On September 20, 2024, the Centers for Medicare and Medicaid Services (CMS) released a Final Rule titled “Misclassification of Drugs, Program Administration and Program Integrity Updates under the Medicaid Drug Rebate Program” (link) and accompanying fact sheet (link).

Notable provisions from the Final Rule include:

Drug Price Verification Survey: CMS declined to finalize this proposal, which would have required manufacturers of “high-cost drugs” (including cell and gene therapies) to submit detailed pricing information unless the manufacturer provides “above average” supplemental rebates.
Covered Outpatient Drug (COD) definition: CMS finalized with a clarification that CODs paid for in a bundled payment arrangement are only eligible for rebates if they are directly reimbursed through a CMS-approved state plan reimbursement methodology.
Rebate “Stacking”: CMS announced on May 15, 2024, that this proposal would not be finalized, which is reiterated in the final rule. Instead, CMS will “pursue the collection of additional information from manufacturers related to best price stacking methodologies to better understand and inform future rulemaking.”

Drug Price Verification Survey Process of Certain Reported Covered Outpatient Drugs (CODs)

In the proposed rule, CMS proposed implementing a “Drug Price Verification Survey” which would have required manufacturers to submit data for certain “high price drugs” as determined by the agency, including information on the costs of production, research and development, marketing, and distribution. CODs would have been excluded from the survey if the manufacturer provided a certain level of supplemental rebates. The agency would have published non-proprietary elements of the survey on Medicaid.gov. CMS stated that this “verification” process would be particularly important for new high-cost drugs and biologics, including cell and gene therapies.

CMS is not finalizing this proposal but notes that the agency is continuing to review stakeholder input that may inform future rulemaking.

“Covered Outpatient Drug” and Other Definitions

Covered Outpatient Drug (COD) Definition

In the final rule, CMS clarified the proposed rule’s definition of COD and the intent of the proposed rule’s direct reimbursement provision:

States are able to bill for a rebate of a COD, including applicable cell and gene therapy products, included in a DRG bundled payment if:
The drug is itemized on the claim
The payment includes an amount attributable to the drug
The number of units of the drug that were dispensed or administered to the patient
And importantly, the amount paid attributable to the drug is based on a reimbursement methodology included in the applicable section of the State plan (CMS-approved reimbursement methodology)

Other definitions

CMS finalized the following definitions:

Drug Product Information: Information that means 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, market date, and COD status.
CMS notes that this definition was created to support the implementation of the requirement to report drug product information for each COD.
Internal Investigation: 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 findings.
CMS notes that this definition only applies for the purposes of pricing metric revisions, and was created to clarify the 12-quarter time period rule regulating how often a manufacturer may make changes to its pricing data.
Market Date: The date of the first sale of the drug by any manufacturer.
CMS notes that this definition was created to assist manufacturers in reporting a more accurately calculated AMP.
CMS declined to define what qualifies as “sold” for the purposes of determining the market date of a drug.
Noninnovator Multiple Source Drug: A COD that entered the market before 1962 that is not marketed under an NDA.
CMS notes that this definition was modified as a technical correction to align with previous regulation.

CMS did not finalize a definition for “manufacturer” or “vaccine,” noting they are continuing to review input provided by commenters.

Standard Medicaid Managed Care Contract Requirements

CMS finalized proposals to require:

Managed care plans to structure contracts with subcontractors (including PBMs) so that the subcontractor must separately report:

Amounts related to incurred claims, including reimbursement for the COD, payments for other patient services, and fees paid to providers or pharmacies for dispensing or administering a COD; and
Administrative costs, fees, and expenses.

States that contract with managed care plans to administer their COD benefit to require these plans to use unique Medicaid-specific Bank Identification Number (BIN) and Processor Control Number (PCN) combination, and group number identifiers for all enrollee identification cards for pharmacy benefits. 

CMS noted that the change “may” help reduce the incidence of 340B duplicate discounts.

These requirements will apply to the first rating period for contracts with managed care plans beginning on or after November 19, 2025.

Best Price and Average Manufacturer Price (AMP) Determination

Proposal to Account for “Stacking” When Determining Best Price

As previously noted by CMS, the Center will not be finalizing the proposal to account for stacking when determining Best Price.
CMS intends to undertake a separate collection of information from manufacturers to help better understand the areas in which additional guidance might be useful related to stacking methodologies.
In the Final Rule, CMS clarifies that the ICR would be intended to determine whether a manufacturer implements any form of stacking and, if so, how that stacking is performed.

Proposal to Rescind Revisions made by the December 31, 2020, Final Rule to Determination of Best Price (§ 447.505) and Determination of Average Manufacturer Price (AMP) (§ 447.504) Consistent with Court Order

Background
In 2020, CMS finalized a proposal that manufacturer “financial assistance payments” may only be excluded from Best Price and AMP calculations if the manufacturer ensures that the full value is passed onto the patient.
Between 2021 and 2022, PhRMA successfully sued, and this provision of the 2020 Final Rule was vacated.
In response to Court order, CMS finalized changes that revert requirements to those in place since 2016.
Notably, CMS states that it will “continue to explore other ways to protect consumers from accumulator programs.”

Rebate Calculation

Proposals Related to Calculation of Medicaid Drug Rebates and Requirements for Manufacturers

CMS is finalizing as proposed the regulations to codify how the agency will identify, notify, and correct a manufacturer’s MDRP drug misclassifications, impose penalties, and notify relevant agencies about the errors, with the following exception:

With respect to the agency’s authority to correct misclassifications, CMS is adding language to clarify that manufacturers must certify the applicable correction within 30 calendar days

CMS is finalizing as proposed its process to suspend a manufacturer’s National Drug Rebate Agreement (NDRA) when a manufacturer fails to report timely information, including drug pricing and product information.

NDRA suspensions for failure to report information within 90 days of notice from CMS will last until the information is provided and reviewed, but not fewer than 30 calendar days, and does not affect 340B obligations or Part B reimbursement.

Amendments Made by the American Rescue Plan (ARP) Act of 2021 – Removal of Manufacturer Rebate Cap (100% AMP)

The American Rescue Act of 2021 eliminated the maximum rebate amount for single source and innovator multiple source drugs so manufacturers could be liable for rebates higher than 100% AMP, beginning December 31, 2023.
CMS finalized as proposed to amend regulatory language to conform with the statute and states that no maximum rebate amount would apply to rebate periods beginning on or after January 1, 2024.
CMS noted it received a comment recommending the Center define the term “rebate” to mitigate ambiguity for state Medicaid programs. CMS does not define “rebate” as part of this Final Rule.
Additionally, CMS noted that the amount of the rebate that is paid by the manufacturer is not solely driven by the statute’s removal of the cap, but also how AMP changes compared to the rate of inflation.

Proposal to Clarify § 447.509(a)(6), (7), (8), and (9) and (c)(4) With Respect to “Other Drugs”

CMS finalized as proposed to amend regulations to replace references to the term “noninnovator multiple source drug(s)” with “drug(s) other than a single source drug or an innovator multiple source drug.”
CMS notes that this clarification should not affect the drug category code reported in the MDRP reporting system. Drugs other than single source drugs and innovator multiple source drugs should continue to be reported in the MDRP system with the drug category of “N.”

Other Provisions

Proposal to Establish a 12-Quarter Rebate Audit Time Limitation

CMS is finalizing its proposal to establish a 12-quarter time limit on the period for manufacturers to initiate disputes, hearing requests, and audits for State-invoiced units on current rebates and rebates that have been paid in full.

However, CMS clarified that the period for manufacturers to initiate audits or disputes concerning State drug utilization data begins on the last day of the quarter from the State invoice’s postmark date.

Proposals Related to State Plan Requirements, Findings, and Assurances

CMS is finalizing its proposal to require states to submit “adequate cost-based data” to support any proposed changes to its reimbursement formula.

CMS states that:
States may not rely on the amounts that pharmacies are accepting from other third-party payers as a means of determining professional dispensing costs.
States may use their own state survey, neighboring state surveys, or other acceptable data that reflects the current cost of dispensing a prescription in the state.

Federal Financial Participation (FFP): Conditions Relating to Physician-Administered Drugs

CMS finalized its proposal to require states to:

Require that providers submit NDCs for all single and multiple source physician-administered drugs (PADs) that CODs
Ensure Medicaid managed care plans report required drug utilization data
Invoice for rebates for all PADs that are CODs (not just those on the annual top 20 list of multi-source PADs, although CMS states it will continue to publish this list) to receive FFP and secure manufacturer rebates
Note: CMS amended the authority to carry out this change from section 1927(d)(7) to section 1902(a)(4) of the Social Security Act.

Payment of Claims

CMS is finalizing technical changes to regulatory language regarding the payment of Medicaid claims that would permit states to pay these claims sooner than previously specified waiting periods.

RFI on Requiring Diagnosis on Medicaid Prescriptions

In the proposed rule, CMS solicited comments on a potential requirement to include a diagnosis on Medicaid prescriptions, as well as its impact on beneficiaries, providers, states, and Medicaid.
Most commenters opposed requiring diagnoses on prescriptions. Arguments focused on administrative burden, delays in care, and technical and operational challenges of including a diagnosis.
After reviewing comments, CMS decided to not pursue this requirement in rulemaking at this time. They will continue to review the feedback and may revisit this topic in future rulemaking.

ADVI will continue monitoring developments and the next steps. This is a delayed release. ADVI Instant content is distributed in real-time for retainer clients. Get in touch to learn more about how we can support your commercialization, market access, and policy needs.