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Medicaid Drug Rebate Program Proposed Rule

On May 26, the Centers for Medicare & Medicaid Services (CMS) proposed the Medicaid Program; Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program rule.

The proposed rule aims to implement policies in the Medicaid Drug Rebate Program (MDRP) required in the Medicaid Services Investment and Accountability Act of 2019 to target drug misclassification, as well as drug pricing and product data misreporting, by manufacturers.

The proposal gives CMS new authority to mitigate issues related to incorrect reporting and misclassification of drugs by drug manufacturers in the Medicaid Drug Program system. The proposal also gives CMS the ability to codify a manufacturer’s obligation to pay unpaid rebate amounts to states. CMS proposes to allow the agency to suspend a manufacturer’s national drug rebate agreement (NDRA) for failure to provide drug pricing and drug product information on time. CMS further proposes that NDRA suspension would not affect the manufacturer’s responsibilities under the 340B Drug Pricing Program and Medicare Part B but notes that MDRP termination could affect participation in 340B and Medicare Part B.

New Definitions and Manufacturer Survey

CMS proposes to codify several definitions and operations in the MDRP so states can obtain the required rebates. Provisions include defining “manufacturer,” “vaccine,” “market date,” and “direct reimbursement,” as well as being more specific in certain procedures.

CMS proposes to modify the definition of “covered outpatient drug (COD)” for the MDRP, which is also the definition used for purposes of the 340B program. Under the statutory and regulatory definition of COD, drugs that are not administered separately but are provided part of or incident to another service and paid for as part of that service are not classified as CODs unless the drug is reimbursed directly. CMS proposes to clarify that drugs provided incident to another service that do not receive separate payment but are identified separately on a claim for payment for the service (along with the itemized cost of the drug) can be considered subject to direct reimbursement and thus qualify as CODs.

CMS will implement a manufacturer survey for a small number of drugs to verify pricing, charges, and cost of production and distribution to help states negotiate supplemental or value-based rebates for these drugs in relation to the introduction of new expensive drug treatments.

Pharmacy Benefit Changes

Finally, CMS proposes changes to the pharmacy benefit in Medicaid managed care. First, CMS proposes that Medicaid managed care beneficiaries’ cards include Medicaid-specific information to help ensure the appropriate scope of benefits are delivered and avoid duplicate discounts under the 340B program. Second, CMS proposes that managed care plans structure contracts with pharmacy benefit managers (PBMs) to be transparent about spread pricing — the difference between what the managed care plan pays the PBM and what the PBM pays the provider.

Comments are due July 25.

Contact Senior Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Julie Kozminski is a senior policy analyst at America's Essential Hospitals.

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