On May 23, 2023, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule titled “Misclassification of Drugs, Program Administration and Program Integrity Updates under the Medicaid Drug Rebate Program” (link). This proposed rule implements new legislative requirements in the Medicaid Services Investment and Accountability Act of 2019 (MSIIA) and proposes several other revisions to the Medicaid Drug Rebate Program (MDRP).
 
The proposed rule focuses on CMS oversight, validation, and transparency around existing laws with CMS’ stated goal to enact streamlined requirements among States, payers, pharmacies, manufacturers, wholesalers, and any relevant delegations thereof. Notable provisions from the proposed rule include (1) implementing a Drug Price Verification Survey that would require manufacturers of “high-cost drugs” (including cell and gene therapies) to submit detailed pricing information and (2) requiring States to include a provision in their contracts with managed care plans that would mandate plans to prioritize transparency in structuring their contracts with Pharmacy Benefit Managers (PBMs).
 
Stakeholder comments are due by July 25, 2023.
 
Below are highlights of the proposed rule. If you have any questions or would like further information, get in touch. 

Proposal to Establish a Drug Price Verification Survey Process of Certain Reported Covered Outpatient Drugs (CODs)

In an effort to “increase public transparency for high-cost drugs” and “help State Medicaid agencies more effectively negotiate COD prices with manufacturers”, CMS proposes to enact a survey to be administered to certain manufacturers and wholesalers distributing CODs.
No such pricing database currently exists at CMS, and CMS would make this information “publicly available”, allowing States to access this information in negotiations. This data is not to be used for clinical or cost-effectiveness analysis purposes.
Prices considered in the verification process include WAC, AMP, best price, and ASP and would apply to CODs from manufacturers party to a National Drug Rebate Agreement (NDRA) with the HHS Secretary. Pricing data would be verified against Medicaid reported prices.
Steps for the survey include:
(1) Develop an initial list of high-price CODs (likely ~160 drug products or 200 NDCs).
(2) Narrow the list to 3-10 NDCs by excluding CODs of manufacturers that meet one of the following criteria:
Participated in any CMS drug pricing program or initiative under which participating manufacturers negotiate a COD’s price directly with CMS (i.e., Medicare’s Negotiation Program under the Inflation Reduction Act). CMS notes, “we intend to include a list of CMS drug pricing programs and initiatives under which manufacturers directly negotiate with CMS on a public website and would expect to update that list to reflect any future CMS drug pricing programs and initiatives that result in manufacturers’ directly negotiating COD pricing with CMS.” 
Negotiated supplemental rebates with at least 50% of States such that, when combined with Federal rebates, the total rebate for the COD is greater than the average rebate (State and Federal) for all CODs nationally.
(3) CMS would further narrow the list if more than 10 CODs remain by consulting with States and/or determining highest Medicaid drug spend.
CMS would then send the Medicaid Drug Price Verification Survey to selected drug manufacturers to collect information on underlying drivers of the selected drugs’ prices.
CMS would eventually publish the non-proprietary elements of the survey on Medicaid.gov.

Standard Medicaid Managed Care Contract Requirements

CMS proposes that contracts between States and managed care plans require plans to structure PBM contracts in a manner that “ensure drug cost spending transparency by requiring the subcontractor to report separately certain expenses and costs.”
This includes requiring that PBMs report the cost of the COD and dispensing or administration fees separately from any administrative costs, fees, and expenses.
CMS notes that this provision would provide greater transparency into PBM spread pricing practices.
In an effort to reduce the number of 340B duplicate discounts and increase efficiency in the MDRP, CMS proposes to require States that contract with managed care plans to administer their COD benefit to require these plans to use unique Medicaid-specific BIN, PCN, and group identifiers for all beneficiary identification cards for pharmacy benefits.

Best Price and Average Manufacturer Price (AMP) Determination

Proposal to Account for “Stacking” When Determining Best Price
CMS is proposing to revise § 447.505 to add that the manufacturer must adjust the best price for a COD for a rebate period if cumulative discounts, rebates, or other arrangements to best price eligible entities subsequently adjust the price from the manufacturer for the drug. In other words, CMS is clarifying that cumulative discounts, rebates, or other arrangements must be “stacked” to generate a final price realized by the manufacturer for a COD, including discounts, rebates or other arrangements provided to different best price eligible entities.
Background
“Stacking” refers to situations where a manufacturer offers multiple price concessions to multiple entities for the same drug transaction.
CMS provides this example: “if a manufacturer provides a discount to a wholesaler, then a rebate to the dispensing provider, and an additional rebate to the insurer, the best price must include (or “stack”) all discounts and rebates associated with the final price, even if the entity did not buy the drug directly from the manufacturer.”
CMS notes that this practice is intended to ensure that the best price reflects the lowest realized price at which the manufacturer made the drug available.
CMS has addressed stacking in previous regulations but is adding clarifying language due to a recent court case (United States ex rel. Sheldon v. Allergan Sales, LLC) that held that “CMS had failed to clarify the stacking issue.”
Proposal to Rescind Revisions made by the December 31, 2020, Final Rule to Determination of Best Price (§ 447.505) and Determination of Average Manufacturer Price (AMP) (§ 447.504) Consistent with Court Order
In 2020, CMS finalized regulations that would require manufacturers ensure that the full value of copay coupon or other financial assistance payments are passed onto patients in order for these payments to be excluded from their calculation of best price and AMP. As a response to this regulation, PhRMA asked the courts to vacate these amendments and in 2022, the U.S District Court of the District of Columbia ruled in favor of PhRMA.
CMS proposes to withdraw the changes made to best price and AMP in their 2020 rulemaking to comply with the court’s order and return to the language that has been in place since 2016.

Rebate Calculation

Proposals Related to Calculation of Medicaid Drug Rebates and Requirements for Manufacturers
CMS proposes a new process to identify, notify and correct a manufacturer’s drug category misclassifications, impose penalties, and notify relevant government agencies about the errors.
A misclassification would be categorized as a manufacturer who reports and certifies to the agency its drug category or drug product information related to a COD that is not supported by applicable statute or regulation.
When a misclassification is identified, the agency would send a written and electronic notification to the manufacturer with the error, past rebates due, and a timeline to correct the classification error.
CMS also proposes a new process to suspend a manufacturer’s NDRA when a manufacturer fails to report timely information, including drug pricing and product information.
During the suspension (60 calendar days), manufacturers would not be eligible for Medicaid coverage or reimbursement with a 30-day notice period.
CMS acknowledges that the manufacturer’s drug would likely not be available to beneficiaries during the suspension period and suggests that States would have 30 days to work with beneficiaries to transition to alternate CODs.
Amendments Made by the American Rescue 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.
CMS proposes to amend their regulatory language to conform with statute and states that no maximum rebate amount would apply to single source and innovator multiple source drugs in Medicaid rebate periods beginning on or after January 1, 2024.
Proposal to Clarify § 447.509(a)(6), (7), (8), and (9) and (c)(4) With Respect to “Other Drugs”
CMS proposes to replace the term “noninnovator multiple source drug(s)” with “drug(s) other than a single source drug or an innovator multiple source drug” in their MDRP system.
Historically, “noninnovator multiple source drugs” were treated as synonymous with “other drugs” and CMS is clarifying that “other drugs” includes products that are not multiple source drugs. This change would be to clarify that in the MDRP system, “other drugs” should be classified as (N).
Additionally, CMS proposes to specify that the rebate amount for an “other drug” is equal to the basic rebate amount plus the additional rebate amount—if any, the total rebate amount would not exceed 100% of AMP for an “other drug”, and the offset amount is equal to 2% of AMP.

MDRP Administrative and Program Integrity Changes

CMS proposes to create or modify definitions for the following:
Covered Outpatient Drug (COD): clarified when a payment is considered direct reimbursement for a drug for purposes of rebates.
Drug product information: proposes a new definition to comply with implementation of MSIIA, which requires manufacturers to report drug product information to the HHS Secretary for each COD during each rebate period.
Internal investigation for purposes of pricing metric revisions: added a definition of internal investigation and clarity around the 12-quarter rule regulating how often manufacturers may make changes to their pricing data.
Manufacturer (as relates to NDRA compliance):
Codifies the following:
Manufacturer must have entered and have in effect a rebate agreement with the Secretary for payment to be available for their drugs under Medicaid.
All labelers (with their applicable codes) that are associated or affiliated with a manufacturer must have a rebate agreement in effect.
Clarifies the responsibilities of a manufacturer with respect to rebate agreements when that manufacturer acquires or purchases another labeler, acquires or purchases CODs from another labeler, or forms a new subsidiary or associated entity.
Market date: added a definition to clarify application of inflationary rebates.
“Noninnovator” multiple source drug: clarifies the difference between an innovator multiple source drug and “noninnovator” multiple source drug to align with previous regulations.
Vaccine (for the purposes of the MDRP only): proposes a definition of vaccine to make clear which products are excluded from the definition of COD under the MDRP.

Other Provisions

Proposal to Establish a 12-Quarter Rebate Audit Time Limitation
CMS proposes to implement 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.
This limitation would only apply to disputes regarding State drug utilization data on State rebate invoices.
CMS notes that this change aligns with other provisions of the MDRP, such as the requirement for manufacturers to report changes to AMP and best price (for purposes of reporting data) within 12-quarters.
Proposals Related to State Plan Requirements, Findings, and Assurances
In States’ justification of requests to change their reimbursement formulas, CMS proposes that they cannot lawfully substantiate a change based on market reviews or payment structures of private third-party payers.  The proposal reinforces the reimbursement formula around the definitions of actual acquisition cost (AAC) and professional dispensing fee (PDF).
Federal Financial Participation (FFP): Conditions Relating to Physician-Administered Drugs
CMS proposes to reinforce States’ submission criteria for single- or multiple-source Physician-Administered Drugs (PADs) that are CODs for FFP eligibility to include NDC codes (not at aggregated HCPCS-level).
States must mandate managed care plans to report COD utilization in order to invoice manufacturers.
CMS notes they intend to continue annual publishing of the top 20 list of multi-source PADs, while requiring States to invoice for rebates for all PADs that are CODs.
Payment of Claims
CMS proposes several changes to regulations that govern how States pay claims under the MDRP. These proposals aim to allow States to pay claims sooner than specified waiting periods, where appropriate.

RFI on Requiring Diagnosis on Medicaid Prescriptions

CMS is issuing a request for information on a proposal to require a diagnosis on Medicaid prescriptions. Specifically, CMS seeks comment on the following:
Burden of the proposal and how to negate any foreseeable impact on beneficiaries and providers.
Steps States would need to take to implement this requirement.
Potential impact on payment, health care quality, stigma, access to care, and program integrity.
Steps CMS would need to take to protect beneficiary access to commonly used, medically accepted, compendia supported, off-label prescriptions.

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