DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Center for Medicare & Medicaid Services  
7500 Security Boulevard 
Mailstop S2-26-12 
Baltimore, Maryland 21244-1850      Center for Medicaid & CHIP Services 
CMCS Informational Bulletin 
DATE:  July 21, 2022 
FROM:   Daniel Tsai, Deputy Administrator and Director 
Center for Medicaid and CHIP Services  
SUBJECT:   Beneficiary Protections and Medicaid Drug Coverage - Under Value Based Purchasing 
(VBP) and Other Innovative Payment Arrangements 
The purpose of this Center for Medicaid and CHIP Services (CMCS) Informational Bulletin (CIB) is to 
remind states and stakeholders of existing federal beneficiary protections that help ensure appropriate 
beneficiary access to prescription medications, especially as state programs and stakeholders continue to 
negotiate novel payment arrangements with drug manufacturers.   
The Centers for Medicare & Medicaid Services (CMS) understand the challenges that states face managing 
pharmacy costs, especially as new, innovative gene and cell therapies are brought to market.  We are taking 
several steps to help states meet these challenges. We have approved 13 state plan amendments (SPAs) that 
authorize states to negotiate with manufacturers for value-based supplemental rebates for a drug, and 
several more states SPAs are under review.  Moreover, we are issuing this CIB to coincide with the start 
of the new flexibilities that allow manufacturers to report to the agency multiple best prices for a drug that 
are connected to a VBP arrangement (as defined at 42 CFR 447.502) and made available to all states. 
These VBP arrangements will hold manufacturers more accountable for the clinical outcomes of their 
drugs, while giving more states the opportunity to earn additional rebates depending on how a drug works 
for patients.  In addition, we look forward to working with states through a learning collaborative that will 
be launched in the fall of 2022 to help states better manage their pharmacy costs, especially for these high 
cost drugs. We hope this work will lead to productive negotiations between states and manufacturers 
regarding the cost of these drugs for Medicaid beneficiaries.  
Introduction 
Alternative VBP arrangements for drugs, such as outcomes-based models and supplemental rebate 
agreements, have become more commonplace. These arrangements allow state Medicaid agencies to 
receive additional discounts or rebates from manufacturers on a drug when a drug does not meet certain 
observed or expected therapeutic or clinical values in a select population, based on applicable evidence-
based or outcomes-based measures. As a result of these new payment arrangements, we believe it is 
important that beneficiaries, states, and manufacturers understand the beneficiary protections currently in 
The contents of this document do not have the force and effect of law and are not meant to bind the public in any 
way, unless specifically incorporated into a contract. This document is intended only to provide clarity to the public 
regarding existing requirements under the law.  Page 2 
place to ensure access to medications under both traditional pharmacy programs and alternative payment 
arrangements.  
In the December 31, 2020 issue of the Federal Register, the CMS published the final rule entitled: 
Medicaid Program; Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) 
and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug 
Rebate and Third Party Liability (TPL) Requirements (hereinafter referred to as the December 2020 final 
rule) (85 Fed. Reg. 87000; CMS 2482-F2). This new regulation permits manufacturers to report multiple 
best prices for a covered outpatient drug in certain cases. More specifically, it provides that if a 
manufacturer offers a VBP arrangement to all states, the lowest price available from a manufacturer may 
include varying best price points for a single dosage form and strength as a result of that VBP arrangement. 
These arrangements offered by manufacturers to states must meet the definition of a VBP arrangement as 
specified in 42 CFR  447.502 and allow the state to collect additional rebates based on a patients 
outcomes beyond those that the state will already receive under the Medicaid Drug Rebate Program 
(MDRP).  
We note that states are not required to participate in these VBP arrangements in order for manufacturers to 
report multiple best prices. In addition to the states voluntary participation in commercially-available VBP 
arrangements, states have also been actively negotiating other types of payment arrangements with 
manufacturers, such as through CMS-authorized supplemental rebate agreements, pay-over-time models, 
and subscription model arrangements under which the manufacturer charges a payer a fixed amount for 
an unlimited supply of a drug (resulting in a lower per unit price as utilization of the drug increases). 
Regardless of the type of arrangement, CMS is providing this guidance to ensure that stakeholders are 
aware of laws and regulations regarding beneficiaries access to medically necessary medications.  
Medicaid Requirements that Protect Beneficiary Access to Drugs 
CMS believes it is important to reiterate to states and manufacturers the current federal protections that are 
in place under the Medicaid program to help ensure appropriate beneficiary access to drugs. States must 
generally apply these existing broad statutory requirements to Medicaid coverage of prescription drugs, 
regardless of any type of payment arrangement the state may have with manufacturers, unless an exception 
applies, such as a waiver.  
1. States must cover all covered outpatient drugs subject to a rebate agreement with the Secretary: States
must cover all covered outpatient drugs of a manufacturer that has entered into and has in effect a
Medicaid drug rebate agreement, and may only restrict or exclude coverage of drugs as expressly
described in section 1927(d) of the Social Security Act (the Act).  Subject to these permissible
restrictions, covered outpatient drugs that are prescribed for a medically accepted indication must be
covered.  States are permitted to subject any drug to prior authorization as long as it meets the
requirements of section 1927(d)(5).
Section 1927(d)(1)(B) of the Act permits states to restrict or exclude coverage of a covered outpatient
drug only if the prescribed use is not for a medically accepted indication, the drug is included in the list
of drugs or drug classes (or their medical uses) that may be excluded or otherwise restricted by the state
(e.g., agents when used for cosmetic purposes or to promote fertility), the drug is subject to restrictions Page 3 
pursuant to an authorized agreement between the manufacturer and state under a permissible prior 
authorization program or formulary, or pursuant to a state established formulary that is consistent with 
federal law.  
Section 1927(d)(6) permits states to impose limitations with respect to all such drugs in a therapeutic 
class, on minimum or maximum quantities per prescription or on the number of refills, if such 
limitations discourage waste, and may address instances of fraud and abuse. The statute also further 
provides an enumerated list of non-excludable drugs, classes of drug, or their medical uses at section 
1927(d)(7), which a state may not exclude from coverage. In summary, a state must ensure the covered 
outpatient drugs of a manufacturer with an effective Medicaid drug rebate agreement are covered and 
available when the covered outpatient drug is prescribed for a medically accepted indication, unless 
certain exclusions or restrictions apply.  
2. State Alternative Benefit Plans (ABP) must follow Essential Health Benefit (EHB) standards when
providing prescription drug coverage: When providing coverage under alternative benefit plans to a
Medicaid population, states are required to provide prescription drug coverage that meets certain
specific drug formulary standards, and to have a process in place such that the Medicaid beneficiary can
access clinically appropriate drugs not covered on the states drug formulary.  Specifically, under 42
CFR  440.347(a)(6), states must provide prescription drug coverage that meets the Essential Health
Benefits (EHB) standards described in 45 CFR  156.122, including a formulary that meets the
standards at 45 CFR  156.122(a), and that includes a process in place that allows the Medicaid
beneficiary (or their designee) to request and gain access to clinically appropriate drugs not otherwise
covered by the formulary consistent with the EHB standard at 45 CFR  156.122(c).  As specified at 42
CFR  440.347(e), EHBs cannot be based on a benefit design or implementation of a benefit design
that discriminates based on an individual's age, expected length of life, present or predicted disability,
degree of medical dependency, quality of life or other health conditions.
3. States generally cannot limit beneficiary access to certain providers because of a specific payment
arrangement: In general, section 1902(a)(23)(A) of the Act and 42 CFR  431.51(b) require that any
Medicaid beneficiary may obtain Medicaid services (including covered outpatient drugs) from any
institution, agency, pharmacy, person, or organization that is qualified to furnish the service or services,
and willing to furnish them to that particular beneficiary. CMS can waive this requirement under
section 1915(b) or section 1115 of the Act, and this requirement also would not generally apply under
state plan Medicaid managed care programs. Therefore, unless this requirement has been waived, is not
applicable, or an exception applies, a state may not limit coverage of drugs to those obtained from a
limited list of Medicaid providers or pharmacies. Additionally, under certain circumstances specified in
42 CFR  431.52, states are required to cover Medicaid services provided out of state to their residents
who are Medicaid beneficiaries and who are absent from the state.
4. States generally must comply with the Medicaid comparability requirement: Unless an exception
applies or this requirement is waived under section 1115 of the Act, section 1902(a)(10)(B) of the Act
and 42 CFR  440.240 require states to ensure that the services available to any categorically needy
beneficiary under the Medicaid state plan are not less in amount, duration, and scope than those
services available to a medically needy beneficiary. Also, unless an exception applies or the
requirement is waived, these provisions require states to ensure that the services available to any Page 4 
individual in the following groups are equal in amount, duration, and scope for all beneficiaries within 
the group: (1) the categorically needy; and (2) a covered medically needy group. Therefore, any 
payment arrangement a state enters into must result in compliance with these comparability 
requirements, unless an exception applies or the requirements have been waived.  
5. States must adhere to Early and Periodic Screening, Diagnostic and Treatment (EPSDT) requirements:
Under section 1905(a)(4)(B) and (r) of the Act, states are required to cover all medically necessary
services described in section 1905(a) of the Act for children under the age of 21 who are eligible for
EPSDT, including prescribed drugs, regardless of any payment arrangement. What this means is that
any prescribed drug covered under Medicaid EPSDT requirements is eligible for federal financial
participation (FFP), regardless of the applicability of section 1927. In other words, even if the drug is
not a covered outpatient drug in accordance with section 1927(k)(2) of the Act or the drug is a covered
outpatient drug and a manufacturer does not have in effect a drug rebate agreement, the drug is covered
under Medicaid and is eligible for FFP if prescribed under EPSDT requirements.
6. States must continue to have Drug Utilization Review (DUR) Programs in place: As required under
section 1927(g) of the Act, a state must continue to have a DUR program targeted, in part, at reducing
abuse and misuse of outpatient prescription drugs covered under the states Medicaid program. The
DUR program operates to help ensure that prescriptions are appropriate, medically necessary, and are
not likely to result in adverse medical results for Medicaid beneficiaries. Each state DUR program must
consist of prospective drug use review, retrospective drug use review, data assessment of drug use
against predetermined standards, and ongoing educational outreach activities. States must continue to
apply DUR requirements to covered outpatient drugs regardless of how the state pays for the drug.
Other Federal Laws and Regulations Protecting Medicaid Beneficiaries 
There are other federal laws and regulations that states and manufacturers must review and follow in 
addition to the specific Medicaid statutory and regulatory requirements discussed above.  Below, we 
identify some federal laws that provide additional protection to beneficiaries that states and manufacturers 
should remain mindful of as they pursue any payment arrangement, however, this does not constitute an 
exhaustive list of all applicable federal laws and regulations.  
1. All parties must comply with the federal fraud and abuse laws: For example, federal anti-kickback
provisions at section 1128B(b) of the Act makes it a criminal offense to knowingly and willfully offer,
pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a
person for the furnishing of, or arranging for the furnishing of, any item or service reimbursable under a
federal health care program.  The statutes prohibition also extends to remuneration to induce, or in
return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing,
leasing, or ordering of, any good, facility, service, or item reimbursable by a federal health care
program.  For purposes of the federal anti-kickback statute, remuneration includes the transfer of
anything of value, directly or indirectly, overtly or covertly, in cash or in kind.  The federal anti-
kickback statute has been interpreted to cover any arrangement where one purpose of the remuneration
is to induce referrals for items or services reimbursable by a federal health care program.  The Office of
Inspector General (OIG), Department of Health and Human Services (HHS) has promulgated certain Page 5 
safe harbors potentially applicable to certain value based arrangements, see, e.g., Medicare and State 
Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, 
and Civil Monetary Penalty Rules Regarding Beneficiary Inducements 
(https://www.govinfo.gov/content/pkg/FR-2020-12-02/pdf/2020-26072.pdf). In addition, parties may 
request an advisory opinion1 from HHS-OIG regarding the application of HHS-OIGs fraud and abuse 
authorities, including those related to the federal anti-kickback statute, to the partys existing or 
proposed arrangement. 
2. States must comply with federal civil rights laws: Civil rights laws that prohibit discrimination on the
basis of race, color, national origin, sex (including pregnancy, sexual orientation and gender identity),
age, and disability continue to apply when states participate in any payment arrangement. These laws
include Section 1557 of the Affordable Care Act, 42 U.S.C.  18116 (race, color, national origin, sex
(including pregnancy, sexual orientation and gender identity), age, and disability in health programs
and activities), Title VI of the Civil Rights Act of 1964, 42 U.S.C.  2000d et seq. (race, color,
national origin), Title IX of the Education Amendments of 1972, 20 U.S.C.  1681 et seq. (sex
(including pregnancy, sexual orientation, and gender identity) in education programs and activities), the
Age Discrimination Act of 1975, 42 U.S.C.  6101 et seq. (age), Section 504 of the Rehabilitation Act
of 1973, 29 U.S.C.  794 (disability), and the Americans with Disabilities Act, 42 U.S.C.  12101 et
seq. (disability).  In accordance with these legal obligations, we noted in the December 2020 rule (85
FR 87014) that manufacturers and payers, including state Medicaid agencies, may not make use of
measures that would unlawfully discriminate on the basis of disability or age, among other bases, when
designing or participating in VBP arrangements.  We further noted at 85 FR 87016, that VBP measures
should not endanger certain patients, providers, or impede access to other available medications and
treatments, or interfere with the practice of medicine generally.
3. States must comply with applicable privacy and security laws: Privacy and security laws and
regulations, such as those under the Health Insurance Portability and Accountability Act of 1996
(HIPAA; P.L. 104-191), must be considered when states participate in arrangements that require
reporting and recording of patient-specific outcomes data for evaluation to determine payment when
payment is tied to outcomes. This is especially important with respect to lower-utilized drugs when
disclosure of individually identifiable health information may lead to privacy concerns. Such
information should only be used or disclosed in accordance with applicable privacy and security laws,
which may limit use or disclosure to the minimum necessary data.
Available Enforcement Mechanisms for CMS 
If CMS becomes aware of potential state compliance concerns related to the specific Medicaid 
requirements discussed above, CMS will first work with the state to help its Medicaid program come into 
compliance with the applicable laws and regulations. As a next step, when necessary, CMS may review 
state and local administration of Medicaid programs through an analysis of the states policies and 
procedures, on-site review of selected aspects of agency operations, and examination of samples of 
1 Advisory Opinion Process | Office of Inspector General | Government Oversight | U.S. Department of Health and Human 
Services (hhs.gov)  Page 6 
individual case records, in accordance with 42 CFR  430.32. If these reviews reveal serious problems with 
respect to state compliance with any federal requirement, or with the states approved state plan, CMS will 
request the state to correct its practice. After CMS provides a notice of non-compliance, with a request to 
the state to develop a corrective action plan, if the state fails to comply after being notified and given an 
opportunity for a hearing, CMS may withhold FFP for non-compliance. The withholding may continue 
until CMS is satisfied that the states practices are in compliance with federal requirements (see 42 CFR  
430.35).  
CMS does not enforce the non-Medicaid related federal requirements summarized above and will work 
with the HHS-OIG or the HHS Office for Civil Rights if we believe there are potential compliance issues. 
CMS may also refer any findings specific to manufacturer drug pricing and drug product related reporting 
activity to the HHS-OIG.  
Conclusion 
CMS policy goal with respect to the MDRP, and state adoption of manufacturers VBP arrangements, as 
well as participation in other novel payment arrangements, is to further increase access to high cost 
therapies for underserved populations, and reduce health disparities. This bulletin reminds states that 
choose to enter into these arrangements of the range of federally-based protections available to Medicaid 
beneficiaries. CMS will continue to monitor state Medicaid drug coverage under such arrangements to 
ensure it remains consistent with the Medicaid statutory and regulatory requirements and that Medicaid 
beneficiaries can access all medically necessary prescription medications.  
For further information regarding this CIB, you may contact John M. Coster, Director of the Division of 
Pharmacy, at John.Coster@cms.hhs.gov.