Medicaid Drug Rebate Program (MDRP) Final Rule Unveiled

The Centers for Medicare & Medicaid Services (CMS) has issued a Final Rule that advances policies for the Medicaid Drug Rebate Program (MDRP).

Identifying and Correcting Misclassified Drug Information

Under the MDRP, drug manufacturers are required to report various product and pricing details, including whether a drug is classified as brand-name or generic. This classification is crucial, because it determines the rebate amounts manufacturers owe to states. Brand-name drugs have higher rebate rates than generic drugs.

The new rule introduces statutory provisions to address incorrect reporting and misclassification of drugs in the Medicaid Drug Program (MDP) system. Manufacturers will be obligated to correct any misclassification and pay any unpaid rebates resulting from the incorrect reporting. If manufacturers fail to correct these issues, CMS has several enforcement options, including suspending the drug from Medicaid payments, imposing civil penalties, or terminating the manufacturer from the MDRP.

The rule also allows CMS to suspend a manufacturer’s National Drug Rebate Agreement for at least 30 days if drug pricing and product information is reported late.

Enhancing Definitions and Operations of the MDRP

The Final Rule includes several provisions to improve the overall efficiency of the MDRP. One significant update is the definition of the “market date” for a drug, which will be used to calculate inflation rebates. This is critical for ensuring that manufacturers pay the correct rebates on their covered outpatient drugs (CODs). Another provision limits the period in which manufacturers can dispute state-invoiced utilization data to 12 quarters, ensuring timely resolution of rebate-related disputes.

Additionally, the rule specifies that Medicaid Fee-for-Service (FFS) reimbursement for both drug ingredients and dispensing fees must be based on pharmacy-established cost data. It also requires states to collect National Drug Code (NDC) information on all physician-administered drugs, ensuring that these drugs are included in the rebate process and that states receive the proper federal matching funds.

The rule further refines the definition of a COD to include drugs that are reimbursed as part of an inclusive payment, such as bundled services. This ensures that drugs reimbursed in this way are properly accounted for in the rebate system. Additionally, it clarifies the conditions under which manufacturers can update pricing data outside the 12-quarter window, allowing for more accurate reporting.

Improving Medicaid Managed Care Pharmacy Benefits

Since more than 75 percent of Medicaid beneficiaries receive care through managed care plans, the rule addresses several important aspects of pharmacy benefits in Medicaid managed care. CMS now requires that states, through their managed care contracts, instruct Medicaid managed care plans to use a Medicaid-specific Bank Identification Number (BIN) and Processor Control Number (PCN) on beneficiaries’ cards. This change is designed to prevent duplicate discounts in the 340B Drug Discount Program and to ensure the appropriate delivery of benefits.

The rule also introduces transparency requirements for managed care contracts with pharmacy benefit managers (PBMs). PBMs often use spread pricing, where they retain the difference between what the plan pays and what they reimburse the pharmacy. The new requirements will make these pricing practices more transparent to the states and beneficiaries.

Implementing Legislative Changes and Modifying Other Provisions

Several additional provisions in the rule align with recent legislative changes. The American Rescue Plan Act of 2021 removed the 100-percent cap on Medicaid drug rebates, effective Jan. 1, 2024. As a result, CMS has included a sunset date of Dec. 31, 2023 for the average manufacturer price (AMP) cap on Medicaid drug rebates in the regulatory text.

The rule also conforms to a court decision regarding PBM accumulator programs, rescinding changes made by a 2020 rule that revised how best prices and AMP are determined under Medicaid. This action complies with a court order that vacated the 2020 rule’s “Accumulator Adjustment Rule.”

Finally, the rule modifies third-party liability rules to correct an oversight in prior regulations. These changes are consistent with statutory provisions from the Bipartisan Budget Act of 2018, which allowed states to “pay and chase” for certain services, improving the coordination of benefits under Medicaid.