On September 20, 2024, the Centers for Medicare & Medicaid Services (CMS) made news in the life sciences industry with the release of a highly anticipated final rule, “Medicaid Program; Misclassification of Drugs, Program Integrity Updates Under the Medicaid Drug Rebate Program.”
This update has brought significant clarity to our industry, but also a few surprises, as CMS backed away from some contentious proposals introduced in May 2023—such as Best Price stacking and redefinitions of “manufacturer.” The final rule focused on refining essential definitions and processes to ensure greater accuracy in drug classifications and rebate calculations.
Among the most critical changes are updates to how drugs are classified and how rebates are calculated, which will have a direct impact on manufacturers and Medicaid programs alike. For instance, the new rule revises the definition of “market date,” affects calculations for Average Manufacturer Price (AMP), and outlines penalties for drug misclassifications. By streamlining these elements, CMS aims to tighten program integrity, improve operational efficiency, and enhance benefits for Medicaid recipients.
Let’s dive deeper into the key changes and what they mean for manufacturers, state programs, and Medicaid beneficiaries.
Section 447.502 – Revised Definitions
The term “market date” is clarified as the date when a covered outpatient drug was first sold by any manufacturer, used to establish the base date AMP (Average Manufacturer Price) quarter.
Section 447.509 – Medicaid Drug Rebates (MDR) Updates
Language has been added to clarify the removal of the AMP cap. The rule now states:
“For rebate periods from after December 31, 2014, to before January 1, 2024, the total rebate amount cannot exceed 100% of the AMP for any drug except single-source or innovator multiple-source drugs.”
Additionally, the term “non-innovator multiple-source drug” is now replaced with “drugs other than a single-source drug or innovator multiple-source drug.” The rule provides comprehensive guidance on drug misclassification and incorrect rebate calculations, ensuring accurate product classification for appropriate rebate calculations.
A new subsection “(d)” addresses the “Manufacturer misclassification of a covered outpatient drug and recovery of unpaid rebate amounts due to misclassification.” This change is in line with the Medicaid Services Investment and Accountability Act of 2019 (MSIAA), which amends section 1927 of the Social Security Act. CMS defines misclassification as incorrect reporting or certification of a drug’s category (S, N, or I), or when a drug is properly classified but the manufacturer pays the wrong rebates.
The MSIAA also amends the Social Security Act to impose Civil Monetary Penalties (CMPs) for false reporting, including misclassifications. The HHS Secretary is empowered to penalize manufacturers that knowingly misclassify drugs or report incorrect information. The penalties may include correcting the drug classification, requiring unpaid rebates, suspending the drug from the Medicaid Drug Rebate Program (MDRP), or terminating the manufacturer’s participation. These provisions are codified under a new subsection “(h)” of section 447.510, outlining penalties for delayed or inaccurate reporting of drug pricing and product data, with suspensions limited to Medicaid programs.
Key Changes:
- Defining cases of misclassification and incorrect rebate payments in the MDRP.
- Outlining the process and timeline for manufacturers to address misclassification.
- Requiring manufacturers to pay any unpaid rebates.
- Allowing CMS to suspend a manufacturer’s National Drug Rebate Agreement for late or incomplete reporting of pricing data.
- Granting CMS, the authority to impose penalties, including suspensions and exclusions from Medicaid payments, and Civil Monetary Penalties.
Enhancements to Medicaid Drug Rebate Program Operations
CMS aims to enhance the effectiveness of the MDRP to better serve Medicaid beneficiaries and state programs. Key provisions include:
- Defining the “market date” for calculating inflationary rebates.
- Limiting manufacturers’ disputes over state-invoiced data to within 12 quarters of the invoice postmark.
- Requiring Medicaid Fee-for-Service reimbursement to be based on pharmacy data instead of market research.
- Mandating that states collect national drug code (NDC) information for all physician-administered drugs and invoice for rebates.
- Expanding the definition of a covered outpatient drug (COD) to include “direct reimbursement” as part of inclusive payments.
- Specifying conditions for updating pricing data beyond the 12-quarter window due to internal investigations.
- Clarifying that the “N” drug category applies to “other drugs” regardless of whether they meet the definition of generic drugs.
Medicaid Managed Care Pharmacy Benefit Operations
With over 75% of Medicaid beneficiaries in managed care plans, the final rule includes provisions to improve pharmacy benefit management, such as:
- Requiring the use of Medicaid-specific Bank Identification Number/Processor Control Number (BIN/PCN) combinations on beneficiaries’ cards to prevent 340B Program duplicate discounts.
- Increasing transparency in Pharmacy Benefit Manager (PBM) contracts, particularly concerning spread pricing.
Legislative Changes to Medicaid Drug Rebates and Other Provisions
- The American Rescue Plan Act of 2021 removed the AMP cap on drug rebates starting January 1, 2024, with a sunset date of December 31, 2023, for the cap.
- CMS has reversed the “Accumulator Adjustment Rule” following a court decision that vacated it.
- Modifications to third-party liability rules were made to align with the Bipartisan Budget Act of 2018, allowing states to “pay and chase” for certain care types.
If you have any questions or need guidance on how these regulatory updates might impact your organization, our RLDatix Life Sciences professional services experts are here to help. Contact us today to ensure your compliance strategy is up-to-date and aligned with the latest CMS regulations.