CMS proposes new rule impacting the Medicaid Drug Rebate Program

September 17, 2020 | Life sciences

On June 19, 2020, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule (the Proposed Rule) containing various provisions that impact the Medicaid Drug Rebate Program (MDRP), which are highlighted below.

Value-Based Purchasing arrangements (VBPs) and Medicaid Best Price (BP)

This Proposed Rule is the long-awaited regulation that, if finalized, could mitigate undesired impacts to BP and Medicaid rebate liability related to VBPs and encourage expansion of such arrangements. CMS proposed to permit manufacturers the option to report multiple BP values for a product representing the price points associated with the range of evidence-based or outcomes measures possible under a VBP. With this new approach, manufacturers would avoid resetting BP to a significantly lower or $0 value for a drug when a single patient’s drug did not meet the performance requirement, and Medicaid rebates payable by a manufacturer would presumably be determined based on the BP value associated with the drug performance for each Medicaid patient. CMS also proposed to grant manufacturers increased flexibility to restate Medicaid prices outside of the existing 12-quarter time window when the VBP outcome evaluation extends beyond that timeframe. In addition, CMS proposed to include VBPs in the bundled sale definition so that manufacturers can opt to allocate VBP discounts across sales units of a drug.

Alternative rebates for line extensions

The Proposed Rule includes various provisions that could have a meaningful impact on the alternative Unit Rebate Amount (URA) calculation and Medicaid rebate liability for manufacturers, including new regulatory definitions of “line extension” and “new formulation”, revised definition of “oral solid dosage form”, and expansion of the alternative URA calculation to line extension drugs beyond those in oral solid dosage form.

Authorized generic blending in Medicaid Average Manufacturer Price

The Proposed Rule also moves to codify the calculation for brand products’ Average Manufacturer Price (AMP) to exclude Authorized Generic (AG) transactions. This proposed update reflects language CMS published previously in Manufacturer Releases 111 and 112, and therefore may not come as a surprise to many in the life sciences industry.

Patient assistance programs and Pharmacy Benefit Manager accumulators

CMS proposed that patient assistance program benefits (manufacturer coupons, discount cards, copay programs, etc.) may only be excluded from Medicaid AMP and BP (and presumably Medicare Average Sales Price) to the extent that the manufacturer “ensures” the full value of the assistance or benefit is passed onto the patient. CMS describes how Pharmacy Benefit Manager accumulator programs do not pass on the full value of the benefit to the patient and therefore should be included in Medicaid price calculations.

CMS-authorized state supplemental rebate agreements

Lastly, in the Proposed Rule, CMS updated the definition and treatment of a “CMS-authorized supplemental rebate agreement” in Medicaid AMP and BP calculations. The new definition would only allow for rebates to be excluded from AMP and BP (and presumably Medicare Average Sales Price) only if they are paid under a state plan amendment-approved agreement, paid directly to the state, and used by the state to share savings with the Federal government. Some states have permitted Managed Care Organizations (MCOs) to negotiate and receive payments directly from manufacturers participating in supplemental programs, outside of a CMS-approved state plan amendment process. In the Proposed Rule, CMS effectively prohibits manufacturers from excluding these payments from Medicaid price reporting.

Manufacturer takeaways

As of September, CMS has received over 30,000 comments on the Proposed Rule. It is uncertain how long it may take CMS to respond to comments submitted and finalize this proposed regulation and how much time it will allow manufacturers to operationalize changes before making the final rule effective. Manufacturers should review the proposed changes, monitor upcoming CMS communications, and proactively prepare for changes that could have a significant impact. In a changing regulatory environment, and with added uncertainty connected to COVID-19, it is has become increasingly important for manufacturers to assess proposed regulations and plan for any potential impacts.

Forthcoming analysis

We are preparing an analysis of the major provisions of the Proposed Rule that are expected to have greater potential impact and risk to life sciences manufacturers. Our analysis includes a detailed compilation of a number of operational, compliance, and financial considerations. Please check back to download this resource.

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