DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26 12 
Baltimore, Maryland 21244-1850 
 
Center for Medicaid, CHIP and Survey & Certification 
 
                  SMDL#10-019 
                  ACA#  9   
 
September 28, 2010 
 
                Re:  Medicaid Prescription Drugs 
 
Dear State Medicaid Director: 
 
This letter is one of a series intended to provide guidance on the implementation of the Patient 
Protection and Affordable Care Act (P.L. 111-148), enacted on March 23, 2010, as revised by 
the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152), enacted on March 30, 
2010, together known as the Affordable Care Act.   
 
Specifically, this letter revises the previous instructions concerning the Federal offset of 
Medicaid prescription drug rebates, and further specifies the process we will use for the 
estimation and collection of these offsets.  It also provides information on rebates for Medicaid 
managed care organization (MCO) drugs, MCO formularies, and the treatment of MCO 
physician-administered drugs.  Finally, this guidance addresses manufacturer reporting 
requirements, the treatment of discounts under the Medicare Coverage Gap Discount Program 
for purposes of the determination of best price (BP), and the changes to the excluded drug 
provisions in Medicaid.       
 
Revised Policy on Federal Offset of Rebates 
 
Section 2501 of the Affordable Care Act increased the amount of rebates that drug manufacturers 
are required to pay under the Medicaid drug rebate program, with different formulas for single 
source and innovator multiple source drugs (brand name drugs), noninnovator multiple source 
drugs (generic drugs), and drugs that are line extensions of a single source drug or an innovator 
multiple source drug, effective January 1, 2010.  The Affordable Care Act also required that 
amounts attributable to these increased rebates be remitted to the Federal government.   
 
In the April 22, 2010 State Medicaid Director (SMD) letter, #10-006, CMS indicated that we 
were planning to offset the non-Federal share of the entire difference between the minimum 
rebate percentages in effect on December 31, 2009, and the new minimum rebate percentages in 
effect under the Affordable Care Act, regardless of whether States received a rebate amount 
based on the difference between the average manufacturer price (AMP) and best price (BP).  For 
a drug that is a line extension of a brand name drug that is an oral solid dosage form, we planned 
to offset the entire non-Federal share of the increase in the minimum, as well as the additional 
rebate for those drugs.  However, after further consideration of the offset provisions in section  Page 2  State Medicaid Director 
 
2501 of the Affordable Care Act, we have decided to reconsider our instructions regarding the 
calculation of the offset provisions to reflect the lesser of the difference between the increased 
minimum rebate percentage and the AMP minus BP.   We plan to offset the amount equal to the 
increased amount of rebates resulting from the Affordable Care Act. 
    
In light of this reconsideration, we plan to calculate the offset as described below.   
 
Brand name drugs other than blood clotting factors and drugs approved by the Food and Drug 
Administration (FDA) exclusively for pediatric indications1 are subject to a minimum rebate 
percentage of 23.1 percent of AMP: 
 
  If the difference between AMP and BP is less than or equal to 15.1 percent of AMP, 
then we plan to offset the full 8 percent of AMP (the difference between 23.1 percent 
of AMP and 15.1 percent of AMP).  
 
  If the difference between AMP and BP is greater than 15.1 percent of AMP, but less 
than 23.1 percent of AMP, then we plan to offset the difference between 23.1 percent 
of AMP and AMP minus BP. 
 
  If the difference between AMP and BP is greater than or equal to 23.1 percent of 
AMP, then we do not plan to take any offset amount. 
 
Brand name drugs that are blood clotting factors and drugs approved by the FDA exclusively for 
pediatric indications are subject to a minimum rebate percentage of 17.1 percent of AMP: 
 
  If the difference between AMP and BP is less than or equal to 15.1 percent of AMP, 
then we plan to offset the full 2 percent of AMP (the difference between 17.1 percent 
of AMP and 15.1 percent of AMP).  
 
  If the difference between AMP and BP is greater than 15.1 percent of AMP, but less 
than 17.1 percent of AMP, then we plan to offset the difference between 17.1 percent 
of AMP and AMP minus BP. 
                                                 
 
 
 
 
 
 
 
 
 
 
1 Guidance and list of blood clotting factors and drugs approved by the FDA exclusively for pediatric indications are 
posted on the CMS website at 
http://www.cms.gov/Reimbursement/08_MedicaidPrescriptionDrugsundertheAffordableCareAct.asp. 
  Page 3  State Medicaid Director 
 
 
  If the difference between AMP and BP is greater than or equal to 17.1 percent of 
AMP, then we do not plan to take any offset amount.  
 
For a drug that is a line extension of a brand name drug that is an oral solid dosage form, we plan 
to apply the same offset calculation as described above to the basic rebate.  Further, we plan to 
offset only the difference in the additional rebate of the reformulated drug based on the 
calculation methodology of the additional rebate for the drug preceding the requirements of the 
Affordable Care Act and the calculation of rebates for the reformulated drug, if greater, in 
accordance with the Affordable Care Act.  If there is no difference in the additional rebate 
amount in accordance with the Affordable Care Act, then we do not plan to take any offset 
amount. 
 
We have not reconsidered our guidance with respect to generic drugs, given that rebates are not 
calculated based on best price.  Thus, we plan to continue to offset an amount equal to two 
percent of the AMP (the difference between 13 percent of AMP and 11 percent of AMP).  
 
As indicated in our April 22, 2010 guidance, we do not plan to offset the non-Federal share of 
any supplemental rebates States may receive above the increased Federal rebate percentages.  
 
Offset Rebate Methodology   
 
When determining the best approach to calculating the offset amount, we considered States, as 
well as CMSs data and systems capabilities.  Some States suggested that it would be more 
efficient for CMS to perform this offset calculation in a manner similar to the calculation of the 
unit rebate amount (URA).  States also suggested that CMS calculate a second URA identifying 
the amount of offset to be returned to the Federal Government.   
 
After considering these suggestions and to avoid the potential burden on States, we have decided 
that it would be more efficient for CMS to determine the offset amount.  Accordingly, we plan to 
calculate a unit rebate offset amount (UROA) that will identify the offset amount per unit of a 
drug at the 9-digit national drug code (NDC) level on a quarterly basis for States.  States will 
then be able to apply the UROA to the number of units of each drug for which they receive 
payment from a manufacturer to determine the Quarterly Rebate Offset amount (QROA) for 
each drug of all manufacturers to determine the total QROA.  This amount will be offset and 
reported on the Quarterly Expenditure reports.    
 
We are in the process of implementing the systems changes necessary to include the UROA with 
the quarterly rebate data submissions to the States. We believe States will also need more time to 
modify their respective systems to accept this new UROA data element.   Therefore, we are 
developing an interim process to calculate an estimated quarterly rebate offset amount (EQROA) 
that will be used to approximate this offset until our UROA systems changes are finalized.  We 
plan to apply the UROA for the basic rebate to an estimation of units for which the State has 
made payment under the Medicaid State plan and reduce that estimate by the amount of rebates 
we expect the State would have received in the quarter. We further plan to make this estimate 
available to the State and record it on behalf of each State on the form CMS-64 as an offset.  The  Page 4  State Medicaid Director 
 
EQROA amount will be reconciled with the total QROA when CMS provides States with the 
UROAs.  Attached to this letter is a detailed description of the methodology we plan to use for 
the EQROA interim process for estimating the total offset.   
 
Because we do not currently have the capability to systematically identify reformulated drugs, 
the additional rebate for those drugs is not included for the purpose of this calculation, and no 
offset will be taken from the States at this point. Once these drugs are identified, we will include 
them in the EQROA or UROA process, and will make necessary retroactive adjustments.  
 
Rebates for Medicaid Managed Care Organization (MCO) Drugs  MCO Formularies and 
MCO Physician-Administered Drugs 
 
We have received questions on whether the legislation also requires Medicaid MCOs to revise 
their current formularies.  As noted in the April 22, 2010 SMD letter, the new legislation requires 
manufacturers to provide rebates for drugs dispensed to individuals enrolled in a Medicaid MCO.  
The changes made by section 2501(c) of the Affordable Care Act do not specifically revise the 
requirements concerning the provision of drugs by an MCO to its members, but they do provide 
that utilization information concerning covered outpatient drugs dispensed by an MCO to its 
Medicaid enrollees are to be reported to the State.  This reporting will enable the State to include 
MCO utilization data with its fee-for-service utilization data for covered outpatient drugs, so that 
the manufacturers can pay rebates on these drugs.  Accordingly, we do not plan to require that an 
MCO modify its formulary provisions in light of this provision of the Affordable Care Act.  
MCOs may continue to have some flexibility in maintaining formularies of drugs regardless of 
whether the manufacturers of those drugs participate in the drug rebate program.  State Medicaid 
agencies may continue to establish requirements regarding MCOs formularies. 
 
We also received questions related to State responsibility for collecting rebates for physician-
administered drugs provided in an MCO and MCO responsibility for collecting and reporting 
rebate data on such drugs (e.g., NDCs and number of units of each covered outpatient drug 
dispensed) for transmission to the State.  In light of the requirements of section 1927(a)(7) 
regarding the collection of information for physician administered drugs, MCOs are responsible 
for submitting utilization data for these covered outpatient drugs to the State.  
 
Exemptions for Discounts under the Medicare Coverage Gap Discount Program from Best 
Price 
 
In accordance with section 1927(c)(1)(C)(i)(VI) of the Social Security Act, as revised by section 
3301(d) of the Affordable Care Act, effective July 1, 2010, discounts provided by manufacturers 
under the Medicare Coverage Gap Discount Program under section 1860D-14A of the Act are 
also exempt from a manufacturers BP calculation. 
  Page 5  State Medicaid Director 
 
Reporting Units  
 
Beginning with October 2010, section 2503(b) of the Affordable Care Act requires 
manufacturers to report the total number of units that are used to calculate the monthly AMP for 
each covered outpatient drug no later than 30 days after the last day of the month.  We plan to 
require manufacturers to report these units by the same unit type used to calculate the AMP and 
we plan to use these units to calculate the weighted AMP-based FULs prices.  We plan to have 
the data field necessary for manufacturers to report this data and will provide instructions to 
manufacturers regarding the reporting of units to facilitate timely reporting in advance of the 
deadline. 
 
Excluded Drug Provision Changes 
 
Section 2502 of the Affordable Care Act requires that over the counter (OTC) and prescription 
smoking cessation drugs, barbiturates, and benzodiazepines be removed from the list of drugs 
that States may exclude from coverage, effective January 1, 2014.  States will generally be 
required to cover these products to the extent that States provide coverage of prescribed drugs.   
Please note that because Medicare Part D does not require the coverage of OTC smoking 
cessation drugs, States are responsible for coverage of such drugs for Medicaid dual-eligible 
individuals, provided that the State provides a prescription drug benefit under its State plan for 
such Medicaid beneficiaries. 
 
We intend to issue further guidance and regulations as necessary to ensure the proper and timely 
implementation of these and related provisions of the Affordable Care Act.  We look forward to 
our continuing work together to implement this legislation.  Questions regarding Medicaid drug 
provisions can be submitted through the drug policy resource mailbox at 
RxDrugPolicy@cms.hhs.gov or may be directed to Larry Reed, Director, Division of Pharmacy, 
Disabled and Elderly Health Programs Group at (410) 786-3325. 
 
Sincerely, 
 
/s/ 
 
Cindy Mann  
Director 
cc: 
 
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health 
 
Richard Fenton 
Acting Director 
Health Services Division 
American Public Human Services Association  Page 6  State Medicaid Director 
 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Debra Miller 
Director for Health Policy 
Council of State Governments 
 
Carol Steckel 
President 
National Association of Medicaid Directors 
 
Christine Evans, M.P.H. 
Director, Government Relations 
Association of State and Territorial Health Officials 
 
Alan R. Weil, J.D., M.P.P. 
Executive Director 
National Academy for State Health Policy  Enclosure 
 
METHODOLOGY FOR CALCULATING THE ESTIMATED QUARTERLY REBATE 
OFFSET AMOUNT 
 
Effective January 1, 2010, the Affordable Care Act increased the minimum rebate amounts that 
drug manufacturers are required to pay under the Medicaid drug rebate program, with different 
formulas for single source and innovator multiple source drugs (brand name drugs) and 
noninnovator multiple source drugs (generic drugs).  The Affordable Care Act also required that 
amounts attributable to these increased rebates be returned to the Federal Government.   
 
We have provided a detailed description below of CMS methodology for the estimated quarterly 
rebate offset amount (EQROA) interim process for estimating the total offset amount that will be 
remitted to the Federal Government for this provision.  The EQROA amount will be reconciled 
with the total quarterly rebate offset amount (QROA) when CMS provides States with the unit 
rebate offset amounts (UROAs).   
 
Using the most complete available data, we plan to calculate the EQROA using the following 
methodology.  We note the limitations in using the data for this calculation in the data limitations 
section at the end of this paper.  
 
ACRONYMS AND ASSOCIATED FORMULA  
 
UROA = Unit Rebate Offset Amount = Quarterly AMP x Offset Rebate Percentage per NDC 
QROA = Quarterly Rebate Offset Amount = UROA x Average Total Units per NDC 
Total QROA = Sum of the QROA of all NDCs 
EQROA = Estimated Quarterly Rebate Offset Amount = Total QROA x Discount Factor
  Percentage Specified Below 
 
DATA SOURCES  
 
  Quarterly AMP Data, Begins with 1Q2010 (1st quarter of calendar year 2010) 
  3Q2008  2Q2009 Total Number of Units Reimbursed by States Obtained from the 
Medicaid State Drug Utilization Data 
 
METHODOLOGY and EXAMPLE   
 
Step 1  Extract the Units Reimbursed by Each State from the Medicaid State Drug 
Utilization Data File for 3Q2008 to 2Q2009 
 
Each States utilization data file is due to CMS no later than 60 days after the end of each quarter 
and is posted and updated on the CMS Web site on quarterly basis at: 
http://www.cms.gov/MedicaidDrugRebateProgram/SDUD/list.asp.  The data elements included 
in this file are State, NDC, quarter and year, product name, units reimbursed, number of 
prescriptions, total amount reimbursed by State, amount reimbursed under Medicaid, and amount 
reimbursed by non-Medicaid.  Although the drug utilization data is due to CMS no later than 60  Page 2 - Enclosure 
 
days after the end of each quarter, it does not appear that this data is reliable until sometime after 
that since States often initially revise these submissions.  Therefore, to better estimate utilization, 
we plan to use the past quarters data, 3Q2008 to 2Q2009, in the calculation.  Units reimbursed 
by NDC per State are then downloaded for each of the four quarters from 3Q2008 to 2Q2009. 
 
Step 2  Calculate the Average Total Units from 3Q2008 to 2Q2009 
 
The Average Total Units are calculated by taking the average of the units reimbursed per NDC 
by State from 3Q2008 to 2Q2009.  As with this step and all the following steps in this 
methodology, we are providing example to highlight the methodology.  We are providing the 
following example for steps 2-9 to highlight the methodology. 
 
NDC  3Q2008  4Q2008  1Q2009  2Q2009  Calculating the Average  Average 
Total Units =  Total 
Sum of Units / 4  Units 
Quarters 
00001-0001  150  50  90  110  = (150+50+90+110)  4  100 
00002-0111  100  200  250  150  = (100+200+250+150)  4  175 
00003-0222  500  300  100  350  = (500+300+100+350)  4  312.5 
 
For the purpose of continuing this calculation into future quarters (e.g., 2Q2010 EQROA, 
3Q2010 EQROA, and future quarters as necessary), we plan to calculate the average total units 
using quarters with the best available data on the total number of units reimbursed.  Data will be 
moved forward one quarter for each subsequent EQROA.  Thus for 2Q2010 EQROA, the 
average total units will be calculated using units reimbursed per NDC by State from 4Q2008 to 
3Q2009.  For 3Q2010 EQROA, the average total units will be calculated using units reimbursed 
per NDC by State from 1Q2009 to 4Q2009.  And for 4Q2010 EQROA, the average total units 
will be calculated using units reimbursed per NDC by State from 2Q2009 to 1Q2010. 
 
Step 3  Identify the Drug Category of Each NDC 
 
CMS posts the drug product data file on the CMS Web site on a quarterly basis at 
http://www.cms.gov/MedicaidDrugRebateProgram/09_DrugProdData.asp.  This file can be 
downloaded to identify whether an NDC is a single source (S) drug, innovator multiple source (I) 
drug, or noninnovator multiple source (N) drug.  The drug product information that goes into this 
file is based on manufacturer submissions to CMS.  This file includes information such as NDC, 
drug category, DESI indicator, drug type, product name, etc.  The most recent file posted on the 
CMS Web site is for 1Q2010.  Please note that we plan to use the most updated drug product 
data file available for the quarter when we perform the calculation.  For the purpose of 
calculating 1Q2010 EQROA, we are using 1Q2010 drug product data file. 
 
Step 4  Match the Drug Product Data File Against the 1Q2010 Quarter AMP File 
 
Thirty days after the end of each rebate period, manufacturers are required to report to CMS their 
quarterly AMP and best price (BP) for each NDC on record with CMS.  The most complete 
AMP and BP file that CMS has at this time is for 1Q2010.  We plan to use the most updated  Page 3 - Enclosure 
 
AMP and BP data received this quarter and all future quarters, as we believe this best represents 
the amount manufacturers will use as the basis for their increased rebate payments.  Because 
1Q2010 quarterly AMP and BP files and the drug product data file are two separate files that 
include separate information we need for each NDC, we plan to match both files by NDC in 
order to have both the quarterly AMP and BP and the drug category appear for each NDC to 
appear on the same file.   
 
1Q2010 Quarterly AMP and BP File: 
NDC  Quarterly  Quarterly BP 
AMP 
00001-0001  0.750000  0.650000 
00002-0111  1.000000  0.800000 
00002-0222  0.500000  0.000000 
 
1Q2010 Drug Product Data File 
NDC  Drug Category 
00001-0001  S 
00002-0111  S 
00002-0222  N 
 
Matched Quarterly AMP File and Drug Product Data File 
NDC  Drug Category  Quarterly AMP  Quarterly BP 
00001-0001  S  0.750000  0.650000 
00002-0111  S  1.000000  0.800000 
00002-0222  N  0.500000  0.000000 
 
Step 5  Determine Where AMP Minus BP Falls   
 
Once we have matched the 1Q2010 drug product data file against the 1Q2010 quarterly AMP 
and BP file, we need to determine where the difference between AMP and BP falls.  See details 
and example below. 
 
For brand name drugs other than blood clotting factors and drugs approved by the Food and 
Drug Administration (FDA) exclusively for pediatric indications: 
 
A.  If the difference between AMP and BP is less than or equal to 15.1 percent of AMP, then 
we plan to offset the full 8 percent of AMP (the difference between 23.1 percent of AMP 
and 15.1 percent of AMP).  
 
B.  If the difference between AMP and BP is greater than 15.1 percent of AMP, but less than 
23.1 percent of AMP, then we plan to offset the difference between 23.1 percent of AMP 
and AMP minus BP. 
 
C.  If the difference between AMP and BP is greater than or equal to than 23.1 percent of 
AMP, then we do not plan to take any offset amount. 
  Page 4 - Enclosure 
 
For brand name drugs that are blood clotting factors and drugs approved by the FDA exclusively 
for pediatric indications that are subject to a rebate percentage of 17.1 percent of AMP: 
 
D.  If the difference between AMP and BP is less than or equal to 15.1 percent of AMP, then 
we plan to offset the full 2 percent of AMP (the difference between 17.1 percent of AMP 
and 15.1 percent of AMP).  
 
E.  If the difference between AMP and BP is greater than 15.1 percent of AMP, but less than 
17.1 percent of AMP, then we plan to offset the difference between 17.1 percent of AMP 
and AMP minus BP. 
 
F.  If the difference between AMP and BP is greater than or equal to than 17.1 percent of 
AMP, then we do not plan to take any offset amount. 
 
For generic drugs, we plan to offset an amount equal to two percent of the AMP (the difference 
between 13 percent of AMP and 11 percent of AMP), since these drugs are unaffected by best 
price.   
 
Because we currently do not have the capability to systematically identify reformulated drugs, 
the additional rebate for those drugs is not included for now for the purpose of this calculation 
and no offset will be taken from the States at this point.  Once these drugs are identified, we will 
include them in the EQROA for future quarters or the UROA process consistent with the 
provisions of section 2501 of the Affordable Care Act. 
 
NDC  Drug  Quarterly  Quarterly  AMPBP  AMP x  AMP x  Determination of 
Category  AMP  BP  15.1%  23.1%  Where AMP-BP 
  Falls 
00001-0001  S  0.750000  0.650000  0.100000  0.113250  0.173250  Less than 
AMPx15.1% - use 
Step 5A above 
00002-0111  S  1.000000  0.800000  0.200000  0.151000  0.231000  Greater than 
AMPx15.1% and 
less than 
AMPx23.1%  
- use Step 5B 
above 
00002-0222  N  0.500000  0.000000  N/A  N/A  N/A  N/A  Generic 
  drug 
 
Step 6  Identify the Offset Rebate Percentage to be Applied to Each NDC 
 
Based on the identification of where AMP minus BP falls in Step 5, the following offset rebate 
percentage is applied to each NDC. 
 
 
  Page 5 - Enclosure 
 
NDC  Drug  Determination where AMP-BP falls  Offset Rebate 
Category  Percentage 
00001-0001  S  brand  Less than AMPx15.1% - see Step 5A  8% 
above 
00002-0111  S  brand   Greater than AMPx15.1% and less  3.1% 
than AMPx23.1% - see Step 5B above 
00002-0222  N  generic  N/A  2% 
 
Step 7  Calculate UROA per NDC 
 
Once AMP minus BP is determined (using the matched file with the 1Q2010 quarterly AMP and 
BP data and the drug category indicator for each NDC), we calculate the UROA by multiplying 
AMP by the offset rebate percentage determined in Step 5 for each of the category of drugs 
where that AMP minus BP is applicable.  For generic drugs, the UROA is calculated by 
multiplying AMP by two percent.   
 
NDC  Drug  Quarterly  Offset  Calculating the  UROA per 
Category  AMP  Rebate  UROA = Quarterly  NDC 
Percent  AMP x Offset 
Applied  Rebate Percent 
00001-0001  S  brand  0.750000  8%  = 0.750000 x 8%  0.060000 
00002-0111  S  brand   1.000000  3.1%   = 1.000000 x 3.1%   0.031000 
00002-0222  N  generic  0.500000  2%  = 0.500000 x 2%  0.010000 
 
Step 8  Calculate QROA and Total QROA 
 
To calculate the QROA, the average total units of an NDC are multiplied by UROA of that 
NDC.  The total QROA is then calculated by taking the sum for all NDCs.  
 
NDC  Average  UROA per  Calculate QROA =   QROA 
Total  NDC  Average Total Units x UROA 
Units 
00001-0001  100  0.060000  = 100 units x 0.060000  $6.00 
00002-0111  175  0.031000  = 175 units x 0.031000  $5.425 
00002-0222  312.5  0.010000  = 312.5 units x 0.010000  $3.125 
Total QROA for All NDCs  $14.55 
 
Step 9  Discount Factor on Actual Payment Received from Manufacturers by State 
 
When a State invoices a manufacturer, State may not receive the full payment from the 
manufacturer based on the amount the State invoices the manufacturer for that quarter in the 
following quarter.  CMS has no current data to estimate the amount States received in payment 
from the manufacturers.  Additionally, because of the zero URAs for 1Q2010, CMS is aware that 
States and manufacturers are attempting to develop a process to implement the new Affordable 
Care Act rebate provisions, and that States may have invoiced the manufacturers late, causing 
States to receive late payments from manufacturers.  As a result, we plan to offset 25 percent of  Page 6 - Enclosure 
 
the total QROA for 1Q2010 and 50 percent of the total QROA for 2Q2010, 3Q2010, and 
4Q2010.  We believe that this is the best estimation that we can propose at this time to avoid 
over-estimating the offset amount for States and inappropriately reducing rebates not related to 
this Affordable Care Act provisions.  Since the EQROA will be reconciled with the total QROA 
for these quarters, the accurate offset amount will be determined ultimately. 
 
Step 10  Calculate EQROA per State 
 
The EQROA is calculated by multiplying the total QROA by 25 percent for 1Q2010.  For 
2Q2010, the EQROA will be calculated by multiplying 2Q2010 total QROA by 50%.  This will 
be the same for 3Q2010 and 4Q2010 EQROA. 
 
1Q2010 EQROA = 1Q2010 Total QROA x Discount Factor of 25% = $14.55 x 25% = $3.64 
2Q2010 EQROA = 2Q2010 Total QROA x Discount Factor of 50% = $X x 50% 
3Q2010 EQROA = 3Q2010 Total QROA x Discount Factor of 50% = $Y x 50% 
4Q2010 EQROA = 4Q2010 Total QROA x Discount Factor of 50% = $Z x 50% 
 
Step 11  Delivery of EQROA to State 
 
We are aware that States are still developing a process to implement the new rebate provisions 
and adjust their systems to accommodate the new data.  To minimize the burden for States, we 
plan to provide each State with their individual EQROA based on our calculation from the above 
methodology via a letter for each of the four quarters in 2010.  
 
Step 12  EQROA on CMS-64 
To minimize the administrative work for States, CMS plans to populate the EQROA that CMS 
provides to each State on the CMS-64.  This amount will be available for the State to view by 
September 30, 2010.  Specific instructions on reporting rebate expenditures, including the line 
item number in which the EQROA will be populated, will be provided in the near future. 
 
Step 13  EQROA Reconciliation 
Once CMS is able to provide States with the UROA based on the new rebate percentage, 
including the identification of the blood clotting factors, drugs approved by the Food and Drug 
Administration (FDA) exclusively for pediatric indications, and the reformulated drugs, States 
will be able to reconcile the EQROA with the total QROA based on the units that States actually 
reimbursed for during the specific quarter.   
 
TIMELINE 
 
Our proposed timeline for these activities follows below.  Please note that the dates and 
deliverables are only estimated and may be subject to change. 
 
 
 
 
  Page 7 - Enclosure 
 
Estimated Date  Estimated Deliverable 
September 7, 2010  Run most recently updated 1Q2010 AMP and BP data against most recently 
updated average units from 3Q2008 to 2Q2009. 
September 28, 2010  Provide each State with their 1Q2010 EQROA via a letter.   
September 30, 2010   CMS to populate States 1Q2010 EQROA on the CMS-64. 
October 1, 2010  Each State should be able to view their States 1Q2010 EQROA in the CMS-
64.  This amount should be the same as the amount provided to the State in the 
letter. 
November 15, 2010  Run most recently updated 2Q2010 AMP and BP data against most recently 
updated average units from 4Q2008 to 3Q2009. 
December 1, 2010  Provide each State with their 2Q2010 EQROA via a letter.   
December 30, 2010  CMS to populate States 2Q2010 EQROA on the CMS-64. 
January 1, 2011  Each State should be able to view their States 2Q2010 EQROA in the CMS-
64.  This amount should be the same as the amount provided to the State in the 
letter. 
February 15, 2011  Run most recently updated 3Q2010 AMP and BP data against most recently 
updated average units from 1Q2009 to 4Q2009. 
March 1, 2011  Provide each State with their 3Q2010 EQROA via a letter.   
March 30, 2011  CMS to populate States 3Q2010 EQROA on the CMS-64. 
April 1, 2011  Each State should be able to view their States 3Q2010 EQROA in the CMS-
64.  This amount should be the same as the amount provided to the State in the 
letter. 
May 3, 2011  CMS systems ready to calculate the updated URAs based on the increased 
rebate percentage under the Affordable Care Act and the UROAs for 1Q2011. 
May 4, 2011  CMS provides States with the 1Q2011 the Affordable Care Act URAs and 
UROAs.   
May 16, 2011  Run most recently updated 4Q2010 AMP and BP data against most recently 
updated average units from 2Q2009 to 1Q2010 to calculate 4Q2010 EQROA. 
June 1, 2011  Provide each State with their 4Q2010 EQROA via a letter.  This will be the last 
EQROA CMS will provide to each State. 
June 30, 2011  CMS to populate States 4Q2010 EQROA on the CMS-64. 
 
 
July 1, 2011  Each State should be able to view their States 4Q2010 EQROA in the CMS-
64.  This amount should be the same as the amount provided to the State in the 
letter. 
July 1, 2011  States may begin to report their 1Q2011 total QROA on the CMS-64. 
August 1, 2011  Deadline for States to report their 1Q2011 total QROA on the CMS-64. 
August 3, 2011  CMS calculates 2Q2011 URAs and UROAs.  States should begin to reconcile 
the EQROA that CMS sends to States against the total QROA based on actual 
units that States have received payment from manufacturers. 
August 4, 2011  CMS provides States with the 2Q2011 URAs and UROAs.   
October 31, 2011  Deadline for States to report their 2Q2011 total QROA on the CMS-64. 
 
 
  Page 8 - Enclosure 
 
DATA LIMITATIONS  
 
Please note the following EQROA data limitations: 
 
  We used four quarters of utilization data rather than eight quarters to estimate utilization 
data as the shorter time period reduced the States offset liability. 
  We excluded S/I NDCs that did not have AMP and BP reported and N NDCs that did not 
have AMP reported.  Despite the fact that the manufacturers did not report their data in a 
timely manner to CMS, they still are required to pay timely rebates to the States.  
Because their data are not reflected, the offset amount is underestimated. 
  We excluded NDCs that do not have units reported.  Similar to late reporting by 
manufacturers, where there were units billed to the manufacturers, this underestimates 
the offsets. 
  We have identified the blood clotting factors and exclusively approved pediatric drugs 
with the best available data at the time the calculation is performed; therefore, the offset 
amount may change as more data become available.  We believe this will have a minimal 
effect on the offsets. 
  We have yet to identify reformulated drugs; therefore, we did not apply the increased 
additional rebate amount to the EQROA.  This action underestimates the offsets for those 
drugs, provided that the manufacturer made reasonable assumptions for reformulated 
drugs.   
  The EQROA does not include rebates and units from MCOs as we do not yet have that 
utilization data.  To the extent that most States have been unable to provide the MCO 
utilization data to the manufacturers, these data are not accounted for in the estimated 
offsets.  For any States that were able to provide utilization data, the offsets will be 
underestimated.  While more States will be able to report this utilization data for 
subsequent quarters, we will not include these data until they are included in the States 
utilization data that we use to calculate the EQROA, or until the QROA process is in 
place. 
  We do not have current estimates of rebates collected by quarter since the rebates 
reported in any given quarter always include amounts for past quarters.  As a result, we 
are not able to estimate the amount States will actually receive in rebates for 1Q2010 or 
when they will receive them.  We assumed that, in accordance with guidance we 
provided, manufacturers calculated and submitted their URAs to the States based on the 
Affordable Care Act rebate percentage.  We believe we conservatively estimated a 
minimal percentage of 25 percent for 1Q2010 EQROA and 50 percent for 2Q2010, 
3Q2010, and 4Q2010 EQROA.  To the extent that the States receive timely rebates for 
these quarters at a greater or lesser rate, this approach will underestimate or overestimate 
the offset.