated that CMS failed to acknowledge that where a drug has been
paid for as part of an indivisible payment for the drug and its
associated services, Medicaid, by definition, has not directly
reimbursed for the drug, and there is no ``direct'' throughline between
the reimbursement amount and the payment associated with any one of the
bundled items or services. Some commenters also stated that the
proposed change ignores what they consider to be a reasonable
interpretation of direct reimbursement.
Response: We agree that the proposed revision to the definition of
COD regarding direct reimbursement did not adequately reflect that the
amount of reimbursement for the drug should be tied to the State's
approved reimbursement methodology for that drug. We have therefore
added language to the definition in this final rule to indicate that in
order for the payment for the drug to be treated as direct
reimbursement, the payment methodology for the inclusive payment must
identify an amount directly attributable to the drug, such that the
amount paid is based on a reimbursement methodology that is included in
the applicable section of the State plan.
Comment: We received a few comments that because our modified
definition of COD provides that drugs administered in an inpatient
setting could be included in the definition of ``covered outpatient
drug,'' we give no meaning to the word ``outpatient'' contained within
the term.
Response: The term ``covered outpatient drug'' is a statutory term
of art. The limiting definition in section 1927(k)(3) states that the
term COD does not include any drug provided as part of, or as incident
to and in the same setting as ``inpatient hospital services,'' among
others, and for which payment is not made as direct reimbursement for
the drug. If the Congress had intended for the statutory term of
``COD'' to be limited to the outpatient setting only, the limiting
definition would be superfluous as applied to being included in
inpatient hospital services. Because statutory interpretation
principles hold that an agency should not construe a statute in a
manner that renders a provision to have no effect, we disagree that the
term COD is limited to drugs dispensed or administered in an outpatient
setting. Based on the plain text of 1927(k)(3), the term COD excludes a
drug provided in the inpatient hospital setting only if the drug is
provided as part of or as incident to and in the same setting as
inpatient hospital services and for which payment is made as part of
such services and not as direct reimbursement for the drug. We proposed
to amend the regulatory definition of COD in a manner consistent with
the statutory definition of this term of art to provide greater
specificity as to when a drug provided in the inpatient setting is
subject to the limiting definition and does not qualify as a COD.
Comment: A commenter noted that the statute focuses on the manner
of payment, not the manner in which the provider's costs are reflected
on the claim, and that our proposed definition was only focusing on how
the claim was submitted.
Response: We agree that the definition should include language
about the manner of payment, which we understand to mean how the claim
is reimbursed, and not only based on the information submitted on the
claim. We have therefore revised the proposed definition to include
language about the manner of payment, including that the payment
methodology for the inclusive payment must include an amount directly
attributable to the drug, such that the amount paid is based on a
reimbursement methodology that is included in the applicable section of
the State plan.
Comment: Several commenters noted that when payments for new and
innovative therapies (cell and gene therapies, for example) are
reimbursed in a payment that is bundled with a service (for example,
under the Diagnosis-Related Group (DRG) system), the reimbursement is
often insufficient for the drug and potentially results in lack of
patient access to these new therapies. The commenters noted that
conversely, some States are reimbursing the hospital separately for
their acquisition cost of certain new and innovative drugs from their
inpatient services associated with administering the drug, and such
methods of direct reimbursement are adequately reimbursing providers/
hospitals and encouraging patient access.
Response: We note that section 1902(a)(30)(A) of the Act requires
States to ensure that ``payments are consistent with efficiency,
economy, and quality of care and are sufficient to enlist enough
providers so that care and services are available under the plan at
least to the extent that such care and services are available to the
general population in the geographic area.'' The payment methodology
for a COD must be identified in the State Plan and meet the foregoing
standard. Some States already have approved methodologies outlined in
their State plan that results in the ability for the State to collect
rebates on some inpatient drugs. If a State plan does not address a
distinct reimbursement methodology for a drug included in a bundled
payment, then a SPA would need to be submitted and approved that
includes such methodology in the appropriate section of the State plan.
Comment: One commenter stated that manufacturers have launched
certain products assuming there would be limited MDRP rebates given the
products are included in a bundled payment arrangement and altering
this will lead to significant operational challenges, unsustainable
pricing expectations, potential drug shortages, and compromised
utilization within Medicaid.
Response: Again, we note that our intent for this clarification is
to help manufacturers and States better understand how the term direct
reimbursement for a drug will be applied with respect to the limiting
language within the COD definition. Our review of comments alerted us
to the fact that the proposed definition, as originally written, may be
open to multiple interpretations. As a result, in response to such
comments, we have modified the definition in this final rule to be
clearer about when a payment is a direct reimbursement for a drug.
Given the revisions, we do not believe that the challenges cited by the
commenter will occur. We also note that there are States whose current
Medicaid reimbursement policies account for carved out inpatient drugs
for separate payment. These payment models have been intact for years
and we do not have evidence that these payment models lead to
significant operational challenges, unstable pricing expectations, drug
shortages, or compromised Medicaid utilization. We also intend to
provide additional guidance to States with respect to how the
interpretation of direct reimbursement may be operationalized so that
States can invoice for rebates for these CODs.
Comment: A few commenters expressed their concerns regarding drug
manufacturers' lack of access to claims level data for purposes of
validating rebate invoices if CODs are merely identified or itemized
and not separately reimbursed. One commenter stated that neither CMS
nor States nor manufacturers have visibility into all payer claims to
be able to ascertain how
[[Page 79036]]
bundled drugs and associated items and services are itemized.
Manufacturers would have to obtain the billing document to verify the
validity of rebate invoices. Another commenter stated that it was
unclear that States would have the mechanism to collect such claims
data for bundled drugs and present to manufacturers if requested.
Response: Manufacturers are always able to work with States to
verify a claim for a Medicaid rebate. States will need to determine how
they instruct their providers and managed care plans to identify for
rebate billing purposes those inclusive payment claims where direct
reimbursement is being made for a COD. This will allow States to
include the COD in the rebate billings, as well as identify for
Medicaid managed care plans such claims that they will have to report
to the States for rebate billings.
For States that choose to reimburse these drugs separately, the
State will have the information submitted on the claim identifying the
drug and the number of dispensed or administered units of the drug. For
States that choose to use a bundled reimbursement model that separately
identifies the drug and takes the cost of the drug into account in the
reimbursement as outlined in the methodology in the State plan, those
States will also have sufficient information to identify the drug and
the number of dispensed or administered units of the drug. This claim
information will allow the State to provide utilization information to
the manufacturer in order for the manufacturer to verify that
utilization. Collection of the data and how it may be presented to
manufacturers may vary by State or manufacturer.
Comment: Several commenters stated that finalizing the COD
definition as proposed would subject some drugs (for example, cell and
gene therapies to new rebate requirements and would undermine efforts
to offer value-based payment models and innovative payment
arrangements.
Response: All CODs, including cell and gene therapy drugs that are
CODs for which the manufacturer has a rebate agreement, are subject to
basic minimum Medicaid rebate requirements, regardless of whether they
are provided as part of a value-based purchasing arrangement. As noted
previously, some States have already received approval for a State plan
amendment to carve out drugs, such as cell and gene therapy drugs from
inpatient hospital payment rates, and reimburse them separately, thus
allowing them to collect rebates. Further, the Cell and Gene Therapy
Access Model being tested by the CMS Innovation Center will require
participating States to carve model cell & gene therapy drugs out of an
inpatient payment bundle if the States want to participate in the Model
so that the States may collect rebates on the drugs. With the
clarification to the definition of direct reimbursement, as finalized
in this rule, States may also bill for rebates for drugs that are
provided as part of inclusive payments if they are itemized on the
provider's bill, the number of units dispensed are identified, and the
drug is paid according to the State's approved plan methodology for the
drug. With these clarifications, we also believe that manufacturers and
States may still pursue enhancements in patient access, equity, and
health outcomes by executing VBP agreements and supplemental rebates
for any COD per the State plan.
Comment: A few commenters stated that the cost of a drug has not
necessarily been included in the development of a bundled payment rate
for the underlying service. One commenter stated that a DRG-based
payment for a hospital inpatient stay does not provide reimbursement
for any one item or service involved in the bundle. Instead, the
commenter stated that bundled payment rates are meant to reimburse
generally for the collection of various items and services that may or
may not be necessary to the delivery of care for a specific illness,
procedure, or condition. The commenter noted that, typically, when DRG
rates are used to reimburse providers, the payment is a predetermined
amount that does not change based on the cost or amount of a specific
drug that is administered or dispensed to the patient.
Response: We recognize that DRG is a commonly employed bundled
payment methodology for an inpatient stay for a procedure or diagnosis.
The modified definition of COD that we are finalizing will continue to
exclude drugs from the definition of COD that are provided as part of,
or as incident to and in the same setting, as defined in
section1927(k)(3)(A) through (H) of the Act, for which payment for the
drug is bundled and not distinguishable from other costs associated
with that service. In addition, given that under a bundled payment, the
units of a drug that were provided during the service are not
identified on the bill, the State would not know how many units to bill
for rebates. We modified the proposed regulatory definition in this
final rule such that in order for the definition of direct
reimbursement to be met, the number of units administered to the
patient must be identified on the invoice for the inclusive payment and
reflected in a payment methodology in the State plan.
Comment: Several commenters noted that some States are reimbursing
the hospital for their acquisition cost of certain new and innovative
therapies separately from their inpatient services associated with
administering the drug. They believe this would qualify as direct
reimbursement, and result in States adequately reimbursing providers/
hospitals and encouraging patient access. One commenter suggested that
accounting for the drug cost separately in the reimbursement
calculation is a win-win situation.
Response: We agree that payment for drugs provided in this manner
consistent with the State plan constitutes a direct reimbursement and
the drug meet the definition of a covered outpatient drug.
Comment: A few commenters stated that the proposed definition could
make drugs reimbursed under a DRG reimbursement methodology or other
bundled payment subject to rebates when they historically were not.
These commenters supported this result and noted that these drugs are
currently carved out of DRGs to collect rebates. They noted that this
clarification would ensure States have the authority to collect rebates
regardless of the State's COD reimbursement methodology. These
commenters stated this may be particularly important for new high-cost
cell and gene therapies which are typically administered in medical
facilities.
Response: We agree the proposed definition could have been
interpreted to make drugs reimbursed under a DRG reimbursement
methodology or similar bundled payment methodology subject to rebates
regardless of the State's COD reimbursement methodology. As indicated
in response to previous comments, we did not intend for the
modification of the definition of COD to change current policy, but our
review of comments alerted us to the fact that the proposed definition
could be open to multiple interpretations. Based on such comments, we
have modified the definition in this final rule to clarify that direct
reimbursement does not occur unless the reimbursement for the drug is
based on a reimbursement methodology that is included in the applicable
section of the State plan, and that the inclusive payment includes an
amount directly attributable to the drug. Thus, a drug that is
reimbursed as part of a bundled payment under a DRG or similar bundled
payment methodology is not subject to rebates. However, if that drug is
carved out of the bundled payment and reimbursed directly, then
[[Page 79037]]
the drug is subject to rebates when applicable.
Comment: One commenter stated CMS should encourage State Medicaid
programs to implement reimbursement methodologies for gene therapies
that adequately cover both the direct gene therapy costs and the
patient care costs for services incident to that therapy.
Response: We note that reimbursement for gene therapies, as with
all CODs, are subject to section 1902(a)(30)(A) of the Act's
requirements ensuring that States' ``payments are consistent with
efficiency, economy, and quality of care and are sufficient to enlist
enough providers so that care and services are available under the plan
at least to the extent that such care and services are available to the
general population in the geographic area.''
Comment: One commenter stated that separate payment creates greater
equity in reimbursement rates across settings of care, such as
inpatient hospital versus outpatient hospital reimbursement.
Response: Our definition of COD is not designed to address site of
service concerns such as those raised by this commenter. Rather, it
addresses when drugs are considered CODs, and thus the States can
collect rebates, within various reimbursement methodologies.
Comment: One commenter stated that allowing States to seek rebates
on inpatient-administered drugs merely by identifying the drug on the
claim form and without some form of separate payment, would enable
States to seek rebates on drugs without establishing the separate
payment policies that make hospitals whole and help ensure patient
access.
Response: We agree that this is a potential outcome of defining
direct reimbursement without requiring a separate reimbursement policy
to account for the cost of the drug via the applicable State plan, and
that was not our intent. Our modified definition of direct
reimbursement as finalized addresses this potential issue by requiring
that the methodology for determining the reimbursement for a COD as
part of a bundled payment be set forth in the State plan.
Comment: A few commenters stated CMS does not explain what the
``itemized cost'' represents and how it is to be determined and claimed
it could essentially be a ``fictional amount.''
Response: This term is being revised in this final rule to ``the
charge for the drug''. Providers should rely on the State's billing
instructions to determine what to report to allow for appropriate
reimbursement.
Comment: A commenter questioned whether the bundled service must be
one in which the drug is always used.
Response: As noted in previous responses to comments, the
definition, as finalized in this rule, makes it clear that in order for
the drug to satisfy the COD definition, the drug used must be
identified, the charge for the drug must be itemized on the claim form,
and the payment must be consistent with the reimbursement methodology
for CODs in an approved State plan. These requirements may apply to
drugs that are always used in the bundled services and to drugs for
which this is not the case.
Comment: Commenters stated that simple ``itemization'' on a claim
form is not equivalent to ``direct reimbursement.''
Response: We agree, and therefore modified the definition in the
rule to more clearly state that direct reimbursement includes a
distinct methodology reflected in the State plan that accounts for the
reimbursement of the drug and is used to determine the inclusive
payment.
Comment: A few commenters stated that States would respond to this
modified definition of COD by requiring providers to include NDCs and
ingredient costs on all PAD claims in the future. One commenter
recommended that CMS consider the impact that its new proposed
definition has on providers' administrative burdens by requiring
collection of NDCs and ingredient cost information, suggesting that
including such information on Medicaid claims forms is both time-
consuming and labor-intensive.
Response: We appreciate the comments regarding the potential burden
to providers. Under their State plans, States have the discretion to
choose which reimbursement methodology to use for health care services
and what drugs, if any, they will carve out from that methodology and
directly reimburse for them. As of January 1, 2007, CMS regulations at
Sec. 447.520 have obligated States to require that providers submit
NDCs for physician-administered single source drugs and the 20 multiple
source drugs identified by the Secretary. Additionally, we note that in
section II. L. of this rule, States are required to provide for the
collection of NDCs for all physician-administered single source drugs
and multiple source drugs.
Comment: Some commenters stated that if a drug satisfies the
definition of COD, all requirements of section 1927 of the Act apply
(for example, all drugs of the manufacturer must be covered regardless
of hospital formularies, and reimbursement methodology must be
described in the State plan). Commenters acknowledged that States could
impose prior authorization requirements and that coverage decisions
should rest with the State and not the hospital. One commenter
suggested that States not be allowed to skirt the coverage requirements
of section 1927 of the Act by allowing hospitals to exclude from their
inpatient formulary drugs of a manufacturer that has signed a NDRA. A
few commenters expressed their concerns with their view that the
proposed rule did not address how a bundled drug would be covered in
the inpatient setting where restrictive formularies may apply.
Response: If a drug typically administered in the inpatient setting
qualifies as a COD, then we agree, notwithstanding exclusions, that
section 1927 of the Act applies to that drug. Our revised definition of
COD does not change the State's ability to decide the reimbursement
methodology for drugs so long as it is approved in their State plan.
Comment: One commenter stated that all reimbursement limitations
that apply to CODs would need to apply to these bundled hospital
inpatient drugs, specifically the Federal upper limit requirements
found in Sec. Sec. 447.512 and 447.514. The commenter noted that this
issue is not addressed in the proposed rule by the lack of new language
at Sec. 447.516 ``Upper limits on drugs furnished as part of
service''.
Response: We did not intend for the modification to the definition
of COD to change current policy, including Federal upper limit
regulations, but our review of comments alerted us to the fact that the
proposed definition as originally written could be open to multiple
interpretations. A ``bundled'' hospital inpatient drug that the
commenter mentions, for which direct reimbursement is not made, does
not qualify as a COD. Generally, the Federal upper limit requirements
only apply to multiple source drugs dispensed by a retail community
pharmacy. The regulatory language in Sec. 447.516 applies Federal
upper limits to payment for prescribed drugs furnished as part of a
service when provided as part of a skilled nursing facility service,
intermediate care facility service and under prepaid capitation
arrangement. This change to the COD definition does not make any
changes to the regulatory language in Sec. 447.516.
After considering the issues raised by the commenters, we have
decided to finalize this provision with modifications to our proposed
[[Page 79038]]
definition. In order for a payment to be considered direct
reimbursement for a drug, the claim must include the charge for the
drug, the number of units utilized, and the payment made to the
provider must include an amount directly attributable to the drug and
is based on a CMS approved reimbursement methodology.
b. Proposal To Define Drug Product Information (Sec. 447.502)
Section 1927(b)(3)(A) of the Act describes the manufacturer drug
product and pricing information that is required to be reported to the
agency. Section 6(a)(1)(A)(iv) of MSIAA amended section 1927(b)(3) of
the Act by adding section (b)(3)(A)(v), under which a manufacturer must
report drug product information that the Secretary shall require for
each of the manufacturer's CODs no later than 30 days after the last
day of each month of a rebate period. To support the implementation of
this new statutory requirement to report drug product information, we
proposed to define drug product information in regulation at Sec.
447.502.
In the proposed rule, we noted that we currently require
manufacturers to submit drug product information when the COD is
entered into the Medicaid Drug Programs (MDP) system, but that there is
no regulatory definition of drug product information. We, therefore,
proposed to define ``drug product information'' in Sec. 447.502 as
information that includes, but is not limited to, NDC number, drug
name, units per package size (UPPS), drug category (single source drug
(S), innovator multiple source drug (I), and noninnovator multiple
source drug (N)), unit type (for example, tablet, capsule, milliliter,
each, etc.), drug type (prescription, over-the-counter), base date AMP,
therapeutic equivalent code (TEC), line extension drug indicator, 5i
indicator and route of administration, if applicable, FDA approval date
and application number or OTC monograph citation if applicable, market
date, COD status, and any other information deemed necessary by the
agency to perform accurate URA calculations.
As discussed in the proposed rule, the drug category for an NDC
should be single source drug or innovator multiple source drug for the
entire history of the NDC if it was always produced, distributed, or
marketed under an NDA, unless a narrow exception applies, or single
source if marketed under a BLA. If a narrow exception has been granted
by CMS, the drug category for that NDC should historically be reported
as single source drug or innovator multiple source drug, and can be
changed to noninnovator multiple source drug, effective April 1, 2016.
We noted that we use the FDA ``applications.txt'' file to verify the
type of application associated with an application number and that the
file may be accessed using the link to the Drugs@FDA download file
found on the FDA website at <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>.
We also noted in the proposed rule that the only situation in which
a drug that is produced or marketed under an NDA may be reported as a
noninnovator multiple source drug is if a narrow exception was granted
by CMS in accordance with the process established in the 2016 COD final
rule. See 81 FR 5191. Definitions for these drug categories can be
found at section 1927(k)(7) of the Act and at Sec. 447.502.
We indicated that manufacturers should evaluate all of their NDCs
for compliance with drug product information reporting, and if they
determine corrections are required, they should contact CMS for
assistance. We also referenced Manufacturer Release No. 113, in which
we addressed a manufacturer's responsibility to ensure that all of
their CODs are correctly classified and reported in the Drug Data
Reporting system (DDR) (currently known as the MDP system) for the
history of the NDC, including such NDCs that may no longer be active
(<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>). We also noted that as part of a manufacturer's evaluation of
their NDCs for compliance with accurate drug product information
reporting, they should ensure that each NDC is reported with an
accurate market date.
In the proposed rule, we proposed to add a definition for ``market
date'' for the purposes of the MDRP. Please see proposed Sec. 447.502
for that proposed definition and elsewhere in this preamble for an
explanation of how market date is used to determine the quarter that
establishes each drug's base date AMP.
For most drug product information changes, we noted we would make
the requested changes on behalf of the manufacturer in the CMS system,
and those changes would subsequently be available for manufacturer
certification. However, we noted that in some situations where monthly
or quarterly pricing data must be updated as a result of the drug
product information change, if necessary, we would notify the
manufacturer that certain pricing data fields have been ``unlocked'' in
the CMS system to allow the manufacturer to enter or correct required
pricing information if applicable. Additionally, we noted that
regardless of whether we make a data change on behalf of a manufacturer
or whether the manufacturer enters required data directly in the MDP
system, manufacturers would be required to certify the information in
accordance with Sec. 447.510. Thus, we indicated that if we make a
data change at the request of a manufacturer, the manufacturer is not
relieved of its responsibility to ensure the accuracy of such data.
We also stated that until certification is complete, the changes in
the CMS system are not considered final and would not be used in any
quarterly rebate calculations or transmitted to the States as part of
the quarterly rebate files; however, the manufacturer is still
responsible for correct URA calculations and rebate payments. If drug
product information changes remain uncertified, the previously
certified values would remain in effect; therefore, corrections made in
the CMS system that remain uncertified would result in the drug
continuing to be considered misclassified or misreported. We noted that
we would consider this to be late reporting of product data for which a
manufacturer's rebate agreement may be suspended from the MDRP under
section 1927(b)(3)(C)(i) of the Act and eventually terminated as
authorized under section 1927(b)(4)(B) of the Act.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: We received several comments supporting our proposed
definition of drug product information. Commenters indicated that the
proposed definition removes ambiguity and closes potential loopholes.
Response: We appreciate the commenters' support for the proposed
definition of drug product information.
Comment: A few commenters stated that the statute's scope is
limited to drug product attributes found in the statute and the
regulation, and that several data elements that we included in the
definition are not found in statute or regulation.
Response: We disagree that drug product information must be limited
to product attributes specifically mentioned in the statute. The
statute provides direction for CMS to administer the MDRP, which
includes how rebate amounts are calculated. Some data fields that are
utilized in calculating the unit rebate amount are not specifically set
forth in statute but are nonetheless required to perform the
calculations that are detailed in the statute or to confirm the
accuracy of
[[Page 79039]]
those calculations. For example, although ``unit type'' is not a data
element mentioned in statute, it is an important data element that
helps to identify what the reported AMP represents. If the unit type is
reported incorrectly, it is possible that the AMP value may be
misinterpreted. CMS has determined to set forth by regulation the data
elements that must be reported as part of drug product information.
Comment: One commenter suggested CMS limit the items included in
the definition of drug product information to those items related to
drug category.
Response: We are not limiting the items included in the definition
of drug product information to those items related to drug category
because we do not believe that approach would be consistent with the
statute. MSIAA inserted the words ``and drug product'' to the title of
section (b)(3) of the Act, as well as other references to drug product
information, when addressing the information required to be reported by
manufacturers and the misclassification of drugs. Therefore, the
definition must include not only elements that are related to drug
category, but also other elements that are required to perform the
calculations of the unit rebate amount and to be able to help confirm
the accuracy of the calculations in accordance with the statute. CMS
believes the elements chosen for inclusion in this definition are
essential to ensure that unit rebate amount calculations are accurate,
and that CMS has accurate data to be able to oversee the MDRP.
Comment: One commenter requested clarification on the inclusion of
base date AMP as an element of drug product information and questioned
if the current file format will be amended to include base date AMP.
Response: The current file format will not need to be amended for
the reasons explained later in this section. In order to fully respond
to this comment, we need to delineate between different base date AMP
values. If a drug has a market date of September 30, 1990, because it
was first available for sale on or before that date, then the base AMP
for the drug is referred to as the OBRA '90 base date AMP. The OBRA '90
base date AMP value, as well as all of the different base date AMP
values, are considered to be product data. A manufacturer reports the
OBRA '90 base date AMP value into MDP as part of the product data when
first reporting the drug to CMS. The OBRA '90 base date AMP value is a
value on the product data file (Form CMS-367c), and no file format
amendments are required.
In general, if a drug has a market date after September 30, 1990,
which is the date it was first available for sale, the base date AMP
values are derived from quarterly pricing information that is reported
by the manufacturer for the base AMP quarter. For each base date AMP
value other that the OBRA '90 base date AMP value, the MDP system
automatically populates the base date AMP value in the product data
using the quarterly pricing information submitted by the manufacturer
as pricing data for the base AMP quarter. Although these other base
date AMP values are derived from quarterly pricing information for the
base AMP quarter, the base date AMP values are not considered to be
pricing data. Those base date AMP values other than the OBRA '90 base
date AMP values are not reported directly into MDP as product data and
do not appear in the product data file.
Comment: A few commenters stated that the changes that the Congress
made to the statute were to address misclassifications, not drug
pricing issues, and therefore any drug pricing references should be
removed from definition of drug product information.
Response: The changes to the statute made by MSIAA are not solely
to address drug category, but also to address incorrect reporting of
additional drug product information. The items included in the
definition of drug product information are all considered to be product
information. As an example, although the base date AMP value is a
pricing value, it is considered product information. It generally does
not change once established and is tied to the drug throughout the
history of that drug in the MDP system. Pricing information is reported
monthly and quarterly and may change from one reporting period to the
next. Additionally, elements such as unit type or TEC code are not
directly related to drug category, however they are included in the
definition of drug product information.
Comment: A few commenters stated that the definition of drug
product information must be prospective only and that CMS should
clarify the effective dates of definition changes.
Response: The definition of drug product information becomes
effective on the effective date of this final rule. With this
definition of drug product information, we are not adding or changing
any reporting requirements, we are only defining which reporting
elements are included in the definition of drug product information.
Comment: A few commenters were concerned that the proposed rule
would treat a clerical error that has no impact on the MDRP the same as
a misreported data element that has direct impact on URA calculations,
such as base date AMP.
Response: The proposed definition of drug product information lists
the data elements that are considered to be drug product information.
The definition itself does not indicate how misreporting of any element
of drug product information will be evaluated for potential penalties;
misclassification of drug product information is addressed in the
misclassification section of the rule. In that section, we state that
we believe misclassification includes any incorrect drug product
information reported by the manufacturer. Also in that section, we
proposed several penalty options in accordance with the penalty options
contained in section 1927(c)(4)(B) of the Act and note that CMS may
utilize one or more of them in each situation. One of those options is
for CMS to correct the misclassification on behalf of the manufacturer
using drug product information provided by the manufacturer. As
discussed in the misclassification section, the enforcement provisions
in section 1927(c)(4)(B)(ii) provide options for CMS to take action
when a manufacturer fails to correct a misclassification. CMS' current
process within the MDP system requires the manufacturer to certify any
change made in the MDP system. However, CMS may certify changes on
behalf of the manufacturer and would do so in this specific situation.
Outside of this specific situation, as discussed in the preamble of the
proposed rule, any change made in the MDP system by CMS must be
certified by the manufacturer before it becomes effective.
Comment: We received several comments regarding the ``open-ended''
definition of drug product information. Commenters were concerned that
although we listed specific data that would be included in the
definition, we also specified that the definition was not limited to
those data elements. Specifically, commenters disagreed with the
inclusion of ``information that includes but is not limited to'' and
``and any other information deemed necessary by the Agency to perform
accurate Unit Rebate Amount calculations.'' Commenters stated that we
lack the authority to leave the definition open-ended, that issuing
``catch-all'' phrases in definitions bypasses the notice and comment
requirements, and that we must define terms with precision. Other
commenters were concerned that the broad, open-ended provision in the
[[Page 79040]]
definition gives CMS a vehicle for arbitrary enforcement and leaves
open the opportunity for inconsistent application year to year. One
commenter stated that we should either strike the open-ended definition
or delete ``drug product information'' from Sec. 447.509(d)(1).
Response: While we disagree that we lack the authority to adopt
provisions such as the definition proposed, we agree with the
commenters that it would be appropriate to remove the ``open-ended''
provisions in the proposed definition of drug product information. We
are additionally making slight edits to the construction of the
proposed definition to make it clear to which elements the term ``if
applicable'' applies. Therefore, drug product information will now be
defined as National Drug Code (NDC), drug name, units per package size
(UPPS), drug category (``S'', ``I'', ``N''), unit type (for example,
TAB, CAP, ML, EA), drug type (prescription, over-the-counter), base
date AMP, therapeutic equivalent code (TEC), line extension drug
indicator, 5i indicator, 5i route of administration (if applicable),
FDA approval date, FDA-approved application number or OTC monograph
citation (if applicable), market date, and COD status.
Comment: A few commenters stated that the language proposes that
manufacturers would have to report each element of drug product
information repeatedly and that would be burdensome or unnecessary.
Response: Section 1927(b)(3)(A)(v) of the Act states that
manufacturers must report, not later than 30 days after the last day of
each month of a rebate period under the agreement, such drug product
information as the Secretary shall require for each of the
manufacturer's covered outpatient drugs. Currently, we require that
drug product information be reported not later than 30 days after the
date of entering into a rebate agreement, or, for newly introduced
drugs, not later than 30 days after the last day of the month during
which the new drug is introduced. Such drug product information is not
required to be reported on a monthly or quarterly basis at this time,
and we therefore disagree with commenters' concerns that the definition
requires unnecessary, repetitive, or overly burdensome reporting.
Based on the comments received, we are finalizing the definition as
proposed with the previously described sentence structure changes and
the following additional changes:
<bullet> Deleting ``. . . includes but is not limited to . . .'' and
replacing it with ``means''
<bullet> Deleting ``. . . COD status, and any other information deemed
necessary by the agency to perform accurate unit rebate amount (URA)
calculations.'' and replacing it with ``and COD status.''
c. Proposal To Define Internal Investigation for Purposes of Pricing
Metric Revisions (Sec. Sec. 447.502 and 447.510)
In the proposed rule, we included a provision that would define
internal investigation related to manufacturer reporting of quarterly
pricing metrics. As background, we noted in the preamble to the
proposed rule, in accordance with section 1927(b)(3) of the Act, Sec.
447.510 of the implementing regulations, and the terms of the NDRA,
manufacturers are required to report certain pricing and drug product
information to CMS on a timely basis for the purposes of the MDRP, or
else they could incur penalties or be subject to other compliance and
enforcement measures. We noted that in an effort to improve the
administration and efficiency of the MDRP and assist States and
manufacturers that would otherwise be required to retain drug
utilization pricing data records indefinitely, we established the 12-
quarter time period for reporting revisions to AMP or best price
information in final rule (Medicaid Program; Time Limitation on Price
Recalculations and Recordkeeping Requirements Under the Drug Rebate
Program) on August 29, 2003. However, we have continued to receive
requests outside of the 12-quarter time period from manufacturers to
revise pricing data. We stated that these types of manufacturer
requests, which could span multiple years prior to the 12-quarter time
period, could sometimes result in substantial recoupment of Medicaid
rebates already paid to States and impede the economic and efficient
operation of the Medicaid program.
We noted that in the 2016 COD final rule we offered exceptions to
the 12-quarter time period (81 FR 5278, See Sec. 447.510(b)(1)(i)
through (vi)). Specifically, we discussed one exception at Sec.
447.510(b)(1)(v) (which provides an exception to the 12-quarter time
period price reporting rule if the change requested by the manufacturer
is to address specific rebate adjustments to States by manufacturers,
as required by CMS or court order, or under an internal investigation,
or an OIG or Department of Justice (DOJ) investigation) pertaining to
adjustments pursuant to an internal investigation. We explained that
our policy has been that internal investigation is intended to mean a
manufacturer's internal investigation, and that if a manufacturer
discovers any discrepancy with its reported product and pricing data to
the MDRP that is outside of the applicable timeframes, the manufacturer
should determine if the change satisfies one of the enumerated
exceptions (81 FR 5280). However, we acknowledged that we have not
further defined or given any greater explanation for the applicability
of the exception to the 12-quarter time period rule up to that point,
particularly in instances when manufacturers perform an internal
investigation of the drug price information (AMP and best price)
reported and certified in MDP by another manufacturer. Additionally, we
noted that, given the absence of a definition of internal investigation
or specificity as to when this exception applies, some manufacturers
have broadly interpreted the internal investigation exception to the
12-quarter time period rule. Consequently, in the proposed rule, we
proposed a definition to provide greater clarity in this area. Our
requirement does not override or otherwise diminish a manufacturer's
obligation to make sure that it has paid the statutorily required
rebate amount. The discussion herein only applies to the paragraph of
Sec. 447.510(b)(1)(v) ``internal investigation'' and does not obviate
or negate any requirement resulting from a CMS or court order, or an
OIG or DOJ investigation.
In cases when a manufacturer requests an exception to the 12-
quarter time period rule due to an internal investigation, we proposed
to specify that the manufacturer must make a finding that indicates a
violation of statute or regulation before we consider such a request.
For example, a request by a manufacturer to restate or revise
previously reported and certified pricing data outside of the 12-
quarter time period based upon a mere disagreement with a prior
manufacturer's government pricing calculations and assumptions, would
not be considered a valid reason to revise a prior manufacturer's
pricing outside of the 12-quarter time period. In this example, the
manufacturer must make findings that include actual data from the prior
manufacturer as evidence that the prior manufacturer violated statute
or regulation.
We noted in the preamble to the proposed rule that manufacturers
should not use the internal investigation exception to allow for
application of a different methodology or reasonable assumption to
determine AMP and best price to its favor when the methodology
originally applied was consistent with statute and regulation, and drug
product and pricing information was properly
[[Page 79041]]
reported and certified by the manufacturer at the time. Therefore, to
ensure clarity on when the internal investigation exception may be
appropriately applied, we proposed to define internal investigation at
Sec. 447.502 to mean a manufacturer's investigation of its AMP, best
price, customary prompt pay discounts, or nominal prices that have been
previously certified in MDRP that results in a finding made by the
manufacturer of fraud, abuse or violation of law or regulation. We
further indicated that a manufacturer must make data available to CMS
to support its finding. We also proposed to amend Sec.
447.510(b)(1)(v) to reference the definition of internal investigation
at Sec. 447.502.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: A few commenters opposed the proposed definition of
internal investigation, with some stating that this definition will
lead manufacturers to avoid internal audits and fail to identify
violations of fraud, abuse, or violations of law or regulation, such
that it would reduce the accuracy and reliability of price reporting
metrics. The commenters encouraged CMS to develop a proposal that
maintains the viability of the internal investigation exception to the
12-quarter time period rule, instead of foreclosing price revision
requests following an internal investigation.
Specifically, commenters indicated that manufacturers would have to
admit legal fault in order to request a restatement outside the 12-
quarter time period, which would have a chilling effect on appropriate
restatements when there is no legal fault. For example, commenters
indicated that manufacturers that are risk averse, or maintain a more
conservative approach to price reporting than the previous owner, would
likely not pursue price revision requests because of admission of
fault. The commenters further indicated that there are many reasons why
a manufacturer's reported AMP and best price may require correction,
including resolution of price disputes for certain providers/customers
that eventually impact best price and/or AMP or discovery of good-faith
mathematical errors. They stated that CMS should withdraw its proposal
of the definition of internal investigation and recognize manufacturer
requests outside the 12-quarter time period for what they are: good
faith attempts to comply with complex and consequential government
reporting obligations.
Response: CMS believes that most manufacturers are making good
faith attempts to comply with MDRP price reporting rules. CMS also
maintains that manufacturers have sufficient time to address revisions
in MDP to the manufacturer's AMP, best price, customary prompt pay
discounts, or nominal prices within the 12-quarter time period (3-year
time period) in accordance with the timeframe set in Sec. 447.510.
Through notice and comment rulemaking, CMS published the final rule
(CMS-2175-FC) that set forth the 12-quarter (3-year) time period on
August 29, 2003. In the 2003 final rule, CMS reiterated concerns
expressed by States regarding pricing changes and recalculations that
were occurring under the MDRP back to 1991, and the significant burden
on States and manufacturers to maintain pricing data and supporting
documentation for such an extended time period. Based on these
considerations, a time limit was adopted (68 FR 51913). As there were
no comments received regarding extending this period beyond 12-quarters
in response to the 2003 proposed rule, CMS adopted the 12-quarter time
period and communicated that we would not choose a longer period than 3
years because it would not sufficiently alleviate States' fiscal
vulnerability with regard to retroactive pricing changes (68 FR 51916).
While we have enacted exceptions to allow for restatements in
certain circumstances beyond the 12-quarter time period, we continue to
believe that we should minimize requests to restate outside of that
time period to improve the administration and efficiency of the MDRP
and to assist States and manufacturers that would otherwise be required
to retain drug utilization pricing data records indefinitely (88 FR
34253). As a result, we are finalizing the definition of internal
investigation, but we are amending the definition to add the term
``possible'' so that such restatements would not be construed as an
admission of legal fault. Therefore, as finalized, we will define
internal investigation at Sec. 447.502 to mean: a manufacturer's
investigation of its AMP, best price, customary prompt pay discounts,
or nominal prices that have been previously certified in the MDRP that
results in a finding made by the manufacturer of possible fraud, abuse,
or violation of law or regulation. A manufacturer must make data
available to CMS to support its finding. CMS notes that neither the
general 12-quarter time period for restatements nor the exceptions
allowing for restatements in certain circumstances beyond the 12-
quarter time period, including pursuant to an internal investigation,
alleviate the manufacturer of its obligation to accurately report
product and pricing information for covered outpatient drugs to CMS
consistent with section 1927 of the Act and applicable regulations and
guidance.
Comment: A commenter indicated that a manufacturer may conclude
after an internal investigation that it should change a unit type for a
drug (for example, the unit type of a vial of lyophilized powder for
reconstitution and injection from gram to each) based on CMS guidance.
The commenter also indicated that although the use of the initial unit
type is not a violation of law or regulation, let alone fraud or abuse,
restatement beyond the 3-year window would be prohibited, and the
prospective use of the preferable unit type would be precluded by the
inability to correct the base date AMP. The commenter provided as
another example a manufacturer that, as a result of an internal
investigation, changes a reasonable assumption about a customer or its
class of trade. The commenter noted that an internal investigation may
uncover new information that a group purchasing organization (GPO)
passes through administrative fees to its members, or that a pharmacy
dispenses greater than 50 percent of its prescriptions through the
mail, which the commenter indicated could lead to a different treatment
of the customer in the AMP and best price calculations.
Response: Existing regulation at 447.510(b)(1)(v) provides that if
``[t]he change is to address specific rebate adjustments to States by
manufacturers, as required by CMS . . .'' and a manufacturer requests a
change to a drug's unit type in our system because CMS has directed the
manufacturer to make the change, that reason may be considered by CMS
as an exception to the 12-quarter time period rule. Revisions to a
manufacturer's determination of AMP and best price because a
manufacturer uncovers new information about the calculation it made 12
quarters in the past may meet the exception only if the change is to
address rebate adjustments to States as directed under
447.510(b)(1)(v). That is, the change is required by CMS or court
order, or under an internal investigation (as defined at 447.502) or an
OIG or DOJ investigation.
Comment: Several commenters noted that they are concerned with CMS'
assertion in the proposed rule that a manufacturer purchasing another
manufacturer or another manufacturer's products, are not valid reasons
to restate
[[Page 79042]]
pricing outside of the 12-quarter limit. A commenter stated that
revisions made outside of the 12-quarter time period conflict with a
basic operating premise of the MDRP, as codified in the NDRA. That is,
acknowledging the complexity of the Medicaid rebate statute and price
reporting requirements, the commenter stated that CMS has long
encouraged manufacturers to make ``reasonable assumptions'' in
calculating price reporting metrics. As a result, the commenter noted
that a manufacturer may revise the previously reported pricing data of
a prior manufacturer using a different, reasonable methodology to align
a newly acquired product with the reasonable assumptions and price
reporting practices of existing company products.
Commenters also indicated that the proposed definition would
prevent a manufacturer from requesting to restate pricing metrics
calculated using the manufacturer's preferred compliant method upon
acquiring a new COD where the pricing metrics for the COD were
initially reported with a different compliant method. They stated that
this policy would discourage merging entities from harmonizing their
reporting methods and could require a manufacturer to employ various
methods of calculating pricing metrics to various different CODs,
increasing the administrative burdens of complying with its reporting
obligations and increasing the risk of reporting inaccuracies by
introducing the potential for misapplication of the wrong calculation
method for a given COD.
Response: CMS reiterates that we will not accept a change in
pricing outside the 12-quarter time period because of a change in a
manufacturer's reasonable assumptions or ownership. The manufacturer
may prospectively, or within the 12-quarter time period, revise
reasonable assumptions associated with the drug pricing, including
correcting any customer or class of trade transactions associated with
the revised reasonable assumptions. Manufacturers may also harmonize
their preferred compliant methodology for pricing within the 12-quarter
time period. Permitting manufacturers to revise prices retroactively
that were previously verified by another manufacturer and in perpetuity
because of changes to a transfer of ownership would be contrary to the
established 12-quarter time period CMS adopted in rulemaking in 2003
under CMS-2175-FC. As previously noted, at that time, CMS decided not
to extend the 12-quarter time period and communicated that we would not
choose a longer recordkeeping than 3 years because it would not
sufficiently alleviate States' fiscal vulnerability with regard to
retroactive pricing changes (68 FR 51916). Therefore, while we have
established exceptions to the 12-quarter time period rule at Sec.
447.510(b), we believe we should minimize granting requests outside of
the 12-quarter time period, including restatements of pricing reported
for a product previously owned, reported, and certified by another
manufacturer.
Also, as noted in a prior response to comments, CMS seeks to
minimize requests to restate drug pricing information outside of the 3-
year timeframe to improve the administration and efficiency of the MDRP
and assist States and manufacturers that would otherwise be required to
retain drug utilization pricing data records indefinitely (88 FR
34253). In this regard, we continue to believe the 12-quarter time
period with the existing exceptions, as clarified in this final rule,
allows manufacturers to revise pricing without disrupting the
administration and efficiency of the MDRP. We note that if a
manufacturer is concerned with liability associated with the prices or
pricing metrics used by the selling manufacturer, CMS believes that
such concerns regarding legal liability because of the incorrect
reported price information should be addressed as part of contract
negations between the selling and buying manufacturer.
Comment: One commenter supported CMS' request for data to support
compliance with laws and regulations in 12-quarter time period rule
exception requests. The commenter agreed that it sets a clearer and
stricter standard for the exception of the 12-quarter time period by
excluding subsequent internal reviews to revise in the manufacturer's
favor pricing data that was compliant with laws and regulations.
Response: We agree with the commenter that the use of data to
support revisions to prices outside of the 3-year timeframe to
reinforce a manufacturer's finding of potential non-compliance with
laws and regulations establishes a clear standard for when an exception
may apply. We believe the definition of internal investigation, as
finalized in this rule, will address this concern.
Comment: A commenter indicated that the inability to restate a base
date AMP to harmonize different calculation methods could distort the
Medicaid additional rebate calculation. Such rebates are calculated by
reference to the difference between a COD's current AMP and its
baseline AMP. The commenter stated that if a manufacturer is prevented
from restating baseline AMP under its current AMP calculation method,
then the additional rebate calculations for every future period will be
distorted by the methodology difference.
Response: Manufacturers can restate base date AMP within 3 years of
the initial price reported consistent with Sec. 447.510(b).
Furthermore, when CMS issues final regulations to reflect revisions
made to the statute's calculation of AMP, CMS allows manufacturers to
restate their base date AMP in accordance with those regulatory and
statutory changes so that the baseline AMP is consistent with the
reported AMP. For example, in the 2016 COD final rule, CMS permitted
manufacturers to recalculate their base date AMP in accordance with the
revisions made to the determination of AMP under the Affordable Care
Act (see 81 FR 5281). In accordance with the Sec. 447.502 definition
of internal investigation, as finalized in this rule, CMS will not
permit a manufacturer to revise the base date AMP outside of the 3-year
timeframe unless the internal investigation results in a finding made
by the manufacturer of possible fraud, abuse, or violation of law or
regulation.
Comment: Several commenters pointed out that rebates under the
Medicare Part D Drug Inflation Rebate Program for Part D rebateable
drugs are calculated by reference to the amount by which the drug's
``annual manufacturer price'' (AnMP) exceeds the ``inflation-adjusted
rebate amount.'' AnMP is calculated by using, in part, the AMP of a
drug over 4 calendar quarters. The commenters indicated that any
inflation rebate calculated for Medicare Part D purposes could also be
distorted by CMS' proposal. They stated that if manufacturers are
prevented from restating AMP under this proposal in MDRP rulemaking,
then future Part D rebate calculations will be based on the same
distorted comparison as the Medicaid rebates. They also noted that as
AnMP and the benchmark period manufacturer price are calculated by
using multiple quarterly AMPs, any adjustments to CMS' proposed
redefinition intended to avoid these distortions should allow
manufacturers to restate AMP for all quarters relevant to these
calculations for the particular drug.
Response: As noted in the response to the previous comment,
manufacturers can restate base date AMP within 3 years of the initial
price reported consistent with Sec. 447.510(b), and CMS will allow
manufacturers to revise base date AMP to reflect revisions made to the
statute's calculation of AMP.
[[Page 79043]]
However, in accordance with the Sec. 447.502 definition of internal
investigation as finalized in this rule, CMS will not permit a
manufacturer to revise the base date AMP outside of the 3-year
timeframe unless the manufacturer's investigation results in findings
of possible fraud, abuse, or violation of law or regulation. As
previously stated and in the proposed rule, the definition will clarify
for manufacturers that they should not use the internal investigation
exception to allow for the application of a different methodology or
reasonable assumption to determine AMP and best price to its favor when
the methodology originally applied was consistent with statute and
regulation, and drug product and pricing information was properly
reported and certified by the manufacturer previously. CMS has
published revised guidance with respect to the operation of the
Medicare Part D Drug Inflation Rebate Program, Medicare Part D Drug
Inflation Rebates Paid by Manufacturers: Revised Guidance,
Implementation of Section 1860D-14B of the Social Security Act,\8\ and
is engaged in rulemaking for this program.\9\ CMS refers commenters to
Medicare Part D Drug Inflation Rebate Program materials for information
on how the Medicare Part D Drug Inflation Rebate Program will use AMP
data for the purposes of calculating inflation rebates.
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\8\ <a href="https://www.cms.gov/files/document/medicare-part-d-inflation-rebate-program-revised-guidance.pdf">https://www.cms.gov/files/document/medicare-part-d-inflation-rebate-program-revised-guidance.pdf</a>.
\9\ <a href="https://www.federalregister.gov/documents/2024/07/31/2024-14828/medicare-and-medicaid-programs-cy-2025-payment-policies-under-the-physician-fee-schedule-and-other">https://www.federalregister.gov/documents/2024/07/31/2024-14828/medicare-and-medicaid-programs-cy-2025-payment-policies-under-the-physician-fee-schedule-and-other</a>.
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Comment: Several commenters believe that the proposed rule would
discourage manufacturers from taking the required measures of
correcting the calculations beyond the 12-quarter time period, which
could result in calculations that are inconsistent with the
manufacturer's methodology and may result in favor of the State. The
commenters suggested that CMS allow manufacturers to submit policy
changes prior to the 12-quarter time period and seek approval from CMS
with documentation and the reason for the policy change, but not
necessarily details pertaining to pricing impact either in States or
manufacturer's favor. The commenters indicated that, if CMS does not
approve the manufacturer's policy changes prior to the 12-quarter time
period, then the manufacturer should not proceed with restating the
price. The commenter also suggested that manufacturers be allowed to
get approval from CMS to recalculate prices when the manufacturer has
identified new or changed information in the underlying data which
caused the earlier calculation to be incorrect.
Response: We believe the commenter is requesting that CMS approve a
manufacturer's pricing methodology or change in information prior to
the manufacturer submitting a restatement beyond the 12-quarter time
period and not before the 12-quarter time period. Current CMS policy
allows the manufacturer to change its pricing information prior to the
12-quarter time period without requesting CMS approval. CMS has a long-
held policy that a manufacturer that needs to make future
recalculations regarding AMP or best price methodology may do so
without prior review and approval by CMS and that manufacturers must
report to CMS these revisions to AMP and or best price for a period not
to exceed 12 quarters from the quarter which the data were due.\10\
This final rule does not impact this CMS policy. However, if the
manufacturer provides findings to CMS that the manufacturer's pricing
methodology may result in possible fraud, abuse, or violation of law or
regulation, CMS may consider permitting the manufacturer to restate its
pricing based on the revised methodology outside of the 12-quarter time
period.
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\10\ Manufacturer Release #80: (<a href="https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-080.pdf">https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-080.pdf</a>).
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Therefore, as we noted in the response to the previous comment, we
will finalize the definition of internal investigation but amend the
definition to add the term ``possible'' so that a manufacturer's
restatements would not be construed as an admission of legal fault.
Instead, we will define internal investigation at Sec. 447.502 to
mean: a manufacturer's investigation of its AMP, best price, customary
prompt pay discounts, or nominal prices that have been previously
certified in the MDRP that results in a finding made by the
manufacturer of possible fraud, abuse, or violation of law or
regulation. A manufacturer must make data available to CMS to support
its finding.
d. Proposal To Revise the Definition of Manufacturer for NDRA
Compliance (Sec. 447.502)
We proposed to further refine the definition of manufacturer at
Sec. 447.502 to codify the requirements under section 1927(a)(1) of
the Act, which specifies that a manufacturer has to have entered into
and have in effect a rebate agreement with the Secretary in order for
payment to be available for their CODs under Medicaid. We also proposed
to codify in regulation that all entities (with their applicable
labeler codes) that are associated or affiliated with a manufacturer
must have a rebate agreement in effect in order for the manufacturer to
satisfy the statutory requirement that the manufacturer have a rebate
agreement in effect with the Secretary.
CMS received a number of thoughtful comments on this topic, and we
determined not to finalize the proposed policy at this time. We are
continuing to review the input provided by commenters, which may inform
future rulemaking on this topic.
e. Proposal To Define Market Date (Sec. 447.502)
In the proposed rule, we included a provision that would establish
a definition for market date in regulation. This proposed definition
would: (1) modify one aspect of previous agency guidance regarding the
market date for a drug by requiring in regulation that the market date
reflect the date of first sale of the drug, rather than the date the
drug was first available for sale, by any manufacturer; and, (2) codify
CMS' historical policy that the market date does not change if a drug
is purchased or otherwise acquired from another manufacturer.
Prior instructions and guidance to assist manufacturers in
determining the market date for a drug to report to MDP specified that
the market date was the date the drug was first available for sale by
any manufacturer. This prior guidance is available in various sources,
including program notices, the MDP User Guide located within MDP, user
manuals previously available in the older Drug Data Reporting for
Medicaid (DDR) system, and in data definitions in CMS form 367c.
As background in the preamble to the proposed rule, we noted that
section 1927 of the Act governs the MDRP and payment for CODs, which
are defined in section 1927(k)(2) of the Act. Pursuant to section
1927(b)(1)(A) of the Act, manufacturers that participate in the MDRP
are required to pay rebates for CODs that are dispensed and paid for
under the State Medicaid plan. Additionally, section 1927 of the Act
provides specific requirements for program implementation, including
requirements for rebate agreements, submission of drug pricing and
product information, confidentiality, the formulas for calculating
rebate payments, and many others related to State and manufacturer
obligations under the program. The rebates owed by
[[Page 79044]]
manufacturers are calculated based on statutory formulas described in
section 1927(c) of the Act and consist of a basic rebate and, in some
cases, an additional rebate that is applicable when an increase in the
AMP, with respect to each dosage form and strength of a drug, exceeds
the rate of inflation. This additional rebate formula is set forth in
sections 1927(c)(2) and 1927(c)(3)(C) of the Act and codified in
regulation at Sec. 447.509(a)(2) and (7).\11\
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\11\ Section 602 of the Bipartisan Budget Act (BBA) of 2015
amended section 1927(c)(3) of the Act, to require that manufacturers
pay additional rebates when their covered outpatient drugs other
than single source or innovator multiple source drugs' average
manufacturer prices increase at a rate that exceeds the rate of
inflation. In accordance with section 1927(c)(3) of the Act, as
revised by section 602 of the BBA of 2015, manufacturers must
calculate these additional rebates for these drugs beginning with
the January 1, 2017 quarter (that is, first quarter of 2017).
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We also noted in the proposed rule that the additional rebate
calculation requires a determination of the AMP for the dosage form and
strength of the drug for the current rebate quarter, and a comparison
of that AMP to the AMP for the dosage form and strength of that drug
for a certain calendar quarter, generally referenced as the base date
AMP quarter.\12\ For S or I drugs, the base date AMP quarter is the
third quarter of 1990 for drugs that were first marketed prior to
fourth quarter of 1990, or the first full calendar quarter after the
day on which the drug was first marketed for drugs that were first
marketed on or after October 1, 1990.\13\ (See sections 1927(c)(2)(A)
and 1927(c)(2)(B) of the Act.) For other drugs (including N drugs and
other drugs reported as N), we noted that the base date AMP quarter is
the third quarter of 2014 for drugs that were first marketed prior to
April 1, 2013, or the fifth full calendar quarter after the day on
which the drug was first marketed for drugs that were first marketed on
or after April 1, 2013. (See section 1927(c)(3)(C) of the Act.) To
determine the applicable base date AMP and, ultimately, to calculate
the additional rebate for a quarter, we noted that a critical data
point is the day on which the drug was first marketed. We refer to this
date as a COD's market date. Manufacturers are required to report to
CMS the market date of each dosage form and strength of a COD for all
of its CODs.
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\12\ Base Date AMP is defined in the National Drug Rebate
Agreement (NDRA) at I.(c) as follows: ``Base Date AMP'' will have
the meaning set forth in sections 1927(c)(2)(A)(ii)(II) and
1927(c)(2)(B) of the Act. See also I.(l) definition of ``marketed''.
Section VIII.(a) provides that the agreement is subject to any
changes in the Medicaid statute or regulations that affect the
rebate agreement. Thus, any changes to regulations are incorporated
into rebate agreements without further action. See also Manufacturer
Release 113--Misclassification of Drugs (<a href="http://medicaid.gov">medicaid.gov</a>); <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>.
\13\ For a drug with a market date prior to October 1, 1990, the
MDRP reporting system defaults to a market date of September 30,
1990. The system assigns a base date AMP quarter of fourth quarter
of 1990 to such drugs as the statute defines (section
1927(c)(2)(A)(ii) of the Act).
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We also noted that section 1927(c)(2)(A)(ii)(II) of the Act
expressly provides that the base date AMP quarter, with respect to a
dosage form and strength of a drug, is established without regard to
whether or not the drug has been sold or transferred to an entity,
including a division or subsidiary of the manufacturer. As such, we
noted that the market date of a drug is the date that the drug was
first marketed, regardless of the entity that marketed the drug.
Consistent with the statute, we noted that the market date of a drug is
not and cannot be based on the first date upon which a subsequent
manufacturer first markets the drug, but rather the earliest date on
which the drug was first marketed, by any manufacturer.
We also stated that a new market date cannot be established for a
drug that is marketed under the same FDA-approved NDA number, ANDA
number, or BLA license unless the drug is a new dosage form or strength
because the statute requires an additional rebate amount based on the
market date for each dosage form and strength of a COD.\14\ Thus, if a
drug is purchased or otherwise acquired from another manufacturer, we
noted that the market date should not change, and should be the same as
the market date of the drug first marketed under the FDA-approved
application.
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\14\ The FDA approved application (for example the NDA itself)
includes all FDA approved supplements to the application.
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Because over the years, manufacturers have occasionally raised
questions to CMS regarding the determination of a COD's market date,
base date AMP quarter, and base date AMP under various fact-driven
scenarios, we proposed to clarify the term market date as used in the
MDRP and to resolve potential questions related to these issues.
Specifically, to assist manufacturers in reporting a more accurately
calculated AMP, for the purposes of determining the base date AMP
quarter and the base date AMP, we proposed that the market date be
based on the first sale of the drug by any manufacturer rather than the
date the drug was first available for sale by any manufacturer. We
indicated that linking the market date determination to the date of the
first sale, rather than the date the drug was first available for sale,
would permit a manufacturer to establish and report a base date AMP
based on actual sales data. As a result, the Unit Rebate Amount (URA)
would also be calculated more accurately because actual sales would be
available for reporting the AMP and calculating the URA.
In other words, under our proposal, for purposes of determining the
base date AMP quarter and thus the base date AMP, the market date is
based upon the earliest date on which the drug was first sold, by any
manufacturer. As noted previously in this section, our proposal also
would codify the existing requirement that the market date for a COD is
determined with respect to ``any manufacturer.''
We also stated that we understand that defining market date, for
purposes of determining a COD's base date AMP, based on the date the
COD was first sold, may not completely eliminate a manufacturer's need
to make reasonable assumptions because the first sale(s) may include
only AMP ineligible sales. For example, if all the sales during the
first quarter of a drug's availability are made to entities other than
retail community pharmacies or wholesalers, and are not eligible for a
5i AMP calculation, then there may not be any AMP eligible sales to use
for the calculation of AMP for that quarter. In such cases, a
manufacturer may still need to use reasonable assumptions to report an
AMP for that quarter.
We proposed that sold means that the drug has been transferred
(including in transit) to a purchasing entity. We requested comments on
this topic to determine what qualifies as ``sold'' for the purposes of
determining the market date of a drug, as we have also experienced
manufacturers interpreting the term ``sold'' differently across the
industry.
We received public comments on the proposed definition of market
date for the purposes of the MDRP. The following is a summary of the
comments we received and our responses.
Comment: We received numerous comments expressing support for the
proposed definition of market date and one comment that noted no
concerns with the proposed definition.
Response: We appreciate the support of the proposed definition of
market date.
Comment: We received a comment about how our proposed definition of
market date might intersect with the way Medicare proposes to determine
the market date for the purposes of certain provisions under the
Inflation Reduction Act (IRA). Commenters suggested that applying the
same
[[Page 79045]]
definition across CMS would provide consistency across the agency.
Response: CMS' interpretation of terms and the applicability of
those terms for programs other than the MDRP are outside the scope of
this final rule.
Comment: A few commenters suggested that we forgo setting forth a
definition for market date and allow manufacturers to continue to make
reasonable assumptions.
Response: We disagree that we should forgo finalizing a definition
for market date, because we believe a regulatory definition will bring
additional consistency to the MDRP and will assist manufacturers in
identifying the accurate market date. However, to the extent the
definition does not address a specific situation, manufacturers may
still need to make reasonable assumptions. As an example, we discuss
the potential need for reasonable assumptions further in our response
to comments regarding the proposed definition of ``sold'' within the
definition of market date.
Comment: One commenter questioned if the market date should be the
same for all 11-digit NDCs within a 9-digit NDC family, even if an
individual 11-digit NDC was introduced at a later time.
Response: The market date is the same for all 11-digit NDCs within
a 9-digit NDC family. The 9-digit NDC identifies a drug, dosage form,
and strength. The Package Size Intro Date (that is, the date of
introduction of a particular package size, identified by the last
segment of the 11-digit NDC), may or may not coincide with the market
date of the drug, dosage form, and strength, and therefore the date of
introduction of a package size is not a factor in determining the
market date of the drug, dosage form, and strength for the purposes of
determining AMP and URA. To reiterate, the market date for the 9-digit
NDC applies to every 11-digit NDC in the family and is tied to the
drug, dosage form, and strength marketed under an FDA-approved
application; it is not tied to the Package Size Intro Date for a
particular 11-digit NDC.
Comment: Several commenters discussed the effective date of the
definition of market date. The commenters inquired whether the
definition will be applied retroactively and suggested that retroactive
application is not permitted and would be a burden on States and
manufacturers.
Response: The definition of market date adopted under this final
rule applies as of the effective date of this final rule. Specifically,
if a manufacturer previously reported a market date based on earlier
program instructions that the market date was the earliest date the
drug was available for sale by any manufacturer, they will not be
required to change the market date to reflect the earliest date the
drug was sold by any manufacturer. However, after the effective date of
this final rule, manufacturers must use the earliest date the drug was
sold as the market date for new drug products.
The finalized definition of market date will change how
manufacturers determine what date to use to determine the value to
report; that is, manufacturers must use the date of first sale of the
drug, rather than the date first available for sale, as of the
effective date of this final rule. The finalized definition does not
make any changes to the already existing requirement that the market
date is linked to the drug, dosage form, and strength that was first
marketed under an FDA-approved application. Consistent with the statute
and prior CMS guidance, the market date of a specific drug, dosage
form, and strength does not change, even if the specific drug, dosage
form, and strength might be subsequently marketed under a different NDC
or by a different manufacturer. Specifically, prior instructions and
guidance given by CMS to assist manufacturers in determining the
accurate market date to report to MDP specifies that the market date is
the date the drug was first available for sale under the FDA-approved
application number by any labeler. This was first included in
Manufacturer Release #69 (May 13, 2005). It is also included in CMS'
NDRA Reference Guide, the MDP User Guide located within MDP, user
manuals previously available in the older Drug Data Reporting for
Medicaid (DDR) system, and in data definitions in CMS form 367c.
The finalized definition thus modifies one aspect of the previous
guidance regarding market date by requiring that the relevant date be
the date of first sale, while codifying CMS' historical policy that the
market date does not change if a drug is purchased or otherwise
acquired from another manufacturer. We reiterate that this finalized
definition does not change the requirement given in previous
instructions to report the market date as the earliest date the drug
was available for sale by any manufacturer. For example, if a
manufacturer that acquires a drug instead reports the date that they
first made the NDC available for sale, then that manufacturer would be
expected to correct or request that the market date be corrected i
[…truncated; see source link]Indexed from Federal Register on September 26, 2024.
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.