On December 21, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a Final Rule (link) that materially modifies current Medicaid Drug Rebate Program (MDRP) regulations, largely finalizing the proposed rule dated June 17, 2020 (link). The Final Rule will be effective on March 1, 2021, 60 days after publication in the Federal Register, which is scheduled for December 31, 2020. Effectiveness after January 20, 2021 (inauguration) means that the Final Rule will likely be subject to the “freeze” an incoming administration typically imposes on regulations that are not yet effective. Importantly, certain provisions of the Final Rule have delayed effective dates:
- Permitting the reporting of multiple Best Price (BP) figures for value-based purchasing arrangements (VBPs)—January 1, 2022.
- Definitions of “line extension” and “new formulation” and related provisions—January 1, 2022.
- Revisions to the BP and Average Manufacturer Price (AMP) exclusions of manufacturer-sponsored patient benefit programs, particularly in connection with pharmacy benefit manager (PBM) “accumulator” programs—January 1, 2023.
In addition to these topics, the Final Rule also makes a number of “conforming” changes to align MDRP regulatory provisions with amendments to the Medicaid statute enacted subsequent to CMS’s last major MDRP rulemaking in 2016. The Final Rule further implements provisions under the Substance Use‑Disorder Prevention That Promotes Opioid Recovery and Treatment of Patients and Communities Act (SUPPORT Act).
We have prepared two blacklines: The first (online here) shows the Final Rule provisions marked against the proposed rule. The second (online here) shows how the Final Rule modifies existing regulations.
We review select aspects of the Final Rule below.
Value-based purchasing arrangementsCMS is finalizing proposals that would enable VBPs as follows:
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New definition of VBP: The Final Rule defines VBPs as arrangements that “align pricing and/or payments to an observed or expected therapeutic or clinical value in a select population,” including evidence-based measures that “substantially link the cost of a covered outpatient drug to existing evidence of effectiveness and potential value for specific uses” and/or outcomes-based measures that “substantially link payment for the covered outpatient drug to that of the drug’s actual performance in a patient or a population, or a reduction in other medical expenses.” Although CMS had previously solicited comments on what it means to “substantially” link outcomes or performance to payment for the drug, CMS ultimately declined to define the concept, instead noting that “manufacturers may make reasonable assumptions and should document how its arrangement substantially links the payment/cost of the drug to the outcome in the arrangement and therefore qualifies as a VBP arrangement under this final rule.”
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Reporting multiple BPs for VBPs: CMS is finalizing its proposal to revise its long-standing interpretation of the BP definition in order to accommodate reporting of “varying best price points” in addition to just a single price point, in cases where there is a VBP that is also made available to the states. This proposal is intended to avoid a circumstance in which a VBP that provides a significant discount on a unit of a drug that does not satisfy a performance metric sets a BP for the drug as a whole, even if all other units perform successfully.
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Specifically, the Final Rule modifies the BP definition such that the “lowest price available from a manufacturer may include varying best price points for a single dosage form and strength as a result of a value based purchasing arrangement,” thereby permitting reporting of different BPs associated with different outcomes or evidence-based measures. A distinct Medicaid rebate amount will then be calculated for each reported BP, and, according to the preamble to the Final Rule, “states will receive Federal Medicaid rebates based on the outcome measure observed in the quarter it was measured.” Along with reporting the range of BP figures under a VBP, the manufacturer must continue to report “a single best price for the drug not affiliated with a VBP arrangement.” CMS intends to provide additional guidance on how to report BP under the Final Rule at a later date.
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To be able to report a range of BP figures under a VBP, the manufacturer must offer the VBP arrangement to all state Medicaid programs. Each state Medicaid program can then elect whether to receive Medicaid rebates based on the “traditional” single BP, or whether to participate in the VBP. CMS makes clear that “[it is] not requiring states or payers [to] enter into VBP arrangements” and that doing so is entirely voluntary on the part of state Medicaid programs.
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States that elect to participate in the VBP will continue to be entitled to the minimum Medicaid rebate on all units. CMS notes that, in practice, “a state may experience revisions to the initial Medicaid drug rebate paid to the state because of a failed outcome for a patient that occurs after the drug has been administered” such that “a prior period adjustment to a Medicaid Federal rebate that has already been paid to the state may be necessary.”
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Manufacturers may elect to not report multiple BPs, but instead “follow existing rules” or “another approach…such as the bundled sales approach” (discussed below) in calculating and reporting BP.
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CMS states in the preamble to the Final Rule that “the changes made by this final rule will not have a significant impact on best price, AMP or Medicaid drug rebates that would impact either Medicare Part B payment allowances or 340B pricing…because manufacturers will continue to be required to report a non-VBP best price when reporting multiple best prices generated from a VBP arrangement, and that non-VBP best price will be used to calculate the 340B ceiling price.” CMS further “would expect manufacturers to make adjustments to their 340B ceiling prices as they have done in the past consistent with any changes to the MDRP pricing metrics.”
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These changes are to take effect January 1, 2022.
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Revision to “bundled sale” definition: The Final Rule clarifies the bundled sale definition to provide that VBPs “may qualify as a bundled sale.” CMS provides an example calculation showing how VBP discounts can be reallocated if part of a bundled sale.
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Enabling payments over time: CMS clarifies that payment-over-time arrangements can have a value-based component, or can consist of simple installment payments. CMS states that the full price of the drug, rather than just the initial installment payment, should be reflected in the AMP calculation, and that any subsequent installment payments that are forgiven pursuant to a value-based arrangement should be treated as lagged price concessions.
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AMP and BP restatements outside the three-year window: The Final Rule permits restatements outside the three-year window when the change “is a result of a VBP arrangement…requiring the manufacturer to make changes outside of the 12-quarter rule, when the outcome must be evaluated outside of the 12-quarter period.” Contrary to the suggestions from multiple commenters, the manufacturer must...
