CMS Issues Long-Awaited Final Rule

On September 20, 2024, the Centers for Medicare and Medicaid Services (CMS) issued the Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program Final Rule (Final Rule) that is related to the Proposed Rule issued May 24, 2023. The Final Rule contains a lot of information and as is often the case, the Comments and CMS’s Responses are also enlightening in many places. We have included a summary of the main government pricing items here. However, it’s important to note that other areas, such as gross-to-net, may also be affected by the Rule. Other departments within the company would benefit from reviewing this summary to identify how it may impact the organization as a whole. Unless otherwise noted, the provisions of the Final Rule go into effect November 19, 2024.

The Proposed Rule included several topics listed below that are not part of this Final Rule, meaning that there are no changes at this time in these areas. However, CMS may address them at a later date:

• Definition of “Manufacturer”

• Definition of “Vaccine”

• Rebate Stacking for Best Price

• Drug Price Verification Survey

• Diagnosis Required for Medicaid Prescriptions

Both the Proposed and Final Rules included the following changes as a result of legislation, third-party liability rules, or court-ordered decisions:

• Rescinding the Accumulator Adjustment Rule from 2020

  • This change reverts to the language that was in place for Pharmacy Benefit accumulator adjustment programs since 2016. However, no actual change to the requirements for manufacturers is required as the effective date of the 2020 final rule for this section was January 1, 2023.

• Elimination of the “AMP Cap” on the Medicaid Unit Rebate Amount (URA)

  • To conform to the American Rescue Plan Act of 2021, CMS changed the language to reflect the removal of the limitation on the URA to not exceed AMP for rebate periods beginning on or after January 1, 2024.

• Misclassification of drugs due to the revised definitions of single source (S drugs), innovator multiple source (I drugs), and non-innovator multiple source (N drugs) from the Medicaid Services Investment and Accountability Act of 2019 (MSIAA). For N drugs, the Final Rule removes the reference for an N drug to "was not originally marketed" and replaces it with "is not marketed" under an NDA. CMS has stated that this is a technical correction to ensure alignment and accuracy in the definition of an N drug.

  • CMS has also included language to ensure that rebates for a drug other than a single source or innovator multiple source drug apply to all other drugs that are eligible for the MDRP, even if they do not meet the definition of a multiple source drug.

  • Of note to manufacturers, in the Final Rule, CMS has the authority to reclassify a drug if the manufacturer fails to do so, in which case, the manufacturer could be assessed civil monetary penalties and suspended or removed from the program. Also, this provision is retroactive to the beginning of the program, despite only having a data retention requirement of 10 years and the ability to restate reported values for 3 years. Manufacturers may find themselves in a situation of having to make “reasonable assumptions” when these timelines could contradict one another.

Below are selected provisions of the Final Rule that are likely to be of interest to pharmaceutical manufacturers, including revisions to some of the key terms as well as tighter rules around restatements and auditing the states. And a piece of good news around additional data requirements for Medicaid Managed Care utilization that may help identify or even reduce duplicate discounts with the 340B Program.

• Definition of a Covered Outpatient Drug

  • The definition of a Covered Outpatient Drug (COD) effects a manufacturer’s Medicaid rebate liability, therefore, any changes can directly impact their bottom line. In the Final Rule, CMS has determined that “outpatient” does not really mean “outpatient” and they have revised the definition of a COD to include drugs for which payment is made as a result of “direct reimbursement” which may include:

  • (i) Reimbursement for a drug alone, or

  • (ii) Reimbursement for a drug plus the service, in a single inclusive payment if:

    • A. The drug, charge for the drug, and number of units of the drug are separately identified on the claim, and;

    • B. The inclusive payment includes an amount directly attributable to the drug, and,

    • C. 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.

  • (42 CFR § 447.502)

  • In CMS’s responses to the comments about this change, they state that, “The term ‘covered outpatient drug’ is a statutory term of art” and “Based on the plain text of [the Social Security Act (SSA)] 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.” (89 Fed. Reg. at 79035)

  • Of additional interest to pharmaceutical manufacturers is the potential impact to their PHS/340B utilization. The definition of a COD for the 340B Program is based on the same section of the SSA as Medicaid so it will be interesting to see if the Health Resources & Services Administration adopts a similar definition.

• Definition of Market Date

  • The definition of market date is now based on the date of the first sale of the drug by any manufacturer. However, CMS declined to define “sold” and instructed manufacturers to make reasonable assumptions about what constitutes a “sale” for their purposes. CMS did clarify that the first sale does not need to be to an Average Manufacturer Price (AMP) eligible entity.

• Restatement and Internal Investigations

  • The Final Rule mostly adopted the language of the Proposed Rule, that manufacturers must request an exception from CMS to restate AMP and/or Best Price after 12 quarters from the due date but with a small modification.. Instead of stating that the manufacturer has identified a finding of fraud, abuse, or violation of law or regulation, a manufacturer must state that there is a possible case of fraud, abuse, or violation of law or regulation.

• Limitation on Manufacturer Audit Requests of States

  • The Final Rule changed the date from when manufacturers can audit the states. They will have 12 quarters to initiate an audit or dispute but the 12 quarters is from the invoice postmark date. There is no similar restriction on the states and CMS stated that they believe, “the 12-quarter timeframe should be sufficient for identification of 340B claims and any disputes that may arise,” limiting manufacturers’ ability to investigate and recover duplicate discounts that are older than 12 quarters.

• Data Requirements for Medicaid Managed Care (Effective November 19, 2025)

  • The Final Rule requires all Medicaid managed care plans to include a combination of the Bank Identification Number and Processor Control Number (BIN/PCN) on all beneficiary identification cards to facilitate the appropriate identification of cost sharing and to ensure claims are bill and paid for appropriately. It may also help avoid duplicate discounts with the 340B/Public Health Services program.

We will continue to dig into the details and are happy to answer any questions but as always, the impact of any regulation or legislation is unique to your organization and we recommend you consult with your legal counsel if any of these provisions are unclear.